Colombia`s infrastructure; one of Latin America`s worst


Colombia’s infrastructure is one of the worst in Latin America, according to the World Economic Forum.

Of the top twelve economies in the region, Colombia has the tenth poorest provision of vital infrastructure; this, despite the promise by President Juan Manuel Santos to make the issue a priority of his administration.

In Santos`first year in office he created the National Infrastructure Agency (ANI) to push through the works identified as catalysts for economic growth.

Last week the president defended his track-record:

“In three years we have invested 22 billion peso ($11.7 million) in infrastructure development. That shows the magnitude of the efforts that we have made,” insisted Santos.

Despite slow progress, the ANI last Wednesday received nine bids as part of the “Fourth Generation” (4G) investment programme.

4G promises much. It is Colombia’s largest ever public investment project, designed to “improve connectivity between the principle centres of production and exportation to make Colombia a more competitive country and overcome the historical drag in transport infrastructure”.

According to the ANI, the project will provide an estimated investment of 44 billion peso ($23.2 million) under a public – private partnership scheme:

“With this initiative, the length of roads throughout the country is expected to nearly double, from 6,000 km to 11,000 km in the next six years.”

Undoubtedly good news if these promises are delivered. Few disagree that the current lack of infrastructure in Colombia is a major threat to the country’s economic competitiveness, domestically as well as internationally.

Colombia needs better roads, railroads, ports and airports. Cities are poorly connected to both internal and external markets, largely because of the extreme topography of the country.

Cutting transport costs is crucial to the country’s manufacturers, especially the coffee farmers, who continue to struggle from significant production costs. Crucially, it is key to overcoming the isolation at the root of the country’s socio-economic inequalities.

According to financial analyst James McKeigue, the 4G investment project should boost the country’s GDP by 1% per year, with a further 0.5% coming from a multiplier effect. The planned works will create approximately 200,000 direct jobs across Colombia, with a further 250,000 indirect ones. Importantly, many of these will be created in the remote areas where jobs are most needed.

But infrastructure improvements will bring security improvements as well as economic benefits.

The Colombian government has never been able successfully to control all of her territory. The majority of the population lives in the country’s largest three cities, Bogota, Medellin and Cali.

Outside of these major areas, a combination of jungles and mountain plains remain largely uninhabited, with limited infrastructure, resulting in a weak state presence in and around surrounding regions.

The resulting economic inequality throughout rural Colombia is severe, in part explaining the conditions which helped spawn criminal organisations known as BACRIM, and guerrilla groups, such as the FARC and ELN.

These groups fight for control of lucrative resources such as oil, gold, marijuana and coca.

Without significant infrastructure development throughout the regions where the conflict rages, the government cannot begin to solve the underlying problems of inequality and lack of development.

Indeed, any peace accord with FARC guerrillas would be vulnerable as illegal armed groups will seek to fill the vacuum left by the rebels in areas lacking state presence.

Photo, Colombia Noticias

Santos announces stimulus package

Plan Impulso Productividad 02

In what might be judged as a cynical vote-winning exercise, President Santos unveiled his PIPE – Promotion Plan for Productivity and Employment – on Monday.

The PIPE is an economic stimulus package which he hopes will help revitalise some of the ailing areas of Colombia’s economy. In particular, Santos hopes it will breathe some life into Colombia’s industrial sector which is failing to keep pace with overall growth patterns. The President attributed the difficulties this area of the economy, which includes oil refining, acrylic, paper and cement production, down to the strength of the Colombian peso, and the break this has on exports. The agricultural sector too was marked as stuttering.

Santos´PIPE package is also a pitch to the middle classes, with the government proposing a subsidy on the interest on mortgages for houses costing between US$43500 and USS108000 (similar to that seen in the UK Government´s budget a few weeks ago). The government believes this will benefit around 35,000 initially, as well as boosting the housing market.

The measures reflect a growing concern in the Santos administration that in spite of the relatively healthy GDP growth figures in recent years, the Colombian economy is still underachieving – and that the trends in certain sectors are towards downward revisions. Perhaps more salient though is the fact that the coming year will see a hotly contested presidential election.

These measures are difficult to separate from the short term electoral interests of the government. Particularly so given the areas at which the stimulus package is aimed – crucial groups of voters.

Supporting the industrial and agricultural sectors as well as assisting people to buy their own homes will give the Santos campaign some concrete successes that it can pitch to voters in the coming year when the question will be “what have you done for Colombia during your four years as President?”

The campaign is well and truly under way.

President Santos’ assessment of 2012


Colombia’s President Juan Manuel Santos offered an upbeat assessment of 2012 in an interview yesterday with El Tiempo in which he highlighted record employment growth and low inflation as evidence of the success of his government in this tricky year for the commander-in-chief personally and politically.

President Santos has suffered a dramatic drop in his popularity over the course of 2012 as his government has stumbled over its handling of constitutional reform, its controversial move to enter into peace talks with the FARC, and the disastrous response to the International Court of Justice’s decision to award Nicaragua large swathes of Colombia’s maritime territory in the San Andres archipelago.

While Santos’ popularity has fallen at home and as opposition to his administration has grown – particularly from the right, in the form of ex president Alvaro Uribe, his star has continued to ascend internationally. Spanish daily El Pais has labelled the president the top Latin American personality of the year, principally for his bold move to seek peace with the Marxist FARC guerrillas.

In the interview with El Tiempo, Santos defended his record over the past 12 months highlighting the creation of 2.5 million new jobs (since coming to power) as a major achievement, alongside sustained economic growth, and inflation rates as low as 2.3%.

The president also highlighted Colombia’s lowest homicide rate in 30 years, and the record numbers of top guerrillas and narcos captured or killed over the course of 2012, as evidence of the country’s improving security.

Santos referred to the “slow” but “progressing” peace talks with the FARC in Havana which he hopes will conclude in September 2013 when dreaming of “celebrating next Christmas in peace”.

Social policy has been a defining feature of this government and the president highlighting the growing numbers of families who have moved out of poverty, as well as the handing over of 100,000 houses for the poor expected to take place over the coming months.

For Santos, 2012 has been a year of challenges but also successes. He emerged successfully from an operation to remove a cancerous tumour on his prostrate in the autumn and has battled the first signs of a congress beginning to flex its muscles after two years of dancing almost unanimously to his tune.

2013 will mark the expected departure of sections of his coalition as politicians begin to jockey for position ahead of the presidential and congressional election races held in 2014. Campaigns are unofficially already under way and Uribe is expected to announce early in the new year the formation of his list of senate candidates.

Santos has remained tight-lipped on whether he will seek re-election and avoided mentioning the issue during the interview. 2013 will be dominated less by new laws and more by a government desperate to present evidence of its successful implementation of the legislative programme it pushed through in the first two years. It will also be characterized by a highly politicized and polarized debate as Uribistas attempt to recapture some of the power they feel is their’s, but has been sequestered by Santos.

Although for many Santos has had an unfortunate year, it will be remembered for the peace talks with the FARC, which if successful will secure the president’s place in history as one of the nation’s great leaders. All that is to come.


Colombian economy, a cause for concern?

Colombian President Juan Manuel Santos will be concerned by today´s International Monetary Fund (IMF) 0.4 growth rate downgrade, which now forecasts a  4.3 rise until end 2013.

The IMF´s report follows news that exports are also down, around 4%, but nevertheless expects Colombia to outperform the regional as a whole which will see growth between 3. 2 and 3.9% over the coming 15 months.

Colombia is not entirely shielded from the effects of the sclerotic world economy, but it has been protected by among other things record foreign investment and high commodity prices.

Santos has placed economic competence at the heart of his government and his re-election depends both on this and on the peace talks.

Over a million 800 thousand new jobs have been created during the Santos regime, inflation has been kept low, and despite an increase in state spending, a healthy approach to deficit management has been enshrined in the constitution – a measure designed to avoid a crisis similar to that endured in Europe and North America.

The new finance minister, Mauricio Cardenas is currently taking a tax reform bill through parliament, a piece of legislation he says is designed to address inequalities in the tax code and to reduce the burden on businesses, helping to stimulate a further estimated one million jobs.

Santos´government has also, through `Prosperity for all´ social programmes, helped to lift 1.2 million out of  poverty, the aim to take the figure below 40% of the population.

And in August, Santos promised that within two years – when his first term in office comes to an end – the rate of extreme poverty will be reduced to one digit.

Employment Minister Rafael Pardo has also sought to remove the informality of many Colombians´ employment, building on previous reforms that introduced favourable tax rates for new business incorporation.

Finally, the Santos regime has also placed free trade agreements at the heart of its foreign policy, working to kick-start the long-awaited Colombia – US FTA, and moving closer to finally signing a similar plan with the EU. Santos has been a globe-trotting president aiming to tie up agreements across the continents, not only to the north and in Europe, but also in Asia with China, Korea, and Japan all potential future trading partners.

Santos was given his first role in government by Cesar Gaviria (President 1990-94) the leader responsible for the famous ´apertura´or liberalisation of the Colombian economy, and is continuing the work of his old boss.

For now, although Santos will keep more than a watchful eye on the growth rate, he will hope that Colombia can weather the economic storm elsewhere and continue on its strong growth path.

What Santos will have to address if the economic future of Colombia is to be as bright as the wealth of natural and human resource means it should be, is the major lack of infrastructure provision. Santos has announced billions of investment to improve the road network, and has begun to talk of reintroducing a national rail network.

These improvements will make their mark, at the earliest, in Santos´second mandate, but most likely long after he has left power. His role in history will be judged as much on this issue as on his ability or otherwise to secure peace.


Forget about Europe Mr Cameron, Colombia awaits

Santos meets HM the Queen

The French and the Germans might yet regret treating the British so badly. The treaty cooked up in Berlin and Paris two weeks ago to cripple London’s financial services industry, the engine of the British economy, was highly cynical. Prime Minister Cameron had no choice but to exercise the veto. Britain was not going to pay for the mistakes and overspending of economies in a currency it had the good sense not to join.

The bad behaviour of Europe’s bully boys should act as the catalyst for Cameron to lift his gaze away from the failing markets across the English channel.  He should cast his eyes across the Atlantic to an economy whose third quarter growth was just short of 8%, where private-sector optimism is high and where the government actively wants to do business. That country is of course Colombia.

Should Cameron heed this call, he will find fellow Brit and ultra-entrepeneur, Richard Branson already there. Next year Britain`s most popular billionaire will launch Virgin mobile across Latin America, with Colombia a key market.

Britons, Colombia awaits.

Last month President Juan Manuel Santos visited his second home, the UK. Santos cites his time in London both studying at the London School of Economics and working for the Colombian Coffee Growers Federation as the one of the best of his life. Santos is a true anglo-phile.

As reported on this website, during his state visit to the UK, President Santos met Prime Minster Cameron, the Queen and Foreign Secretary William Hague to build stronger and deeper ties between the two nations.

Emerging from the talks Santos and Cameron heralded the start of a new relationship built on security cooperation intelligence sharing and trade. Bogotá and London had committed to grow two-way trade to £1.75 billion by 2015.

Cameron must now act to make this happen. What better time than now with the Colombian economy set to record near 6% annual growth, and what better excuse than the Euro crisis to spur the Brits to look elsewhere for investment and trade.

While the global economy in 2011 has stumbled towards its recession death-fall and with the outlook for 2012 worse still, for Colombia this has been has 12 months of record-breaking economic success. GDP growth is running at pre-2008-crisis levels and is projected to grow by 5% next year, even more impressively, foreign investment will reach 15 million dollars by the end of the year. The buzz-word in Colombia is stability – something distinctly lacking elsewhere in the world.

Santos, this year wrote into law, strict government borrowing limits, leading the World Bank to conclude that the Colombian economy was safer than France’s. What’s more, inflation is uncharacteristically low for Latin America at 3%. Confidence in Colombia is also high among the credit rating agencies who earlier in the year bumped the country up to investor grade level. Next year the free trade agreement with the US will come into effect as it is expected will the agreement with the EU.

Despite the rosy outlook, Colombia still has its problems, not least its woefully lacking infrastructure, which it must improve urgently if it is to benefit fully from its access to the biggest markets in the world.  Yet these problems are also an opportunity. Take for example the need for major new transport links – contracts are waiting to be signed, money is promised, profit is certainly there to be made. British construction companies should be champing at the bit to provide their expertise in building the bridges and tunnels that must traverse and dissect this country’s extreme mountainous terrain. During Santos’ visit to the UK he secured assistance from the British Government on structuring the private, public loan and investment models required to generate the income for the works Colombia must deliver in the coming years. Should British business not be able to capitalise on these links it only has itself to blame.

Despite the alarmist talk from those on the British left, the UK will not be left on the sidelines of Europe. Trade with Europe is not going to go away. The UK’s economy is still reliant on a successful continental market. But while the Europeans are losing their heads, the Brits would be wise to seek alliances further afield.

The history of the UK was built on the success of its international trade, of daring to go where others had not yet ventured. Yet in recent years the country has slavishly stuck to the devil it knows best, Europe, and the US. The last time we had a Queen Elizabeth on the throne gold stolen from Spanish ships off the coast of Cartagena filled British coffers. As our more recent economic partners tank, now is the time to hoist up the Union Jack and set sail once more for the Americas.

British eye Colombia as Santos’ pro-investment politics bear fruit

Santos and Prime Minister David Cameron, photo The Guardian

After meeting British Prime Minister Cameron and taking tea with HM the Queen yesterday, President Santos announced that British businesses will invest over 3.5 billion dollars in Colombia over the next three years.

Santos arrived in the UK as the head of the CIVET group of emerging economies; his mission to promote trade ties with a country that until recently has appeared to ignore the opportunities Colombia’s fast growing economy affords.

 The President claims that Colombo-British relations have never been so good, that there ‘has never been so much interest in what’s happening in Colombia’. If this is true it is in both nations’ interest.

As the US and EU economies falter, the UK needs to look to new markets if it is to return to growth. Colombia is not the country is was 20 years ago. Security has improved, the economy has doubled in 10 years and continues to grow by over 5% a year. The government is pro-business and pro-foreign investment. For this website, whose author is British, the hope is that the 3.5 billion dollars scheduled is just the start of a new wave of UK/Colombian trade.

Santos’ diplomatic mission

Juan Manuel Santos is an Economist. His politics are based on the simple premise that more work means less poverty. Since coming to power in August last year he has become a shuttle-diplomacy president, working hard to build Colombia’s reputation abroad and in so-doing to attract record levels of investment. Foreign Direct Investment (FDI) in Colombia this year has risen to 10 billion dollars, and the country reports record-breaking job creation figures – the best in Latin America. In recent weeks unemployment even fell below the mythical 10%.

Santos sees a once in a lifetime opportunity for Colombia. The government of his predecessor, Alvaro Uribe is credited with having turned around the country – beating the FARC back into the mountains, improving security and opening the doors to foreign investors. Before Uribe foreigners ran a mile from the country.

But as Santos took hold of the reins, FDI was at record levels, GDP growth was running at a decade average of over 4% and Colombia was highlighted by The Economist as a CIVET nation, the group of emerging markets next in line behind the famous BRICs. As Colombia’s image changes and the Western world looks to invest in new markets, Santos has set about capitalising on the conditions of this perfect storm.

Although he has faced somecriticism at home for his international travel, Santos remains a hugely popular president, and the majority of Colombians can see the benefit of Colombia’s new-found diplomatic clout.

Brits in Colombia 

Britain has always been a key investment partner for Colombia. In 2010, UK businesses had 18 billion dollars worth of investment in the Andean nation, making the country the biggest foreign player in Colombia, behind the US.

The UK is a major investor for Colombia, but for the UK Colombia lies way down the list of places to do business. As British Minister for Latin America, Jeremy Browne admitted in a speech last year, while the economy of Colombia is about the size of South Africa’s, the UK there invests 14 times as much as it does in Colombia.

The reality of Browne’s words is perhaps even starker when we consider that, according to UK Trade and Industry, investments are concentrated in mining and the drinks industry. The UK has equally failed to diversify is export products which (again according to UKTI) are targeted on pharmaceuticals and medical products, machinery, whiskey and cars.

You can’t help thinking that the Brits have been allowing a huge opportunity to pass. Colombians are consumers – their values are similar to a number of the UK’s European partners. Emerging markets often require time and investment to generate consumer desire – to educate the market. Colombia’s growing middle class are culturally ready and have growing purchasing power. Many are champing at the bit to buy the products sold on the high-streets of London, Manchester and Glasgow. The old world is in fashion, she should capitalise on this.

The previous government invested no time in Colombia. The current administration has placed trade at the heart of its foreign policy. Although the Latin American minister is not an hispanophone he did, to his credit, visit Colombia early in his tenure. The agreement signed yesterday – which commits the nations to double bilateral trade by 2015 – owes at least as much to Santos’ hard work, and love for the UK as it does to the British Government’s interest in the nation.

Santos’ message to the world

Santos understands that Colombia cannot sit back and wait for foreign investment to arrive of its own accord. He must sell Colombia to the world. In some quarters Colombia’s association with drug-traffickers and guerrillas prevails – it must be actively combated. This explains why Santos has, since becoming president, set off on a whirlwind tour of those countries he considers have the potential to be major players in the Colombian economy.

Trade agreements with Canada and Switzerland have come into force during Santos’ reign, the US agreement has been signed off and the EU agreement is making its way through the institutions in Brussels.

The agreement signed yesterday in London commits both governments to work together to grow business links between the nations. This, combined with the EU/Colombia FTA, marks a unique opportunity not only for UK businesses to diversify their investment portfolios in a country so far largely unaffected by the winter of economic discontent spreading across the Western world, but also to export a wider range of products.

For Colombia this should mean more jobs, cheaper UK products and greater opportunities for export. Britain must now answer Colombia’s call.

World economies lose their heads as Colombia’s is held high

If a week’s a long time in politics, at the moment it seems like a life-time in economics. As markets plunge across the world you’d be forgiven for believing that it’s all doom and gloom. But take a quick look at Colombia for a quite different picture of the future.
The week’s stories from Bogota point towards a continued and sustainable growth in the Colombian economy. Here are four reasons for optimism.
1. As reported in the previous post, the World Bank and the IMF have both this week given Colombia glowing reports – the most eye-catching conclusion being that Colombia’s economy is a safer bet than France’s. Incredible when one considers that France is the world’s fifth largest economy and Colombia, the 30th. Colombian President, Juan Manuel Santos recently amended the constitution to introduce a lock on government borrowing, increasing overnight confidence in the economy and the government’s ability to maintain control on debt levels – a quality distinctly missing from many of the G20 economies.
2 As President Santos stood up in Washington to deliver his speech to the UN earlier this week, news of Colombia’s second quarter growth figures came through. GDP growth stands at 5.2%, with experts predicting this to continue to rise beyond year end. Colombia’s GDP has doubled in ten years, and the IMF cited the country’s economic performance as being among the best in the world. Growth is considered to be driven by consumption at home and by investment from abroad. FDI will be above 10 billion dollars this year, fueled partly by the drive to buy commodities – Carlos Slim, the world’s richest man, this week reiterated his belief that profit is to be had in Colombia’s oil. And, when in Washington President Santos confirmed to a meeting of the Americas Society that projections indicate Colombia could soon be producing more oil than its neighbour Venezuela.
3.While in Washington, Santos took the opportunity to continue to lobby for the speedy ratification of the free trade agreement between the US and Colombia. President Obama announced that he expected the FTA finally to be signed off within the next few weeks. At the same time, the EU Commission announced that it had agreed the FTA between Colombia and the EU. The document will now go to the Council and the European Parliament. The EU trade commissioner expects the FTA to come into force in the second half of 2012.
4.The Colombian government is not about to rest on its laurels. Attracting investment is essential to Colombia’s continued and sustainable growth, something the Santos regime instinctively understands. With this in mind, Colombia’s trade minister today announced that the country would expand the number of free trade zones in the country. It is expected that by 2014 the country will have 20 million hectares of FTZs, almost double the 11 million hectares currently in operation.These FTZs are designed to attract foreign investment through extremely favourable tax and customs conditions – including up to 50% tax break on sales to the local market. The Colombian government sees FTZs a key tool to attract foreign investment – as does the World Bank, which listed Colombia as Latin America’s most business friendly country in their latest ‘Doing Business’ report.
For Colombia’s economy to continue to grow, structural changes are needed, and major investment is required to improve infrastructure in the country. Good news this week does not a successful economic future make. Against the backdrop of almost universally depressing news elsewhere, however, there are reasons for optimism if you look further than the traditional markets.