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

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.

Colombia – Time for American TLC?

Obama and Santos in Cartagena, photo AFP

Obama needs to show Colombia some love.

Colombia is the US’ closest ally in South America. But as the country continues to wait – five years and counting – for the US Congress to sign off the Free Trade Agreement, many are asking ‘why is it taking so long, Mr President?’

Earlier this year, the Obama regime promised Colombia that the FTA (TLC in Spanish) would be pushed through Congress in a matter of months. So as US politicians return to their desks this week after their summer vacation, will the breakthrough finally come?

What’s in it for the US?

Colombia is the third most populous country in Latin America, after Brazil and Mexico.

While Europe and the US economies are in the doldrums, Colombia’s GDP expanded 5.10 per cent in the first quarter of 2011 over the same quarter, previous year. Average annual GDP growth over the period 2001-2011 was 4.12 per cent.

The US International Trade Commission estimates that the FTA would increase US GDP by nearly 2.5 billion dollars, and US merchandise exports by 1.1 billion. http://export.gov/FTA/colombia/index.asp

Colombia’s star is in the ascendance.

But…less than 1 per cent of total US trade is done with the Andean country.

What’s in it for Obama?

Most agree, that job creation is the problem that Obama faces (particularly if he is to have a chance of re-election next year). Colombians – and many Republicans on Capitol Hill – argue, what better way to generate employment than a FTA with a successful but unexploited market? An easy win win, you might suggest.

So, what’s the hold up?

The recent delay has been largely due to Democrat resistance – from two positions:

Protectionism – Democrats argue the FTA could threaten American jobs (most argue though that trade liberalisation always generates more jobs than protectionism protects)

Workers’ rights – Democrats claim that not enough has been done by the Colombian government to protect Unions in the face of threats (from as George Miller – House Representative from California put it ‘death squads’).

In April this year, following a meeting with President Santos, Obama revealed that agreement had been reached with Colombia to boost labour rights. There should be no objection by Democrats to the FTA going through, he appeared to argue.Despite this, Obama has been making all the right noises.

Following that meeting, Colombia launched another diplomatic offensive to try to push the FTA over the line. At the culmination of the talks, US Sectary of State Hillary Clinton held a press conference alongside Colombian External Relations Minister Maria Angela Holguin, during which she was unequivocal in her support for the FTA:

“I hope that the people of Colombia do no lose heart in watching the activities of our Congress because there always is a lot of rhetoric and skirmishing between the parties before they finally hit the deadline. I’m absolutely sure we’re going to get it (the FTA) passed.”

So it’s a done deal?

Not yet…Colombian policy makers and business men are watching anxiously as we move into a crucial session of Congress, one that winds up the US legislative year on 8 December.

If the FTA is not pushed through during the next months it could well gather dust for quite some time. 2012 is election year and it’s highly unlikely FTAs will even be on the agenda during campaign season.

The good news is that Obama has packaged up the FTA with Colombia (alongside others with South Korea and Panama) in his growth strategy for jobs. Politically, he will want to see Congress agree them.

The fear is, however, the fierce debate surrounding Nanci Pelosi’s (minority leader of the House) bill sanctioning China for currency manipulation could derail Obama’s plan, scheduling it off the table. http://www.ft.com/intl/cms/s/0/c5f2495c-cbef-11df-bd28-00144feab49a.html#axzz1XCaFqC7k

Will there be sufficient time in Congress for further consideration of the FTA? Santos will be looking for Obama to come good on his promises and ensure that there is.

For full details on what’s contained in the FTA, click here for the 2006 report to Congress: http://www.nationalaglawcenter.org/assets/crs/RS22419.pdf