FUTURE BENCHMARKS

Colombia 2013 | DIPLOMACY | YEAR IN REVIEW

Despite a slow year for growth, Colombia is set to embrace a future free of security concerns and defined by the openness of its economy as 2013 rolls on and new milestones are met.

Despite a slow year for growth, Colombia is set to embrace a future free of security concerns and defined by the openness of its economy as 2013 rolls on and new milestones are met. On the back of 6.6% GDP growth in 2011, the economy grew by a less heated 4% in 2012 as manufacturing growth slowed and exports suffered in the face of a weak global recovery. A strong year for oil production, however, saw Colombia pass the 1 million barrels per day (bbl/d) production mark. As the fourth largest producer in the region, the country's oil producers are also reaping the benefits of improved security to push ahead exploration in previously inaccessible areas, hoping to increase the country's proven reserves, which currently stand at 2.4 billion barrels. BBVA predicts GDP growth of 4.1% in 2013, with a slow 1Q2013, a continuation of a difficult 2H2012, set to be offset by job creation efforts and reduced interest rates that will increase household spending. Export growth also slowed to 5.7% in 2012, down from 44.4% growth the year before. Imports also increased, up 8.3% in the first 11 months of 2012, resulting in a trade deficit that stood at 3.1% by end-2012. International reserves, set to increase by $12.1 billion between 2013 and 2014, will likely keep the economy buoyed despite current account deficit woes, which could see a reversal in fortunes in 2013 as manufacturing stages a recovery and the agriculture sector's continued revival enhances the export basket. Manufacturing is predicted to grow at 3% in 2013 as the external environment improves and the peso weakens, while the agriculture sector, which contributes 21% of total exports, continues to expand on the back of 2.6% growth in 2012.

One of the biggest changes the Santos administration has brought to the table is Colombia's growing list of free trade agreements (FTAs). Plans are underway to increase the number of FTAs to 18 by 2013, with ongoing negotiations with Israel, Turkey, and a number of countries in Central America. The most significant deals the country has signed in recent years include FTAs with the US and the EU—Colombian exports to the US have grown 6.7% since the FTA was enacted in May 2012, while trade with the EU grew 4.1% in the first nine months of 2012.

While deals to ease the access of Colombian goods into foreign markets have been viewed as positive, the government has a lot of work to do if it is to bring the country's domestic transport infraestructure in line with its export aspirations. In that light, the Agencia Nacional de Infraestructura (ANI) has committed to boosting investment in transport to 3% of GDP, 2% of which will be covered by PPPs, from the current 1% of GDP, 50% of which is covered by PPPs. Efforts to improve transportation links are likely to provide better access to the country's ports and, thus, lift exports. ANI has announced road investments worth $20 billion over the next two years, an investment that will boost the country's 800 kilometers of highway to 1,700 kilometers and be music to the ears of many Colombians who have suffered from poorly maintained roads in many parts of the country.

The opening up of the Colombian economy through FTAs posed a challenge to manufacturers in 2012, especially the automotive sector and its growing auto parts sector, which is now being challenged by low-cost imports. Already suffering from a slowdown in domestic demand—car sales dropped 18.5% in the first three months of 2013—the silver lining of the more challenging environment could be the need for a faster transition from an assembly model to full-scale manufacturing. GM is currently developing a press shop, with excess assembly capacity in the country a bonus as more auto assemblers consider full and partial manufacturing in Colombia in order to offset import costs and take advantage of the country's FTAs.

President Santos' administration is set to continue investing in 2013, with the need for improved transport infrastructure to boost the number of public works by 9%. Spending is also increasing year-on-year in the health and education sectors, while falling unemployment—the figure dropped to 10.21% in March 2013 from 11.79% in February 2013—is also forming a key part of the government's plan to boost household spending. Additionally, monetary indicators remain strong in the country, with inflation standing at 2.43% at end-2012 and a national debt of just under 5% of GDP.

A slower 2012 could provide the platform of consolidation Colombia needs to set future benchmarks. An improving security situation is opening up the country to investment in transport infrastructure and hydrocarbon exploration, with the added benefit of a vastly more attractive FDI environment—$14.6 billion in FDI entered the country between January and November 2012, up nearly 13% compared to the same period in 2011. The country's export prognosis, tied inexplicably to its manufacturing, hydrocarbon, agriculture, and transport sectors, will be determined by the recovery of Colombia's major trade partners, including the US and the EU. A strong 2012, however, has given Colombia much to be hopeful for over 2013 and into 2014, when GDP growth is expected to reach 5%.