GOOD NEIGHBORS

Colombia 2014 | DIPLOMACY | FOCUS: REGIONAL RELATIONS

While Colombia may be relatively new to free market economics, it has certainly hit the ground running, establishing a number of trade agreements and helping to found the powerful Pacific Alliance.

South America has long looked for a solid group to promote a sustainable political and economic bloc. With the establishment of the Alianza del Pacífico (Pacific Alliance), member states have been able to promote their markets in a more favorable light, especially in Asia Pacific, as well as provide a stronger more unified voice in the region. On June 6, 2012, Colombia, Peru, Mexico, and Chile signed the Framework Agreement, which brought the Pacific Alliance to life. The bloc also has numerous observer states, including the US, Canada, Japan, South Korea, China, Spain, Portugal, France, and a number of South and Central American countries.

The aims behind the Alliance are to promote the growth and development of member states, while also achieving a greater state of welfare and reducing socioeconomic inequalities. The bloc also aims to create a platform for greater economic and political integration. The Pacific Alliance also aims to eliminate tariffs between member states when trading, and in February 2014 took a step closer when the group signed an addendum to the charter to eliminate tariffs on 92% of trade among participant countries. The remaining 8% will be progressively reduced over time; however, due to economic sensitivity, of the remaining trade, largely comprise of agricultural products, it was decided to slowly taper-of the tariffs over the coming years. The 92% of tariffs that have been removed are likely to significantly boost the airline, e-commerce, and financial sectors allowing as this will for the establishment of regional economies of scale. The Alliance is now set to start looking into cross border barriers to investment, academic exchanges, and tourism to see how any obstacles that may be preventing growth can be removed.

The bloc's ambitions to become a political and economic powerhouse in the region are not far from reach. With a population of 204 million (36% of the Latin American total), a combined GDP of $1.7 trillion (35% of regional GDP), and a global trade figure of $1.045 trillion (approximately half of the region's global trade), the Pacific Alliance commands some impressive stats.

The other major regional bloc is Mercosur, which consists of Brazil, Argentina, Paraguay, Uruguay, and Venezuela. The fundamental difference between these two powerful groups is the ideological approach each has toward global economics. Mercosur believes more in the theory of isolationism in its approach to promoting trade among member states and the local region, while installing tough barriers to entry for non-member states. In contrast, the Pacific Alliance believes in promoting trade among member states, but also that establishing links and agreements with non-member states can only benefit all parties involved. This way of thinking is evidenced by the number of free trade agreements (FTAs) member states of the Pacific Alliance have signed. Chile has 22 FTAs with 60 countries, Colombia 12 FTAs with 30 countries, Mexico 12 FTAs with 44 countries, and Peru 15 FTAs with 50 countries. This difference in philosophies is starting to show as the two blocs economic futures take different paths. In May 2014, the average economic growth for the four states of the Pacific Alliance was 4.2%, compared to the global average of 3.2%, and the member states of Mercosur at 0.6% according a Bloomberg report. In April 2014, the Financial Times reported that the Pacific Alliance constituted 39% of the Latin American economy and exported 60% more than Mercosur.


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Wise Words
Colombia
DIPLOMACY
Year In Review

Future Benchmarks

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.

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