SOMETHING FROM HOME

Colombia 2015 | INDUSTRY | FOCUS: COLOMBIAN GOODS

Colombia's manufacturing sector has historically been among the major pillars of the country's economy. That has changed in recent years, and the sector has had to reinvent itself.

The sector has been experiencing a dramatic slowdown over recent years. While the southern American country's GDP performed admirably during the years of the global financial crisis registering an average of 4% growth between 2008 and 2013, manufacturing output only grew at a modest pace of 0.2%. The manufacturing industry remained the third largest contributor in the country, but its percentage share of GDP dropped from 14% at the end of 2007 to 11% in 2013, according to the National Administrative Department of Statistics (DANE).

If on one hand, favorable commodity prices and strong economic policy framework guided the country's economy toward steady development, on the other, overvaluation of the Colombian Peso and other factors had hampered the production industry.

Persistent real exchange rate appreciation is considered to be one of the main reasons behind the poor performance of the sector. Moreover, trade disruption with Venezuela and a larger amount of Chinese and Mexican products, which entered Colombia due to increased manufacturing imports, may have contributed to the contraction of Colombian manufacturing output.

Regardless of all this, while the prices of Colombian products have become less competitive having a negative impact mostly on export intensive companies, it is interesting to note that manufacturing firms benefited from real appreciation of the local currency as it reduced the cost of imported input products, consequently increasing firms' profitability.

Colombia is, all in all, a country of opportunities for the industrial sector for both domestic and foreign investors. The city of Yumbo, located in the region of Valle del Cauca, on the western coast of the country, is also known as the “industrial capital of Colombia”. The Pacific Free Trade Zone of Palmira (30km from Yumbo) hosts 461 firms, including major multinational companies, lured by the several advantages that that area offers.
Its proximity to major infrastructure such as the port of Buenaventura, the first port on the Colombian Pacific that connects the country to the Pacific basin, and the Alfonso Bonilla Aragón International Airport make the city of Yumbo probably the most important center for industrial production and distribution in the country.
Industries ranging from chemicals, cosmetics and hygiene products, to rubber, furniture manufacturing, and milling are currently operating in the area and a new Free Trade Zone (FTZ) will be opened by 2018 geared toward technology. With an investment of $8 billion, it will become the first of its kind in the country and will help to narrow the nation's persistent R&D gap.

In 2010, FDI in Valle del Cauca amounted to just $60 million. Yet ProColombia, the government agency tasked with promoting exports, tourism and investments, reveals that FDI has registered a 10-fold increase since then to $600 million by the first trimester of 2015.

Foreign companies invest in Colombia mostly to be able to access the domestic market. According to an IMF resource, Colombia has the twenty-eighth largest population in the world and is the second largest Spanish speaking country with 47.1 million people. In addition, it is the 28th economy in the world adjusted for Purchasing Power Parity (PPP). Last but not least, Colombia has 13 free trade agreements, with preferential access to over 1.5 billion consumers.

The sharply appreciation of the Peso and other competitiveness issues, may have hampered the manufacturing sector in the recent years. Nevertheless, Colombia's attractive domestic market, its enviable geographical location, skilled workforce and government support for a safe and profitable investment have transformed the country into a production, distribution and export hub for international markets.