STRENGTH IN NUMBERS

Colombia 2018 | INDUSTRY | REVIEW

Colombia's industrial sector is poised to play a bigger role thanks to an improving economic environment and the government's efforts to open new export markets.

Colombia's manufacturing sector is in the midst of a shift from low-skilled, labor-intensive industry to high-tech manufacturing that draws upon the nation's educational advancements to produce new products for domestic and international consumption. Export figures have fluctuated over the last few years, but steadily rising levels of FDI indicate international confidence in and support for the future of the sector. Colombia's priorities for the near future will be investing in capacity and technological support for promising industries while working to build the export markets needed for continued development.

Oil has long been Colombia's primary export good, accounting for just over half of all exports. Machinery, textiles, and other manufactured goods have lagged behind agricultural goods and minerals in export value, but shifting economic conditions has them poised to play a larger role in the coming years. Dwindling oil reserves and falling oil prices have hit the Colombian oil industry hard, leading to decreased revenues and an overall weaker economic position. However, the oil industry's decline may prove a blessing in disguise for Colombian manufacturers. The fall in the peso could give Colombian exporters a stronger position in the global market, allowing it to compete more effectively with other Latin American producers.
2017 saw Colombia's manufacturing industry record exports of USD7.7 billion, an increase of 2.4% YoY. While a small part of a larger shift that saw overall exports rise 19% YoY, early 2018 saw even stronger results. In January 2018 the manufacturing sector posted its strongest export performance in some time, generating USD595 million in exports, a growth of 22% over January 2017. Most of this growth was due to ferronickel alloys, chemicals, and fertilizers, which saw increases of 190%, 61%, and 528%, respectively. The destinations for these products reflect the shifting nature of Colombia's trade. Although the US has long been the nation's primary export destination, the growth in ferronickel is primarily due to exports to Singapore and China, which together increased 128.9% over the previous year. Chemical production, on the other hand, went largely to other Latin American countries, with Argentina and Venezuela the top destinations for chemicals and fertilizer, respectively.

Though the US remains Colombia's largest trading partner—in January 2018 it received USD93 million in exports, equal to 15.7% of all volume—exports dropped almost 5% through the first month of 2018. Increased demand for manufactured goods in Latin America more than made up for this decline. Ecuador alone saw an increase of almost USD20 million in exports in January 2018, which made it Colombia's second-largest trading partner. Colombian exports to neighboring Venezuela also doubled, a particularly welcome sign for Colombia considering its neighbor's geographic proximity and recent struggles; Venezuela's weakened economic position has been particularly impactful for Colombian textiles and consumer goods.
A growing share of Colombia's industrial activity takes place in its free trade zones. As of January 2017, Colombia was home to 104 FTZs, more than any other country in South America. Industrial activity makes up just over half of all economic activity in Colombia's FTZs, with automobile, textile, and pharmaceutical manufacturing among the most popular sectors. These export-focused sectors, developed with the help of preferential corporate income tax rate of 20%, VAT exemption for raw materials, and other tax and customs breaks given to firms that meet the criteria for investment, have become some of Colombia's primary draws for FDI. The clusters created by the FTZ also help Colombian industry avoid infrastructure gaps, one of the country's most significant problems. Though electricity and road networks have improved in recent years, the country's geography and underdeveloped rural regions still pose challenges. One of the government's priorities is to increase rural access to trade networks, giving smaller manufacturers access to the same global markets as FTZ giants. Export promotion agency Procolombia has been aggressive in pushing uniquely Colombian manufacturing products in an attempt to open up new international markets and help diversify the sector's geographic footprint.