Alvaro Uribe, President of Colombia, has always been a preacher of foreign investment as a fundamental economic policy that would fuel the country´s growth. That’s the reason he spent most of his time lobbying investors in New York the past week.
But there is a major reason he wants to promote Colombia as a foreign investment destination so passionately.
The Colombian economy shrank 0.5 percent during the second quarter of this year, pushed down by the industrial and retail sectors, which are, by the way, the biggest employers in the local economy. It was the third straight quarter in which the Colombian economy has fallen, the longest slump in a decade.
In order to spur growth in Latin America’s fifth-biggest economy, the government has decided to spend over $28.5 billion in infrastructure projects, whereas the Central Bank has cut rates from a record high of 10 percent in November to a record low of 4 percent in September.
So, the current anti cyclical economic policy provides an excellent environment to invest in a country full of opportunities.
Where the Money is Flowing to
Nowadays, foreign investment has mainly focused on the oil, mining and manufacturing industries according to data provided by the government.
The foreign investment in the oil sector has exploded during the last few years. From small and independent oil and gas companies such as Pacific Rubiales, benchmark energy, West Canyon Energy among others to big multinationals such as Exxon and British Petroleum.
The investment in oil sector has raised eight fold since 2002, Last year, the inflow of money into the sector was of $3,409 million to finance projects in the Magdalena Medio and llano basins. The latter has barely been explored and it is the one that offers the biggest potential going forward.
The foreign investment in the mining and quarrying sector has been propelled for the recently discovered gold and coal fields in different regions of the country. The FDI in this sector grew 29 percent just during the first quarter from the same period of 2008.
Furthermore, Colombia has the largest coal reserves in Latin America. It has over 17 billion tons in coal reserves, while the production is only 70 million tons, less than 1% of the measured reserves.
So it is to say that Colombia has the largest coal reserves in Latin America and substantial reserves of iron ore, emeralds and gold giving the mining industry an immense potential to invest in.
The financial sector has recently been targeted by major financial services companies such as citigroup and HSBC which are currently offering first floor services. Fitch Rating Services recently bought a major Colombian rating agency.
The Colombian stock market has entered into an agreement with the Peruvian and Chilean stock markets to study the possibility of their markets’ integration, widening the opportunities for foreign investors and speculators to have some exposure in the region with most potential in Latin-America.
Finally, the retail sector have seen heavy inflows from multinationals such as France´s Casino and Carrefour and Chile´s Fallabella that took advantage of the expansion in the internal demand driven by the strongest growth of the economy in more than four decades. Retail has grown by 10 since 2002
Where are the Opportunities
Sadly to say, one of the Colombia´s biggest advantages is that the country was kept behind because of security issues that most of the required investment was put on hold by the preceding governments, so the opportunities are endless in various sectors.
The llanos basin is a well underexplored and underdeveloped area that accounts for over 40 percent of the Colombian territory. Investment in oil, agricultural and infrastructure sectors will expand in the years to come as new oil discoveries and bio-fuel projects stimulate the government intervention in infrastructure.
Because of anti-cyclical policy and decades-long decay, the infrastructure investment will boom in the following years. Recently, the government announced over 28 billion in spending in highway projects, just for 2009 that are to be financed by selling shares of the national petroleum company, Ecopetrol.
Tourism and construction will also benefit of the recognition of Colombia as a major tourist destination in Latin-America based on its tropical weather and incredible diversity. Cities like Cartagena, Santa Marta and Barranquilla have been targeted for investments in hotel, condo and golf projects. The coffee region was categorized by The New York Times as one of the most attractive regions in the world.
So, we think, President Uribe is right as to say that foreign investors must invest in a country that has decades-long underinvestment in order to take advantage of the current lags in infrastructure, oil, gas, mining and other industries.