Population 46.598 million
GDP 365.402 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
| GDP growth (%) |
4 |
5.9 |
4.3 |
4.5 |
| Inflation (yearly average) (%) |
2.3 |
3.4 |
3.3 |
3.2 |
| Budget balance (% GDP) |
-3.3 |
-2.2 |
-1.5 |
-1.3 |
| Current account balance (% GDP) |
-3.1 |
-3 |
-3.2 |
-3.4 |
| Public debt (% GDP) |
37 |
34 |
32 |
31 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Abundant natural wealth (agricultural, mineral and biological resources)
- Oil resources under development
- Two seacoasts
- Considerable tourism potential
- Aid from the United States to combat drug trafficking
- Political stability
- Healthy and attractive banking system
WEAKNESSES
- Sensitivity to raw materials prices and American economy (38% of exports)
- Shortcomings in road and port infrastructures
- Security situation still problematic, linked to cocaine production and trafficking
- Unemployment, poverty and inequalities
- Shortcomings in education and health
- Large informal sector (60% of jobs) and capital flight
- Administrative and legal red tape, corruption
Risk assessment
Growth still lively despite rigorous fiscal policy
Growth will remain strong in 2013. It would, no doubt, be even stronger, if budget policy were not focused on debt and deficit reduction and their return to weak pre-crisis levels. In this sense, the country adopted a Fiscal Responsibility Law and Income Tax reform cutting exemptions and increasing progressivity. Fiscal revenues represent only 19% of GDP with very little contributed by mining. The debt profile is already good, with external debt representing only 12% of GDP, thanks to greater use of the local market, and its low service (cf. 2012 issue for $4.5bn dollars over 30 years at 5%).
The robust pace of activity will continue to depend on consumption and investment in 2013. Households and companies will benefit from the expansion of credit. There is considerable scope for credit to grow, as loans to the private sector represent only 50% of GDP. Meanwhile, the state has launched a programme to build 200,000 social housing units, as well as a road development project, making greater use of public/private partnerships. Investment in mining could accelerate with less insecurity and the granting of new concessions under its new mining code. Finally, while oil production has stalled at around one million barrels/day, the (88%) state-owned company Ecopetrol, which extracts 60% of the country’s oil, as well as private actors will also have an incentive to raise spending ahead of a more secure outlook near their pipelines and improved transport capacity. Foreign trade’s contribution to growth will remain negative, with imports rising faster than exports and weakening raw materials prices. The impact, limited at the moment, will increase in the coming years as trade becomes more important.
Current account deficit amply financed by foreign direct investments
The current account deficit is set to widen further. This is explained by the growing extent of dividend repatriations by foreign companies. There is only a modest trade surplus despite higher sales of raw materials (oil, coal, gold, copper, iron, ferronickel, coltan…) and agricultural products (coffee, flowers, bananas…), which respectively make up two thirds (40% for oil alone) and 15% of exports. Trade in manufactured goods is negative, as imports of capital goods, transport equipment and consumer goods, driven by domestic demand, are well in excess of sales of local products. Central Bank moves to counter the impact of capital inflows are unable to prevent the peso’s appreciation, which undermines the competitiveness of manufacturing. Transfers from Colombian emigrants are limited, while shipping costs are twice the income from tourism.
The current account deficit is financed by foreign direct investments, two thirds of which are directed to the mining sector, and especially oil. Portfolio investments, to a more limited extent, are attracted by the competitive rates and development of the private market. Colombia’s debt represents only 23% of GDP and is on a falling trend.
Uncertain outcome of negotiations with the FARC
President Santos has begun negotiations with the FARC, who despite being weakened still have the capacity to be a nuisance. Whether he is re-elected in March 2014 will in part be linked to their outcome. Despite the reticence of his large centrist majority in Congress, he had the texts permitting the compensation of victims (in particular, three million people displaced during the conflict), return of usurped land and fairer distribution of mining royalties signed into law in advance. Success is not, however, a foregone conclusion. In the run-up to the elections, support from his majority could weaken, with problems still outstanding. The FARC are not the only group to foment violence on large portions of land, exploiting the poverty of farmers, to take advantage of cocaine production and trade, traffic of subsidised Venezuelan products, illegal mining, and to extort funds. The ELN, another guerrilla group, and the BACRIMs, the neo-paramilitary gangs, share these activities. The purpose of the new mining code is to end speculation over licences and take account of the populations living near the mines. Internationally, relations have been re-established with Venezuela and Ecuador and free-trade agreements have been signed across the board. However, unhappy over the judgment of the International Court of Justice regarding a territorial dispute with Nicaragua, Colombia has renounced the 1948 Pact of Bogota recognising the authority of the Court.
