Colombia: South America’s Under the Radar Emerging Global Market? - Global Trade Magazine
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  December 13th, 2018 | Written by

Colombia: South America’s Under the Radar Emerging Global Market?

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  • "Colombia holds potential as a country ripe with opportunity for global business investment and expansion."
  • Colombia is one of the world’s key oil exporters. Approximately 45% of Colombia’s exports are oil.
  • Central bank board member Carolina Soto predicted Colombia will reach its growth potential of 3.5 percent next year.

In June 2018, Colombian voters made Ivan Duque, an ambitious populist conservative, their next president, garnering 54 percent of the vote. The country’s future—and its attractiveness for global business investment—will be impacted by Mr. Duque’s administration as the country approaches a critical opportunity to grow as a South American and global economic leader.

With the majority victory, Mr. Duque is charting a pro-business and pro-trade path. On the heels of Mr. Duque’s predecessor’s peace agreement with FARC and now with Mr. Duque’s business friendly platform, Colombia enjoys an optimistic economic outlook and is drawing attention globally for high potential business investment in the country.

At the inauguration, Mr. Duque promised to “govern Columbia with a spirit of construction, never destruction.”

As South America’s second-most populous nation, third-largest economy and first member of the OECD, Colombia holds potential as a country ripe with opportunity for global business investment and expansion, if Mr. Duque can overcome a host of domestic challenges.

The result to that “if” is paramount for Colombia and determining future business expansion into the country.

Colombia’s Path Forward—Pro-Business Policies, Technology, Industrialization

Mr. Duque promised to transform the country’s economic model and tackle social and economic inequality. The president’s business-friendly policies include tax cuts, reducing bureaucratic red tape, support for the coal and oil industries and promises to bolster the $324 billion economy via science and technology investment.

Specific fiscal reforms include a reduction of the tax burden for businesses and the simplification of administrative processes, which are intended to provoke private business growth and global businesses to invest and expand to the country.

A former technocrat, Mr. Duque views technology and science as key elements in economic growth. Specifically, an income tax exemption has been implemented for five years for emerging science and technological companies.

A third component is attracting foreign investment to industrialize Colombia’s resource-rich geography—from agriculture to oil.

Altogether, central bank board member Carolina Soto predicted Colombia will reach its growth potential of 3.5 percent next year.

“I think we’ll grow a minimum of 3.5 percent, if not more, pushed by mining, energy and construction,” Soto said to Reuters.

Five Months After Inauguration: Challenges Surface

As politicians quickly realize—winning is easy, but governing is harder.

Mr. Duque has faced formidable obstacles: lack of political support for his economic reforms, reemerging domestic guerrilla forces, welcoming massive influx of immigrants fleeing Venezuela, continued drug trafficking and declining public opinion in the polls.

Tax reform has met stiff resistance in Congress as the president’s conservative Democratic Center (DC) party holds only one-fifth of the seats and must rally other political parties for support.

Mr. Duque and his DC party was forced to dilute its ambitious tax plan that would cut value added tax from 19 to 17 percent. According to the Financial Times, this plan was welcomed by economists to reduce the fiscal deficit and raise extra revenue, as much as 1.1 percent of gross domestic product.

Further complicating economic reform efforts is the fluctuation in oil prices, as Colombia is one of the world’s key oil exporters. Approximately 45% of Colombia’s exports are oil.

Future Outlook

Despite challenges, less than a half year into his presidency, Mr. Duque has time to realize the optimism espoused for his administration’s victory.

Eliminating and containing Colombia’s aforementioned challenges will be key in realizing the country’s high potential for growth.

Already in 2018, TMF Group, a global business expansion advisory firm, has seen increased business investment and interest in Colombia.

If Mr. Duque can actualize his administration’s economic, social and political visions, it could mark a new renaissance for Colombia.

It won’t be easy, but given Colombia’s membership in the OECD and NATO, in addition to successfully implementing pro-growth economic reforms there is still reason for optimism and significant business investment and global expansion opportunity despite these early hurdles.

As he said in his inauguration speech, Mr. Duque needs to start soon in fostering a spirit of construction over destruction. His success will shape Colombia, South America and the world’s businesses into the future, and he best start sooner than later.

 

About the author: Daniela is a Public Certified Accountant from the Universidad de la República, Argentina. She also holds a Master’s in Business Administration (MBA), from Universidad Antonio de Nebrija y EALDE Business School, and has more than 30 years of experience.