1Running Head COLOMBIA Colombia Economi.docx

1
Running Head: COLOMBIA
Colombia
Economic Growth and Development
Introduction to Colombian Economy
The Colombian Economy has been growing exponentially over
the last ten years, because of the confidence and business
ventures that the investors have found in this emerging market.
In recent years, foreign investors have seen Colombia as an
emerging destination for more secure investments.
The economy is expected to speed up quickly this year on raised
oil prices, which should incease investment in the extractive
sector. Proposed construction projects and rising investor
confidence stemming from reduced political uncertainty should
help lift growth. Duque’s plans to slash corporate taxes,
however, could present challenges in meeting the fiscal target,
unless they are offset with new sources of revenue. Colombia
expects a GDP to grow 2.7% in 2018, which is up 0.1
percentage points from last month’s forecast, and 3.1% in 2019.
According to a report by PwC, Colombia is one of the countries
with the best economic outlooks for the next 35 years, thanks to

an increase in investment and improvements in education and
technological development.
Colombia offers an attractive business environment by:
· Strengthening the macroeconomic variables together with a
dynamic economic performance. The GDP per capita has
doubled over the last decade, going from USD 5.826 in 2000 to
USD 10.350 in 2012.
· A dynamic domestic market, being the 23rd largest population
of the world and the second most populous Spanish-speaking
population.
· It is the third most business-friendly and the leading reforming
country in Latin America.
Growth is expected to strengthen gradually over the 2018-2020
period, with growth accelerating to 2.7 percent in 2018, and
further to 3.6 percent by 2020, supported by higher oil prices,
stronger private sector demand, and a pick-up in implementation
of the 4G infrastructure
program.
2017
Population (million)
49.3
GDP per capita (USD)
6,377
GDP (USD bn)
314
Economic Growth (GDP, annual variation in %)
1.8
Domestic Demand (annual variation in %)
1.8
Consumption (annual variation in %)
2.2
Investment (annual variation in %)
0.1
Industrial Production (annual variation in %)

Unemployment Rate
Public Debt (% of GDP)
43.0
-0.6
9.4
Foreign Trade Performance and The Use of Trade Restrictions
Of Colombia’s National GDP of $6,377 USD per capita,
35% of that was from Foreign Trade which equals $2,231.95
USD per capita, with the average being 31.38% since 2012. For
an economy to rely this much on foreign trade it needs to have
relationships and powerful training partners in order for them to
stay afloat. Colombia has trade agreements with The Andean
Community which allows for free trade between Bolivia,
Ecuador, Peru, and Venezuela until they decided to leave.
Colombia is also in talks about a Free Trade Agreement with
Turkey and Japan. When talking about bilateral trade
agreements, they have a few with nations like Switzerland,
Peru, Spain, China, India, and The United Kingdom. What we
notice about these nations is that most of them are developed.
This is because developed nations need to piggyback on
developed nations for certain resources or terms of trade in a
Most Favored Nation situation. With this growth for the
economy is possible. They also have an agreement with the
United States called, The US Colombia Trade Promotion
Agreement in 2012. The terms of this deal was that 80% of US
exports to consumers and Industrial Products are duty free and
the remaining Tariffs are payed off over a ten year span at
14.6%. This plan also cause the Labor Action Agreement. The
Obama Administration pushed for there to be labor rights in
Colombia. This is good for the Colombian Economy and
community because it will enforce companies to pay fair wages

and give fair humain hours and benefits to their workers. Other
trading partners for Colombia reported in 2017 are China,
United States, and neighboring countries. Since Colombia is a
developing nation we observed that they are an import
dependent nation where they are 98 of 121 countries in foreign
trade balance. This is because they are a small nation and need
to rely on help of other nations who are abundant in resources
that Colombia does not produce in a beneficial matter. The ratio
of imports to exports in relation to national GDP is 20% imports
to 14.77% exports. When reviewing the import growth from the
United Kingdom, Ecuador, Spain, and Free-Trade Zones, we
noticed that their import growth from these partners is greater
than export growth to the rest of the world meaning that these
nations give more to Colombia each year and they are becoming
more dependent on the products coming from these countries
than anywhere else in the world. Where it is the opposite for
nations like, US, China and Mexico. When we look at exports
we see the export growth is greater than export growth to the
rest of the world for nations like, Mexico, Turkey and Korea,
but the opposite for the US, Turkey and The Netherlands.
Colombia’s top five exports are Crude Petroleum, Coal
Briquettes, Coffee (Number two distributor globally), Refined
Petroleum and Gold. Their top five imports are Refined
Petroleum, corn, wheat, soybean meal, and soybeans. Refined
Petroleum is on both lists because the resale market is large in
Colombia for this resource. They continue to become more and
more import dependent but it is in hopes to eventually become
self sufficient and profitable in all aspects of each trade.
But in spite of all that, Colombia’s new government has to face
some challenges. The first one is the orientation of the
macroeconomic policy, especially the stabilization of prices,
more employment and equity.
The second challenge this new government has is the
implementation of a new tax reform. The request for a new tax
reform has to do with the need to relieve the tax burden to
business owners, and ways to fight tax evasion. The third

challenge involves government spending and the fiscal rule.
Meaning a budget reform should be applied to unify in one
entity the various budgets.
In general Colombia has new challenges that the new
government has to deal with, nevertheless its economy is very
attractive for investors and there's definitely a new air of
prosperity and stability.
Colombia’s Bi-Directional Foreign Investments
Though Colombia gained its independence in 1810 from Spain,
it is still a developing country in today’s world from years after
years of corruption. This has led to slow growth for many years.
In 1991, the Colombian government underwent an
unprecedented period of change in their economic policies.
They underwent trade liberalization, which allowed for more
free trade flowing in and out of the country. This created a huge
uptick in the economy which saw a yearly rate of GDP growth
of 7.7%. This allowed for investments made by the country’s
people or businesses <bring money?> in and out of the country
to help the economy grow. Some of these investments made
were called Bi-Directional Foreign investments. A Bi-
Directional foreign investment helps an investor, whether living
in the country of Colombia or around the world, acquire
business assets, ownership, or even controlling interest, that is
when a Bi-Directional Foreign investment takes place. With
Colombia really gaining economically after their constitution
reforms in 1991, Colombia began to experience problems of
larger nations. However, it is not fortunate to be a large nation
like the China or the United States with diverse revenue
streams, so the country of Columbia depends a lot on their trade
and its direct investments with other foreign nations. The
country also depends on its portfolio investments but there is a
difference between the two. Portfolio investments are when an
investor purchases equality of foreign based companies.
In 2002 Columbia's Bi-Directional Foreign investments really
took a turn for the best. Then president of the country Alvaro
Uribe (2002-2010) started to actively promote foreign

investments abroad. This only continued following President
Juan Manuel Santos promoting investment in other sectors after
he took office. Colombia’s main investors into the country are
the United States, Panama, and the United Kingdom. Many
other countries contribute to the amount of money Colombia
receives in foreign investments. In 2016 Colombia's Bi-
Directional foreign investments at home totaled $164.3 billion
dollars. That number continued to rise in 2017 when these
investments totaled a much higher 178.4
billion dollars. Bi-Directional foreign investments abroad for
Colombia in 2016 added up to 51.82 billion. These investments
grew as well in 2017 when they equaled $55.32 billion dollars.
Thanks to the previous two presidents Alvaro Uribe and Juan
Manuel Santos that advocated for more foreign direct
investments to increase, Colombia is seeing the amount of
direct investments coming into the country as to going abroad is
almost tripled. Colombia as a smaller and developing country
depends on these investments as shown by the amount coming
into the country.
Colombia has heavily depended on its mining and energy
export, which in turn can make the country vulnerable to
fluctuations in commodity prices. In Latin America, Colombia
is the fourth largest oil producer along with being the world's
fourth largest coal producer, the third largest coffee exporter,
and the second largest cut flowers exporter. With foreign direct
investments growing in Colombia this allows for all the main
exporting sectors for Colombia to grow, especially the oil
industry. As the country creates more infrastructure projects and
lowers higher corporate taxes, increasing oil prices throughout
the world will boost investment into this sector. With
Colombia's low interest rates foreign direct investments into the
country see the most benefit, as investments will be the key to
Colombia's future growth. When Colombia passed laws to
stimulate its direct foreign investments in nearly all of its
sectors by eliminating restrictions on foreign inflows, this
created a privatization program and opened up more foreign

investment into the oil industry. Though more foreign
investment was to come freely into Colombia, there are a few
sectors closed off to investment. These sectors are defense and
national security, the disposal of hazardous waste, and real
estate in Colombia. The government of Colombia also reserves
ownership in strategic areas such as natural resources, but
foreign companies may participate in the exploration and
exploitation of these resources.
Portfolio Investment Flows: Multinational Companies Activities
In the last years, Colombia has been part of the emerging group
of countries that attract resources, during a time in which
investors are looking for returns. On an article published by
Dinero.com on September 26, 2017. I learned that portfolio
investment had an average growth of 10.5% and which led to
the re-composition of the portfolio. They talk about how that
makes it one of the strengths of the country and a safe source of
investment. Author stated “ this year it is expected that the
portfolio investment will be between US $ 6,000 million and US
$ 7,000 million, and in three years it would have a close
increase of 66,7% to US $ 10,000 million.”. Later on, we will
be talking about more current data and examine whether or not
this year Colombia had an increase in portfolio investments.
In the other hand looking at multinational companies activity, I
would love to point out one of the departments or state, that has
been presenting a gradual economic growth in Colombia called
Valle del Cauca which is located in the southwestern part of
Colombia, and faces the Pacific Ocean to the west. Cauca is
currently contributing 10% of the national GDP. There are
approximately 150 multinationals, that choose this valley
because of its strategic location, road, airport infrastructure,
and trained human resources. Only in this region in the last five
years, foreign investment reached US $ 800 million. The
director of Invest Pacific, stated that between 2015 and 2017,
52 companies arrived of which 42 were aimed at the
manufacturing sector and 35 of them are exporters. In 2017, 22
foreign capital firms entered the Valley, with an amount of US

$ 153 million. Not surprisingly, at the beginning of this year
2018 there were announcements from companies that will invest
around US $ 50 million, reported an article published by Dinero
on 03/28/2018. Furthermore recently, the World Bank's Doing
Business 2018 published a report in which Colombia is listed as
the first country in Latin America to protect investors, and also
the third friendliest destination to do business in the region.
Which suggest that Colombia is, and will continue to be a good
destination for companies that want to improve their business,
and expand throughout the region.
As we know, national companies also play a huge part in
Colombia’s investments and economic growth, I particularly
want to talk about Ecopetrol. Ecopetrol is a oil company, and
the biggest company in Colombia which grew almost by 55%
between January and August of this year 2018. Ecopetrol is
generating an annualized cash flow of US $ 10,000 million, and
typically invests US $ 4,000 million annually. However the
concern is that in the first six month of this year it has only
invested US $ 1,000 million nationally. One of Ecopetrol
strategies to grow even more is to incorporate oil reserves in
other countries. Which will be great for the company but could
generate tension within the nation because the best scenario for
Colombia is for ecopetrol to develop its billion-dollar
investments nationally.
Going back to portfolio investments and looking at recent
published data I learned that is believed that Argentina’s recent
economic difficulties are generating distrust in foreign
investors. Also driven by the perception of risk on emerging
markets, particularly index funds. According to an analysis of
Davivienda Corredores, during August net sales were
accumulated for $ 461,000 million, the largest negative flow
since November 2015. Believed to be trigger by the perception
of risk of emerging market as mentioned earlier. However, other
funds would be making adjustments in their portfolios. Overall,
portfolio investment destined to the capital market did
continued to rise. In April of this year recent data on the

balance of the Central Bank indicated that the country had
received US $ 2,246.1 million for this concept. Which is
actually more than half of the total of 2017, and 14.7% more
than what was recorded during that time last year.
Colombia’s Trade and Exchange Rate
First off, an exchange rate is the rate at which one’s currency is
exchange for another.
The balance of trade influences currency exchange rates through
its effect on the supply and demand for foreign exchange.
Moving onto the trade and exchange rate of Colombia, this
country has been going through a trade deficit in the past years.
If you look at the trade balance of Colombia roughly between
the years of 2013-2018, the trade balance is seen in the negative
region (CEIC). What is a trade deficit? A trade deficit is when
the amount by which the country’s imports exceeds the value of
the country’s exports.
By observing their numbers, they are nowhere near a trade
surplus in the recent years. A trade surplus is when the value of
exports is more than the value of imports. In this case, for
Colombia, they are in a trade deficit due to the fact that during
the years of 2015-2016, there was an extremely low trade
balance of around -2000, which means there were more imports
than exports. Another area to look at that also proves that
Colombia is in a trade deficit is that in 2016, this country’s
exports totals out to roughly $32.9 billion and its imports is
approximately $43.2 billion (CEIC). This results in a negative
trade balance of $10.3 billion.
Second, there is the exchange rate of Colombia. In 2012, 1 USD
was equivalent to roughly 1,820 Pesos. Moving forward to
2018, 1 USD is equivalent to 3,253 Pesos. When I did my
calculations, it showed a significant impact of the exchange rate
and it went downhill for Colombian pesos compared to the
USD. Starting from the year 2014, the exchange rate between
United States currency and Colombian currency had a gradual
yet massive change. While the U.S. dollar was growing, the
Colombian Peso was decreasing. In the years 2015-2016, the

exchange rate for Colombia reached its all-time low.
Third, the nominal effective exchange rate or (NEER) is an
unadjusted weighted average rate at which one country's
currency exchanges for a basket of multiple foreign currencies.
In 2010-2014 Colombia exported more which led to not to a
trade surplus, but also it led to a lower currency. Within those
four years, the amount of imports was nowhere near a negative
trade balance. Meanwhile, in the recent years from 2015-2018,
the rate is under one, which means that Colombia tended to
import more than export which is a trade deficit and a higher
currency. Where the country stands in term of how much they
import, and export rely on what direction of trade they are in-
deficit or surplus.
Today, Colombia’s financial position seems to be
increasing. It is going up because of their exports. Oil prices are
changing throughout the nation which is good for Colombia
since oil is there #1 export. According to World Bank website,
“Growth is expected to accelerate at a gradual pace over 2019-
2020, supported by stronger private consumption, a gradual
recovery of non-oil exports, higher oil prices…” (World Bank).
Colombia is and will benefit financially from their exports that
is not only oil, but also coffee, nickel, gold, etc. As growth is
seen in the near future for this country, the aspects that will
seem to follow would be a boost in productivity, an increase in
fixed investment, a decrease in unemployment, and an uproar in
competition.
Lastly, the inflation rate for Colombia in the year 2018 has
converged to the targeted range. Stable price expectations and
weaker economic activity prompted the Central Bank to reverse
its monetary policy tightening. In 2016, Colombia hit the
inflation rate of roughly 7.5%, which was their all-time high
percentage compared to previous years (Statista). In 2018, the
country finally dropped to approximately 3.2%, inflation rate,
which is a huge shift in change (Statista). Looking into the next
four years up until 2022, Colombia will hopefully plan to stay
at the 3% inflation range.

Colombia’s Monetary & Fiscal Policies
Colombia uses monetary policy like most countries by means of
their central bank, Banco de la República. Their primary
objective of monetary policy is to reach and maintain a low and
stable inflation rate, and to achieve a long-term GDP growth
trend.
This is the one way to achieve sustained growth rates that
will generate employment and improve the population’s quality
of life. Otherwise, if the economy does not grow on a sustained
basis, sooner or later a crisis will occur with serious
consequences for the economy, leading to worsening social
indicators, loss of public confidence, lowered investment and
higher unemployment. Colombia does this primarily by what
they call the Inflation-Targeting Strategy. The board of
directors from the central bank determine which approach to
take after analyzing the current economy with prospect of future
economy. For Colombia, their target inflation rate is 3%. Which
means, as long as, inflation doesn’t deviate too much then the
economy is robust and strong. To understand the effects of
monetary policy is it important to examine inflation by decades:
Colombia’s government involvement in the economy has been
marred and riddled in corruption for decades. Still, it has played
a major role in strengthening its economic standing and
reducing the fiscal deficit through the use of fiscal policy.
Government spending shocks have been found to have
significant positive effects on output, private consumption, and
employment. To understand how fiscal policy affected the
economy let us review the deficit by decades.
Work Cited
· https://www.cfr.org/backgrounder/mercosur-south-americas-
fractious-trade-bloc
· https://2016.export.gov/colombia/u.s.-
colombiafreetradeagreement/index.asp
· http://ec.europa.eu/trade/policy/countries-and-
regions/regions/andean-community

· https://www.heritage.org/index/country/colombia
· http://www.worldbank.org/en/country/colombia/overview#3
· https://www.statista.com/statistics/369121/inflation-rate-in-
colombia/
· https://www.worldbank.org/en/country/colombia/overview
· https://www.indexmundi.com/colombia/economy_profile.html
· https://www.usnews.com/news/best-countries/colombia
· http://www.banrep.gov.co/docum/ftp/borra149.pdf
· https://data.colombiareports.com/colombia-fdi-statistics/
· https://www.dinero.com/economia/articulo/inversion-
extranjera-directa-en-colombia-crecio-en-2017/256025
· https://www.portafolio.co/economia/la-inversion-extranjera-
de-portafolio-va-subiendo-14-7-516490
· https://www.export.gov/article?id=Colombia-Trade-Barriers
· https://www.export.gov/article?id=Colombia-Import-Tariffs
· http://www.intracen.org/Colombia/General-Trade-
Performance/

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