Over the last decade, Colombia benefited from increasing political stability and a growing economy. Violence has declined significantly, and Colombia has shown steady economic growth. Colombia’s GDP grew at an annualized rate of over 2% in every quarter of 2018 and into early 2019. During that time, many emerging economies experience significant difficulties.
A Lagging Infrastructure Hinders Growth
While political stability and economic growth have returned to Colombia, years of neglect left the country with inadequate infrastructure. According to the World Economic Forum (WEF), Colombia was 57th out of 141 countries for overall global competitiveness, up three spots from 2018. However, Colombia ranked just 92nd for transport infrastructure. The connectivity and quality of roads ranked even lower. Colombia’s legacy of under-investment in infrastructure during years of conflict is a bottleneck limiting the country’s growth potential.
A Chance to Catch Up
This previous lack of investment makes infrastructure investment in Colombia more effective today. According to Business Monitor International (BMI), Colombia has the second most favorable risk/reward profile for infrastructure investment in Latin America. With more infrastructure investment, Colombia can sustain and even improve its economic recovery. Colombia is at a crossroads, and there is a chance to catch up on infrastructure.
The government of Colombia realizes the need to upgrade the infrastructure, and an estimated $8.28 billion will be invested during 2020. The size of the opportunity is a function of the size of the market. Colombia has almost 50 million people, making it the fourth-largest market in Latin America. Investments in roads, rails, waterways, energy, and airports are planned. These investments are projected to drive growth of over 6% per year in the construction industry during 2020 and 2021.
Potential for Tourism
Increased tourism is supporting the growth of Colombia’s infrastructure, and better infrastructure continues to unlock Colombia’s potential for tourism. Colombia’s tourism industry already grew by 154% between 2008 and 2018 as political conflicts abated. Colombia’s excellent weather during most of the year and convenient location near the Panama Canal make it attractive to tourists. The expansion of the already large El Dorado Airport in Bogotá and the building of a new airport in Cartagena will further boost tourism.
New Investments in Energy
Along with investing in the rest of the nation’s infrastructure, Colombia is also making a push into developing its energy infrastructure. WEF statistics show that access to electricity and the reliability of the water supply both lagged Colombia’s overall competitiveness rankings. Unsurprisingly, energy and utility projects are primary targets for future infrastructure development. There is an exceptionally strong emphasis on renewable energy from new sources to compliment Colombia’s impressive existing hydroelectric facilities.
A Favorable Business Environment
The Colombian government is generally favorable toward businesses and open to global trade. Taxes are reasonable, and inflation is modest. Labor markets are fairly efficient, which is a significant consideration for building infrastructure. Most importantly, Colombia has a strong commitment to protecting the rights of investors.
The Opportunity for Investors
The core of Colombia’s appeal is the combination of a developing infrastructure with a relatively strong financial system. The fact that Colombia under-invested in infrastructure in previous decades makes infrastructure investment even more necessary and profitable today. However, the WEF ranked Colombia 29th for financial system stability, ahead of Panama and France. Colombia has an exceptionally stable financial system for a developing country, which increases its potential for investment. Contact Latam Energy Advisors today to learn more.
