Colombia Country Report

Infortal Worldwide Geopolitical Risk Summary  

Colombia boasts one of the largest economies in Latin America. 

The country is bolstered by geographic advantages, including port cities on its Caribbean and Pacific coasts, proximity to the Panama Canal, and the United States. Additionally, it offers a sizable skilled and semi-skilled workforce that is attractive to manufacturing. Since 2012, Colombia and the US have benefited from a free trade agreement, which has helped attract some US firms interested in nearshoring. 

Despite these advantages, Colombia has been plagued with violence from rebel groups and narcotraffickers for years, bringing to question the strength of the rule of law in the country. Additionally, corruption continues to be a major concern in both the government and private sectors. 

Political Update 

In 2022 Colombia elected President Gustavo Petro. Petro is the country’s first ‘leftist’ president, disrupting the established trend of right-wing leadership. 

As anticipated by this significant political shift, President Petro has proposed an ambitious reform agenda targeting healthcare reform, pension laws, and other labor reforms, subsidized public housing, and increased taxation of high-income individuals. He has also prioritized peace deals with rebel groups which have plagued rural areas with violence for years. 

Despite the president’s persistence in following through with this sweeping agenda, he faces strong opposition from right-wing opposition and growing political polarization in the Colombian Congress. Critics of his administration have pointed to his agenda and its implementation as impulsive and a hindrance to long-term investment and business operations planning. The subsequent lull in economic growth has led to low approval ratings. 

Efforts to reach peace agreements with rebel groups through the “total peace” plan have been marginally successful. Insecurity in rural areas due to activity from such groups continues to be a problem, and state capacity has been limited in some regions. 

This has impeded the development of such areas and poses serious limitations to domestic and international investment due to social and security risks. Despite these risks, their impact on the economy is relatively small. 

Economic Update 

Colombia is the fourth-largest economy in Latin America, trailing Argentina, Mexico, and Brazil. Recent economic stagnation has led to bleak predictions for short-term growth. 

Many have attributed the sluggish economy to the frequent policy shifts initiated by the Petro government, which make it difficult for companies and investors to set and follow through with long-term goals. Others have pointed out the lingering effects of the COVID-19 pandemic, including high inflation and changes in demand for domestic and international Colombian products. 

One example is President Petro’s recent adjustments to public housing subsidies, which have led to a 39% decrease in new housing construction and delivered a heavy blow to the construction and real estate industries. Another example is the proposed rapid divestment from fossil fuel use and production. Oil and coal production currently dominate the domestic energy market and account for a significant portion of Colombia’s export economy. Shifting away from these major drivers of the economy too quickly could lead to an essential blow in their economic well-being. 

While the president’s policies have undoubtedly led to shifts in Colombia's economic landscape, significant opposition, and low approval ratings have been indicators of some of his government's constraints in achieving its lofty policy goals. 

Key Investment Sectors 

Colombia is an attractive destination for investment in several industries, including: 

Agribusiness and Food Production: Colombia is already one of the world’s largest producers of cash crops, including coffee and cacao. It also produces a variety of fruits, vegetables, and other agricultural products, including palm oil. With a domestic market of over 50 million and proximity to major food-importing countries such as the US, this sector is primed for additional investment and lucrative returns. 

Agrochemicals: The domestic market for agrochemicals such as fertilizers and pesticides is enormous. Colombia has the highest rate of fertilizer use and the third highest rate of pesticide use per hectare in Latin America. In addition to the high demand for agrochemicals, Colombia is also a relevant producer of agrochemicals internationally. Concerns over the quality and effects of its use have been raised in recent years, exposing new market opportunities to improve the safety and quality of such products. 

Energy: Colombia is a large energy producer due to its vast reserves of natural resources, including oil. Recent efforts to reduce dependence on fossil fuels have been extraordinarily successful, and Colombia is a regional leader in its transition to renewable energy sources. Newly proposed energy projects have opened up various investment opportunities in this sector. 

IT, Tech: Colombia’s IT/tech industry has rapidly grown as North American companies have sought nearshore services. Growth is expected to continue as the country digitizes and capitalizes on new technologies such as fintech. 

Manufacturing: Colombia has a relatively friendly business environment with strong encouragement for foreign direct investment. It has been bolstering its reputation as a manufacturing hub due to its attractive human capital resources, easy access to seaports, proximity to North and South American markets, and raw inputs. This is one of the fastest-growing industries in the country. 

Recommendations for Companies and Investors  

Colombia has made significant progress in improving its domestic security situation in recent years. However, some regions of the country, particularly in rural areas, are still susceptible to violence and crime related to narcotrafficking and existing tensions with rebel groups. Companies looking to do business in Colombia must know these risks and avoid operating in or moving goods through particularly susceptible areas. 

Currency fluctuations have become more common in recent years, which poses difficulties in long-term planning. Understanding currency fluctuations and devaluation risks is essential in creating resilient business and investment plans in the short and long run. 

Colombia’s shift away from traditional fossil fuels has led to increased environmental regulations, which have heightened the need for robust compliance to avoid violating regulations. Companies and investors, particularly those involved in extractive industries such as mining, should evaluate the added business costs associated with more stringent environmental policies and plan accordingly. 

Corruption continues to be a salient issue in Colombia, both in the public and private sectors. This requires businesses to be prudent in their due diligence efforts to avoid reputational risks and legal implications from anti-corruption legislation. Corruption can also lead to competitive disadvantages with local firms. 

Companies should ensure that they train and create a culture of safety and compliance related to cybersecurity concerns such as intellectual property theft. Colombia, like much of Latin America, lacks adequate enforcement of cybercrime, which can leave companies vulnerable to attack. Companies must take proper precautions to avoid the negative impact of cybercrime. 

Deep due diligence is essential to ensure compliance with US laws and regulations regarding doing business in and around Colombia. If your firm operates in the region, avoiding heightened Foreign Corrupt Practices Act risks is critical.

Suppose you are entering the region for the first time. In that case, you should also conduct a geopolitical risk assessment to ensure that no emerging political risk considerations could impact your firm’s operations.

Want To Know More?

For a deeper review of political, economic, due diligence and security risks for Colombia, please contact us.