Colombia - Market OverviewColombia - Market Overview
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The Republic of Colombia is the fourth largest economy in Latin America, after Brazil, Mexico, and Argentina, and has the third largest population with approximately 49 million inhabitants. Aided by major security improvements and steady economic growth in recent years, Colombia has increased its commercial and investment ties to the United States, Europe, Asia and the rest of Latin America. Since the implementation of the U.S.-Colombia Trade Promotion Agreement (TPA) in May 2012, U.S. exports to Colombia initially increased substantially but have decreased over the last two years due to a combination of factors, with the main contributor being a depreciation of the Colombian currency that resulted from lower global oil prices (the county’s principal export), a drought, and a national strike by transportation workers. Nonetheless, certain U.S. exports to Colombia continue to see strong growth, especially agricultural products like pork, chicken, seafood, soy products, dairy, and beans. Colombia’s ranking as an export market for U.S. agricultural products jumped from 24th place in 2011 to 12th place in 2016. Agriculture exports to Colombia from the United States were valued at USD 2.38 billion in 2016, more than double their 2011 value. Cereals, especially corn, saw the greatest gain in real terms.
Other U.S. exports to Colombia that have enjoyed significant growth since the implementation of the TPA include aircraft and aircraft parts, which benefited from the elimination of a five percent tariff. These exports surged to an average of nearly USD 700 million per year over the period 2012-2016, up from USD 334 million in 2011. Exports of pharmaceutical products, which amounted to USD 200 million in 2011, have averaged USD 270 million per year under the TPA.
Political stability, a growing middle class, the signing of the peace accord between the government and the Revolutionary Armed Forces of Colombia (FARC) guerrillas, and a vastly improved safety and security environment have supported an optimistic outlook and moderate economic growth in recent years in Colombia. The drop in commodity prices, adverse weather conditions, and labor strikes slowed economic output in 2016. Gross Domestic Product (GDP) growth slowed to two percent in 2016 and foreign direct investment is estimated to have decreased slightly to USD 11.6 billion. Over half of Colombia’s global exports are petroleum products and lower oil prices are expected to continue taking a toll on the country’s economy in 2017, with annual GDP growth projected at 1.8 percent and foreign direct investment expected to slow to USD 9.8 billion.
Colombia’s inflation rate was 5.75 percent in 2016 (and nearly nine percent in July of that year), again due in large part to low oil prices, draught, and labor strikes. This prompted Colombia’s Central Bank to raise its benchmark interest rate to 7.75 percent at the end of 2016. Inflationary pressures have since eased and the Central Bank has repeatedly lowered short term interest rates at each of its board meetings in 2017. On April 28, the Central Bank reduced the benchmark interest rate from 7.0 to 6.5 percent, a 50 basis-point cut that exceeded analysts’ expectations and marked the fourth reduction in five months. Inflation stood at 4.66 percent in April 2017 and Central Bank analysts predict a short term inflation rate of 4.49 percent by December 2017.
The passage of a tax reform package at the end of 2016 helped to prevent a possible downgrade in Colombia’s credit rating by shoring up the country’s public finances, which have been negatively impacted by the drop in oil revenue. Fitch Ratings affirmed Colombia’s BBB credit rating and revised its outlook from negative to stable in March 2017. A consequence of the tax reform, however, was depressed consumer spending since the reform included a rise in the value-added tax from 16 percent to 19 percent.
The United States is Colombia’s largest trading partner and Colombia was the 22nd largest market for U.S. exports in 2016. U.S. exports to Colombia in 2016 were valued at USD 13 billion, a decline of almost 20 percent compared to the prior year. Due to Colombia’s close ties to the United States and Colombians’ appreciation for the quality and reliability of U.S products, consumers in Colombia often favor U.S. products and services over those of our foreign competitors. However, Colombia is a price-sensitive market and price often dictates purchasing decisions. Consequently, Chinese products are increasingly capturing market share and China is now Colombia’s second largest trading partner.
Extractive industries such as coal mining and oil and gas exploration and production are the principal areas of U.S. foreign direct investment in Colombia (though the amount of investment in these sectors dropped significantly in 2016), followed by consumer goods, high tech, franchising, and tourism. Over the next decade there will be greater investment in infrastructure projects ranging from roads, airport modernization, port construction and expansion, and major hotel developments. A sample of the major U.S. companies in Colombia includes: Drummond, Chicago Bridge and Iron, General Electric, General Motors, Occidental Petroleum, Chevron, ExxonMobil, ConocoPhillips, Microsoft, Unisys, Kimberly Clark, Johnson and Johnson, Goodyear, Kraft, 3M, Pfizer, Baxter, Corning, Marriott, and Sonesta Collection Hotels.
The Colombian Government has implemented bilateral or multilateral trade agreements with most countries in the Western Hemisphere, including the United States and Canada. Colombia also has trade agreements with the European Union, the Pacific Alliance (Colombia, Chile, Mexico and Peru), and South Korea. Agreements with Panama and Israel are pending ratification, and negotiations with Japan and Turkey are ongoing.
The U.S.-Colombia Trade Promotion Agreement entered into force in May 2012 and immediately eliminated import tariffs on 80 percent of U.S. exports of consumer and industrial products to Colombia, with remaining tariffs to be phased out over ten years. Other provisions include stronger protection for U.S. investors (legal stability), expanded access to service markets, greater intellectual property rights protection, market access for remanufactured goods, increased transparency, and improved dispute settlement mechanisms (arbitration).
Colombia has five commercial hubs in the country: Bogotá, Medellin, Cali, Barranquilla, and Cartagena. In contrast to the majority of Latin American countries that have one or two major cities, Colombia offers U.S exporters access through multiple commercial hubs, each of which has its own American Chamber of Commerce. While these cities and many other secondary cities offer unique market opportunities, they are close enough via air routes that it is common to have one partner (agent, distributer, or representative) cover the entire country.Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.
Colombia Trade Development and Promotion