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Last Published: 10/9/2019

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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 significant security improvements and steady economic growth in recent years, Colombia is becoming one of Latin America’s most attractive destinations for international exporters and investors. The election in June 2018 of political moderate and business-friendly President Ivan Duque further bolstered confidence in Colombia’s near-term prospects.

Since the implementation of the U.S.-Colombia Trade Promotion Agreement (TPA) in May 2012, U.S. exports to Colombia initially increased substantially but then declined 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 in 2016 by transportation workers led to a spike in inflation and put further downward pressure on the Colombian peso. Compounding these events was a tax reform package in 2017 that was viewed by many analysts and credit rating agencies as insufficient to shore up government revenue. The tax reform also raised the national sales tax (VAT) from 16 percent to 19 percent and put a damper on consumption. Over the last year, however, the economy has seen stronger growth following a rebound in consumer confidence and domestic manufacturing.

According to the Colombian National Statistics Department (DANE), Colombia’s real GDP growth was 2.7 percent in 2018, compared to 1.4 percent in 2017. Projections for real GDP growth in 2019 range from 3.3 percent (World Bank) to 3.6 percent (IMF), with foreign investment projected to increase over the 2017 figure of USD 11.35 billion. Colombia’s inflation rate remained stable throughout 2018 and within the Central Bank’s target range of two-to-four percent. Inflationary pressures have eased since spiking in 2016 after the drought and national strike pushed inflation to almost nine percent. The Central Bank’s short-term benchmark interest rate ended 2018 at 4.25 percent and is not projected to increase in 2019. Inflation is also expected to remain within the Central Bank’s target range.     

The ongoing influx of Venezuelan migrants to Colombia, currently estimated at approximately 1.2 million, will continue to put pressure on Colombia’s economic growth and budget deficits. Colombia’s Ministry of Finance estimates the cost of Venezuelan migrants to Colombia’s economy, especially the country’s healthcare and education systems, will be USD 1.2 billion in 2019 and USD 1.3 billion in 2020, or roughly .5 percent of GDP. In March 2019, Finance Minister Carrasquilla announced that Colombia’s 2019 fiscal deficit target will be relaxed from 2.4 percent to 2.7 percent of GDP due to the economic impact of Venezuelan migrants. Colombia’s Fiscal Rule, introduced in 2012, sets a goal for budget deficits to be within one percent of GDP by the year 2022. Credit rating agencies did not downgrade Colombia following the decision to relax the Fiscal Rule, but the move puts increased scrutiny on the country’s finances in the near term.   

While the current exchange rate and strong dollar make U.S. exports to Colombia relatively expensive, certain sectors have nonetheless seen strong growth, especially U.S. agricultural exports like pork, chicken, seafood, soy products, dairy, corn, and beans. Colombia’s ranking as an export market for U.S. agricultural products jumped from 24th place in 2011 to 12th place in 2018. Agriculture exports to Colombia from the United States were valued at USD 2.9 billion in 2018, more than double their 2011 value. Grains used in animal feed continue to see significant gains in the Colombian market. 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 reached an average of nearly USD 666 million per year during the period 2013-2018, up from USD 334 million in 2011. Exports of pharmaceutical products, which amounted to USD 199 million in 2011, have averaged almost USD 274 million per year under the TPA.
The United States is Colombia’s largest trading partner, and Colombia was the 21st largest market for U.S. exports in 2018. U.S. exports to Colombia in 2018 were valued at USD 15.2 billion, an increase of 13 percent compared to the prior year. Due to Colombia’s close political ties and geographic proximity to the United States and Colombians’ appreciation for the quality and reliability of U.S products, consumers in Colombia generally have a preference for U.S. products and services. 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 source of imports after the United States. China mainly buys commodities from Colombia such as petroleum and coal and is now Colombia’s second largest export market, with 2018 exports almost doubling in value over the previous year to reach USD four billion. The United States, however, is still the largest importer of Colombian products and imported over USD 10 billion in 2018.

In terms of Foreign Direct Investment, China has not made inroads in Colombia to the same extent it has elsewhere in the region, where Chinese firms are dominant players in energy and infrastructure projects. China’s 2018 FDI flows to Colombia were estimated at USD 32 million, compared to USD 2.5 billion for the United States. 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, followed by consumer goods, information technology, franchising, and tourism. Greater investments in Colombian infrastructure projects ranging from roads, airport modernization, port construction and expansion, and major hotel developments are projected over the next 10 years. 

The U.S.-Colombia Trade Promotion Agreement (TPA) 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 10 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, and improved dispute settlement mechanisms (arbitration). 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), South Korea, and an agreement with Panama is pending ratification.

Colombia has five commercial hubs in the country: Bogota, Medellin, Cali, Barranquilla, and Cartagena. In contrast, most Latin American countries have only one or two major cities, while Colombia offers U.S exporters access to 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.

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