In the last decade, Colombia has been considered one of the most interesting countries for foreign investors. The country has had a sustained growth of 4% on average, and this has seen the strengthening of national companies such as Grupo Nutresa, Ecopetrol, Grupo Aval and Cementos Argos, amongst others. These companies’ latest investments have turned them into multi-Latin companies with a direct presence in Central and South American countries and the United States.
This is why, according to experts, Colombia is part of the CIVETS group (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) – countries that have been identified as the next generation of economic tigers.
Both the BRIC and the CIVETS have demonstrated their influence and economic strength in an unfavorable global environment. However, last year the impact of the world crisis also affected their economies, evidenced by negative results in different macroeconomic indicators.
Despite the external context, characterized by weak global demand, falling prices of commodities and weaker exchange terms, the Colombian economy had only a moderate deceleration, registering a growth of 2.8% in the first quarter of 2013 compared to the 3.1% observed last year.
This fall in growth is mainly explained by fewer exports, a halt in activities of the mining sector (oil and coal) and weaker international commodities’ prices.
In terms of consumption (demand), Colombia demonstrated moderate growth of 3.5% annually, a reflection of lower consumer confidence. Colombians also reduced their debt levels, an indicator that had been increasing in a significant way up until the first half of 2012; households are now allocating a larger portion of their income to paying debts, thus moderating the consumption of goods and services.
This in turn had a negative impact on industrial activity, which was the only sector of the economy that experienced a contraction (-4.1%) in 2012. However, consumer confidence in the last period was higher than for the first quarter of 2013, and retail figures suggest better consumption performance.
Foreign investment represents a great opportunity for Colombia, since the concentration of investment (oil and mining, with 70% of total flows) has changed its composition towards a greater variety of economic activities, such as the manufacturing sector, restaurants and hotels, storage and retail, communications and financial institutions.
Likewise, foreign investors have seen that Colombia presents an opportunity to promote big luxury brands, a market that according to entrepreneurs has a potential of one million customers, and 50 million dollars a year. Brands such as Dolce & Gabbana, Mabe, Montblanc and Hublot, have decided to set foot in the country or increase their expansion in different Colombian cities.
Alongside growth through foreign investment, the country is facing new free trade agreements: United States (2012) and Europe (2013), South Korea and Costa Rica. These agreements signify a challenge for all actors of the economy (and have prompted displays of public protest) as local products face the entrance of highly competitive global products, backed with financial muscle.
Colombia’s capacity to focus the flow of foreign investment and take advantage of the free trade agreements depends on the increase in consumer confidence. This will see its repercussions in an increase in internal demand and therefore a more productive and strengthened sector able to compete in the global market.
Mr. Gabriel Castellanos
Managing Director, Millward Brown Andean Region