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Colombia’s New Economic Reality
As Colombian President Alvaro Uribe prepares to hand off power to his successor Juan Manuel Santos, who was elected in last week’s runoff election, it is a good time to reflect on the dramatic changes the country has undergone in the past decade.
Viewing security as a top priority, President Uribe’s administration took strategic steps to stabilize Latin America’s oldest democracy and motivate positive change in Colombia. At the same time, in an effort to improve the country’s economy, a strong focus was directed towards the attraction of foreign direct investment, and has led to increased wealth in the country.
With security and economic fundamentals vastly improved, innovation and exploration of untapped resources are now propelling Colombia forward as an emerging investment location. Increasingly recognized as a country with vast potential, Colombia’s biggest challenge is to close the "image gap" between the public’s perception of Colombia and Colombia’s new reality.
To help understand this new reality, below are 10 things you may not know about Colombia:
1. Colombia boasts the best business environment in Latin America: According to the World Bank’s 2010 Doing Business report, Colombia is the top country in Latin America to start or expand a business. This is due to recent reforms that have made the country’s regulatory environment transparent and efficient, from strong property rights and investor protection to efficient court procedures and major tax incentives.
2. FDI is growing at record levels: Between 2002 and 2008 Colombia saw an increase of 400% in foreign direct investment (source: Central Bank). The country expects to see a record10 billion in total FDI in 2010 (source: National Business Association of Colombia), as companies increasingly look to tap into Colombia’s traditional sectors, such as exports, mining and infrastructure. Emerging sectors, such as biofuels; IT/BPO; audio/visual production and medical tourism are also new areas attracting investment to the country.
3. The pending free trade agreement between Colombia and the US would create big benefits for the US: As a country that tripled its exports over the past 10 years (source: Colombia’s National Bureau of Statistics) and is predicted to experience GDP growth of 3% - 3.5% this year (The Wall Street Journal), Colombia has made international trade a priority and is very keen to move forward with the pending free trade agreement with the US. The United States has lost corn, wheat and soybean meal sales to Brazil and Argentina in 2009 because those countries had free trade agreements with Colombia and the United States did not. With the recent passage of the EU free trade agreement, the importance of passing the US agreement is paramount.
4. Improved security strengthens investor confidence: According to Colombia’s Ministry of Defense, increased military spending and coordination helped to decrease kidnappings by 90% and homicides by 45% in Colombia between 2002 and 2009. During this same period, Investment Monitor, fDi Markets, recorded a total of 81 investment projects from 64 US companies including industry giants such as Microsoft, Nike and DirecTV.
5. Innovative infrastructure fuels Colombia’s growing IT market: Colombia developed some of the world’s strongest IT infrastructure in order to keep information and communications secure during previous times of political unrest. Today, the country has double the telecommunications investment as a percentage of GDP--more than any other country in Latin America--and hosts a backed-up and secure Internet infrastructure, with 5 underwater cables and 212.5 Gbps capacity. Business Monitor International recently predicted Colombia, whose IT industry grew 40% between 2005 and 2007, will continue to be one of Latin America’s fastest growing IT markets.
6. Colombia grows green energy from reclaimed plantations: With 6.5 million hectares of available land, the most productive sugarcane in the world and the most productive palm oil in Latin America, Colombia is dedicated to expanding its biofuels sector. The amount of biofuels required to be mixed with all gasoline and diesel sold in Colombia is set to double to 20% by 2020, creating a guaranteed market. This has allowed many rural inhabitants to engage their land in productive use to grow biofuels instead of engaging in illegal activity.
7. Colombia has a health system comparable to Sweden and Belgium: The World Health Organization recently ranked Colombia’s health system as the best in Latin America and placed it on par with the renowned health systems of countries like Sweden and Belgium. With nearly 6 million Americans expected to undergo medical procedures abroad in 2010 (source: Deloitte Center for Health Solutions), Colombia is well-poised to capture many of America’s "medical tourists" looking to capitalize on the country’s lower procedures costs, which are typically 10-30% of costs in the US (source: Proexport Colombia).
8. Colombia is a leader in entrepreneurship: According to a 2009 ranking by the IMD World Competitiveness Center, Colombia is a regional leader in entrepreneurship, second only to Brazil. With a population of more than 45 million, one of Colombia’s greatest resources is its human capital. The country has the highest labor force growth rate and the second largest availability of skilled labor in Latin America.
9. Colombia’s creative class is spurring new growth in industry and tourism: Colombia’s long history of creativity in literature, art and music (think Gabriel Garcia Marquez, Fernando Botero and Shakira) is growing into new opportunities for business and tourism. From the new "train to Macondo" commemorating Garcia Marquez’s famous town in 100 Years of Solitude, to The Carnival of Barranquilla, proclaimed by UNESCO as a Masterpiece of the Oral and Intangible Heritage of Humanity. Creativity is also leading growth in new industries: Colombia’s audio/visual production cluster is emerging as one of the country’s next big opportunities, with animation studios and production houses capitalizing on the creative talent of the local people in Colombia’s low-cost environment.
10. Tourism has doubled since 2002: According to The New York Times, Colombia is positioned in the tourist market as one of the most sought-after destinations for 2010. In fact, between 2002 and 2009 the number of foreign visitors arriving in Colombia jumped from 1.1 million to 2.5 million. Every day, Bogota’s international airport welcomes more than 300 international flights, and in order to accommodate rising demand, over the next two years Colombia will add 7,042 hotel rooms to its list of prestigious accommodations.
Over the past decade Colombia’s economy has made drastic steps forward due to a strict government focus on security and investment promotion. Various industries, from energy and IT to tourism and healthcare, have seen the fruits of these efforts. Progress is reflected by Colombia’s emergence as a major world economic player, jumping six spots this year in the most recent World Competitiveness Report giving it the largest improvement in ranking of all the countries in the region.
As experts predict emerging markets will grow up to three times faster than developed countries this year and will drive global economic recovery, Colombia is well positioned for growth. With a dramatically improved business environment, partnered with innovation and competitive resources, the "new" Colombia is a country to watch in 2010.
Article taken from The Huffington Post, July 06, 2010.
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