Colombia’s economy steps up a gear

Colombia has been through a “political and economic turnaround”, and now offers an appealing macroeconomic story, says Peter Kohli on Marketwatch.com. Violence has declined markedly in the past decade, while inflation has been tamed and the government is keeping a strict eye on the public finances.

This improved backdrop has enticed foreign capital into the country: foreign direct investment doubled last year. Throw in rising consumption by the expanding middle class, which has nearly doubled in a decade, and it’s clear why growth reached 6% in 2013.

The outlook remains positive. Colombia’s main exports are oil and coal, which have held up reasonably well compared to other commodities. Its raw materials exports also go mainly to the US and Europe, as Kohli notes, so China’s long-term slowdown is not so important.

Meanwhile, says The Economist, a law in 2012 cut burdensome payroll taxes and has encouraged job growth. A reduction in mortgage rates has spurred a housing construction boom.

And public-private partnerships in roads and railways worth $25bn are planned by 2018, which the government hopes will raise GDP by 1.5% during construction, and 0.7% over four years once it is in use.

There is still much to be done, especially on the political front. A comprehensive peace deal with the Farc guerrillas, who have been fighting the state for 50 years, would unlock even more foreign investment. But the overall outlook is encouraging.

James McKeigue of LatAm Investor and MoneyWeek’s free email newsletter, The New World, highlights Colombia’s biggest bank, US-listed Bancolombia (NYSE: CIB), as a possible play on the country.

Merryn

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