From January through March, Colombia’s economy grew by just 2.8%. For some Western cou tries, this would be positive news. But for Colombia, a nation whose economy has emerged as one of the fasting-growing in Latin America over the past decade—growing by at least 4% per year since 2010 and hitting a high of 6.9% in 2006—this was the most disappointing quarter since 2012.
Nearly two thirds of Colombia’s exports are oil and coal, so this has been expected ever since the price of crude tanked last year. But the actual realization of slow growth after years of impressive GDP expansion has called into question Colombia’s ability to maintain its rapid development in a world of cheap oil.
“We have a lot of concern about the declining price of commodities, especially of petrol, oil, and gas,” said Olga Lucía Acosta, a Colombian economist at the U.N.’s Economic Commission for Latin America and the Caribbean (ECLAC).
But Acosta remains optimistic. She believes that the macroeconomic foundations and free-trade agreements established during its decade of growth are strong enough to hold things together as Colombia transitions away from oil.
At a June economic conference in Bogotá, Mauricio Cárdenas, the nation’s Finance Minister, shared the same sentiment. He said the country has surfed a wave of high commodity prices and now must learn to swim. And while he stressed that Colombia is breaking its reliance on energy and mining better than most of its Latin America peers, he projected a 3.0% national budget shortfall this year.
Making up this deficit immediately will be impossible. When it comes to long-term, sustainable growth, however, Cárdenas said the nation will overcome the current challenges and do so by diversifying its economy and investing in the future.
This means taking advantage of the country’s reputation as a technology hub, something that has been developing since the Wall Street Journal named Medellin it’s global “Innovative City of the Year” in 2013. Certainly progress has been made. Colombia’s IT sector grew by 177% between 2007 and 2012, hitting nearly USD$7 billion in annual revenue, according to government figures.
Tourism, too, is driving the economy like never before. With violent crime plummeting in the past 10 years, Colombia was able to greet 1.7 million foreign tourists in 2012 compared to just 600,000 in 2000, says the government. Some of this is organic, but officials have chased these dollars, both with financial incentives (like a 30-year tax exemption for hotels built before 2018) and increased promotion.
It isn’t just these new areas where the country needs to focus. Acosta believes that Colombia also needs to remember its roots. “We are a country with a tradition of agriculture and industrial sectors,” she said. “I think we forget a little. It is necessary to promote these.”
She was encouraged to see a structural policy plan for each industry in the national development plan released last year. These changes may already be working: Cárdenas projects that both the agricultural and industrial sectors will contribute more to the GDP in 2015 than they did last year.
At least one outsider shares the optimism of Cárdenas and Acosta. A February report from financial services firm BBVA stated that the nation has likely diversified the base of the economy enough to withstand cheap oil. “The negative effects due to the oil price will be moderated by the resurgence in new sources of growth,” said the report.
All this positivity masks a fundamental imbalance in Colombia, however. One tragedy of all the money pouring into Colombia (foreign direct investment hit $16.2 billion in 2013 compared to just $1.7 billion 10 years earlier) is that it has not been distributed evenly. A 2013 United Nations report revealed that economic inequality in Colombia’s cities grew by 15% between 1990 and 2010, leaving some to wonder if all the progress was being siphoned off by the few already living affluently in posh neighborhoods in Bogotá and and Medellín.
This isn’t simply a human rights issue, but one that is currently threatening the nation’s chance of joining the Organization for Economic Co-operation and Development (OECD), an exclusive club of the world’s wealthiest economies. So far, the only Latin American members are Chile and Mexico. Colombia hopes to become the third, but a January OECD report signaled the need for more “inclusive growth” before acceptance. “Inequality…and old-age poverty remain among the highest in Latin America despite recent progress in overall poverty reduction,” stated the report.
The nation’s notoriously shoddy infrastructure hurts the whole economy— rich and poor—but it has an outsized impact on the most vulnerable in the most rural areas. Cárdenas boasted about recent investment to improve in this area, particularly surrounding the much-hyped $25 billion “4G” plan to overhaul roads launched last year. “We always knew the rise in the price of oil was temporary,” said Cárdenas. “We saw the 4G infrastructure plan as the antidote.”
He believes the plan, which will build new roads, bridges and tunnels to help make transportation faster and safer, will transform the economy and the society. Fixing a transport problem held back Colombia’s economy even in its high- growth years will undoubtedly improve life for all. But though the mega-projects receive the bulk of the acclaim, Acosta says one key change is already making a difference on a small scale.
In 2012, Colombia passed a law that reformed the distribution of royalties ob- tained from foreign energy companies operating in the country. Previously, the funds were distributed mainly in the re- gions where the fossil fuels were extracted. According to government figures, departments like Cundinamarca, Nariño, and Choco received less than $500 million from 2002 to 2010, for example, while Casanare and Meta raked in more than $2 billion.
The reform changed that and is now “promoting growth in different regions in Colombia” by funding small—but meaningful—projects across the country that create new roads, schools, and hospitals, said Acosta.
“If we do the right things about infrastructure, social rights, labor markets, and new technologies,” she said, “we could narrow a gap in Colombia that is very high in equality between the rich and the poor.”