The U.S. Department of State, through the Bureau of Economic and Business Affairs, recently released its 2024 Investment Climate report on Colombia. The report indicates that despite robust foreign direct investment (FDI) in 2023, the administration of President Gustavo Petro “has generated considerable uncertainty within the private sector”. The Colombian economy saw a modest expansion of just 0.6% in 2023, representing a significant deceleration after two years of vigorous post-pandemic recovery.
A sharp 25% reduction in investment, high-interest rates, and a declining business environment were major factors behind this slowdown. Key sectors such as construction, manufacturing, and commerce experienced notable downturns. However, public administration and related activities, bolstered by increased government spending on operational expenses, helped mitigate some of these adverse effects.
Given rising uncertainty, dollar-denominated exports dropped by 12.9% due to falling prices for hydrocarbons, including petroleum, its derivatives, and coal. “Colombia continues to hold a below-investment-grade status following downgrades by Fitch and Standard & Poor’s in July 2021,” mentions the report.
Economic analysts, as per the Fedesarrollo and Colombian Stock Exchange Financial Opinion survey, project a median GDP growth of 1.4% for 2024. In response to the economic challenges, the Colombian government enacted a tax reform in January 2023, aimed at revitalizing the economy, creating jobs, and enhancing fiscal stability. However, proposed reforms to the health, labor, and pension systems have raised concerns among investors.
The health sector faced significant upheaval in early April 2024 when the National Superintendency of Health (Supersalud) took control of four health insurance providers – EPS – including Colombia’s two largest, for one year. This move placed nearly half of Colombia’s health system users, about 25.1 million people, under government control.
Since the 2016 peace agreement between the government and the demobilized Revolutionary Armed Forces of Colombia (FARC), there has been a notable reduction in terrorist activities. However, several powerful narco-criminal operations continue to pose threats to commercial activities and investments, particularly in rural areas beyond government control. The Petro administration is pursuing negotiations with illegal armed groups not included in the 2016 peace accord under a policy termed “Total Peace.” According the the report, “results have been mixed, with official negotiations progressing slowly and many armed groups escalating violence”.
A heightened security situation in the departments of Cauca, Valle del Cauca, Nariño, Norte de and Santander has been exacerbated by the criminal activities of the National Liberation Army (ELN) guerrilla. Despite a bilateral ceasefire with the government, the ELN frequently targets oil pipelines, mines, roads, and electricity towers to disrupt economic activities and pressure the government. The U.S Department of State also mentions that ELN engages in “extortion, kidnapping, and property destruction against businesses that refuse to pay for protection”.
Corruption remains a significant challenge for businesses operating or planning to invest in Colombia. Non-tariff barriers, regulatory hurdles, and bureaucratic inefficiencies at national, regional, and municipal levels are common complaints from U.S. and other foreign investors. During the Petro administration, stakeholders have reported more limited access to some ministries and agencies.
Investors from various sectors also cite a lack of effective and timely consultation with regulatory bodies and express concerns about staff turnover and loss of technical expertise within government agencies.
The report also highlighted Colombia’s high levels of poverty, income inequality, and labor market informality. In 2023, 43% of the urban workforce was employed in the informal economy, with the national average at 57%. The overall unemployment rate for 2023 stood at 10.2%.
Colombia’s complex investment landscape is marked by economic opportunities and challenges, ongoing reforms and security efforts, alongside historical commitments to green investment and international trade agreements. The government’s actions over the next two years will be crucial in determining the stability and attractiveness of Colombia as a destination for foreign investment, emphasized the U.S Government report.
