Why I’m Bullish on Colombia

Posted on 10. Feb, 2010 by Colin in colombia

My main reason for moving to Latin America was to make my career in an emerging market.

Globalization got a bad rep in America and industrialized economies because it moved jobs to countries with lower costs of labor. Developing countries, on the other hand, saw the emergence of a middle class. Goldman Sachs coined the term BRIC (Brazil, Russia, India, China) for those countries that could eclipse traditionally rich countries. Then they identified the CIVETS countries to join the economic ranks of the BRIC (‘C’ for Colombia). GDP growth in emerging markets, sometimes upward of 10%, is simply impossible to achieve in developed economies where 4% growth is considered rapid expansion.

So why Colombia? The best opportunity lies in the greatest unrealized potential. Emerging markets see so much growth because of their unrealized potential – mostly due to limiting economic policies. For example, China had so much unrealized potential because its 1.3 billion people lived under the inefficiency of a government-planned economy. Allowing all those people to produce for a profit motive is why China is now the world’s second largest economy, and set to become the largest in my lifetime.

Brazil is the Latin American emerging market most economists drool over because of its size. But if we look at unrealized potential, Colombia is the most attractive. Where does Colombia’s unrealized potential come from? Security. Colombia’s undergoing a historic turnaround.

In addition to a guerrilla insurgency, the 80s and 90s were marked by cocaine cartels’ contribution to instability, most notably Pablo Escobar’s Medellin Cartel. The cartels bribed, kidnapped, and assassinated politicians and policemen. Medellin was the most dangerous city in the world. Right-wing paramilitaries added to the chaos.

The climate of violence and insecurity repelled foreign investment for decades. Who in their right mind would build a business in a country which could be taken over by Marxists, where professionals are at risk of being kidnapped, or where common street violence prevents people from going outside? In addition to tourism, foreign investment was nil.

Times have changed. The New York Times ran an article last month on the attractive real estate market in Bogota. From the article:

Once a byword for kidnappings, bombs and chaos, Bogotá has become one of South America’s most attractive cities for foreigners to live and invest in … Álvaro Uribe, Colombia’s president since 2002, has taken a hard line on security issues and scored notable successes against left-wing guerilla groups in recent years.

Love him or hate him, Uribe’s government has kicked the collective ass of FARC - enticing mass desertions, killing high profile leaders, and remarkably rescuing Ingrid Betancourt and three American defense contractors.

Crime’s still a challenge but nowhere near levels of the 80s and 90s. Tourism is exploding behind the industry’s campaign slogan, “The only risk is wanting to stay,” which proved 100% accurate for me after my 2008 visit.

Here’s a slideshow from Colombia’s Proexport:

A few highlights:

• Homicides cut in half in last six years
• Kidnappings down to a fifth of the level six years ago
• Foreign investment five times higher than five years ago
• International visitors doubled in five years
• In 2010 the World Bank named Colombia the most “business friendly” nation in Latin America

The unrealized potential in Colombia stems from how little was being produced due to insecurity, as well as how business-friendly the country is now. Capitalizing on this unrealized potential is called “extreme investing” in this 2007 BusinessWeek article, in which the author calls Colombia an “extreme emerging market.” Here’s a selection from that article:

Colombia’s stock market has soared fourteenfold since October, 2001 … Colombia’s strong fundamentals stand out. Its $130 billion economy, a world leader in the production of coffee, petroleum, textiles, and flowers, is growing at 6.8% a year, two full points faster than the Latin American average. In the past 10 years, Colombia has slashed its inflation rate from 18% to 5%, and since Uribe was elected, unemployment has dipped from 16% to 13%. The nation has never defaulted on its debt or experienced hyperinflation. And entrepreneurial thinking is spreading. Run a Google geographical-hit query, and you’ll see that, per capita, nowhere in the world are there more searches for the words “Peter Drucker,” the late management guru, than in Bogotá. No. 2? Medellín.

I’m also bullish on Colombia because of the people. Bogota is known as the “Athens of Latin America” for its high student population. You can’t walk far without passing a university. It’s an education hub, which is why many multinationals build their Latin American headquarters here. Of course, they build an office in Brazil to manage Brazil, another in Mexico City for Mexico. And they often choose Bogota for the Andean countries over Lima or Caracas.

Medical tourism is major growth industry projected in Latin America. Soaring healthcare costs in developed countries is causing those citizens to look for operations abroad, cosmetic surgery being no small part of that business.

USA Today came out with this excellent article about tourism growth in Bogota.  From that piece:

A boom in international hotel chains (as well as budget lodgings) is beefing up a once-anemic tourism infrastructure. And an exuberant cultural, nightlife and dining scene is luring foreign visitors who previously considered a trip here as tantamount to scheduling their own kidnapping …

What a difference a decade makes …

Nationally, Colombia is touting eco-adventures, such as birding and whale-watching, and forays into its coffee-growing regions, along with beach and cultural tourism. (Cartagena, the Caribbean jet-set paradise of the ’50s and ’60s, has undergone a renaissance after years of neglect.) …

“There’s a tourism boom going on. New restaurants. New hotels. It’s not Denmark or Sweden, but it’s coming,” says developer Abdon Espinosa, walking along a northern street lined with Dolce & Gabbana, Bulgari and other international luxury brands …

In the past five years, 25 shopping malls have gone up, he says. Sidewalk tables fill a pedestrian-only area called the Zona T that by night is jammed with youthful throngs strutting to pulsing club music. In its colonial center, artists and others are moving into once-derelict buildings …

[A] creative culinary scene has emerged, led by talented chefs such as Leonor Espinosa, owner of Leo Cocina y Cava, where native ingredients fuse Spanish, Indian and African influences. The inventive chef pairs lobster tail with sweet red pepper sauce; whitefish ceviche with coconut milk vinaigrette and mango puree; and blends corozo, a tropical palm fruit, into her signature martinis …

The city also boasts a vibrant performing-arts scene. This year’s just-ended Ibero-American Theater Festival (held every two years and catalyst for the grand parade) attracted about 80 theater companies from 40 countries, the largest contingent in its history …

La Candelaria, which, despite its status as Bogotá’s colonial heart, had become a seedy backwater, is re-emerging with new boutique hotels and budget hostels in rehabbed historic buildings along its warren of cobbled streets. (Though locals still warn you to watch your belongings by day and take cabs by night.) It’s a youthful district populated by several universities. It’s also home to a fine collection of 12 museums, including the stellar Botero Museum, featuring Colombia’s premier artist, Fernando Botero, along with works by Picasso, Miró, Degas and others …

Also here are Bogotá’s 19th-century cathedral and important government buildings, including the Colombian Congress, where earlier this year, local artist Rafael Gomezbarros affixed hundreds of giant fiberglass ants to its monumental façade. It’s a curious sight. But for many, no more unexpected than the metamorphosis of the city itself …

Also check out USA Today’s photo essay, The Bogota boom.

Natural and organic consumer products are another growing trend in developed countries. With a sizable chunk of the Amazon rain forest, Andes Mountains, two long coastlines, and a tropical climate, Colombia is one of the most botanically diverse countries in the world. See this New York Times article about the growth of HPC products from the Amazon.

Colombia has coastlines along both the Pacific Ocean and Caribbean Sea for convenient shipping to and receiving from everywhere in the world: Buenaventura on the Pacific; Barranquilla on the Caribbean.

Aside from import/export, those two coastlines feature some of the most beautiful beaches in the world. Tourists love Colombia for its beaches, mountains, rain forest, ethnically diverse culture, and WOMEN. I’ll never hear the end of gringos’ drooling over Medellin and the paisa women. Colombian women are among the most seductive in the world, making the country’s a major destination for sex tourism.

For an indepth look at Colombia’s economy, see this Harvard researcher’s 2008 report Revisiting Economic Growth in Colombia – A Microeconomic Perspective. Unfortunately, it reads like only a Harvard researcher could’ve written it. The main argument is that, for Colombia to maintain its strong performance, it must make easy access to financing (low interest rates) a priority.

Threats:

Venezuela – While Hugo Chavez is Alvaro Uribe’s political nemesis, Venezuela is Colombia’s biggest trading partner. The countries have a long, shared history. The economic disaster that is modern Venezuela primarily hurts Venezuelans (many of whom face water and power rationing at the time of this writing), but Colombians will also take a hit as detailed in Bloomberg’s December article, Colombia Growth in 2010 May Be Cut by Venezuela Trade.

Crime – Security is improved but it’s still not the safest place. The low cost and widespread availability of drugs produce tens of thousands of addicts roaming the streets, which doesn’t create the best atmosphere to shop.

Insurgents – FARC has suffered crippling losses during Uribe’s tenure, but they’re still 10,000 strong. That’s ten thousand trained guerrillas aiming to overthrow the government.

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