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Colombia - Economy (Notes)

Colombia is a free market economy with major commercial and investment ties to the United States. Transition from a highly regulated economy has been underway for more than 15 years. In 1990, the administration of President Cesar Gaviria (1990-94) initiated economic liberalization or 'apertura,' and this has continued since then, with tariff reductions, financial deregulation, privatization of state-owned enterprises and adoption of a more liberal foreign exchange rate. These policies eased import restrictions and opened most sectors to foreign investment, although agricultural products remained protected.

Unlike many of its neighboring countries, Colombia has not suffered any dramatic economic collapses. The Uribe administration seeks to maintain prudent fiscal policies and has pursued tough economic reforms including tax, pension and budget reforms. A U.S. Agency for International Development (USAID) study shows that Colombian tax rates (both personal and corporate) are among the highest in Latin America. The unemployment rate in December 2005 was 10.4%, down from 15.1% in December 2002.

The sustained growth of the Colombian economy can be attributed to an increase in domestic security, the policies of keeping inflation low and maintaining a stable currency (the Colombian peso), petroleum price increases and an increase in exports to neighboring countries and the United States as a result of trade liberalization. The Andean Trade Preference and Drug Eradication Act (ATPDEA), which has been extended through June 30, 2007, also plays a pivotal role in Colombia's economic growth. Signing a free trade agreement in November 2006 portends further opportunity for growth once it is approved by the legislatures of both countries and implemented.

Industry and Agriculture
The most industrially diverse member of the five-nation Andean Community, Colombia has four major industrial centers--Bogota, Medellin, Cali and Barranquilla--each located in a distinct geographical region. Colombia's industries include textiles and clothing, leather products, processed foods and beverages, paper and paper products, chemicals and petrochemicals, cement, construction, iron and steel products and metalworking.

Colombia's diverse climate and topography permit the cultivation of a wide variety of crops. In addition, all regions yield forest products, ranging from tropical hardwoods in the lowlands, to pine and eucalyptus in the colder areas. Cacao, sugarcane, coconuts, bananas, plantains, rice, cotton, tobacco, cassava and most of the nation's beef cattle are produced in the hot regions from sea level to 1,000 meters elevation. The temperate regions--between 1,000 and 2,000 meters--are better suited for coffee, flowers, corn and other vegetables, and fruits such as citrus, pears, pineapples and tomatoes. The cooler elevations--between 2,000 and 3,000 meters--produce wheat, barley, potatoes, cold-climate vegetables, flowers, dairy cattle and poultry.

In 2006, Colombia was the United States' fifth-largest export market in the Western Hemisphere behind Canada, Mexico, Brazil and Venezuela and the largest agricultural export market in the hemisphere after the North American Free Trade Agreement (NAFTA) countries. It was also the 28th largest export market for U.S. products worldwide. U.S. exports to Colombia in 2006 were $6.7 billion, up 19% from the previous year. Corresponding U.S. imports from Colombia were $9.2 billion, up 4%. Colombia's major exports are petroleum, coffee, coal, nickel and nontraditional exports (e.g., cut flowers, gold, bananas, semiprecious stones, sugar and tropical fruits). The United States is Colombia's largest trading partner, representing about 40% of Colombia's exports and 29% of its imports. The EU, Japan and the Andean countries also are important trading partners.

Mining, manufacturing industries and oil continue to attract the greatest U.S. investment, which accounted for 13% of the total $10.2 billion in foreign direct investment in Colombia in 2005. Colombia has improved protection of intellectual property rights through the adoption of three Andean Pact decisions in 1993 and 1994 as well as an internal decree on data protection, but the United States remains concerned over deficiencies in licensing and copyright protection.

Mining and Energy
Colombia has considerable mineral and energy resources, especially coal and natural gas reserves. New security measures and increased drilling activity have slowed the drop in petroleum production, allowing Colombia to continue to export through 2010 or 2011, given current production estimates. In 2005, gas reserves totaled 6.711 billion cubic feet. Gas production totaled 649 million cubic feet per day. The country's current refining capacity is 299,200 barrels per day. Losses from theft of fuel (gasoline) decreased from $59 million in 2004 to $46 million in 2005. Mining and energy related investments have grown because of higher oil prices, increased demand and improved output.

Colombia has significantly liberalized its petroleum sector, leading to an increase in exploration and production contracts from both large and small hydrocarbon industries. In 2002, royalties were linked to the size of the discovery as opposed to a flat rate. In 2003, a new oil policy created the National Agency for Hydrocarbons (ANH), which now administers all exploration and production contracts. Ecopetrol, the state-owned hydrocarbon company, must now compete alongside other hydrocarbon companies for exploration and production contracts, separating state roles as investor and resource administrator. State association contracts have dropped from 30% to 0%, allowing private companies 100% ownership upon exploration success. In July 2006, the Colombian Government announced plans to sell 20% of Ecopetrol to private investors.

The country's oil industry has continuously been a target of extortion and bombing campaigns by the ELN and the FARC. Strong security policies and an offensive military posture had reduced attacks on pipelines. According to the Security and Democracy Foundation, this trend regressed in 2005 as attacks on infrastructure increased from 47 in 2004 to 117 in 2005. According to Ecopetrol, at the end of 2005, total oil reserves amounted to 1.4 billion barrels. Oil production amounted to 526 million barrels per day, and petroleum exports were 169 million barrels per day. The country's efforts in exploration during 2005 produced 19 million barrels of new reserves. Output also dramatically improved, due to an additional 35 new exploratory wells, 11,896 kilometers of seismic exploration and a lower drop in production--from 528 thousand barrels per day in 2004 to 526 thousand barrels per day in 2005. According to this new outlook, Colombia will become a net oil importer one or two years later that originally thought (by 2010 or 2011). In 2005, 31 new exploration and production agreements and 28 technical evaluation contracts were signed between private investors and the Colombian ANH, representing $367 million in oil investments.

In 2005, Colombia was the largest producer in Latin America of coal (59 million tons) and ferronickel (39,696 tons). It historically has been the world's leading producer of emeralds, although production has fallen in recent years. In 2005, it was 6.74 million carats, generating $72 million in revenue. Colombia is also a significant producer of gold, silver, and platinum.

Foreign Investment
The United States is the largest source of new foreign direct investment (FDI) in Colombia by far, particularly in the areas of coal and petroleum. In 2005, new FDI totaled $10.2 billion, an increase of over 300% from 2004. The bulk of the new investment is in the manufacturing, mining and petroleum sectors. The only activities closed to foreign direct investment are defense and national security, disposal of hazardous wastes and real estate--the last of these restrictions is intended to hinder money laundering. Capital controls have been implemented to reduce currency speculation and to keep foreign investment in-country for at least a year. Likewise, in order to encourage investment in Colombia, Congress approved a law in 2005 to protect FDI and laws governing the investment for the productive life of the venture.

Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Colombian Peso Exchange Rates
Notes and Commentary: People - Economy - Historical Highlights - Foreign Relations - Relations with U.S.

Facts at a Glance
Current Time
Ranking Positions
Colombian Peso Exchange Rates

Notes and Commentary
Historical Highlights
Foreign Relations
Relations with U.S.

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