Nearshore Americas

Colombia’s Economy Proves Resilient Despite Sliding Oil Prices

Foreign investment in Colombia fell by 25% in the first quarter of this year, although the country posted a 4.6% increase in GDP growth for 2014. The sudden drop in oil prices has reportedly kept a large number of investors away from this South American country.

The key driver of this growth, according to analysts, is the construction sector, where investment is rising at a rapid pace. Colombia has embarked on a US$50 billion program to overhaul its transport infrastructure. This project alone was expected to add as much as 1.5% to economic growth during construction.

According to a statement from the government, construction rose 9.9% in 2014, while social services grew 5.5% and financial services increased 4.9%. Mining activity dropped 0.2% during the year.

Colombia is the region’s fourth-largest oil producer and this commodity accounts for more than a half of exports and a sixth of government revenue. Cash flows into the oil and mining sector, which accounted for 81.5% of total foreign investment, fell 11.7% to $2.68 billion.

However, unlike other oil exporters, such as neighboring Venezuela, Colombia is not at risk of slipping into crisis.

Analysts say the country’s GDP may increase by another 2% if its truce negotiations with Marxist rebels prove successful.

The central bank has, however, cut its growth forecast for this year to 3.6%, largely due to continued weakness in the commodity market. In the coming months, the government might reform the economy further to offset the impact of drop in oil prices, because royalties and taxes paid by oil companies make up a large part of its revenue. Late last year, the government increased taxes, saying it needed additional money to close the budget gap.

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Given that the United States is likely to raise interest rates in the coming months, some analysts believe that Colombia might see its FDI fall nearly 20% this year from the $16 billion it received in 2014.

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.

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