Overview: Between 1970 and 1995, Colombia enjoyed the second-highest economic growth rate in Latin America. Under the new constitution of 1991, the economy was liberalized. Since then, the government has sought to facilitate the gradual transition from a highly regulated economy to a free-market economy through measures such as tariff reductions, financial deregulation, privatization of state-owned enterprises, and adoption of a more liberal foreign-exchange rate. However, the economy became mired in a recession in 1998–99 as a result of external shocks and monetary tightening to curb inflation, which was fueled by currency depreciation and deterioration in the public finances. Despite continued economic stagnation and depreciation of the peso, the economy did not suffer any dramatic collapses.It continues to suffer from weak domestic and foreign demand, austere government budgets, and serious internal armed conflict.Nevertheless, confidence in the political and economic strategy of Álvaro Uribe Vélez (president, 2002– ) brought a rebound in investment and growth in 2003. The Uribe government’s plan for 2004–05 is to pursue an export-oriented strategy.
Gross Domestic Product (GDP): Overall GDP increased in real terms by an average of 2.5 percent a year from 1990 to 2002.Real GDP growth in 2003 was 3.7 percent. The government predicted a GDP growth rate of 4 percent in 2004. In 2003 total GDP at market prices was US$77.6 billion, lower than in 2002 (US$80.6 billion). Per capita GDP in 2003 was projected to be US$1,709, as compared with US$1,820 in 2002.GDP per capita increased in real terms by an average of 0.6 percent a year from 1990 to 2002.
GOVERNMENT Budget: Colombia’s public solvency ratios have deteriorated sharply since 1997 as a result of factors such as slow growth, large fiscal deficits, a costly security build-up, and a falling currency.During the period from 1998 to 2003, the public debt/gross domestic product (GDP) ratio rose from 22 percent to 52 percent.Thus, under its arrangement with the International Monetary Fund (IMF), the government’s priorities are to make the fiscal adjustments needed to stabilize this ratio, lower inflation, and strengthen the financial sector.Fiscal reforms allowed the government to meet its revised (IMF) target of a combined public-sector deficit of 2.8 percent of GDP in 2003 (US$2.2 billion), down from 3.6 percent of GDP in 2002.President Uribe has struggled to bring Colombia’s public finances under control, and his government hopes to improve the combined public-sector deficit to 2.5 percent of GDP in 2004.
Inflation: During 1990–2002, the inflation rate averaged 18.1 percent.The inflation rate (consumer price index) in 2003 was 6.5 percent, as compared with 6.3 percent in 2002 and 8.0 percent in 2001. By May 2004, the 12-month rate was down to 5.4 percent, the lowest in decades.Inflation was projected to continue to ease during 2005.
Agriculture, Forestry, and Fishing: Agriculture accounted for 13.7 percent of gross domestic product (GDP) in 2003 and 13.9 percent of GDP in 2002, when it employed about 21 percent of the labor force.Agriculture’s share of GDP has declined significantly since 1987, when it was almost 21 percent of GDP.During 1990–2001, its share of GDP decreased at an average annual rate of 1.1 percent.A diverse climate and topography allow cultivation of a wide variety of crops. Products include bananas, beef, cassava, cocoa, coffee, corn, cotton, cut flowers, livestock, potatoes, rice, soybeans, sugarcane, timber, and tobacco.In 2003 the cultivated area expanded by 4 percent.Crops with the largest increases in area under cultivation in 2003, not including illicit crops, were cotton, rice, yellow corn, and palm oil.
Colombia has between 53 million hectares and 58 million hectares of forest and woodland, of which only 3 million hectares are dedicated to commercial exploitation. The government is offering incentives to increase forest and woodland by 1.5 million hectares between 2002 and 2025, of which 80,000 hectares would be grown in 2003–06.
Low fish consumption and rudimentary fishing techniques apparently account for the relatively marginal performance of the fishing industry, despite a huge potential for both aquaculture and sea fishing along Colombia’s 3,208 kilometers of coastline. Authorized and unauthorized foreign ships commonly fish in Colombian waters.
Industry and Manufacturing: Industry, including manufacturing, mining and quarrying, construction, and power, accounted for 30.1 percent of gross domestic product (GDP) in 2002 and 32.1 percent in 2003 and employed 19.3 percent of the labor force in 2002. In 2000 mining accounted for about 6.4 percent of GDP. Construction was the fastest-growing subsector in 2003, growing by 11.6 percent. Manufacturing accounted for 15.4 percent of GDP in 2002 and employed 13.2 percent of the labor force. Major manufactured products include beverages, cardboard containers, cement, chemicals, electrical equipment, machinery, metal products, pharmaceuticals, plastic resins and manufactures, textiles and garments, transport equipment, and wood products. The four major industrial centers are Bogotá, Medellín, Cali, and Barranquilla.
Energy: Proven oil reserves totaled 1.6 billion barrels at the end of 2002, but had increased to 1.8 billion barrels as of January 1, 2004. Total crude oil production estimates range from 560,206 barrels/day (bbl/d) to 620,000 bbl/d, of which 184,000 bbl/d are exported. Some refined products, especially gasoline and fuel oils, must be imported owing to the country’s limited refining capacity. Natural gas proven reserves in 2002 totaled 132 billion cubic meters; production totaled an estimated 5.7 billion cubic meters in 2001. More than 60 percent of natural gas demand comes from the Atlantic coastal region, where industry and the electricity sector are the main users. Colombia has well over 7 billion tons of proven coal reserves; annual coal production in 2000–02 totaled almost 40 million tons, making Colombia the fifth largest producer in Latin America. About 90 percent of domestic coal production, which is entirely handled by foreign companies, is exported. Electricity generating capacity has remained at nearly 13,500 megawatts since the mid-1990s. Of that total, 65 percent is hydroelectric and 34 percent thermal.
Services: The services sector accounted for 56 percent of gross domestic product (GDP) in 2002 and 55.2 percent in 2003. By occupation, the services sector employs about 56 percent of the labor force, if this sector includes commerce; communications; electricity, gas, and water; financial services; tourism; and transportation. Financial services, representing nearly 18 percent of GDP, are centered in Bogotá, Medellín, and, to a lesser extent, Cali. Banking ownership is highly concentrated, with two financial groups—Sarmiento and Aval—owning 34 percent of banks’ assets; three state-owned banks account for 25 percent, and a group of foreign banks holds 22 percent. Growth of tourism, which accounts for just 2 percent of GDP, has been slow because of the country’s reputation for violence and robbery. Occupancy rates in the hotel industry, which has substantial foreign participation, are recovering slowly and rose to an annual average of more than 46 percent in 2000–02. The government has been promoting road travel and providing incentives for hotel construction and tourist projects in natural parks and ecological sites, such as the Amazon and the coffee zone.
Clandestine Economic Activity: Colombia is Latin America’s largest exporter of illegal drugs. Accounting for more than US$5 billion a year, trafficking in processed cocaine and other illicit drugs represents between 2.0 percent and 2.5 percent of gross domestic product (GDP) a year. Only an estimated half of these illicit revenues return to Colombia. The main illicit industries after drug trafficking are contraband, forgery (principally of clothing, books, CDs, and audio- and video-cassettes) and, more recently, theft of gasoline. A significant amount of foreign exchange is believed to be from illegal trade in gold and emeralds, in addition to drugs. In 1999 the value of contraband in Colombia increased to US$2.2 billion, more than doubling in a decade and accounting for about 25 percent of total imports and 50 percent of total exports.
Labor: In 2003 Colombia’s labor force totaled 20.3 million, as compared with an estimated 18.3 million in 1999. According to official Colombian government household survey data for 2000, the percentages of the employed population involved in the various economic activities were as follows: agriculture, 20.9 percent; industry, 12.7 percent; construction, 4.5 percent; commerce, 22.5 percent; transport, 5.5 percent; financial services, 4.0 percent; services, 27.5 percent; other activities, including mining, electricity, gas, and water, 2.3 percent; and not specified, 0.1 percent.
Non-skilled labor wages are protected from declining in real terms by strict minimum-wage regulation. However, businesses have reduced skilled labor wages and increased lay-offs. Trade union militancy has declined as a result of high unemployment, the loss of prestige of the unions, and paramilitary attacks on union members.
In April 2004, the national unemployment rate was 14.7 percent. This rate is little changed from 2003, when estimates ranged from 13.6 percent to 14.8 percent. It was lower than in 2002, however, when the national unemployment rate reached 15.7 percent by year’s end. Since 2001, the government has calculated unemployment rates based on the percentage of the labor force out of work in 13 major cities instead of only 7 major cities. Agriculture, which created 282,000 new jobs, was the sector enjoying the greatest employment increase in 2003. Underemployment, which has been more than 30 percent since 2001, is also a major problem.
Foreign Economic Relations: The United States has long been Colombia’s most important trading partner, accounting for about 45 percent of Colombian exports and 30 percent of imports. A free-trade agreement between the United States and the Andean countries of Colombia, Ecuador, and Peru is expected to come into force by the end of 2006, and bilateral Colombian-U.S. trade is expected to increase as a result. Venezuela traditionally was Colombia’s second-largest trading partner, but Colombian-Venezuelan trade relations suffered a setback in 2002–3 as a result of Venezuela’s imposition of capital controls. Colombian exports to the Andean countries, including Venezuela, have accounted for about 20 percent of total Colombian exports since 2000. Another principal destination for Colombian exports is the European Union, which accounted for 15 percent of the total in 2003. Both the United States and the EU grant preferential access to Colombian exports under the Generalized Preferences System. Germany is Colombia’s principal EU trading partner.
Imports: Imports of goods (free on board) totaled US$12.079 billion in 2002 and US$13.9 billion in 2003, for an increase of 9.4 percent. The major suppliers of imported goods in 2002 were the United States, 31.1 percent; Venezuela, 6.6 percent; Brazil, 5.8 percent; Mexico, 5.1 percent; Japan, 5.1 percent, and Germany, 4.2 percent. Colombia’s principal imports include machinery, industrial and oil and gas industry equipment, grains, chemicals, transportation equipment, mineral products, consumer products, metal and metal products, plastic and rubber, paper products, and aircraft supplies.
Exports: Exports of goods (free on board) in 2002 totaled US$12.832 billion and in 2003, US$13.523 billion; in 2002 exports represented 19.8 percent of the total gross domestic product (GDP). Traditional exports—oil, coal, coffee, and nickel—reached US$6 billion in 2003, an increase of 13.1 percent over 2002. In 2003 these products earned the following revenues: oil, US$3.383 billion; coal, US$1.421 billion; coffee, US$806 million; and nickel, US$394 million, for a total of US$6.004 billion in 2003. Although coffee represented 60 percent of exports in 1987, in 2003 it was in third place because of low international prices in recent years. Coal exports, however, surged in 2003, fueling the sharp rebound in foreign trade. Other significant, nontraditional exports included agricultural products—cut flowers, bananas, and sugar; mining products—ferronickel, gold, cement, and emeralds; and industrial products—textiles and apparel, chemicals, pharmaceuticals, cardboard containers, printed material, plastic resins, and manufactures. The main destinations of exports in 2002 were the United States, 44.7 percent; Venezuela, 9.4 percent; Ecuador, 6.8 percent; and Peru, 2.9 percent.
Balance of Payments: The actual current-account balance in 2002 was –US$1.5 billion; estimates for 2003, 2004, and 2005 were –US$1.4 billion, –US$2.1 billion, and –US$2.6 billion, respectively. The current-account deficit is expected to widen in 2005 as a result of a rising import bill and higher debt interest payments.
External Debt: The estimated external debt at the end of 2003 was US$38.2 billion, or the equivalent of 49.3 percent of gross domestic product (GDP). This was an increase over 2002, when the external debt stood at US$37.3 billion.
Foreign Investment: In 1991–92 the government passed laws to stimulate foreign investment in nearly all sectors of the economy by eliminating restrictions on foreign inflows, creating a privatization program, and opening foreign investment in the oil industry. As a result, foreign investment grew strongly in the 1990s. Since 1998, however, foreign direct investment (FDI) has leveled off in response to slow economic growth, investor uncertainty, and stepped-up guerrilla activity, such as sabotage of oil pipelines and extortion of companies operating in the country. The Central Bank reported that FDI fell to a low of US$1.5 billion in 1999, but rose to US$2 billion in 2002, while total foreign investment in Colombia reached US$22.6 billion by the end of 2002. The government further liberalized its regulatory controls on foreign investment in 2002. The United States has continued to hold the largest share of FDI, followed by the European Union (EU), primarily Spain and the United Kingdom; and Latin America, mainly Venezuela and Ecuador. Petroleum, natural gas and coal mining, and chemical and manufacturing industries attract the greatest U.S. investment interest. Areas closed to FDI include defense and national security, disposal of hazardous wastes, and real estate.
Currency and Exchange Rate: Colombia’s currency is the peso (pl. pesos), abbreviated informally as Ps. Peso banknotes are issued in the following denominations: 1,000, 2,000, 5,000, 10,000, 20,000, and 50,000 pesos. In early November 2004, 2,542.4 pesos equaled one U.S. dollar, as compared with an average of 2,087.9 pesos in 2000. The peso was projected to end 2004 at Ps2,800=US$1 and to end 2005 at around Ps2,850=US$1.