Colombia is poised for a significant post-pandemic bounce.
As one of the most dynamic economies in Latin America, Colombia’s post-pandemic recovery will set the tone for many of the region’s stakeholders. Many different factors contribute to Colombia’s economy and overall economic climate, and investors who understand these variables can better plan their strategy for ensuring sustainable long-term GDP growth by gaining exposure to the Colombian economy. Based on the forecasted economic growth in the years to come, the country’s emerging economy is cementing its place as a global center of commerce and innovation.
A Big-Picture Overview of the Colombian Economy
Measured by GDP, Colombia is Latin America’s fourth-largest economy. Historically, the country’s most important export has been petroleum, but it has spent the last few decades rapidly diversifying its export capabilities.
Colombia boasts the world’s fastest-growing IT industry, and is one of the largest shipbuilding industries outside of Asia. The country is also Latin America’s second-largest producer of domestically made electronics and appliances.
However, Colombia is best known for its agricultural sector and exports. It’s one of the largest producers of coffee, avocados, and palm oil in the world, as well as a significant global producer of sugarcane, limes, coconuts, bananas, cocoa, pineapples, and more.
The Colombian government has also consistently supported the export of modern Colombian pop culture and cultural commodities to the world since the early 2010s. Colombian films, music, TV shows, cuisine, and beauty products are widely appreciated internationally. This track record also fuels tourism development, which is another fast-growing industry – the number of tourists visiting Colombia grows by about 12 percent every year, with a larger segment being eco-tourism focused on exploring the country’s incredibly diverse natural environment of snow-capped mountains, dense tropical jungles, and arid deserts.
Colombian Fiscal Policy is Set to Capitalize on Post-Pandemic Recovery
The COVID-19 pandemic had a severe impact on Colombia’s economy, but it ultimately showcased the country’s resilience to uncertain conditions. Thanks to a greater degree of structural strength than many of its neighbors, Colombia was able to maintain high rates of private consumption and keep its economy afloat despite the external shocks, and now they are seeing a strong economic recovery and GDP growth that is expected to exceed pre-pandemic levels.
Private consumption rose 12.2 percent in 2021, enabling the Colombian market to shake off some of the economic costs associated with pandemic healthcare spending. The country’s GDP in current prices more than tripled between the year 2000 and 2015, and is now poised for rapid post-pandemic growth.
As in many other emerging economies, inflation is at times a challenge for Colombia. The year-over-year inflation rate of the Colombian Peso is just under 5 percent, and is driven largely by higher food prices. Experts expect the rate to decelerate to under 4 percent by 2022 – in fact Colombia’s central bank, Banco de la República, has already begun raising its benchmark interest rate ahead of the United States Federal Reserve and sees higher interest rates ahead.
American monetary policy is set to taper gradually over the next year, while Colombia is opting for a more aggressive stance on interest rates to support the stability of the economy and reduce the threat of rising inflation. While in the medium term this could hurt some parts of the economy, it will be a net benefit for Colombia’s economy overall and for many private sector, industries including financial, real estate, and agricultural. This should put U.S. investors in a favorable arbitrage opportunity when investing in Colombia’s post-pandemic economic growth.
At the same time, the Biden administration has taken the step of delisting the Colombian FARC as a terrorist organization, pointing to its transformation to a peaceful political party and the demobilization of its armed component. Regional peace and stability will encourage government spending that drives domestic demand as well as foreign investment, and ultimately it will help drive GDP growth and build the Colombian economy beyond pre-pandemic levels alongside one of its most important trade partners, the United States.
The Colombian Labor Market Is Ready for Investment
Historically, Colombia has ranked higher than most advanced economies on indexes of economic inequality. According to the OECD, the data shows that the poorest 20 percent of households in the country earn 3.7 percent of its total income, keeping per capita income low and a high risk of poverty and crisis, especially for rural families in need of jobs.
However, this is rapidly changing as Colombia’s rate of employment an economic activity reaches new highs. As the economic outlook for the country improves, unemployment will fall as its labor capacity will increase while still offering low operating costs to foreign investors, especially in agriculture.
As of 2021, the Colombian minimum wage is equal to approximately $230 USD per month. This enables considerable growth for agricultural businesses that employ a largely manual workforce. As income inequality stabilizes throughout the country, the quality of life for Colombia’s workers will improve, as will the productivity of its established businesses and competitiveness on the global stage.
Public Debt Creates Opportunities for Foreign Investment
The COVID-19 pandemic caught governments across the world by surprise, and Colombia is no exception. Like most countries, Colombia’s government balances suffered immediately following the first restrictions in March 2020, prompting extraordinary fiscal efforts on behalf of its central bank to limit the impact on growth, protect the private sector, and set the stage for a strong economic recovery.
However, Colombia is taking decisive action to roll off transitory COVID-related spending, improve tax administration, increase its benchmark interest rate to fight inflation, and boost revenues by incentivizing foreign investment. Some of the incentives that the Colombian government offers include:
- First Employment Deduction. Employers can deduct 120 percent of payroll taxes paid to first-time employees under the age of 28.
- 50 Percent Energy Efficiency Income Tax Deduction. Taxpayers with energy-efficient businesses can deduct 50 percent of their investment for up to 15 years.
- Ten-Year Tax Exemption for Rural Development. Companies that meet certain conditions and provide jobs to rural areas can enjoy a ten-year exemption on their income tax liabilities.
This is especially important when considering the situation of some of Colombia’s neighbors. Overall, the credit scores, investment grade rating, and assessment by The World Bank of Latin American countries have been hit harder by the pandemic compared to any other region. Should Colombia navigate its public debt situation better than neighboring countries, manage any fiscal deficit, invest in its private sector, increase social inclusion, and implement reforms that give rise to the country overall, it will undoubtedly become a greater regional power. Thanks to prudent moves by Colombia’s central bank, plentiful natural resources, and strong domestic demand, the country is set to significantly boost its expected economic outlook and overall GDP growth in the medium term and the long term.
Colombia Presents Exciting Opportunities for Investors
Taken together, the outlook for the Colombian economy and future growth is arguably the strongest in Latin America. If you are looking for a dynamic, growth-oriented opportunity in an emerging economy and country, Colombia should be at the top of your list. Our direct farmland ownership program gives individuals the chance to earn passive income from the anticipated economic growth in Colombia in 2022 and beyond. Fill out the form below to learn more.