Thursday, July 7, 2016

Peace with FARC will lead to greater prosperity for Colombia

Harvard Business Review:

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Over the past 50 years some 220,000 people, 80% of whom were civilians, have been killed. More than 6 million people have been internally displaced, a population on par with that of Syrian refugees. Nearly 500,000 women have suffered sexual violence, and 27,000 people have disappeared.

The economic cost is difficult to calculate. The war certainly has prevented an efficient economic structure, forcing many Colombians to be inward-looking.

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And the country’s infrastructure is terrible. Old one-lane roads in the mountains, from Bogotá to the coast, make it nearly impossible for Colombian manufactured goods to compete abroad. A handful of rail lines carry little more than coal. Ports and airports are antiquated and small. Banks often are unwilling to take the risk of financing small and midsize companies. Education and innovation remain weak. Poverty and income inequality don’t allow sufficient scale and scope for Colombian businesses to become large and modern.

Despite these limiting factors, Colombia’s economy has been growing at 4.8% annually for a decade. Its outlook is helped by a young, hard-working population and good macroeconomic management. A functioning democracy since the 1970s, Colombia has pursued an economic strategy of export-led growth to take advantage of its coastal access to the Pacific and Atlantic. With a floating currency and an independent central bank that pursues “inflation targeting,” the Colombian government runs small fiscal deficits and maintains inflation under 2.5%. Until recently, when the price of oil collapsed, Colombia enjoyed trade surpluses.

The country was enjoying growth of 4.8% per year even with all of the problems it had. Now that peace is coming the country can continue to rehabilitate its image. I was actually watching a documentary about Pablo Escobar the other night. Unfortunately most investors still presume that Colombia is a dangerous narco state. This is absolutely not true. As perceptions change mainstream investment will begin to flow into the country. The big money will be made by understanding what other don't and being early. 

I currently own Bancolombia (CIB) and Canacol Energy (CNNEF)


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