Saturday, June 25, 2016

Peace in Colombia


It has been a long time coming. After 52 years of fighting, almost four years of peace negotiations and three months after a final deadline, the Colombian state and the Marxist guerrillas of the so-called Revolutionary Armed Forces of Colombia (FARC) have agreed to a bilateral and “definitive” ceasefire. That is cause for celebration, for Colombia and for the region. But the peace deal is controversial. Putting it into practice will be tricky and it may be made harder by the unpopularity of the government of Juan Manuel Santos, Colombia’s president.


Unfortunately, the peace agreement comes when Colombia is facing a sharp economic adjustment. The IMF expects the economy to grow by only 2.5% this year, compared with 4.4% in 2014. To fill a hole in government revenues caused by the oil slump, Mr Santos is preparing to raise taxes later this year. His opponents bridle at the notion of paying taxes to help the FARC.

But as Mr Santos says, war is more expensive than peace. If the agreement is less than perfect it is because Mr Uribe’s military build-up—which for three years was directed by Mr Santos as defence minister—weakened the FARC but did not defeat them. That Colombia’s conflict has long been an anachronism does not make it any easier to end. Peace with the FARC will improve the lives of Colombians, especially those in remote rural areas. However late in the day, it is a big prize.

This is a big deal in that the government will not have to spend large amounts of time and money fighting this insurgency. The other benefit will be the way that the rest of the world views Colombia. Business will be more apt to invest in the country if they believe that their people will not be killed or kidnapped and that their business and infrastructure will not be blown up. 

As oil prices rise Colombia will get the wind back in its sails and should recover nicely. having the end of this conflict will be icing on the cake. 

I currently own Canacol Energy which has just brought on stream a significant gas project in the energy starved country. As oil prices recover I expect the company to take its its massive natural gas cash flow and plow it into its oil projects. I would not rule out more acquisition by Canacol as they sift through the wreckage wrought by low oil prices. 

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