Alvaro Uribe, President of Colombia, has always been a preacher of foreign investment as a fundamental economic policy that would help fuel the country’s growth.

But there is a major reason he wants to promote Colombia as a foreign investment destination so passionately.  The Colombian economy shrank 0.5% during the second quarter of this year, pushed down by the industrial & retail sectors, which are, the biggest employers in the domestic economy. It was the third straight quarter in which the Colombian economy has fallen, the longest slump in a decade.

In order to spur growth in Latin America’s fifth-biggest economy, the government has decided to spend over $28.5 billion in infrastructure projects, whereas the Central Bank has cut rates from a record high of 10% in November 2008 to a record low of 4% in September this year.

Where the Money is Flowing to

To date, foreign investment has mainly focused on the oil, mining & manufacturing industries, with foreign investment in the oil sector exploding during the last few years. From small independent oil & gas companies such Pacific Rubiales, Benchmark Energy & West Canyon Energy to big multinationals such as Exxon (XOM)  British Petroleum (BP).

Oil sector investment has risen eight fold since 2002, last year the inflow of money into the sector was in the region of $3.5 Bn to finance projects in the Magdalena Medio and llano basins. The latter has barely been explored and it is the one that would seem to offer the biggest potential going forward.

Foreign investment in the mining and quarrying sector has been propelled for the recently discovered gold &coal fields in different regions of the country. FDI in this sector has grown 29% based on year-to-date figures. Furthermore, Colombia enjoys the largest coal reserves in Latin America. It has over 17 billion tons in coal reserves, while annual production is only 70 million tons, less than 1% of measured reserves.

The financial sector has recently been targeted by major financial services companies such as Citigroup  & HSBC which are currently offering first floor services, whilst Fitch Rating Services recently bought a major Colombian rating agency.

The Colombian stock market has also recently entered into an agreement with the Peruvian and Chilean stock markets to study the possibility of markets’ integration, widening the opportunities for foreign investors & speculators to have some exposure in the region with most potential in Latin-America.

Finally, the retail sector has seen heavy inflows from multinationals such as France’s Casino and Carrefour and Chile’s Fallabella that took advantage of the expansion in the internal demand driven by the strongest growth of the economy in more than four decades. Retail has grown by a factor of 10 since 2002

Where are the Opportunities

Sadly Colombia has suffered in the recent past due to security issues, with most of the required investment in the biggest projects being held back by the preceding governments, so opportunities are virtually endless in various sectors.

The llanos basin is a much underexplored & underdeveloped area that accounts for over 40% of Colombian territory. Investment in oil, agricultural & infrastructure sectors will expand in the years to come as new oil discoveries & bio-fuel projects stimulate the government intervention in infrastructure.

Because of anti-cyclical policy and decades of long decay, it is expected that infrastructure investment will boom in the coming years. Recently, the government announced over $2.8 Bn in spending for highway projects, just for 2009 that are to be financed by selling shares of the national petroleum company, Ecopetrol.

Tourism & construction should also benefit as the recognition of Colombia as a major tourist destination in Latin-America based on its tropical weather & incredible bio-diversity. Cities like Cartagena, Santa Marta and Barranquilla have been targeted for investments in hotel, condo and golf projects. The coffee region was categorized by The New York Times as one of the most attractive regions in the world.

Many thanks to Luis Rodriguez of E-Bursatil for this guest post

With the aim of increasing international trade, 22 emerging and developing countries, including seven Latin American nations, signed an agreement to reduce tariff barriers by 20% on a minimum of 70% of the products they regularly trade among themselves.

The list of signatories, who met on the sidelines of the World Trade Organization (WTO) ministerial summit in Geneva, includes Argentina, Brazil, Paraguay, Chile, Mexico, Uruguay and Cuba.

“This is a very important step for the South–South cooperation system and is a clear demonstration that developing countries have the will to continue this work in a process of liberalization that is compatible with development,” announced Argentina’s Minister of Foreign Affairs and International Trade Jorge Taiana, according to EFE. Taiana added, “This shows that multilateral trade negotiations are not a problem for developing countries. We know how to work together and reach agreements.”

The treaty, signed on Dec. 2, is included in the Global System of Trade Preferences Among Developing Countries (GSTP) and, reported AFP, is part of the São Paulo round of negotiations for the liberalization of trade between nations in the southern hemisphere, which began in 2004.

The signatories must declare their commitments and define the goods included in the agreement before September 2010, when the new tariffs will enter into vigor.

“Trade among Southern countries is a good response for overcoming the crisis. In the case of Brazil, the diversification of our trade was a key factor in enabling us to suffer less than other countries from the effects of the global financial crisis,” said Brazilian Foreign Minister Celso Amorim to EFE.

Transactions between these 22 countries, reported Amorim, accounted for approximately 18% of international trade and almost half of global agricultural production.

Supachai Panitchpakdi, the director of the United Nations Conference on Trade and Development (UNCTAD), told AFP that the agreement should increase trade between the nations involved by US$8 billion per year.

After the Venezuelan government announced an audit of three private banks “behind closed doors”,  Hugo Chávez announced that he would merge the three institutions to create a new State bank called Bicentenario.

This, reported AFP, brings the total number of organizations audited by the executive branch in the past two weeks, as a result of alleged irregularities in their accounts, to seven. After the nationalization of Banco de Venezuela, which concluded this year, the State will control 25 percent of the banking sector, making it the most powerful player in the financial system.

The most recently affected institutions were Central Banco Universal, Banco Real and Baninvest, which together account for 1.8 percent of total deposits in the Venezuelan banking system, the Banks Superintendency (Sudeban) stated to AFP. “It comprises an audit behind closed doors to rehabilitate these banks,” explained Finance Minister Alí Rodríguez Araque.

The decision against the three banks, reported AP, was announced four days after the government decided to close the Canarias, Confederado, Bolívar and ProVivivenda (BanPro) banks after a ten-day audit process. The four banks taken over account for 5.5 percent of total system deposits.

According to Reuters reports, Rodríguez Araque denied that Venezuela was going through a banking crisis and attempted to calm fears over the health of the financial system. “The national banking system is not in a state of crisis,” assured Rodríguez Araque, who also underscored the “solidity and stability” of the sector.

Despite the minister’s statements, reported AP, the moves made by the executive branch against these banks caused unease in the local financial sector and there were massive cash withdrawals at some institutions. Some institutions were even forced to resort to loans between banks to alleviate liquidity problems.

Chávez, reported Europa Press, warned that he is prepared to take over all of the private institutions in the country if he is “forced” to. “We have set our sights on another group of banks. Believe me when I say that if I am forced to take over all Venezuelan private banks then I will,” he stated.

“The oligarchy is looking to make a run on the banks and thinks that will cause Chávez to fall. What’s going to fall is the private banking system, not Chávez,” assured the president according to BBC.

Far from the earthquake unleashed on international markets by Dubai’s request to defer payment of its multi-million dollar debt, the two major stock exchanges in Latin America, Mexico City and Sao Paulo finished November with significant gains in what was the first month world economies began to show signs of recovery after the onset of the global financial crisis.

Mexico and Sao Paulo, ended November with gains of 8.07 % and 8.93 % respectively. Next came Colombia, with a 5.22 % gain, Caracas (5.04%), Montevideo’s IMEBO (1.63%) and Buenos Aires’s MERVAL (1.49%). The only two regional markets without increases were Lima (-0.59%) and Santiago (-1.78%).

On Nov. 26, noted Reuters, global markets tumbled on worries about Dubai’s debt problems and fears that a renewed financial crisis could put an end to the burgeoning recovery.

Regional markets showed a mixed performance during the last week of November. The highest gain, according to EFE, was registered in Colombia with 1.58 % and the greatest loss came in Santiago with a 2.05 percent drop.

A study by Compass Group consultants for La Tercera revealed that shares of several large companies listed on regional stock markets were returning to pre-crisis values.

The market value of 104 companies, linked to 40 of the largest economic groups (in Argentina, Brazil, Chile, Colombia, Mexico and Peru), was only 1.2% below the prices recorded in late 2007, representing a market value approaching US$803 billion. The driving forces of recovery, the report said, were the consumer goods and financial services sectors.

Asked whether the crisis in Dubai could lead investors to reconsider markets such as Latin America, Jaime Sabal, professor of corporate finance in emerging markets at Barcelona’s ESADE business school, told BBC Mundo that it “should have no impact whatsoever.” Sabal continued, “What happens in Dubai is a particular case, related to the real estate sector and should have no impact on other markets.”

The economic climate improved in all Latin American countries between July and October 2009, reports the latest joint quarterly study drawn up by the Brazilian Economy Institute, the Institute for Economic Research at the University of Munich (Ifo) and the Getulio Vargas Foundation (FGV), which also underscored the recoveries underway in Brazil, Peru and Uruguay.

The Economic Climate Index (ECI) registered a high of 5.2 points in October, which demonstrates that the effects of the global financial crisis have been overcome. The index registered 2.9 points in January, reported Diario Financiero, the lowest level since measurements began in 1990.

The ECI is defined as a synthesis indicator, composed of two qualitative measures: the Present Situation Index (PSI) and the Expectations Index (EI), which respectively deal with the country’s economic situation at present and expectations for the next six months. The research institutes consulted 142 economics experts in 16 countries in order to compile the quarterly study.

The region’s PSI rose from 2.6 to 3.3 points between July and October, remaining at what is considered an unfavorable level, explained Portafolio.com, while the EI rose from 5.4 to 7.0 points over the same period, indicating a positive outlook. “The region remains in the recovery phase of the cycle, following the global trend,” stated the study.

In the July analysis, Brazil, Chile, Colombia, Mexico and Peru were already in the economic recovery phase, while Argentina, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela remained in recession. “In October, Brazil, Peru, and Uruguay moved on to the boom stage,” stated the study, according to América Economía. “Brazil stands out with the highest indicators in the region, both in terms of economic climate and the present and expected situation,” it went on to say.

Argentina and Paraguay, reported Reuters, “have escaped from recession and entered the recovery cycle,” as stated by the study, adding that Bolivia is on the limit between recession and recovery. Chile, Colombia and Mexico continued in the recovery phase in October, while Ecuador remains in recession.

At the global level, the ECI rose considerably between July and October in the United States (8.0 points), the European Union (5.8) and Japan (6.4), exceeding the mean by over five points and indicating that an economic recovery is now underway in these countries and regions.

Argentina’s economy will lag other countries in the region, expanding between 2% & 2.5% next year and recovery will be “much slower” in the post 2008 crisis than in previous years when the country enjoyed  growth rates of 6% to 7%, according to economist Nouriel Roubini.

Speaking in a teleconference with Buenos Aires, Roubini said Latinamerica’s third largest economy still faces challenges as it weathers the global crisis eight years after its sharp 2001/02 economic meltdown & strongly suggested it should work to normalize relations with creditors such as the Paris Club.

Argentina should also “resolve its confrontation with the International Monetary Fund and accept an economic review by the IMF” he added. Argentina is working to reach a deal with investors who rejected a 2005 restructuring of defaulted debt to clear the way to issue new bonds

Roubini said Argentina’s recovery would be slower because of the tight controls on capital flows & the requirement for more rational fiscal and monetary policies.

“Although economic growth needs a strong fiscal showing, its conditions should be sufficiently under control as to recover the confidence of domestic & foreign investors”, said Roubini. He called for an “efficient control” of capital flows so as to avoid asset bubbles which could lead to spiralling inflation, “already too high”.

To achieve sustained growth, Argentina must increase investments in infrastructure and also taxes, so it can begin lowering the budget stimuli fed out through monetary policy and fiscal aid to several sectors.

Another issue is increasing domestic demand for export produce, granting the economy greater autonomy from the swings of the global economy.

Finally he insisted in greater transparency for the financial system and restabilising links with international multilateral credit organizations, “which will be essential in helping combat inflation and asset bubbles”.

Overall investors should be cautious taking into account that “we are just coming out of global recession, but its effects will be long lasting in the world economy both medium and long term, he concluded.

Colombian coffee exports in the last two months of the year are unlikely to surpass 1.6 million 60-kilogram bags, Colombia’s National Coffee Exporters Association, Asoexport.

Asoexport President Jorge Lozano told Dow Jones Newswires that based on the latest figures for production, which have shown no signs of a recovery from weather problems, it’s no longer realistic to expect higher volumes in shipments.

Colombia’s National Federation of Coffee Growers, or Fedecafe, Friday lowered its forecast for 2009 production to 8.3 million bags as Colombian producers are harvesting one of the smallest crops in over 30 years.

“This means that we can’t any longer think about exporting more than between 700,000 and 800,000 bags in November, but that is the reality we are facing,” Lozano said.

He said that according to reports from exporters and producers across the country, there were some expectations that exports as of December may show some signs of a recovery, but even so, it would be difficult for exports for the last two months to surpass 1.6 million bags.

“There is a bit more optimism among the producers and exporters now, and we may get a little more coffee in December,” he said.

The export forecast for the last two months of 2009 compares with Colombian coffee exports of 1.922 million bags in the November-December period last year and to exports of 2.389 million bags in that period in 2007.

Friday’s revised forecast by Fedecafe was the fifth time since the beginning of the year as the 2009 harvest was initially forecast to reach up to 12.1 million bags.

Colombian coffee production in the 2009-10 crop cycle is forecast to reach 10 million 60-kilogram bags, Asoexport said earlier Friday, up from production of 8.6 million bags in the 2008-09 cycle that ended Sept. 30.

But the Asoexport figure is sharply lower than the forecast issued by Fedecafe, which last month said production is expected to rebound to 11 million bags in the calendar year 2010.

The Fedecafe calendar year figure for 2010 is mostly based on production from the 2009 crop cycle, which runs from Oct. 1 through September the following year.

Asoexport called on all members of the Colombian coffee industry to remain cautious about forward selling more coffee than what is expected to be available.

The scarcity of fresh supply in Colombia in 2009 sent local purchasing prices to 12-year highs earlier this year and resulted in losses worth millions of dollars for exporters who couldn’t deliver on the price terms agreed on in forward selling contracts.

Colombia is the world’s largest producer of mild washed arabica coffee, with annual output of between 11.5 million and 12.5 million bags in recent years, and is the third largest producer overall after Brazil and Vietnam.

Colombia & India  signed a bilateral agreement for the promotion and protection of investment in New Delhi  on Tuesday to encourage reciprocal business ventures between the two nations. The agreement with India is a move by Colombia to break into the Asian market.

The Minister for Commerce, Industry and Tourism, Luis Guillermo Plata, will sign the agreement, which is designed to stimulate direct Indian investment in Colombia and vice-versa.

The signing of the agreement follows three rounds of negotiations that began in April 2008.

“What we are doing is creating ties so that investment grows,” said Plata, adding that direct investment from India in Colombia between 2002 and 2008 reached US$1.6 million.

The Minister’s stop off in India as part of an international tour to promote tourism and international investment in Colombia. Prior to India Plata visited Germany and the United Arab Emirates.

Agreements such as this are used by Colombia to attract foreign investment, as a first step towards potential future free trade agreements. Colombia already signed similar agreements with Peru, Switzerland, Spain and China, according to the Ministry’s website.

The sectors in the Colombian economy that have seen the most foreign investment in the last five years are transport, mining and construction.

Once signed, the agreement must pass before Colombia Congress and the Constitutional Court to be ratified.

I’ll bite.  Uruguay’s beef and energy sectors are steps ahead.

While it may not fit everyone’s definition of an emerging market, Uruguay sounds like a dynamic place.  The country’s Investment Promotion Agency and other investment officials recently presented a program in New York highlighting the country’s investment potential, which I attended via a nearly flawless live video feed on the web.

Uruguay boasts some enviable attributes.  Tucked away snugly between Brazil and Argentina, Uruguay has easy access to its Mercosur neighbors (Brazil, Argentina and Paraguay) as well as Chile and the markets of other countries that are Mercosur associates.

The investment team visiting New York claimed that Uruguay has no ethnic or religious conflicts and no natural disasters (not including the prolific paternity of the Paraguayan president, next door).  Stability has attracted multinational investors and employers like Petrobras, Merrill Lynch, Weyerhaeuser and Tata.  “We are a quiet country,” said one of the Uruguayans.

Even better than quiet, Uruguay is smart.  The country is implementing some impressive measures to boost its competitiveness, two of which seemed particularly interesting:

Uruguay is going green.  The country aims to be the regional leader in renewable energies; specifically, biomass and wind.  At the end of 2008, Uruguay established a new laboratory solely for renewable energy that will help to identify investors for renewable energy projects and create jobs.  By 2015 Uruguay will have an additional 500 megawatts of renewable energy on line.

Uruguay also seems to be doing a good job with its large cattle industry, which exports to over 100 countries.  The country’s beef industry is 100% traceable, which sounds especially good to consumers worried about food safety.  Traceability also boosts profits:  Animals registered in Paraguay’s traceability system sell for as much as $0.30 per kilo more than those not registered.  For a 700-pound cow, that means an additional profit of about $93, while the traceability system costs about $4 per animal.

Most of Uruguay’s cattle is grass-fed, and is not subjected to hormone shots.  Neighboring Brazil has a cattle industry that is many times larger than Uruguay, and Brazil declared earlier this year that it would ‘dominate’ the world’s cattle industry within 10 years, but Brazil has had recent difficulties with both foot-and-mouth disease and proving that its own traceability system works.

And not only are they quiet, but the Uruguayans sound downright welcoming.  “We welcome any size investment, from $20,000 to millions,” one of the investment team said.  The investment promotion office also encourages proposals for free-trade zones.

The number of tourists travelling to Colombia’s major cities continued to rise significantly in the first half of 2009, despite serious security concerns & despite the global economic crisis.

The country’s three biggest cities, Bogota, Medellin & Cali, are suffering a soaring crime rate resulting from the ongoing fight between criminal gangs over the control over the domestic drug markets & the routes to export cocaine, the drug the country is most famous for.

However, through an extensive public relations campaign to change the country’s image & a security policy that has been able to keep tourist hot spots free from violence, the country’s urban tourist attractions are able to continue showing growth in a tourist industry that until a few years ago was pretty much non-existent.

According to Proexport, the company in charge of promoting Colombia’s as an investment possibility abroad, the country’s capital Bogota saw 398 thousand foreign tourists visiting the city in the first six months of 2009, a 10%  increase compared to the same period in 2008.

Medellin, the country’s second largest city, reports a 32% rise in foreign visitors compared to 2008, despite a homicide rate that doubled in the same period.

The violence in both Bogota & Medellin is confined to the city’s poorer areas. Terrorist bomb attacks like that of the Medellin drug cartel in the 1990s & those of rebel group FARC throughout the country’s violent recent history have become a rarity & allow the national government & the cities to develop a tourism policy alongside a security policy.

The violence responsible for the increased crime rates takes place mostly in the poor south of Bogota and the poor north of Medellin where tourists have little to do. Both cities’ nighlife areas & touristic centers have seen little of this violence.

“If you go to Medellin you will encounter the same problems as in any city in the world,” the city’s Undersecretary of Tourism told local news website Colombia Reports. “If you go to a poor neighborhood in New York or London you will experience exactly the same type of insecurity,” she added.

While local & national authorities continue battling local drug gangs & rebel groups, tourism has become one of the pillars of the country’s and the cities’ economic growth policies , both the security policies & public relation campaigns are proving effective in guaranteeing  income through Colombia’s infant tourism industry.

Colombia Reports is a small, but growing independent news organization from Medellín, Colombia. Our objective is to report what happens in our country to a foreign, English-speaking audience.