ED KUCZMA, EMERGING MARKETS ANALYST: Over the last five years, there's been a dramatic shift in the level of violence within Colombia. Former President Alvaro Uribe, who left office in 2010, was very popular for his gains in security. I think you can safely say that Colombia is now a much safer place to invest in and also to travel to. This is in stark contrast to other parts of Latin America where we've seen an escalation of violence, such as Mexico. I think, from a foreign direct investment standpoint, there have been a lot of investments within the oil and gas sector in Colombia. A lot of these companies operate in very remote areas of the country. While the level of violence has improved in Colombia overall, there are still parts of the country that are a little bit more dangerous than others, and this is mainly in the outskirts. While violence in Colombia has improved over the last couple of years, it's a very fluid situation, and one we’re monitoring very closely.
STRENGTH OF ECONOMY
Colombia has experienced strong growth rates in recent history — some of the strongest in Latin America. The outlook for 2012 and 2013 has been decelerating with the rest of the global economy, but still remains at a pretty respectable level of around 4% GDP growth over the next two years. This should lead Latin America in terms of other countries and GDP growth. Some of the factors underpinning this strong GDP growth have been investments in the oil and gas sector, new business opportunities in infrastructure, and the politicians in Colombia being committed to remaining pro-business and to strongly fighting the violence and guerrilla drug lords that have been hampering the economy over the last decade or so. Going forward, I think Colombia has a very bright outlook for their GDP growth. This is also underpinned by the banking sector, which is under-penetrated. Currently, total loans as a percentage of GDP is only 35% in Colombia. This trails levels in Brazil, which is at 50%, and Chile, which is at 75%. There's a lot of room for improvement in terms of developing the banking sector, which should also help fuel economic growth within Colombia. I think the outlook is pretty promising.
The Colombian government has announced a number of initiatives to help infrastructure investment within the country. The government plans on spending 55 billion dollars from now until 2021, specifically on infrastructure projects. This should help foster foreign direct investments and improve the construction sector, cement sector and logistics. The aim of this investment in infrastructure is to help create jobs, grow the economy, and reduce bottlenecks that hamper the economy. I think a lot of this expenditure is going to be taken away from the military budget, which has been about 50% of fiscal expenditure over the last couple of years, and should go down to about a third of fiscal expenditure. Most of this investment is going into infrastructure as the government realized that the existing infrastructure is about 20 – 30 years behind where it needs to be. There's a lot of catch-up on the horizon. Furthermore, current President Santos has committed to building 250,000 low-income houses in Colombia. This should help reduce poverty and improve domestic consumption.
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