Colombia’s way forward

   With President Juan Manuel Santos reaching a tentative peace agreement with Fuerzas Armadas Revolucionarias de Colombia (FARC), Latin America’s largest and most politically powerful insurgency group, the country is on the brink of the stability its leaders have been chasing for years. Santos and Timoleon Jimenez, FARC’s top commander, appeared in Havana, Cuba, together in late September to announce the agreement and said they hope to formalize it by signing a final peace accord within six months.
   This signals that Colombia’s leaders are ready to leave the nation’s past behind and move forward. During a Sept. 30 Reuters Newsmaker interview with Reuters Editor-in-Chief Stephen J. Adler, Santos talked about the ways that peace would allow Colombia to occupy a role in global trade and permanently boost the economy by adding at least 1.5 percent to Colombia’s GDP “forever.”
   Such dramatic growth is possible because armed conflict has cost Colombia dearly: 18 percent of annual GDP to be precise, according to the Institute for Economics and Peace, which added up all the output lost due to organized violence in Colombia and the security spending necessary to keep civilians relatively safe.
   Santos told Reuters that the 7.5 million Colombians displaced from their land because of ongoing unrest have caused economic output for these people to fall from 50 to 90 percent. These economic consequences will not reverse course overnight, but the Santos administration’s path to peace is cause for optimism. “The dividend of peace goes far beyond our borders,” he said.
   Colombia is well positioned for a bright and peaceful future. It boasts a large population of 48 million and significant natural resources. It is close to the large Spanish-speaking Latin American market, both geographically and culturally, and a five-hour flight from the United States.
   Broadly, the country is transitioning to an economy increasingly led by industry and services. Consequently, poverty is down from 65 percent in 1990 to 25 percent today, and Colombia’s economy is the fourth largest in the Latin America region. It has been a real success story over the past couple of decades.
   To continue to grow, Colombia needs to climb the chain of added value toward even higher value-added industries and services segments. This requires continued investments in education and enlightened industrial policies, including additional and sustained free trade, which the country has opened up significantly over the past decade.    Like most other economies in Latin America, Colombia trades more with the United States than it does with its immediate neighbors. The U.S.-Colombia Trade Promotion Agreement (TPA) eliminated tariffs on more than 80 percent of consumer and industrial products sent from the United States to Colombia, and it stipulates the remaining tariffs will be phased out over the next 10 years.
   TPA is emblematic of the way forward for Colombia. It enabled Colombia to join the World Trade Organization’s Information Technology Agreement, an accord that eliminates duties on certain information technology products and covers virtually all trade in that sector. Because quality IT products and systems enable value-added industries and segments to flourish, this sliver of the TPA is precisely what Colombia needs more of.
   Another opportunity is to boost trade with Asia. Without the armed conflict, Colombia can return development to the rural areas and replace the drug fields with agriculture, which Santos said he and China’s prime minister have discussed in order to help feed the Chinese people. Moreover, Colombia is part of the Pacific Alliance, a trading bloc made up of the four fastest growing economies in Latin America—Chile, Mexico, Peru and Colombia—that seeks to stimulate manufacturing activity. Encouraging more trade with Asia is yet another avenue for growth.
   Notably absent are trade agreements with Brazil and European nations. However, Colombia has negotiated a European Union Association Agreement that would liberalize trade between Colombia and EU members. This agreement, which is undergoing ratification now, would include a free trade component, as well as a framework for political dialogue and other ways to strategically cooperate.
   Overall, the nation is doing a lot of the right things to keep its economy growing and find its distinctive industries of excellence, and it will soon have domestic stability that it has not had for some time. There is cause for optimism for any company doing business with Colombia.
   Ruda heads Thomson Reuters’ global trade management business, ONESOURCE Global Trade. He can be reached by email.

This article was published in the November 2015 issue of American Shipper.