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Colombia: Country Analysis Report – In-depth PESTLE Insights Published 08/2010

© Datamonitor. This brief is a licensed product and is not to be photocopied

OVERVIEW

Catalyst

This profile analyzes the political, economic, social, technological, legal and environmental structures in Colombia. Each of

the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and future risks.

Summary

Key findings

President Juan Manuel Santos has imparted political stability, but fragile internal security remains a problem

President Juan Manuel Santos has managed to impart political stability to the country after winning the presidential

elections in June 2010. Santos won the elections with over 69% of the vote compared to his opponent Antanas Mockus,

who won only 27.5% of the vote. Santos is the founder of the Social National Unity Party (U Party). Furthermore, the Social

National Unity Party has continued with the agenda of uniting parliamentary supporters of President Santos into one single

party. In the 2010 elections, this party won 47 deputies and 28 senators. With the strong majority, the president enjoys a

majority in the parliament which allows him to undertake major reforms.

However, guerilla groups like the Revolutionary Armed Forces of Colombia (FARC; Fuerzas Armadas Revolucionarias de

Colombia – Ejército del Pueblo) have continued to exist in Colombia despite the government’s efforts to curb their

influence. The country is not completely free from paramilitary groups and narcotics-trafficking syndicates. Many groups

have subverted the lenient amnesty schemes to win immunity from prosecution and have continued illegal operations in the

country by forming new paramilitary groups or forging ties with militarized drug traffickers. Groups like FARC and the

National Liberation Army (ELN; Ejército de Liberación Nacional) remain well funded and equipped, and are capable of

carrying out effective guerrilla attacks against the military and security forces. In December 2009, FARC rebels killed the

governor of the southern state of Caqueta, Luis Francisco Cuellar. The country continues to face serious threats from

armed guerilla groups and narcotics syndicates.

COUNTRY ANALYSIS REPORT

Colombia

In-depth PESTLE Insights

Publication Date: August 2010

Overview



A preferred FDI destination, but increasing current account deficit and external debt are a cause for concern

Foreign direct investment (FDI) in Colombia has grown rapidly following the economic liberalization and privatization

programs of the 1990s. To overcome the economic crisis and as part of the IMF bailout package, the Colombian

government passed laws to remove restrictions on foreign inflows. It initiated a privatization program and opened up

investment in the oil industry. In 2005, FDI saw a huge spike and touched around $10 billion compared to $4 billion in the

previous year. In spite of the global economic slowdown, the country registered a marginal increase in FDI from around $9

billion in 2007 to reach around $10 billion in 2008. Moreover, the country has seen an increase in FDI in diverse sectors.

Although manufacturing, energy, and mining sectors are the main recipients of FDI, the financial, transportation, and

communications sectors are not far behind in this regard. Furthermore, despite global recession, the country attracted FDI

of $7.2 billion in 2009.

Colombia’s widening current account deficit and huge external debt are the major challenges the government has to deal

with. In 2008, the current account deficit reached $6.7 billion from $5.8 billion in 2007. The current account deficit as a

percentage of GDP increased from 3% in 2007 to reach 3.5% in 2008. The country had a current account deficit of $5.1

billion in 2009 (2.2% of GDP), compared to $6.9 billion in 2008. The external debt increased from $41.3 billion in 2007 to

reach $46.4 billion in 2008. The external debt rose to $47.3 billion as of December 31, 2009 and it is expected to go up

further.

Country is ranked low on human development index (HDI), however, new initiatives are being taken to improve the

social landscape

Colombia performs poorly on the human development index (HDI) as defined by the UNDP (United Nations Development

Programme). According to the UNDP, the HDI of Colombia is 0.807, which puts the country in the 77th position in a list of

182 countries in 2009. Besides poor educational standards, disparities in healthcare have continued to persist in the

country, with the poor continuing to suffer relatively high mortality rates. The healthcare sector also faces significant

challenges such as large scale corruption and the misallocation of funds.

In August 2010, the Inter-American Development Bank approved a $220 million loan to support Colombia’s Familias en

Accion conditional cash transfer program aimed at improving the health, nutrition and education of poor families. The

objective of the program is poverty reduction through direct cash transfers to families, and stimulating household

investment in child health and education. The reforms are expected to include the update of the obligatory national health

plan, the unification of the subsidized and contributive systems, the creation of a technical evaluation committee, promotion

of preventive healthcare services, and the formalization and creation of further employment.

The burgeoning telecoms sector presents new opportunities in terms of technological advancement

Colombia’s progress in terms of technological development has been limited. The country also lags behind in terms of

technical manpower and science and technology (S&T) infrastructure. The country spends very little on R&D (around 0.3%)

and has failed to take advantage of FDI inflows to develop its technological capabilities. The level of expenditure

undertaken by Colombia is far below the desirable level of 1% of GDP (as given by the OECD). The per capita expenditure

on R&D has also declined over the years. The public sector plays a dominant role in R&D expenditure, with the business

sector’s contribution to R&D remaining at 18%. Limited involvement of the business sector has also impaired innovative

activities in the country.

Overview



However, with the liberalization of the economy, the telecommunications sector has been witnessing significant growth. The

Colombian telecommunication sector has been rapidly growing, especially in mobile telephony, as mobile phones

subscriptions grew at an annual average rate of around 38.4% during 2002–09. Mobile telephony growth peaked in 2005,

growing at a rate of 109%. However, during the same year, the fixed line segment registered a negative growth.

Cumbersome legal processes taint an otherwise favorable investment landscape

The legal climate is generally considered as conducive for foreign investment in Colombia. Ever since the liberalization in

the 1990s, the country has provided national treatment for foreign investors. A number of controls on remittance of profits

and capital were also lifted, and foreign investment was allowed in most sectors, except in defense and sectors with

national importance. Generally, foreign investment does not require prior authorization, except when made in restricted

areas. Although investments involving sensitive sectors are subject to prior approval, foreign investors are not treated

differently from domestic players.

Although the FDI policies are favorable, legal processes are lengthy and the judiciary has been accused of being less than

fair on a number of occasions. The independence and freedom of judges to make fair judgments are curtailed due to

pressure imposed by vested interests. Moreover, a heavy workload has strained the system's limited resources. On a

number of occasions, the lower courts have failed to act independently and unless adequate measures are taken these

courts will remain susceptible to corruption. Moreover, the lack of coordination among government entities such as the Tax

and Customs Directorate (DIAN; Dirección de Impuestos y Aduanas Nacionales de Colombia), prosecutors, and the

national police act as a stumbling block to the timely resolution of cases.

Impressive performance on environment index, however, widespread deforestation remains a challenge

Colombia was ranked 10th out of 163 countries in the 2010 Environmental Performance Index (EPI) conducted by Columbia

and Yale universities. The country performed well in managing forestry, fisheries, cropland use and reducing ground level

ozone, a pollutant from human activities that causes significant health problems. According to Colombian Ministry of

Environment officials, the country reduced the national consumption of ozone-depleting substances, such as

chlorofluorocarbons, by 86% between 1995 and 2007.

Despite maintaining good environmental quality, deforestation and soil erosion pose challenges for the Colombian

government. Soil erosion has been the direct result of vegetation loss and heavy rainfall, and soil has further been

damaged by the overuse of pesticides. Increasing demand for palm oil, a significant source of biofuel, has led to further

deforestation to make room for new plantations, and large tracts of forest are also disappearing because of gold mining.

Increasing deforestation has led to a growth in the number of endangered species.

PESTLE highlights

Political landscape

• As of 2009, Colombia was ranked in the very low 8.1 percentile of the World Bank’s Worldwide Governance

indicators, in terms of political stability and absence of violence.

• The new administration of President Juan Manuel Santos has laid out plans in August 2010 to raise $2bn in

financing to cover a budget gap.

Overview



Economic landscape

• The economy recorded an average growth of 4.3% during 2002–09, and in 2009, the GDP growth slowed down

to 0.4. The country’s GDP is expected to recover to around 2.5% in 2010.

• The Colombian government posted a consolidated budget deficit of 2.8% of GDP in 2009, up from 0.1% in 2008.

The deficit amounted to COP13.7 trillion ($7.14 billion), up from COP678 billion in 2008.

Social landscape

• In Colombia, 66.8% of the population belongs to the 15–64 age group, 27.2% of the population to the 0–14 age

group and 6% of the population is in the 65-plus group. The median age in Colombian society is 27.6 years,

indicating that the country has a demographic advantage in terms of number of people in the working age.

• Colombia is one of the most inequitable countries in the Latin American region. The Gini index in Colombia was

0.58 in 2008, a decline from 0.51 in 2000.

Technological landscape

• Implementation of IPR laws has remained poor as multiple parties involved in the process make enforcement

cumbersome.

• Most of the R&D fund goes to public enterprises; the largest benefactor of the tax deduction is the research arm

of Ecopetrol, the state oil company.

Legal landscape

• Colombia has been ranked as the 58th freest economy by the Wall Street Journal’s index of economic freedom in

2010. It ranks 12th out of 29 countries in the Americas, and its overall score is equal to the regional average.

• There are laws which restrict the movement of personnel in professional areas, such as architecture,

engineering, law, and construction. There are also limitations on employing foreign nationals.

Environmental landscape

• The CO2 emissions in Colombia increased from 53 million metric tons in 2002 to over 71 million metric tons in

2009.

• Colombia, which is the second most biologically diverse country on earth, is home to about 10% of the world's

species. Growing deforestation has also led to an increase in the number of endangered species.

Overview



Key fundamentals

Table 1: Colombia – Key fundamentals

2008 2009 2010 2011 2012 2013 2014

GDP, Constant 2000 Prices ($ billion) 133.5 134.0 137.4 142.7 148.3 154.4 161.1

GDP growth rate (%) 2.5 0.4 2.5 3.8 3.9 4.1 4.3

GDP, constant 2000 prices, per capita ($) 3,095 3,069 3,108 3,190 3,277 3,375 3,483

Inflation 7.7 2.0 2.1 3.1 3.6 3.9 3.9

Exports, total as % of GDP 17.4 13.2 13.8 14.4 14.8 15.0 14.9

Imports, total as % of GDP 19.5 19.8 21.2 22.3 23.2 24.1 24.9

Mid-year population, (million) 43.1 43.7 44.2 44.7 45.2 45.7 46.2

Unemployment rate (%) 11.3 12.1 11.1 10.8 10.7 10.7 10.8

Mobile penetration (per 100 people) 91.9 96.2 97.4 97.7 97.8 97.8 97.9

Source: Datamonitor D A T A M O N I T O R

Table of Contents



TABLE OF CONTENTS

Overview 1

Catalyst 1

Summary 1

Key facts and geographic location 10

Key facts 10

Geographical location 11

PESTLE analysis 12

Summary 12

Political analysis 13

Economic analysis 16

Social analysis 19

Technology analysis 22

Legal analysis 25

Environmental analysis 28

Political landscape 31

Summary 31

Evolution 31

Structure and policies 33

Performance 37

Outlook 38

Economic landscape 39

Summary 39

Evolution 39


Performance 43

Outlook 55

Social landscape 56

Summary 56

Evolution 56


Performance 59

Table of Contents



Outlook 61

Technological landscape 62

Summary 62

Evolution 62


Performance 63

Outlook 66

Legal landscape 67

Summary 67

Evolution 67


Performance 70

Outlook 70

Environmental landscape 71

Summary 71

Evolution 71


Performance 72

Outlook 74

APPENDIX 75

Ask the analyst 75

Datamonitor consulting 75

Disclaimer 75

Table of Contents



TABLE OF FIGURES

Figure 1: Map of Colombia 11

Figure 2: Colombia – key political events time line 32

Figure 3: Key political figures in Colombia 33

Figure 4: Composition of the house of representatives (Colombian parliament) 35

Figure 5: Historical GDP growth rate in Colombia (real GDP at constant 2000 prices) 40

Figure 6: Market capitalization of the Colombian Stock Exchange (BVC), 2003–08 42

Figure 7: GDP and GDP growth rate in Colombia, 2002–13 (real GDP at constant 2000 prices) 44

Figure 8: GDP composition by sectors, 2009 45

Figure 9: Agriculture output of Colombia, 2002–09 46

Figure 10: Industrial output of Colombia, 2002–09 47

Figure 11: Services output of Colombia, 2002–09 48

Figure 12: External trade of Colombia, 2004–09 50

Figure 13: Current account balance of Colombia, 2002–08 51

Figure 14: Total foreign investment in Colombia, 2002–08 53

Figure 15: Consumer price index and CPI-based inflation in Colombia, 2002–13 54

Figure 16: Unemployment and rate of unemployment in Colombia, 2002–13 55

Figure 17: Major religions of Colombia, 2009 58

Figure 18: Expenditure on healthcare in Colombia, 2003–13 60

Figure 19: Expenditure on Education in Colombia, 2003–13 61

Figure 20: Growth rate of mobile and fixed-line subscribers in Colombia, 2002–13 64

Figure 21: Internet users and growth rate in Colombia, 2002–13 65

Figure 22: Carbon dioxide emissions in Colombia, 2002–13 73

Figure 23: Carbon fuel usage in Colombia, 2002–12 74

Table of Contents



TABLES

Table 1: Colombia – Key fundamentals 5

Table 2: Colombia – key facts 10

Table 3: Analysis of Colombia’s political landscape 13

Table 4: Analysis of the Colombian economy 16

Table 5: Analysis of Colombia’s social system 19

Table 6: Analysis of Colombia’s technology landscape 22

Table 7: Analysis of Colombia’s legal landscape 25

Table 8: Analysis of Colombia’s environmental landscape 28

Table 9: Mid-year population of Colombia by age (millions), 2009 57

Key facts and geographic location



KEY FACTS AND GEOGRAPHIC LOCATION

Key facts

Table 2: Colombia – key facts

Country and capital

Full name Republic of Colombia

Capital city Bogota

Government

Government type Republic

Head of state and head of government President Juan Manuel Santos

Population 44.2 million

Currency Colombian peso

GDP per capita (PPP) $9,200

Internet domain .co

Demographic details

Life expectancy 74.31 years (total population)

70.98 years (men)

77.84 years (women)

Ethnic composition (2000) Mestizo (58%), white (20%), mulatto (14%), black (4%), others (4%)

Major religion (2001 census) Roman Catholic (90%), other (10%)

Country area 1,138,910 sq km

Language Spanish

Exports Petroleum, coffee, coal, nickel, emeralds, apparel, bananas, cut flowers

Imports Industrial equipment, transportation equipment, consumer goods, chemicals, paper products, fuels, electricity

Source: CIA D A T A M O N I T O R

Key facts and geographic location



Geographical location

Colombia is located in northern South America, bordering the Caribbean Sea, between Panama and Venezuela, and

bordering the North Pacific Ocean, between Ecuador and Panama.

Figure 1: Map of Colombia

Source: CIA The World Fact book D A T A M O N I T O R

PESTLE analysis



PESTLE ANALYSIS

Summary

The Colombian political landscape has been dominated by a long-running civil conflict between Marxist rebel groups,

rightist paramilitaries and the beleaguered armed forces. A four-year peace process between the authorities and the main

rebel group broke down in February 2002, amid allegations that the rebels had merely used the intervening cease fire to

rearm and regroup. It was at this time that presidential candidate Alvaro Uribe advocated the adoption of a hard-line stance

against the rebels, and it is this attitude that has been the backbone of his victorious campaigns in the last two presidential

elections in 2002 and 2006. Affected by the ongoing civil war and external shocks, the economy slipped into recession in

1998–99, and struggled to achieve the necessary growth to raise the living standards of the entire population, with poverty

a major issue. In August 2010, Juan Manuel Santos Calderon was elected as President of Colombia, after he won the two

rounds of elections in June 2010.

However, the IMF bailout package led to economic recovery, with an annual average GDP growth of 4.8% during 2000–08.

The economy also opened up for foreign investment and undertook large scale privatization. Having undertaking

liberalization programs since the late 1990s, the government resorted to strengthening capital controls on foreign portfolio

investments in May 2008 to ease the pressure of the peso. Colombia’s GDP growth came down to 2.5% in 2008 from a

high of around 7% in 2007 due to the global economic slowdown. GDP further decelerated to 0.4% in 2009. Despite

liberalization measures, the legal system has remained cumbersome and the courts, especially the lower courts, have

remained susceptible to corruption and intimidation.

Furthermore, despite limited economic success, the country has not been able to ensure an equitable growth for its

population. The education and healthcare policies also require a revamp to improve accessibility for the poor. As with the

social condition, the country has made little progress with respect to enhancing its technological capabilities, as the extent

of R&D expenditure is far below the average. The country has managed to maintain fairly good standards for its

environment but there is further scope for improvement by effective implementation of environmental policies.

PESTLE analysis



Political analysis

Overview

Since independence from Spain in the early 19th century, Colombia’s political direction has been dictated by the center-

right Conservative Party and the populist Liberal Party. However, the perceived failure of either party to control the long-

running civil war, clampdown on rampant corruption or kick-start the ailing economy has bred increasing political frustration.

The independent neo-liberal candidate Alvaro Uribe won the presidential polls in the May 2002 presidential polls. Uribe

advocated the adoption of a hard line stance against the rebels, and it is this attitude that was the backbone of his

victorious campaigns in the two presidential elections, including the one in May 2006. Former president Uribe has

succeeded in arresting the murder and kidnapping rate, but his tough approach has also been accused of human rights

violations from some quarters. Juan Manuel Santos Calderon was elected as president of Colombia, after he won the two

rounds of elections in June 2010. He took over the presidential office on August 7, 2010.

Table 3: Analysis of Colombia’s political landscape

Current strengths Current challenges

■ President’s majority in parliament

■ Improvement in regulatory quality and government effectiveness

■ Low ranking on political stability and absence of internal violence

■ Andean tensions

Future prospects Future risks

■ New policies

■ Drug trafficking

■ Continued activities of terror groups


Current strengths

President’s majority in the parliament

President Juan Manuel Santos has succeeded former President Uribe in imparting political stability to the country after

winning the presidential elections in June 2010. Santos won the election with over 69% of the vote compared to his

opponent Antanas Mockus, who won only 27.5% of the vote. Santos was the founder of the Social National Unity Party (U

Party). Furthermore, the Social National Unity Party has continued with the agenda of uniting parliamentary supporters of

President Santos into one single party. In the 2010 elections, this party won 47 deputies and 28 senators. With the strong

majority, the president can undertake major reforms.

Improvement in regulatory quality and government effectiveness

In terms of government effectiveness, as given by the world governance indicators, Colombia’s performance was ranked at

60.2 percentile in 2008. This is an improvement over its ranking in 2003, when it was ranked at 52.6 percentile. Under

PESTLE analysis



former President Uribe, the government effectiveness has improved due to various reform measures and it is expected that

the new president being from same government will continue with similar policies. There is also an improvement in terms of

regulatory quality. Colombia’s percentile ranking in terms of regulatory quality was 59.4 in 2008, which is an improvement

over its 2004 score of 52.2. Regulatory quality measures the ability of the government to formulate and implement sound

policies and regulations that permit and promote private-sector development. The new government led by President

Santos, a former finance minister who once helped bring Colombia out of a fiscal crisis, is focused on creating jobs and

generating economic growth. Along with strong growth, the government aims not to increase taxes, but it does want to

increase the taxpayer base to bolster state revenue.

Current challenges

Low ranking on political stability and absence of internal violence

Colombia was only ranked in the 8.1 percentile in terms of political stability and absence of violence in 2008. Political

stability and absence of violence measures perceptions of the likelihood that the government will be destabilized or

overthrown by unconstitutional or violent means, including domestic violence and terrorism. The presence of warfare

groups has always threatened stability in the region. On a number of occasions the election process was disrupted, when

contesting members were killed. The country has witnessed prolonged violence, with conflicts involving outlawed armed

groups and drug cartels which have led to restrictions on citizens’ rights. Such cases of internal threats derail the

democratic setup of the country.

Andean tensions

Relations between Colombia and its left-wing Andean neighbors, Venezuelan President Hugo Chavez and Ecuador's

President Rafael Correa, were at their worst during 2009 and this will test the newly formed Santos government. Venezuela

and Colombia clashed over Uribe's accusations that Venezuela was harboring Colombian rebels on its territory. The two

neighbors also have sparred over a plan to allow the US troops more access to Colombia's military bases to help combat

drug trafficking. Chavez says the plan is a US threat to his OPEC nation. Venezuela has curbed trade with Colombia. While

a military conflict is unlikely, there is a risk of a border incident.

Relations with Ecuador have improved since a Colombian army raid across its border to attack a Revolutionary Armed

Forces of Colombia (FARC) rebel camp in 2008. Ties were partly restored in late 2009. But a probe into charges that

Colombian agents spied on Correa and top officials in mid 2010 has increased tensions again.

Future prospects

New policies

The new administration of President Juan Manuel Santos laid out plans in August 2010 to raise $2bn in financing to cover a

budget gap resulting from its decision not to sell the government’s stake in the power generation company ISAGEN and the

delay of another set of privatizations that had been slated for 2010. The long-awaited ISAGEN sale would have brought in

$1.6bn (0.6% GDP) in revenue and was already accounted for in the medium-term fiscal figures the outgoing government

presented in June 2010. Prior to the presidential election, former President Alvaro Uribe announced that the sale would be

postponed until the new government took office. The new government has decided against selling, citing the sale as only a

PESTLE analysis



palliative short-term measure. To replace the $2bn in privatization revenue, the new government plans to raise $500m

through foreign bond issues, $500m from multilateral organizations and $1bn by issuing treasury bonds in the local market.

Future risks

Drug trafficking

In 2009, Colombia remained the world's No. 1 cocaine producer and multiple illegal armed groups are all engaged in the

drug trade, making the government's task more complex. Armed groups have fragmented and rebels have formed alliances

with drug-trafficking gangs and former paramilitaries. Despite a demobilization of paramilitaries who once fought the FARC,

new crime groups have emerged and increased the threat to the government in the medium term,.

Continued activities of terror groups

Guerilla groups like the FARC have continued to exist in Colombia despite the government’s tough policies. The country is

not completely free from paramilitary groups and narcotics-trafficking syndicates. Many groups have used the lenient

amnesty schemes of the country to win immunity from prosecution and have continued illegal operations by forming new

paramilitary groups or joining the armed wings of various drug traffickers. The groups like the FARC and ELN remain well

funded and equipped and are capable of carrying out effective guerrilla attacks against military and security forces. In

December 2009, FARC rebels killed the governor of the southern state of Caqueta, Luis Francisco Cuellar. This has raised

the threat level in the country.

PESTLE analysis



Economic analysis

Overview

The Colombian economy staged a recovery in 2000 following the government’s drastic economic reform measures. The

economy recorded an average growth of around 4.8% during 2000–08. In 2007, the economy’s GDP growth peaked at

7.5%; however, the growth turned out to be short-lived, as the global economic slowdown adversely affected its prospects.

Colombia’s GDP growth came down to 2.5% in 2008 and further down to 0.4% in 2009. Nevertheless, the government’s

efforts towards fiscal discipline and the reduction of public debt along with its export-oriented growth strategy have

maintained investor’s confidence in the economy.

Table 4: Analysis of the Colombian economy


■ Increase in FDI in diverse sectors

■ Well developed financial system

■ Increasing current account deficit and external debt

■ Poor state of infrastructure


■ Economic reform programs

■ New oil and mining investments

■ Increasing fiscal deficit


Current strengths

Increase in FDI in diverse sectors

FDI in Colombia has grown rapidly following the economic liberalization and privatization programs of the 1990s. To

overcome the economic crisis, and as part of the IMF bailout package, the Colombian government has passed laws to

remove restrictions on foreign inflows. As part of this, it initiated a privatization program and opened up investment in the oil

industry. In 2005, FDI jumped to $10.3 billion from $3 billion recorded in the previous year. In 2007, total foreign investment

stood at $9.4 billion, one of the highest in the Latin American region, and it increased to 10.2 billion in 2008. Furthermore,

despite global recession and slow down in economy, the country attracted a FDI of $7.2 billion in 2009.

Moreover, the country has seen an increase in FDI flow in diverse sectors. Although manufacturing, energy, and mining

sectors are the main recipients of FDI, the financial, transportation, and communications sectors have also attracted

significant amounts of FDI.

Well developed financial system

Colombia has a comparatively well developed financial system in the region. The Financial Superintendence oversees the

Colombian credit institutions with strict vigilance mechanisms. The financial sector of the country has undergone

PESTLE analysis



consolidation following the 1998–99 crises, when the economy faced a recession. As a result of the ensuing mergers and

acquisitions, the new institutions have broadened the distribution structures and have improved accessibility for the

customers.

Over the years, the Colombian capital market has witnessed significant growth. Legislation introduced in 2005 has helped

to strengthen the capital markets through improved corporate governance, protection of the rights of minority shareholders,

and transparent information standards. Furthermore, market capitalization of the leading stock exchange Bolsa de Valores

de Colombia (BVC) has increased from $10 billion to more than $100 billion during 2002–07. Although the market

capitalization came down to around $88 billion in 2008, the country has been able to contain the fallout of the global

economic crisis to a certain extent. In 2009, the market capitalization decreased to $82.6 billion. Colombia's banking sector

posted a net profit of COP3.08 trillion ($1.7 billion) during the first half of 2010, which is an increase of 14% from the same

period in 2009. The country's largest bank, Banco Davivienda, booked a net profit of COP247 billion ($135.6 million) in the

first half of 2010, up 10% from COP224 billion ($122.5 million) in the same period in 2009.

Current challenges

Increasing current account deficit and external debt

Colombia’s widening current account deficit and huge external debt are the major challenges the government has to deal

with. In 2008, the current account deficit reached $6.7 billion from $5.8 billion in 2007. The current account deficit as a

percentage of GDP increased from 3% in 2007 to reach 3.5% in 2008. The country had a current account deficit of $5.1

billion in 2009 (2.2% of GDP), compared to $6.9 billion in 2008. The current account deficit is expected to further widen as

a result of rising import bills and higher debt interest payments. The external debt rose to $41.3 billion in 2007 from an

estimated $40 billion in 2006 and is expected increase further. However, strong growth and peso appreciation have

somehow eased the debt ratios since 2003. The external debt increased from $41.3 billion in 2007 to reach $ $46.4 billion

in 2008. The external debt rose to $47.3 billion as of December 31, 2009 and it is expected to go up further. Increasing

current account deficit and external debt continue to be a major challenge for the new government.

Poor state of infrastructure

The poor infrastructural facilities of Colombia have acted as a significant barrier against fulfilling the country’s full potential

to attract foreign investments. Although the government has begun to upgrade key road routes from Bogota to the west and

north, there have been delays in the concessions process. The security problems on roads have aggravated the problem,

leading to an excessive dependence on air transport. Furthermore, the economy’s electricity capacity is low and

transmission lines and oil pipelines have remained frequent targets of guerilla attacks. Moreover, the communication

infrastructure of the country is poor by regional standards.

Future prospects

New reform programs

Colombia went through an economic slowdown during 2008–09, with GDP growth falling to 0.4% in 2009. The new

government headed by President Juan Manuel Santos aims to lower corporate taxes, clear barriers on investment and help

drive growth by focusing on the following five areas: infrastructure, housing, oil and mining, agriculture and education. The

PESTLE analysis



government plans to create 2.4 million jobs in the formal sector by 2014. Santos wants to reduce unemployment to single

digits from around 12% in first quarter of 2010. The government would also try to expand the tax base to generate revenue.

However, the government is not in favor of complicated tax reforms and privatization.

New oil and mining investments

Due to better security and pro-business environment, Colombia has been ranked Latin America's No. 4 oil producer in

2009, a major coal exporter and a growing player in gold production. Canadian companies like Pacific Rubiales and other

foreign operators are making investments in exploring Colombia's untouched oil fields. The government expects oil output

to reach 1 million barrels per day in 2011. Furthermore, an oil block auction in June 2010 drew more than $1 billion in new

investment offers in to the country. The government also plans auction of coal and other minerals before the end of 2010.

Future risks

Increasing fiscal deficit

The Colombian government posted a consolidated budget deficit of 2.8% of GDP in 2009, up from 0.1% in 2008. The deficit

amounted to COP13.7 trillion ($7.14 billion), up from COP678 billion in 2008. The government expects the deficit in 2010 to

reach 4.4% of gross domestic product (GDP) and to shrink in 2011 to 3.9% of GDP. The government announced in July

2010 that budget for 2011 will reach COP147.3 trillion ($79.6 billion), a 2.5% increase from 2010. However, the increasing

government deficit will stall government efforts to improve infrastructure in the country.

.

PESTLE analysis



Social analysis

Overview

According to the UNDP, the HDI of Colombia is 0.807, which gives the country a rank of 77 out of 182 countries assessed.

This rank is indicative of Colombia’s moderate performance in social development. Although its performance is better

compared to other countries of the Latin American region, it performs poorly compared to other emerging nations. The

country’s economic advancement, which came through restructuring, has not improved the standard of living of its people.

The country has also made little progress in advancing the education level of its population, although enrolment rates in

schools have somewhat increased since 2002.

Moreover, a positive development has taken place in the healthcare sector after the reforms of 1993, which improved the

accessibility to healthcare services. Nevertheless, there is disparity at the level of accessibility to these services. On a

related note, the Colombian society inequitable as 5% of the population own nearly 90% of the wealth of the country and

nearly 60% of the Colombian households live below the poverty line. However, the Colombian government’s social

reactivation plan is expected to go a long way in improving the social conditions of its population.

Table 5: Analysis of Colombia’s social system


■ Social welfare system in place

■ A young society

■ Poor rank on human development index

■ Income inequality


■ International support

■ Fiscal sustainability of social initiatives


Current strengths

Social welfare system in place

The Colombian government has put in place a robust social welfare system. The Social Security Institute (ISS; Instituto de

Seguros Sociales) provides medical care, pensions, and other benefits to Colombian workers. All workers are required to

be affiliated with either the ISS or a private health or pension provider. However, low-income persons who are not able to

pay the contribution must enroll in the subsidized plan, in which the government and the Solidarity Fund (fund for low wage

earners) participate.

The social security system also includes coverage for all general illnesses, treatment in a decent quality facility, pharmacy

services, and the ambulance service. The individual assumes some co-payments and moderate dues to the system. The

1993 reform also provided for the creation and implementation of a new system of private healthcare providers known as

PESTLE analysis



Entidad Promotora de Salud (EPS). Individuals may opt out of Social Security and join an EPS, which competes for

members directly with the Social Security system and is governed by the same regulations and restrictions. There are over

a dozen EPSs, and a member may change his or her EPS every two years. The social welfare system also provides for

short term disability, long term disability and survivor’s benefits. The new government led by President Juan Manuel Santos

is focusing on job creation and rural development, which is expected to bring improvements in the social landscape of the

country.

A young society

Unlike many other advanced economies, the Colombian society is far from the challenges of an ageing population, which

calls for an increasing government provision. In Colombia as of 2010, 66.8% of the population belongs to the 15–64 age

group, 27.2% are in the 0–14 age group and only 6% in the 65+ group. The median age in Colombia is 27.6 years,

indicating that the country has a demographic advantage in terms of number of people in the working age.

Current challenges

Poor rank on human development index

Colombia performs poorly on the HDI index as given by the UNDP. According to the UNDP, the HDI of Colombia is 0.807,

which gives the country a rank of 77 out of 182 countries assessed, a drop of 30 places from 1990 rankings. The rank

indicates the poor living standards of its population. The country fares poorly in terms of providing healthcare and education

facilities to its population, especially those living in rural areas.

As of 2009, the Colombian government spends nearly 4.5% of GDP on education, which is higher than the Latin American

average but much less than other advanced nations. Penetration of higher education in Colombia is also below

international averages. The level was 20% of the population group, below the Latin American average of 25% and the

OECD average of 54%. Similarly, disparities in healthcare have continued to persist, with the poor continuing to suffer

relatively high mortality rates. The healthcare sector is also faced with challenges such as large scale corruption and

evasion of health-fund contributions, as well as misallocation of funds.

Income inequality

Colombia is one of the most inequitable countries in the Latin American region. The Gini index in Colombia was 0.58 in

2008, a decline from 0.51 in 2000. The Gini index measures total inequality on a scale of zero to one, zero corresponding

to total equality and one to total inequality. The extent of inequality can be gauged from the figures that 5% of the

population own nearly 90% of the property in the country and nearly 60% of Colombian households are below the poverty

threshold. Despite economic growth, a huge amount of debt burden has been a challenge for the national government. The

government has not been able to implement any redistributive policies as well. Although various governments of Colombia

have resorted to neo-liberal policies for reducing inequities, it has worsened the economic and social problems.

PESTLE analysis



Future prospects

International support

In August 2010, the Inter-American Development Bank approved a $220 million loan to support Colombia’s Familias en

Accion conditional cash transfer program aimed at improving the health, nutrition and education of poor families. The

objective of the program is poverty reduction through direct cash transfers to families, and stimulating household

investment in child health and education. The reforms are expected to include the update of the obligatory national health

plan, the unification of the subsidized and contributive systems, the creation of a technical evaluation committee, promotion

of preventive healthcare services, and the formalization and creation of further employment.

Future risks

Fiscal sustainability of social initiatives

The financial sustainability of the existing social expenditure programs has become doubtful, with increases in pension

benefits and the economic slowdown. Although the social security system underwent reforms in 1993 which expanded the

user base, it is still generating deficits that need to be covered through large central government transfers. During 2000–04,

average contributions to the system have remained constant at 1.1% of GDP, while payouts have been increasing from

4.4% of GDP in 2000 to 6.4% in 2009. According to World Bank estimates, the cash flow deficit will remain at about 4% of

GDP until 2020.

PESTLE analysis



Technology analysis

Overview

Colombia’s progress in terms of technological development has been limited. The country spends very little on R&D (less

than 0.2% of GDP) and has failed to take advantage of FDI inflow to develop its technological capabilities. The country also

lags behind in terms of technical manpower and inadequate S&T infrastructure. According to the OECD recommendations,

a nation must spend at least 1% of its GDP on science and technology activities to achieve sustainable development. By

these standards, Colombia has a long way to go, and despite the post-2000 economic revival, the country has failed to

improve its technical capabilities.

Table 6: Analysis of Colombia’s technology landscape


■ Science and technology policy in place ■ Low gross expenditure on R&D as percentage of GDP

■ Weak implementation of IPR laws


■ World Bank loan

■ Emerging opportunities in telecommunications

■ Public sector dominance of R&D activities


Current strengths

Science and technology policy in place

The Colombian government has put in place a national S&T policy, which incorporates scientific and technological research

into national development plans while creating the necessary conditions to stimulate innovation and technological

management in national companies. It also promotes the National System of Scientific and Technological Information.

Another significant decision made by the Finance Ministry allows universities to import equipment with the prior

authorization of the Colombian Institute for the Development of Science and Technology (COLCIENCIAS). The National

Council for Social and Economic Policy provides funds for R&D together with exemptions, tax discounts and other financial

stimuli.

Moreover, the National Learning Service (SENA) was entrusted with the responsibility of promoting and facilitating the

generation and consolidation of new entrepreneurial initiatives demonstrating a high innovation and technological

development content within the framework of the national program.

PESTLE analysis



Current challenges

Low gross expenditure on R&D as percentage of GDP

Colombia lags behind in terms of R&D expenditure. According to UNESCO statistics, total expenditure on R&D made by

Colombia as percentage of GDP was 0.3% of GDP in 2008, indicating a decline from the level of expenditure in 1996 (3%),

and far below the desirable level of 1% of GDP as stipulated by the OECD. The per capita expenditure on R&D has also

declined during these years. The public sector plays a dominant role in R&D expenditure, while the business sector’s

contribution to R&D stood at 18%. The limited involvement of the business sector has also delayed innovative activities in

the country.

Weak implementation of IPR laws

Colombia has made changes in its intellectual property rights (IPR) laws to meet the requirements prescribed under the

WTO’s Trade Related Intellectual Property Rights (TRIPs). However, the challenge of implementing IPR laws remains. The

institutional set up remains cumbersome which makes it difficult to enforce the IPR laws. A number of government bodies

are involved in the preparation of IPR policies and their enforcement. The Superintendency of Industry and Commerce

(SIC) is the Colombian authority responsible for granting patents and the development of IPR policies. The issuance of

plant variety protection-related and agro-chemical patents is undertaken by the Colombian Agricultural Institute (ICA). While

the Ministry of Social Protection is in charge of the issuance of pharmaceutical patents, the Ministry of Justice is in charge

of the issuance of literary copyrights. Furthermore, enforcement of IPR laws is carried out by other agencies such as the

tax and customs directorate (DIAN; Dirección de Impuestos y Aduanas Nacionales de Colombia), the Prosecutor General’s

office, the national police, and the judiciary. The officials manning these activities have a limited understanding of IPR

issues and are unable to assess the severity of the offences committed.

Future prospects

World Bank loan

In July 2010, the World Bank approved a loan of $25 million to Colombia for strengthening the National System of Science,

Technology and Innovation Project. The project objective is to strengthen the capacity of the Administrative Department of

Science, Technology and Innovation to promote human capital for the knowledge economy, research and development,

and innovation. The project will also raise awareness of science, technology and innovation in Colombia.

Emerging opportunities in telecommunications

The Colombian telecommunication sector has been rapidly growing, especially in mobile telephony, as mobile phones

subscriptions grew at an annual average rate of around 38.4% during 2002–09. Mobile telephony growth peaked in 2005,

growing at a rate of 109%. However, during the same year, the fixed line segment registered a negative growth.

Colombia had nearly 6.4 million fixed lines in service in 2009, with a teledensity rate of around 18%. There were

approximately 42.01 million mobile subscribers in 2009, with a penetration rate of 96%. The number of internet users is

also witnessing an increasing trend in the country. In 2009, there were a total of 17 million internet users. During the year,

around 20% of the population had subscribed to an internet connection, showing ample scope for growth in this segment.

PESTLE analysis



Future risks

Public sector dominance of R&D activities

The incentive programs of the Colombian government have not moved away from the traditional legacy and public sector

dominance in the sector continues. Most of the fund goes for R&D activities in public enterprises; the largest benefactor of

the tax deduction is the research arm of Ecopetrol, the state oil company. Such schemes provide little option for growth in

innovative activities in the private sector. Low R&D expenditure from the private sector will take the country back to the era

of import substitution and protectionism, where the objective was to promote the national industry.

PESTLE analysis



Legal analysis

Overview

The 1991 constitution of Colombia provided the judiciary with greater administrative and financial independence from the

executive branch. The investment regulations of the country are comparable to other emerging markets. The policies have

encouraged foreign investment, despite threats of internal security. However, the country’s legal implementation and

enforcement mechanism have remained weak. The lower courts have failed to act independently, and unless adequate

measures are taken these courts will remain susceptible to corruption and intimidation. Similarly, the independence of the

constitutional courts has been questioned as they are found to be interfering in the legislative process. However, it is

expected that a new prosecutorial system would improve the criminal justice system of the country.

Table 7: Analysis of Colombia’s legal landscape


■ Well developed court structure

■ Formal openness to foreign investment

■ Cumbersome legal process


■ Legal reforms

■ Government restrictions in some sectors


Current strengths

Well developed court structure

Colombia has a well developed court structure to address various judicial issues. The judicial system comprises of the

Supreme Court of Justice, the Council of State, the Constitutional Court and the Superior Judicial Council at the top level.

The Supreme Court of Justice has three chambers of civil, criminal and labor matters, and decides appeals on errors of law

and has the power to quash lower court decisions. The Council of State is the highest court of administrative law. It also

takes appeals from departmental administrative courts and some national officials. Furthermore, there is the Constitutional

Court to review the constitutional validity of laws approved by the legislative branch and some decrees issued by the

executive branch. The court system, with specialized agencies, is well equipped to establish an efficient judicial system.

Formal openness to foreign investment

The legal climate for foreign investment is generally conducive in Colombia. After the country began liberalization in the

1990s, it provided for the national treatment of foreign investors. A number of controls on remittance of profits and capital

were also lifted and foreign investment was allowed in most of the sectors, except in defense and in sectors with bearing on

national security. Generally, foreign investment does not require prior authorization, except when made in restricted areas.

PESTLE analysis



Although investments involving sensitive sectors are subject to prior approval, foreign investors are not treated differently

from domestic players.

Current challenges

Cumbersome legal process

The lower courts of Colombia are found to be inefficient and involved in corrupt practices. The legal processes are lengthy

and the judiciary has been accused of being less than fair on a number of occasions. The independence of judges is also

curtailed as they are subject to intimidation. Moreover, a heavy workload has pressurized the legal system's resources. On

a number of occasions, the lower courts have failed to act independently, and unless adequate measures are taken these

courts will remain susceptible to corruption and intimidation. Similarly, the independence of constitutional courts has been

questioned as they are found to be interfering with the legislative process. Moreover, a lack of coordination among

government entities such as the DIAN, prosecutors, and the national police along with insufficient resources complicate

timely resolution of cases. Colombia’s percentile ranking in terms of regulatory quality was only 59.2 on the World Bank’s

Governance Indicators 2009. Low ranking indicates the poor and inefficient regulatory process in the country.

Future prospects

Legal reforms

The new Colombian government has made the first steps towards reconstructing battered ties with the judiciary. Interior

Ministry sent a request in early August 2010 to Congress to withdraw a judicial reform bill tabled by the previous

government mere days before administration was scheduled to leave office. The constitutional reform project was badly

received by Supreme Court magistrates. They were particularly opposed to provisions seeking to transfer the prosecutor-

general office from the judiciary to the executive branch and to give the president the authority to name the prosecutor-

general. In an effort to improve communication with the judiciary, new president Juan Manuel Santos, who assumed office

in August 2010 also met with the 78 magistrates of the high courts to resolve the issues pertaining to judiciary. Alongside

the establishment of a permanent communication mechanism between government and judiciary, the most important

outcome of the meeting was an agreement to reach a consensus on an encompassing judicial reform bill, which the

government hopes to send to Congress by the end of August 2010.

Future risks

Government restrictions in some sectors

Although the Colombian government follows an investor friendly policy, there are restrictions on services sectors which restrict

investment opportunity. For instance, the provision of legal services is limited to law firms licensed under Colombian law.

Foreign law firms can operate in Colombia only by forming a joint venture with a Colombian law firm and operating under the

licenses of the Colombian lawyers in the firm. There are also barriers to enter the telecommunications sector in the form of

cross subsidies, and requirements that mandate a commercial presence in Colombia. Furthermore, there are laws which

restrict the movement of personnel in professional areas, such as architecture, engineering, law, and construction. There are

also limitations on employing foreign nationals. For firms with more than 10 employees, employers are not allowed to recruit

PESTLE analysis



foreign nationals in excess of 10% of the general work force and 20% of specialists. Such restrictions will limit the scope of

FDI inflow in the country.

PESTLE analysis



Environmental analysis

Overview

In the Latin American region, Colombia has remained at the forefront with respect to maintaining environment standards.

Environmental regulations ensure the completion of the country’s environmental objectives, which is reflected in the

country’s high rank on the EPI. Colombia has played an active role with respect to its commitment in various international

environment treaties. The signing of Kyoto Protocol has provided new opportunities for the Colombian government. There

are expectations of high market potential for Certified Emissions Reductions (CERs). Several sectors, such as cement,

power plants, agro-industry (panels) and forestry are the front runners in drawing up CDM projects. However, there are

risks related to investment and a lack of funds may restrict the funding of such projects.

The structural system also needs to make some changes. Although decentralized environmental management has helped

to encourage public participation and social control at a regional level, it faces the challenge of weak enforcement and

inconsistent regulations. Such limitations can be overcome through necessary regulations and by reducing the reliance on

voluntary compliance.

Table 8: Analysis of Colombia’s environmental landscape


■ Impressive ranking in environment performance index

■ Signatory to major international environment pacts

■ Increasing deforestation and soil erosion

■ Weak implementation of environment laws


■ Sustainable stockbreeding management project ■ Inability to integrate sustainable development with other policies


Current strengths

Impressive ranking in environment performance index

Colombia was ranked 10th among 163 countries in the 2010 Environmental Performance Index (EPI), conducted by Yale

and Columbia universities. The EPI looks at success in environmental protection based on two broad objectives: reducing

environmental stress on human health, and promoting strong ecosystems and sound natural resource management.

Colombia performed well in forestry, fisheries, cropland use and reducing ground level ozone, a pollutant from human

activities that causes significant health problems. According to the Colombian Ministry of Environment officials, the country

reduced the national consumption of ozone depleting substances such as chlorofluorocarbons by 86% between 1995 and

2007. The high rank points towards better environmental quality of this Latin American country.

PESTLE analysis



Signatory to major international environment pacts

Colombia has ratified nearly 105 environment treaties and has remained at the forefront in the Latin American region with

respect to the conservation of natural resources. Colombia is party to the Antarctic Treaty and various other treaties on

biodiversity, desertification, endangered species, hazardous wastes, marine life conservation, ozone layer protection and

ship pollution. Being a party to these environment pacts shows the government’s commitment to fulfilling its environmental

obligations.

Current challenges

Increasing deforestation and soil erosion

Despite the country’s progress in addressing environmental issues, it faces the challenges of soil erosion, deforestation and

the preservation of its wildlife. Soil erosion has resulted from the loss of vegetation and heavy rainfall, and the soil has also

been damaged by the overuse of pesticides. Increasing demand for palm oil, a significant source of biofuel, has led to

deforestation to provide for new plantations in Colombia. The land used for oil palm plantations in Colombia increased from

145,027 hectares in 1998 to 275,317 hectares in 2005, and the government has stated its intention to increase production

to 6 million hectares by 2020. This would lead to a significant loss of forest land, which also implies the reduced ability of

green cover to absorb greenhouse gases. Large tracts of forest are also disappearing because of gold mining. Increasing

deforestation has also led to a growing number of endangered species.

Weak implementation of environment laws

Although Colombia has a number of environmental regulations in its statute, implementation has remained weak. In many

cases, taxes required to be collected under such regulations are not collected and regular inspections are sidelined due to

a weak monitoring system. The prevalence of corruption in the Colombian system worsens the cases. Low level of human

and technical capacities in some Autonomous Regional Environmental Authorities (CARs; Corporación Autónoma

Regional) aggravates the problem of implementation. Furthermore, since the law relies excessively on voluntary

compliance, achieving the environmental objectives has become a challenge.

Future prospects

Sustainable stockbreeding management project

In March 2010, the World Bank approved a $7 million grant from the Global Environmental Facility (GEF) for the

Sustainable Stockbreeding Management Project in Colombia, which is to be carried out by the Colombian Federation of

Stockbreeders (Federacion Colombiana de Ganaderos, FEDEGAN), and whose focus is to improve production systems to

benefit farmers and the environment. The project, to be implemented in five of the country's regions, aims at promoting the

adoption of Forest Grazing Systems (FGS) that allow improvements in natural resource management, increasing the

provision of environmental services and augmenting productivity in participating farms. This financing mechanism will

generate important local and global benefits, as it will contribute to the conservation of global biodiversity critical to

stockbreeding systems, to the reduction of emissions caused by deforestation and forest degradation, improvements in

rural adaptation to climate change and to the reduction of land degradation.

PESTLE analysis



Future risks

Inability to integrate sustainable development with other policies

Although the Colombian government has been focusing on sustainable development in its environmental policies, it has not

succeeded in integrating this with other sectoral policies on agriculture, energy and infrastructure. The consumption of

energy (mainly transport) and rapid urbanization and infrastructural development have put immense pressure on the

environment of the country. Similarly, the incentives and taxes used for ensuring environmental adherence need to be

better integrated with other sectoral policies to ensure the implementation of procedures.

Political landscape



POLITICAL LANDSCAPE

Summary

Colombia emerged as an independent nation in 1830, free from the Spanish rule. For most of the 20th century, the country

has witnessed many civil wars due to the presence of armed groups and drug cartels. A four-year peace process between

the authorities and the main rebel group broke down in February 2002, amid allegations that the rebels had merely used

the intervening cease fire to rearm and regroup. It was at this time that presidential candidate Alvaro Uribe advocated the

adoption of a hard-line stance against the rebels, and it is this attitude that has been the backbone of his victorious

campaigns in the last two presidential elections, the latest of which was in May 2006. The incumbent president has

succeeded in significantly reducing the murder and kidnapping rates, but his tough approach has been marred by

accusation of human rights violations from some quarters. Juan Manuel Santos Calderon was elected as president of

Colombia, after he won the two rounds of elections in June 2010. He took over the presidential office on August 7, 2010.

Evolution

Colombia came under the Spanish rule in 1525. Subsequently, Spain established the settlement of Santa Fe de Bogota,

which came to be known as Bogota, the current capital of the country. Bogota also became the capital of the Spanish vice-

royalty of Nueva Granada, which also ruled Ecuador and Venezuela. However, after Simon Bolivar defeated Spanish

forces in 1819, the Republic of Gran Colombia was formed with Ecuador, Panama and Venezuela. In 1830, Gran Colombia

was dissolved when Venezuela and Ecuador split off and present-day Colombia and Panama were left as a separate

nation known as Nueva Granada. Colombia’s political evolution is depicted below:

Political landscape



Figure 2: Colombia – key political events time line

• Present-day Colombia and Panama, known as Nueva Granada, emerged from the collapse of Gran Colombia in 1830, with Ecuador and Venezuela.

• Conservative and liberal parties were founded in 1949.

• The Liberal Party’s rule during 1861–65 saw the country divided into nine largely autonomous entities and the church was separated from the state.

• In 1885, the Conservative Party’s rule began, which lasted for 45 years. Power was recentralized and church influence was

restored.





restored.

• Civil war broke between Liberals and Conservatives during 1899–1903. In the same period Panama became an independent state.

• Liberal President Olaya Herrera was elected by coalition in 1930; social legislations were introduced and trade unions were encouraged.

• Conservatives returned to power in 1946.

• Civil war sparked off again in 1948–57.

• Conservatives and Liberals agreed to form National Front in 1958 in a bid to end the civil war.






• New rebel groups such as Leftist National Liberation Army (ELN), Maoist People's Liberation Army (EPL), Revolutionary Armed Forces of Colombia (FARC) emerged during 1960-65.

• President Julio Turbay(Liberal) began intensive fight against drug traffickers in 1978.

• Conservative President BelisarioBetancur granted guerrillas amnesty and freed political prisoners.

• Virgilio Barco Vargas (Liberal) won the presidential elections in 1986; Cesar Gaviriaelected on anti-drug platform in 1989.





• Andres PastranaArango (Conservative) was elected president in 1998 and began peace talks with guerrillas.

• Pastrana and Farcleader Manuel "Sureshot" Marulandamet in 1999.

• In 2000, Pastrana's"Plan Colombia" won $1 billion in military aid from the US to fight drug-trafficking and rebels who profited and protected the trade.

• The government and FARC signed the San Francisco agreement, committing themselves to negotiate ceasefire.





• Peace talks failed in 2002.

• Independent candidate Alvaro Uribe won a first-round presidential election victory in 2002, promised to crack down hard on rebel groups.

• President Uribe'splanned political reforms were rejected by voters in a referendum.

• President Uribe won a second term in office in 2007.

• In 2009, Colombia and US signed a deal giving the US military access to seven Colombian bases.

• In August 2010, Juan Manuel Santos took over as president.







Pre 1900 1900-60 1961-90 1991-2000 2001 Onwards





restored.





restored.







































Pre 1900 1900-60 1961-90 1991-2000 2001 Onwards


Political landscape



Structure and policies

Key political figures

Key political figures in Colombia are:

• The President: Juan Manuel Santos

Figure 3: Key political figures in Colombia

Juan Manuel Santos was elected as president of Colombia, after he won the two rounds of elections

in June 2010. He took over as the president on August 7, 2010. He was minister of foreign trade during

the administration of president Cesar Gaviria in 1991. He was then appointed as the president of the

VII United Nations Conference on Trade and Development in 1992. In 1994, Santos founded the Good

Government Foundation, whose stated objective was helping and improving the governability and

efficiency of the Colombian government. He also served as the president of the United Nations

Economic Commission for Latin America and the Caribbean (ECLAC) and served as director of the

Corporación Andina de Fomento (CAF) for the period 2001–02. Santos also founded the Social

National Unity Party (Party of the U). Before taking over as the president, he served as the Minster of

Defense.

Juan Manuel Santos was elected as president of Colombia, after he won the two rounds of elections

in June 2010. He took over as the president on August 7, 2010. He was minister of foreign trade during

the administration of president Cesar Gaviria in 1991. He was then appointed as the president of the

VII United Nations Conference on Trade and Development in 1992. In 1994, Santos founded the Good

Government Foundation, whose stated objective was helping and improving the governability and

efficiency of the Colombian government. He also served as the president of the United Nations

Economic Commission for Latin America and the Caribbean (ECLAC) and served as director of the

Corporación Andina de Fomento (CAF) for the period 2001–02. Santos also founded the Social

National Unity Party (Party of the U). Before taking over as the president, he served as the Minster of

Defense.


Structure of government

Colombia has a democratically elected presidential system with a strong executive. The president, elected for a four year

term, is the head of state and the government. The constitution allows for a re-election for a second term. There is a

bicameral parliament consisting of 102 members (the upper house) and the 165-member Chamber of Representatives (the

lower house). The members of parliament are also directly elected for four year terms.

Key political parties

Colombia had traditionally maintained a two-party system: the Colombian Liberal Party (Partido Liberal Colombiano) and

the Colombian Conservative Party (Partido Conservador Colombiano). However, with growing dissidence within these

parties, a number of independent parties have emerged over the years. Although there was a total of 70 smaller parties in

2002, the number declined to 16 in 2006, following changes in electoral rules. The supporters of Alvaro Uribe formed new

alliances leading to the emergence of new parties such as the Partido Social de Unidad Nacional, Cambio Radical and

ALAS-Equipo Colombia.

Colombian Liberal Party

The Colombian Liberal Party (PL; Partido Liberal Colombiano) is a social democratic party in Colombia. Cesar Gaviria

Trujillo is the present chief of the party. During 1958–74 it shared power with the Colombian Conservative Party under the

name “National Front”. Although it was the single largest party in the Colombian Congress, with 54 members in the lower

Political landscape



house and 28 in the upper house, its representation came down in the 2006 elections. The party has 38 members in the

lower house and 18 members in the upper house after the 2006 elections. Although President Uribe belonged to this party,

he contested the election as an independent candidate in 2006. In the recently held elections in March 2010, the party won

37 seats in House of Representatives and 17 seats in Senate.

Colombian Conservative Party

The Colombian Conservative Party (PC; Partido Conservador Colombiano), a center right party, came into existence as a

revolutionary party and fought for independence from the Spanish rule. In 1885, the Conservative party’s rule began, which

lasted for 45 years. The party entered into a partnership with the Liberal party to establish the National Front in 1958 in a

bid to end the civil war, which had broken out after the assassination of the left-wing mayor of Bogota. Both the parties

shared the presidential terms by turns until 1974. The party supports privatization and free trade. The party supported

President Uribe and did not field its own candidate for the 2006 elections. In the recently held elections in March 2010, the

party won 38 seats in House of Representatives and 22 seats in Senate.

The Social National Unity Party

The Social National Unity Party’s (Partido Social de Unidad Nacional) main agenda is to unite parliamentary supporters of

President Uribe into a single party. In the 2006 elections, it won 30 deputies and 20 Senators. In March 2010 elections, the

party won the majority share of 47 seats in House of Representatives and 28 seats in Senate.

Radical Change

The Radical Change (Cambio Radical) party is also a new party but has gained significance after the 2006 elections. It won

15 seats in the lower house and 20 in the upper house. It is also an ally of President Uribe, and the party’s support is

needed to fulfill the absolute majority requirement of the present government. In the recently held elections in March 2010,

the party won 15 seats in House of Representatives and 8 seats in Senate.

Alternative Democratic Pole

The Alternative Democratic Pole (PDA; Polo Democratico Alternativo) is an alliance of the Independent Democratic Pole

(PDI) and the Democratic Alternative (AD). In the presidential elections, the party fielded Carlos Gaviria, who came second

with 22.04% of total votes. It has nine members in the lower house and 11 in the upper house, after the 2006 elections. In

March 2010 elections, the party won 4 seats in House of Representatives and 8 seats in Senate.

Political landscape



Composition of government

Figure 4: Composition of the house of representatives (Colombian parliament)

U party, 47

PC, 38

PL, 37

CR, 15

Others, 27


Key policies

Key policy areas

Juan Manuel Santos Calderon was elected as president of Colombia, after he won the two rounds of elections in June

2010. He took over as president on August 7, 2010. Juan Manuel Santos, a former defense minister and finance minister,

succeeded former President Alvaro Uribe. The result is seen as a sign that Uribe's tough security line against rebels and

his pro-business policies will continue. Santos is also in a strong position in Congress to push through fiscal reforms after

securing support from the Conservative and Cambio Radical parties.

Economic policies

After the Colombian economy came out of recession in the late 1990s, the economic policy has centered on narrowing the

fiscal deficit. At the same time, the central bank has used monetary policy to maintain price stability and encourage private

investment by improving the business environment. Although economic growth during 2000–06 allowed the present

government to follow the reform policies, maintaining a disciplined policy framework will become harder if growth weakens.

The government may find it difficult to arrest huge public debt and a large central government deficit.

Political landscape



Other significant policies of the government include tax reforms and privatization. The tax reform bill of 2006, besides

widening the tax base, also aimed at improving the transparency and fairness of the tax regime. The VAT base was

expanded and income tax rates were gradually reduced from 38.5% in 2006 to 33% in 2007. The government also took

steps to check government expenditure. The new government led by President Santos, a former finance minister who once

helped bring Colombia out of a fiscal crisis, is focused on creating jobs and generating economic growth. According to the

new president, with strong growth, he says he will not increase taxes but instead increase the taxpayer base to bolster

state revenue to help fight the budget deficit.

Social policies

During the Uribe administration, social spending in Colombia has increased. According to the president’s statement in

2004, 62% of the resources of the national budget (excluding debt service) have been allocated to social sectors like social

security, healthcare and education. Colombia’s constitution decentralized education, health and other public services to

regional governments. One of the significant steps that the government has taken is with respect to setting up more schools

and creating opportunities for more students to enroll in them. Furthermore, the government succeeded in increasing the

availability of micro credit for small entrepreneurs and managed to reduce unemployment from 17.3% in 2002 to 12.1% in

2009.

The government’s agenda also includes ensuring a smooth return for the displaced population from the rural areas. Nearly

47 towns destroyed by terrorist attacks were rebuilt, which resulted in the reduction of the waiting period that displaced

families were facing before they received humanitarian assistance. The government has launched a program called

“forester families”, which offers legal alternative income to families located in strategic ecosystems or in conservation areas

where illicit crops are grown. Families entering this program commit themselves to protect and preserve these selected

areas. Thus, it is a program that contributes to the reduction of illicit crops and, concurrently, supports the generation of

communitarian organizations. In addition, it consolidates strategies for forest management and ecological sustainability.

The new government is also expected to take up social development with fiscal discipline in place.

Foreign policies

Colombia’s foreign policy has been dominated by regional alliances and its relation with the US. Colombia is a member of

the Andean Community since 1969. In 1980, it also joined the Contadora Group and the Group of Eight (now the Rio

Group). It chaired the Non-Aligned Movement from 1994–1998. In order to bring the economies closer, Colombia has

entered into free trade agreements with Chile, Mexico, and Venezuela. The US-Colombia Trade Promotion Agreement was

signed by President Bush in November 2006, and was passed by the Colombian Congress in 2007. It has yet to receive

the approval of the US Congress.

Human right groups have criticized the US administration for cooperating with the Colombian military, citing numerous

human rights abuses by the armed forces and the links between the army and the vicious paramilitary groups. The Bush

government saw achieving victory in Colombia as a key stage in the dual wars on terrorism and narcotics, and the US has

become increasingly involved in Colombia’s long-running civil war.

In July 2010, the Brazilian government has offered to mediate a dispute involving Venezuela and Colombia. Venezuelan

President Hugo Chavez broke diplomatic ties with neighboring Colombia in July 2010 and ordered a "maximum alert" along

the border, after Colombia charged in the Organization of American States that leaders of the Revolutionary Armed Forces

Political landscape



of Colombia, or FARC, a decades-old Marxist guerrilla group, had base camps in Venezuela. The Venezuelan leader

accused Colombian former President Alvaro Uribe of orchestrating the accusations with the help of the US. The new

government is expected to steps to reduce tensions with Venezuela.

Performance

Governance indicators

The World Bank report on governance uses voice and accountability, political stability and absence of violence,

government effectiveness, regulatory quality, rule of law", and "control of corruption" as indicators to assess 212 countries

and territories over the period 1996–2008. The study was carried out by Daniel Kaufmann and Massimo Mastruzzi of the

World Bank Institute, and Aart Kraay of the World Bank Development Economics Research Group. For any country, a

percentile rank of 0 corresponds to the lowest and 100 correspond to the highest rank.

On the governance indicators, Colombia has failed to make any mark given the political instability and high order of

domestic violence.

Colombia ranked in the 39.4 percentile for voice and accountability in 2008, a marginal decline over its 2004 ranking of 39.9

percentile. The voice and accountability parameter measures the extent to which a country's citizens are able to participate

in selecting their government, along with freedom of expression, freedom of association, and the availability of free media.

The country has witnessed prolonged violence, with conflicts involving outlawed armed groups and drug cartels, leading to

restrictions on citizens’ rights. President Uribe succeeded in arresting violence to some extent, but his tough anti-terrorism

laws are also blamed for its alleged role in the violations of human rights. In comparison, Brazil was ranked higher at the

61.1 percentile, while Venezuela was ranked lower at the 50.5 percentile in 2008.

The above factors have led to an even lower rank of 8.1 percentile for Colombia in 2008, in terms of political stability and

absence of violence. Political stability and absence of violence measures perceptions of the likelihood that the government

will be destabilized or overthrown by unconstitutional or violent means, including domestic violence and terrorism. The

presence of warfare groups has always threatened stability in the region. On a number of occasions the election process

has been disrupted, when contesting members were killed. On this parameter, Brazil was ranked in the 38.3 percentile

whereas Venezuela was ranked in the 29.8 percentile in the same year.

In terms of government effectiveness, Colombia’s performance is better and is ranked in the 60.2 percentile in 2008. This is

also an improvement over its ranking in 2004 when it was ranked in the 54 percentile. Government effectiveness measures

the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the

quality of policy formulation and implementation, and the credibility of the government's commitment to such policies.

Following President Uribe's reform measures, the government effectiveness index has improved. Brazil was ranked at 54.5

and Venezuela had a much lower percentile rank of 36.0 in 2008.

Colombia’s percentile ranking in terms of regulatory quality was 59.2, which is an improvement over its 2004 score of 52.2.

Regulatory quality measures the ability of the government to formulate and implement sound policies and regulations that

permit and promote private-sector development. The Uribe government has undertaken economic liberalization and

privatization at a massive scale. Most of the sectors, except those of national security, have been opened up for foreign

Political landscape



players. The government has also ensured national treatment for foreign investors. Brazil had a comparable ranking of 58.0

on this parameter, but Venezuela had a poor rank of 43.9 percentile during the year.

Colombia had a percentile rank of 37.8 in 2008 for the rule of law parameter, which is an improvement over its 2004

ranking of 22.9 percentile. Rule of law measures the extent to which agents have confidence in and abide by the rules of

society, and in particular the quality of contract enforcement, the police, and the courts, as well as the likelihood of crime

and violence. Brazil ranked comparatively higher at 46.4 percentile on this index whereas Venezuela had a lower percentile

rank of 25.7 in the same year.

Colombia’s percentile ranking in terms of control of corruption was 50.2 in 2008. Control of corruption measures the extent

to which public power is exercised for private gain, including both petty and grand forms of corruption, and the extent to

which the state is controlled by elite and private interests. The Colombian judiciary, especially the lower courts, has been

accused of corrupt practices, and the system is plagued by a low level of transparency. Brazil was ranked at 58.5 percentile

whereas Venezuela was ranked at 19.9 percentile in 2008.

Outlook

Juan Manuel Santos Calderon was elected as president of Colombia, after he won the two rounds of elections in June

2010. The new government led by President Santos, a former finance minister who once helped bring Colombia out of a

fiscal crisis, is focused on creating jobs and generating economic growth. Along with strong growth, the government aims

not to increase taxes and instead increase the taxpayer base to bolster state revenue to help fight the budget deficit. The

new government will also delay privatizations. The new administration of President Juan Manuel Santos has laid out plans

in August 2010 to raise $2bn in financing to cover a budget gap resulting from its decision not to sell the government’s

stake in the power generation company ISAGEN and the delay of another set of privatizations that had been slated for

2010. The long-awaited ISAGEN sale would have brought in $1.6bn (0.6% GDP) in revenue and was already accounted for

in the medium-term fiscal figures the outgoing government presented in June 2010.

Prior to the presidential election, former President Alvaro Uribe had announced that the sale would be postponed until the

new government took office. The new government has decided against selling, citing the sale as only a palliative short-term

measure. To replace the $2bn in privatization revenue the new government plans to raise $500m through foreign bond

issues, $500m from multilateral organizations and $1bn by issuing treasury bonds in the local market.

Economic landscape



ECONOMIC LANDSCAPE

Summary

After entering a recession in the late 1990s, the Colombian economy has staged a recovery since implementing the

government’s drastic economic reform measures. The economy recorded an average growth of 4.3% during 2002–09, and

in 2009, the GDP growth slowed down to 0.4. According to Datamonitor forecasts, the country’s GDP is expected to

recover to around 2.5% in 2010. Furthermore, widening current account deficit and rising external debt pose significant

challenges. Nevertheless, the government’s efforts to improve fiscal discipline and reduce public debt along with an export-

oriented growth strategy have maintained investors’ confidence in the economy. The business sector is looking forward to

the US Congress approval of the FTA, which will bring the economies of the US and Colombia closer.

Evolution

During colonial times, the Colombian economy was mainly an exporter of raw materials, particularly precious metals.

During those years the economy was primarily agrarian, comprising activities such as mining, agriculture, and cattle raising.

Very few small enterprises were present. By the late 19th century, the tobacco and coffee exports developed, making

agriculture and commerce the two most important economic activities in the country.

In the early 20th century, Colombia witnessed a coffee boom. Subsequently, the communication and transport infrastructure

developed to facilitate exports. Coffee was the most important item of trade and contributed nearly 75% of total exports

revenue in 1920. During 1905–15, Colombia saw a rapid increase in GDP, with the expansion of exports and government

revenue. There was a large scale public works program and huge inflow of capital through private investment.

During the course of the country's postwar expansion the government focused on economic integration, and heavy

industries came to be established in six largest cities. During 1950–67, Colombia followed an import substitution program to

develop domestic industries. However, after this period, there was a shift to export promotion, leading to the growth of non-

traditional sectors like clothing and other manufactured items. Until the 1970s, there was a sustained economic annual

average growth of around 5%. The economy slowed somewhat in the early 1980s because of the global recession of 1981,

however, the Colombian economy was better placed than other Latin American countries because of its strong foreign

exchange reserves and the large quantum of foreign aid. In 1990, the process of economic liberalization started. Although

the economy registered a growth of 4.28% it experienced a sharp recession during 1998–99, resulting in a slide in the

currency and a degree of financial sector distress.

An IMF-supported fiscal adjustment program helped to rein in the fiscal deficit. The move to a free float for the currency in

1999 and the introduction of inflation targeting in 2000 introduced a renewed credibility and flexibility to monetary and

exchange rate policies. The economy has steadily grown since 2002, recording an average GDP growth of 4.8% during

2002–06. The economy recorded a growth of 7.5% in 2007. However, due to global economic slowdown and decrease in

international demand, economic growth rate decelerated to 2.5% and 0.4% in 2008 and 2009.

Economic landscape



Figure 5: Historical GDP growth rate in Colombia (real GDP at constant 2000 prices)

-6

-4

-2

0

2

4

6

8

10

1991 1993 1995 1997 1999 2001 2003 2005 2007 2008 2009

Year

Gro

wth

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te (

%)



Financial authorities/regulators

Central Bank of Colombia

The Central Bank of Colombia (Banco de la Republica Colombia) is responsible for monetary policy with the objective of

maintaining price stability, and is the issuer of legal currency. As regards the tendering of credit by the central bank to the

government, although not prohibited by the new regime, very rigorous conditions exist for the concession of credit. In effect,

this sort of credit is limited to instances of dire necessity and is provided only with unanimous approval of the board of

directors. Furthermore, the bank is allowed to acquire government bonds in the secondary market.

As with any other central bank, the Colombian central bank also acts as the banker’s bank and is entrusted with the task of

formulating foreign exchange policy.

Economic landscape



Financial Superintendence

The financial laws and regulations were consolidated in 1993 under the Organic Statute of the Financial System (EOSF;

Estatuto Orgánico del Sistema Financiero) which defined financial institutions under the Supervision of the Banking

Superintendency (Superintendencia de Bancos). Colombia faced a severe financial sector crisis during the 1990s. As a result,

between 1998 and 2000, the banking sector lost almost 40% of its net worth. In the insurance sector, the impact was less

severe and no insurers failed as a result of the crisis. However, post-crisis, the government undertook a clean-up process of

the financial sector and strengthened its financial sector regulation. In 2005, Colombia consolidated the supervision of the

banking and securities sectors under the Financial Superintendence (Superfinanciera).

Superfinanciera is the regulator of the following segments:

• Credit institutions;

• financial services companies;

• securities market;

• insurance companies, and insurance and reinsurance brokers.

Stock markets

Bolsa de Valores de Colombia

Bolsa de Valores de Colombia (BVC) is the leading stock exchange in Colombia. It came into existence in 2001 after the

merger of three stock exchanges in Colombia: Bolsa de Bogota, Bolsa de Medellin and Bolsa de Occidente. The market

capitalization of the exchange has increased from $10 billion to nearly $102 billion during 2002–07. Due to the global

economic slowdown, BVC lost almost 13% of its market capitalization at the end of 2008 to reach $87.7 billion. In 2009, the

market capitalization decreased to $82.6 billion.

The BVC is regulated by the Superfinanciera, which oversees market intermediaries, brokers’ fees, and financial disclosures

of listed companies. The Colombian capital market is relatively underdeveloped. Only the large companies participate in the

local stock or bond markets. While a number of firms rely on the banking system for their capital requirements, unofficial

private lenders also meet the financing needs of small and medium-sized companies.

Economic landscape



Figure 6: Market capitalization of the Colombian Stock Exchange (BVC), 2003–08

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2003 2004 2005 2006 2007 2008

Year

$ b

illi

on


Insurance

The Colombian insurance industry is also underdeveloped, with premiums totaling $4.13 billion in 2007. The sector is

dominated by the non-life segment, but the life insurance segment is growing. In 2006, insurance premiums in Colombia

amounted to 2.4% of GDP, which is the same as the Latin American average. However, its premium per capita, at $69, is

significantly below that of the Latin American average ($126). It has been observed that a good majority of high-income

individuals obtain insurance abroad. Although financial liberalization has allowed them to go for foreign insurance, the fear

instilled by the past crisis is also an important factor that influences this.

While $1.1 billion came from life insurance segment, rest came from non-life in 2007. The life insurance sector grew at 21%

and non-life registered a growth of 31% during the year compared to the previous year. Total premiums for the previous

twelve months as of the end of September 2009 reached $5.4 billion, up $462 million (9.46%) over the twelve month period

ending September 2008. The top ten insurers in the market by total premium are Suramericana, Bolivar, Colseg, Mapfre,

Liberty, Alfa, Previsora, BBVA and QBE.

Economic landscape



Key policies

During the eight years (2002–10) that former President lvaro Uribe governed Colombia; annual economic growth averaged

4%. Nevertheless, President Juan Manuel Santos, who was sworn in early August 2010, has taken over a country with the

highest unemployment rate in Latin America. The economic policies of the outgoing government basically favored foreign

capital, turning Colombia into a tax haven. The new government is focused on formulating market-friendly economic

policies. The administration has pledged to reduce the government fiscal deficit, which could help Colombia attain

investment-grade status for its bonds. The government’s drive towards privatization has been contrary to that of previous

government, prioritizing on development and raising private capital than taking the route of privatization.

Performance

GDP and growth rate

The Colombian economy registered an average annual growth rate of 4.8% during 2002–08. The economy had gone

through a sharp recession during 1998–99, resulting in a slide in the currency and a degree of financial sector distress.

Since then there has been a return to positive growth, although the economy remains extremely sluggish. However, an

IMF-supported fiscal adjustment program has helped to control the fiscal deficit and the process of economic liberalization.

Economic growth has remained steady since 2000. The economy registered a growth rate of 7.5% in 2007, but it came

down to 2.5% in 2008. Due to the global economic slowdown, the GDP growth decelerated to 0.4% in 2009. It is expected

that the economic growth will recover to around 2.5% by the end of 2010.

Economic landscape



Figure 7: GDP and GDP growth rate in Colombia, 2002–13 (real GDP at constant 2000 prices)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

$ b

illi

on

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Gro

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rate

(%)

GDP Real GDP growth rate


GDP composition by sector

The Colombian economy is largely dependent on the services sector, which constituted around 55.1% of GDP in 2009,

compared to contributions of 36.2% and 8.7% made by the industrial and agriculture sectors, respectively.

Economic landscape



Figure 8: GDP composition by sectors, 2009

Agriculture, 8.7%

Industry, 36.2%Services, 55.1%


Agriculture

The principal agricultural activities of Colombia are cattle-rearing, which is mostly concentrated in the Caribbean coastal

area and the eastern plains, and coffee-growing, prevalent in the western and central ranges of the Andes.

Colombia’s climatic conditions along with a favorable topography provide a suitable environment for agricultural growth. As

a result, a wide variety of crops is cultivated in this region. In the hot regions of Colombia, Cacao, sugarcane, coconuts,

bananas, plantains, rice, cotton, tobacco and cassava are some of the important agricultural produce. In the colder areas,

there is a higher yield of forest products such as pine and eucalyptus. Coffee, flowers, corn, pears, pineapples, and other

vegetables are grown in the temperate regions. The cooler elevations are suitable for the production of wheat, barley,

potatoes, cold-climate vegetables, flowers, dairy cattle and poultry. Agricultural output in Colombia increased at an annual

average rate of 7.9% during 2002–08, however, the agricultural output contracted by 4.9% during 2009.

Economic landscape



Figure 9: Agriculture output of Colombia, 2002–09

0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

50,000.0

2002 2003 2004 2005 2006 2007 2008 2009

Year

CO

P b

illi

on

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Gro

wth

rate

(%)

Agriculture output Growth rate

Source: Datamonitor

Note: Sectoral figures are given in local currency due to fluctuation in exchange rates

D A T A M O N I T O R

Industry

Colombia has four major industrial centers: Bogota, Medellin, Cali, and Barranquilla. Processed food, beverages, textiles,

clothing and chemicals are the main manufactured goods. Mining (accounting for 5% of GDP), along with coffee, is one of

the most important export-oriented activities in the country, and accounts for over one-third of the total exports. In addition,

oil extracted from large fields in the eastern plains, and coal, produced in the Guajira peninsula, are the two principal mining

activities. The industrial output growth rate, after peaking in 2003 at 21%, has decelerated to 1.1% in 2009.

Economic landscape



Figure 10: Industrial output of Colombia, 2002–09

0.0

20,000.0

40,000.0

60,000.0

80,000.0

100,000.0

120,000.0

140,000.0

160,000.0

180,000.0

200,000.0

2002 2003 2004 2005 2006 2007 2008 2009

Year

CO

P b

illi

on

0.0

5.0

10.0

15.0

20.0

25.0

Gro

wth

rate

(%)

Industry output Growth rate

Source: Datamonitor



Services

The services sector of Colombia is dominated mainly by commercial activity. Financial services and retail are important

segments, with a share of 18% and 8% of GDP, respectively, as of 2009. Telecommunications, accounting for 3% of GDP,

has been one of the most dynamic sectors in recent years, owing to the development of services, such as long-distance

and wireless communications in large urban centers. During 2002–08, the sector grew at an average annual rate of around

10.8%. In 2009, the service sector output decelerated to 4.5% growth in 2009 compared to over 14% and 8% growth seen

in 2007 and 2008, respectively.

Economic landscape



Figure 11: Services output of Colombia, 2002–09

0.0

50,000.0

100,000.0

150,000.0

200,000.0

250,000.0

300,000.0

2002 2003 2004 2005 2006 2007 2008 2009

Year

CO

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on

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Gro

wth

rate

(%)

Services output Growth rate

Source: Datamonitor



Fiscal situation

The former government continued with its prudent fiscal policies and has pursued tough economic reforms including tax,

pension and budget reforms. Although large scale fiscal deficit was one of the major challenges of the Colombian economy

in the beginning of the noughties, favorable international conditions such as higher oil prices and Colombia’s economic

expansion aided the efforts of the Uribe administration to bring Colombia’s public finances under control. The estimated

2006 budget deficit was 5.1% of GDP, as compared with 5% of GDP in 2005. In 2007, the government deficit declined to

3.3%.

The Colombian government posted a consolidated budget deficit of 2.8% of GDP in 2009, up from 0.1% in 2008. The deficit

amounted to COP13.7 trillion ($7.14 billion) in 2009, up from COP678 billion in 2008. The government expects the deficit in

2010 to reach 4.4% of gross domestic product (GDP) and to shrink in 2011 to 3.9% of GDP. The government announced in

July 2010 that budget for 2011 will reach COP147.3 trillion ($79.6 billion), a 2.5% increase from 2010. The budget was

drafted by the administration of former President Alvaro Uribe and could see alterations since it will be authorized by the

new government headed by President Juan Manuel Santos, who took office in early August 2010.

Economic landscape



Exports and imports

With the exception of a few years, Colombia has experienced an adverse balance of payments during 1995–2006. In 2009,

exports stood at $29.7 billion and total imports reached $44.6 billion, showing a year-on-year increase of 24% and 18%,

respectively. In 2000, the country had recorded a small trade surplus of $0.2 billion. However, since then the balance of

trade has remained negative.

The US is Colombia’s principal trading partner, accounting for around 32.45% of total exports in 2009. Colombia also

trades widely with its Andean community neighbors. Venezuela is the leading regional export market, accounting for

17.16% of total exports. Trade with the rest of Latin America is less pronounced. Outside the western hemisphere, the EU

(14% of exports) is the only significant export market.

On the import side the US again dominates, accounting for 30.61% of total imports in 2009. Imports from China make up a

further 10.02%, followed by Mexico (8.05%) and Brazil (5.92%). France (5.92%) and Germany (3.96%) are the other

important sources of imports.

Colombia’s trade statistics are likely to offer only a partial picture of the actual external situation, since exports and imports

associated with the illegal narcotics trade or with the operations of the various rebel groups are not captured. Given that

Colombia accounts for about 80% of cocaine consumed in the US, the size of the ‘black’ economy is substantial.

Economic landscape



Figure 12: External trade of Colombia, 2004–09

29.7

44.6

39.0

49.7

59.3

72.6 74.3

41.6

33.6

27.723.8

18.4

31.6

46.8

39.1

25.9

20.6

88.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2004 2005 2006 2007 2008 2009

Year

$ b

illi

on

Exports Imports Total trade


Current account

The Colombian economy is faced with the challenge of a widening current account deficit. In 2008, the current account

deficit reached $6.7 billion from $5.8 billion in 2007. The current account deficit as a percentage of GDP increased from 3%

in 2007 to reach 3.5% in 2008. The current account deficit is expected to further widen as a result of a rising import bill and

higher debt interest payments. Although the current account deficit has been growing in recent years, it was more than

offset by surplus on the capital account. Moreover, the deficit has continued to be fully covered by long-term financing

flows, including foreign direct investment and remittances. The International Monetary Fund released $1.145 billion in

Colombian reserves, in August 2009, held by the multilateral lender, which is aimed at increasing liquidity in the country.

Foreign direct investment fell to $4.7 billion in July 2009 from $5.3 billion in the same month last year. Furthermore, a

precautionary $10.5bn Flexible Credit Line was approved by the IMF in May 2009 and two international bond issues in

2009 have served to bolster the sovereign's position and stabilize the currency following a sharp drop in the first quarter.

The country had a current account deficit of $5.1 billion in 2009 (2.2% of GDP), compared to $6.9 billion in 2008.

Economic landscape



Figure 13: Current account balance of Colombia, 2002–08

-8.00

-7.00

-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

2002 2003 2004 2005 2006 2007 2008

Year

$ b

illi

on

-4.0%

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

Pe

rce

nta

ge

Current account balance Current account balance as % of GDP


External debt

When Colombia was in the midst of an economic crisis during the 1990s, public sector external debt rose sharply as the

government turned to external borrowing to finance the growing fiscal deficit. According to the central bank figures, public

external debt fell to $26.2 billion (19.3% of GDP) at the end of 2006. Subsequently, the Colombian government used its

improved creditworthiness to increase the share of sovereign bonds over multilateral and commercial loans. However, with

the loss of the coveted investment grade rating in 1999, bond issuance and commercial loans became restricted, and the

public sector has since turned again to multilateral financing.

Nevertheless, since 2001, the government has been implementing a successful program to reduce its external debt by

taking measures of voluntary swaps, repurchases and prepayment of foreign debt. The government has also managed to

reduce the foreign component of the public debt from 50% at the end of 2002 to 33% in early 2007. The policy has also

helped to extend maturities, reducing the amount due for repayment during 2008–12. Furthermore, since 2005 the

government has limited the monetization of foreign debt and has substituted external indebtedness for domestic debt. This

will ease the pressure on the currency.

Economic landscape



Colombia is yet to overcome the challenge of external debt, which has remained one of the country’s main weaknesses.

The external debt rose to $47.3 billion as of December 31, 2009 from $44.55 billion as of December 31, 2007 and it is

expected to go up further.

International investment position

Foreign direct and portfolio investments

FDI in Colombia has grown rapidly following the economic liberalization and privatization program of the 1990s. To

overcome the economic crisis and as part of the IMF bailout package, the Colombian government passed laws to remove

restrictions on foreign inflows. It initiated a privatization program and opened up investment in the oil industry. In 2005, FDI

saw a huge jump to reach around $10 billion, compared to $4 billion in the previous year. The increase had come about

mainly as a result of the acquisition of two of Colombia’s largest corporations (beer and tobacco producers) by investors in

South Africa and the US. Since then, FDI inflow has remained moderate.

The manufacturing, energy, and mining sectors are the main recipients of FDI. In the services sector, financial,

transportation, and communications have seen an increase in FDI too. The US and the EU are the largest sources of

foreign investment in Colombia, accounting for nearly 33% and 32% of the total stock of FDI respectively during 2002–07.

In spite of the global economic slowdown, the country has registered a marginal increase in FDI from around $9 billion in

2007 to reach around $10 billion in 2008. The FDI flows into the country decreased to $7.2 billion in 2009.

Economic landscape



Figure 14: Total foreign investment in Colombia, 2002–08

1.10

1.82

3.93

10.09

7.11

9.44

10.29

0.00

2.00

4.00

6.00

8.00

10.00

12.00

2002 2003 2004 2005 2006 2007 2008

Year

$ b

illi

on

Total foreign investments


Credit rating

Standard & Poor's Ratings Services has affirmed its 'BB+/B' foreign-currency and 'BBB+/A-2' local-currency sovereign

credit ratings in August 2010. The outlook has been pronounced as stable, indicating a balance of favorable and

unfavorable factors affecting the sovereign's creditworthiness.

Monetary situation

Key monetary indicators

Inflation

The Colombian economy experienced high inflation during the 1990s, when the average rate of inflation was around 18%.

However, with the central bank’s stringent measures, inflation subsided to 7.2% in 2002 and further declined to 4% in 2006.

However, along with the global price increases in 2007, the Colombian economy also experienced price increases when

inflation reached 5.6%. The increasing trend has continued in 2008 with inflation reaching around 7.7% in 2008. However,

due to global economic slowdown and decrease in prices, the inflation came down to 2% in 2009.

Economic landscape



Figure 15: Consumer price index and CPI-based inflation in Colombia, 2002–13

0.0

50.0

100.0

150.0

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250.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Year

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Infla

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(%)

Consumer price index Inflation


Banking sector

Colombia has a fairly developed banking system, compared to other countries in the region. By the end of 2007, banking

giants the Sarmiento Group (Grupo Aval) controlled about one-quarter and the Sindicato Antioqueno Group (Bancolombia)

about one-fifth of banking assets. Foreign owned banks accounted for one-fifth of the assets. Colombia's banking sector

posted a net profit of COP3.08 trillion ($1.7 billion) during the first half of 2010, which is an increase of 14% from the same

period in 2009. The country's largest bank, Banco Davivienda, booked a net profit of COP247 billion ($135.6 million) in the

first half of 2010, up 10% from COP224 billion ($122.5 million) in the same period in 2009.

Employment

The tertiary sector employs the majority of the working population with a share of 58%, followed by the agriculture and

secondary sectors with shares of 23% and 19%, respectively, as of 2007. During 2002–08, employment grew at an

average rate of 3.24%. However, in 2009, there was a decline in employment growth, registering a smaller growth of 1.3%.

Although the rate of unemployment has declined from 17% in 2002, it was still at a high of 12.1% in 2009.

Economic landscape



Figure 16: Unemployment and rate of unemployment in Colombia, 2002–13

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Total unemployment Rate of unemployment (%)


Outlook

Colombia went through an economic slow down during 2008–09, with GDP growth falling to 0.4% in 2009. The new

government headed by President Santos aims to lower corporate taxes, clear barriers on investment and help drive growth

by focusing on the following five areas: infrastructure, housing, oil and mining, agriculture and improved education. The

government plans to create 2.4 million jobs in the formal sector by 2014. President Santos wants to lower unemployment to

single digits from around 12% in first quarter of 2010. The government would also try to expand the tax base to generate

revenue. However, the government is not in favor of complicated tax reforms and privatization.

In the first quarter of 2010 the Colombian economy grew by 4.4% year on year and 1.5% compared with the fourth quarter

of 2009. The reasons for strong growth was the result of the strong performance of oil and mining activities (up 13.2% year

on year) and the recovery of construction growth (up 15.9%) in the first quarter of 2010, owing mainly to increased public

transportation and mining infrastructure projects. The economy is expected to post an over all growth rate of 2.5% by the

end of 2010, which is expected to reach 3.8% in 2011 according to the forecasts of Datamonitor. Although Colombia’s

economic recovery has been strong and confidence continues to rise, unemployment remains high, hitting 12.1% in May

2010, up from 11.7% a year earlier. One noteworthy trend has been the consolidation of China as an important buyer of

traditional exports. China was the second-largest contributor of the increase of traditional exports in January–June 2010,

accounting for 11.8 percentage points of the 53.3% overall increase.

Social landscape



SOCIAL LANDSCAPE

Summary

Colombia is classified as a developing country. However, the ongoing civil war and large scale illegal drug trafficking have

adversely affected the social development of the country. Although the economy came out of recession and began growing

in the noughties, social development has taken a back seat. As per the United Nations Development Program's (UNDP)

Human Development Index (HDI), the country ranks in the 77h position in a list of 182 countries in 2009. The country’s

performance in the educational sphere has lagged in terms of enrolments in primary and secondary schools. The higher

educational infrastructure in Colombia is yet to match the needs of a growing economy. A positive development has taken

place in the healthcare sector after the reforms of 1993, which improved the accessibility to healthcare services.

Nevertheless, there is a disparity in the accessibility of these services. On a related note, Colombian society is also an

inequitable one, as 5% of the population own nearly 90% of the property in the country, and nearly 60% of Colombian

households are below the poverty threshold. Nevertheless, the Colombian government’s social reactivation plan is

expected to go a long way in improving the social conditions of its population.

Evolution

Colombia was traditionally an agrarian and rural society, with a strong colonial influence. A clear division existed between

the Spanish population and the indigenous people. The disparity has continues to date, with the Spanish population

belonging to the higher strata of society. The church played an important role in the individual’s life and profoundly

influenced the role played by education in society. The prevalence of this system is often blamed for reinforced social

stratification. Growth of agricultural activities, mainly because of cash crops, and the development of industries led to

urbanization, which in turn led to internal migration. In addition, increasing violence and guerilla wars led to a large scale

exodus of the rural population to urban centers.

Growing industrialization and urbanization necessitated the establishment of modern social institutions, and steps were

taken to reform the education system in the 1960s and 1970s. The government increased its expenditure on education over

the years; government funding for education increased five-fold in real terms between 1966 and 1986. After the mid-1980s,

the regional government’s role also increased in imparting education. There was also a great degree of decentralization in

the healthcare system. Between 1970 and 1980 the number of medical colleges almost doubled, but proved insufficient to

meet the surging healthcare demand. Healthcare reforms in 1993 transformed the structure of public health-care funding by

shifting the burden of subsidy from providers to users. Subsequently, employees have been required to pay for healthcare

plans to which employers also contribute. This also laid the foundation of the Colombian social welfare system.


Demographic composition

Age and gender-wise composition

In Colombia, 66.8% of the population belongs to the 15–64 age group, 27.2% of the population to the 0–14 age group and

6% of the population is in the 65-plus group. The median age in Colombian society is 27.6 years, indicating that the society

is younger than average. The gender ratio at birth is 1.06 males per female. Life expectancy for the total population is 74.31

Social landscape



years; for the male population it is 70.98 years and for the female population it is 77.84 years. Females comprise 51% and

males comprise 49% of the total population.

Table 9: Mid-year population of Colombia by age (millions), 2009

Age group Female Male Total

0–4 2.2 2.2 4.4

5–9 2.2 2.2 4.4

10–14 2.2 2.2 4.4

15–19 2.0 2.1 4.1

20–24 1.9 1.9 3.8

25–29 1.7 1.7 3.4

30–34 1.7 1.6 3.3

35–39 1.7 1.7 3.4

40–44 1.6 1.5 3.1

45–49 1.4 1.3 2.7

50–54 1.1 1.0 2.1

55–59 0.9 0.7 1.6

60–64 0.7 0.5 1.2

65–69 0.5 0.4 0.9

70–74 0.4 0.3 0.7

75–79 0.3 0.2 0.5

80+ 0.2 0.1 0.4

Total 22.6 21.8 44.4


Urban/rural composition and migration

Colombia has a largely urban population. The percentage of the urban population stood at 74% in 2008, compared to 57%

in 1951. About 35% of the total population is concentrated in the four cities of Bogota, Medellin, Cali, and Barranquilla.

Population distribution in Colombia is heavily skewed. Although population density was 44 in 2005, in some areas of the

eastern regions it is less than one person per square kilometer.

The net migration rate in 2010 was –0.68 migrant(s) per 1,000. There has been low level of immigration to Colombia mainly

because of security issues existing in the country. Although the immigration laws are restrictive in Colombia, the country is

facing increased emigration. Migration from rural to urban areas has continued to exist, which indicates a shift away from

agriculture. A large percentage of the younger population has left rural areas to remain away from guerrilla and paramilitary

violence. However, a large number of the population was forcefully displaced. According to the 2005 census, 1.54 million

Colombians were victims of forced displacement between 1995 and 2005, but the actual number may be higher at 2–3

million. The 2005 census estimates that a total of 1.2 million Colombians migrated from the country legally during 2000–05,

due to the problems of security and unemployment. Around 10% of the Colombian population is estimated to be living in

other countries. Preferred destinations for migration are Ecuador, the US and Venezuela.

Social landscape



Religious composition

Roman Catholicism is the dominant religion of Colombia, with 90% of the population belonging to this religion. About 3% of

Colombians are members of various Protestant groups and the rest belong to other minority groups.

Figure 17: Major religions of Colombia, 2009

Other10%

Roman Catholic90%


Education

Formal education in Colombia comprises nursery, elementary, high school, technical education and college. Schooling

begins with nursery schools and daycare centers, which are generally attended by children under five years old. These

educational centers are commonly known as Hogares Comunitarios and are supported by the National Institute for Family

Welfare (ICBF). This is followed by the elementary level, which is taken for five years by children from 6–12 years of age.

The next level is secondary education which again takes five years to complete and is divided into two components: basic

secondary (6th–9th grade) and mid secondary (10th–11th grade). To be eligible to access college or technical education,

high school students must take the pruebas de estado test provided by the Colombian Institute for the Promotion of Higher

Education (ICFES; Instituto Colombiano para el Fomento de la Educacion Superior).

Social landscape



University education is divided into undergraduate degrees and postgraduate degrees. Most Colombian university degrees

are five years long, but technical education usually lasts for three years.

Healthcare

Healthcare services

The Colombian healthcare system comprises hospitals classified as local, regional, specialized and university hospitals.

The other three major components of the healthcare infrastructure are the Social Security Institute (ISS; Instituto de

Seguros Sociales), para-governmental social security institutions, and the private sector. The Colombian healthcare sector

underwent major reforms in 1993, when the burden of subsidy was shifted from providers to users. After this reform,

employees have been obliged to pay for healthcare plans to which employers also contribute. Although the reform

encouraged private participation, it also led to worsening inequalities in the distribution of healthcare resources.

Social welfare

Social welfare policies

The ISS provides medical care, pensions, and other benefits to Colombian workers. All workers are required to be affiliated

with either the ISS or a private health or pension provider. However, low-income persons who are not able to pay the

contribution must enroll in the subsidized plan, in which the government and the solidarity fund (fund for low wage earners)

participate.

The social security includes coverage for all general illnesses, treatment in a facility of decent quality, pharmacies, and

ambulance services. The individual assumes some co-payments and moderate dues as co-payment for the system. The

1993 reform also provided for the creation and implementation of a new system of private healthcare providers known as

Entidad Promotora de Salud (EPS). Individuals may opt out of social security and join an EPS, which competes for

members directly with the social security system and is governed by the same regulations and restrictions. There are over

a dozen EPSs, and a member may change his or her EPS every two years.

The social welfare system also provides for short term disability, long term disability and survivor’s benefits.

Performance

Healthcare

The healthcare reform of 1993 brought in many changes in Colombia and the proportion of GDP going to healthcare has

increased dramatically. In 2009, healthcare expenditure stood at $14 billion, which was equal to 6.2% of GDP. The per

capita expenditure on healthcare in 2009 was around $306. Although the new healthcare system widened population

coverage by the social and health security system from 21% in 1993 to 70% in 2009, disparities in healthcare has

persisted, with the poor continuing to suffer relatively high mortality rates. The healthcare sector is also faced with other

challenges, such as large scale corruption and evasion of health-fund contributions, as well as the misallocation of funds.

Social landscape



Figure 18: Expenditure on healthcare in Colombia, 2003–13

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Healthcare expenditure Healthcare expenditure as % of GDP


Income distribution

The Colombian society is one of the most inequitable countries in the Latin American region. The Gini index in Colombia

was 0.58 in 2008, a decline from 0.51 in 2000. The Gini index measures total inequality on a scale of zero to one, zero

referring to total equality and one total inequality. The extent of inequality is evident from the estimates that 5% of the

population own nearly 90% of the property, and nearly 60% of the Colombian households are below the poverty threshold.

Despite economic growth, huge amount of debt burden has been a challenge for the national government. The government

has not been able to implement any redistributive policies. Although various governments of Colombia have resorted to

neo-liberal policies for economic progress, it has worsened the economic and social problems. In addition, on the

parameters of the UNDP’s HDI, Colombia has fallen from 50th position in 1990 to 77th position in 2009.

Education

According to 2005 census, the Colombian literacy rate is 90.7%, with similar literacy levels for both men and women. As of

2009, the Colombian government spends nearly 4.5% of GDP on education, which is higher than the Latin American

average but much below the level of other advanced nations. Furthermore, delivery of higher education in Colombia is

below international averages.

Social landscape



Figure 19: Expenditure on Education in Colombia, 2003–13

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Expenditure on education Expenditure as % of GDP


Outlook

The HDI rank of the country is indicative of its moderate performance in social development. Although its performance is

better compared to other countries in the Latin American region, it performs poorly when compared to other emerging

nations. The new government led by President Juan Manuel Santos is focusing on job creation, democratic checks and

balances and rural development. In August 2010, the Inter-American Development Bank approved a $220 million loan to

support Colombia’s Familias en Accion conditional cash transfer program aimed at improving the health, nutrition and

education of poor families. The objective of the program is poverty reduction through direct cash transfers to families, and

stimulating household investment in child health and education. The reforms are expected to include the update of the

obligatory national health plan, the unification of the subsidized and contributive systems, the creation of a technical

evaluation committee, promotion of preventive healthcare services, and the formalization and creation of further

employment.




TECHNOLOGICAL LANDSCAPE

Summary

Colombia’s progress in terms of technological development has been limited. The country spends very little on R&D (less

than 0.2% of GDP) and has failed to take advantage of FDI inflow to develop its technological capabilities. The country

moved from the import substitution policy of the 1950s and 1960s to one of liberalization during the 1990s, which required

restructuring by the firms. The S&T policy of 1990, laid the foundation of an integrated policy, which included support for a

national system of science and technology (NSST). The NSST is an open system, which includes all S&T programs,

strategies, and activities of both public and private bodies. The government has also put in place a system of R&D

incentives, but it has failed in achieving the desired objectives because of poor implementation.

Evolution

Technological development in Colombia started with the necessity of improving agricultural productivity of the country,

which primarily had an agrarian economy. The first step towards developing science and technology systems came through

the establishment of the National Science and Technology Council in 1968. The Council was formed with the objective of

providing consultative and advisory services to the government. In the same year, the Colombian Institute for the

Development of Science and Technology (COLCIENCIAS; Instituto Colombiano para el Desarrollo de la Ciencia y la

Tecnología) was set up. This body was responsible for the promotion and funding of S&T activities, principally in the area of

research. Although few attempts were made for S&T development, the National S&T policy of 1990 led to the

systematization of the S&T process. In 1995, the National System of Innovation and Regional Systems were developed

and the Colombian Observatory for S&T was established. During the late 1990s, the focus also shifted on developing

technical manpower. During the noughties, regional agenda for developing S&T were developed and private participation in

research of various fields were called for, such as: biodiversity and genetic resources; advanced materials and

nanotechnology; prevalent diseases in tropical areas; biotechnology, agro-alimentary and agro-industry innovation; and

information and communications technologies.


The National Council for S&T is the main government body responsible for the development of S&T policy in the country.

The Council is the director and coordinator of the National S&T system and Regional S&T Systems, and is the national

government’s principal consultant in matters of S&T.

COLCIENCIAS aims to create favorable conditions for the generation of scientific and technological knowledge. The

institute is also responsible for the consolidation of NSST and innovation, and oversees national programs, and is assigned

to the National Planning Department (DNP) which also provides its budget. The Colombian S&T Observatory is a private

institution and receives funding support from the COLCIENCIAS.

The national S&T policy incorporated scientific and technological research into national development plans while creating

the necessary conditions to stimulate innovation and technological management in national companies. It also promoted

the National System of Scientific and Technological Information. Another significant decision was made by the Finance




Ministry, which allowed universities to import equipment with the prior authorization of the COLCIENCIAS. The National

Council for Social and Economic Policy provides funds for R&D together with exemptions, tax discounts and other financial

stimuli. The media is also asked to report on S&T activities.

Moreover, the National Learning Service (SENA; Servicio Nacional de Aprendizaje) was entrusted with the responsibility of

promoting and facilitating the generation and consolidation of new entrepreneurial initiatives demonstrating high innovation

and technological development content within the framework of the national program

Intellectual property

Colombia has intellectual property rights (IPR) regulations in place but enforcement is weak. The Colombian government

has ratified legislation to implement its obligations under the Uruguay Round Agreement on Trade-Related Aspects of

Intellectual Property Rights (TRIPs). Colombia is also a member of the World Intellectual Property Organization (WIPO),

the Paris Convention for the Protection of Industrial Property and the Berne Convention for the Protection of Literary and

Artistic Works. Colombia is also a signatory to the Patent Cooperation Treaty and the International Union for the Protection

of New Varieties of Plants.

A number of government bodies are involved in the preparation of IPR policies and its enforcement. The Superintendency

of Industry and Commerce (SIC) is the Colombian authority for granting patents and is also responsible for the

development of IPR policies. The issuance of plant variety protection-related and agro-chemical patents is undertaken by

the Colombian Agricultural Institute (ICA; Instituto Colombiano Agropecuario). While the Ministry of Social Protection is in

charge of the issuance of pharmaceutical patents, the Ministry of Justice is in charge of the issuance of literary copyrights.

Furthermore, enforcement of IPR laws is carried out by other agencies such as the Tax and Customs Directorate (DIAN;

Dirección de Impuestos y Aduanas Nacionales de Colombia), the prosecutor general’s office, the national police, and the

judiciary.

Performance

Telecommunications

The Colombian telecommunications sector has been a rapidly growing segment. The mobile phone subscriber base grew

at an annual average rate of around 38.4% during 2002–09, while the fixed line segment registered a growth of 1.7%

during the same period. Mobile telephony growth peaked in 2005, growing at a rate of 109%. However, during the same

year, fixed line segment registered a negative growth. The principal telecom operators in Colombia are Comcel, Movistar,

and TIGO.

Colombia had nearly 6.4 million fixed lines in service in 2009. The fixed line tele-density rate is around 18%. There were

approximately 42.01 million mobile subscribers in 2009, with a penetration rate of 96%. The number of internet users is

also witnessing an increasing trend in Colombia. During 2009, there were over 17 million internet users in Colombia.




Figure 20: Growth rate of mobile and fixed-line subscribers in Colombia, 2002–13

-40.0

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Figure 21: Internet users and growth rate in Colombia, 2002–13

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R&D expenditure

Colombia lags behind in terms of R&D expenditure. According to the UNESCO statistics, total expenditure on R&D as a

percentage of GDP was 0.3% as of 2008, indicating a decline from the level of expenditure in 1996 (3%). The per capita

expenditure on R&D has also declined during these years. The public sector plays a dominant role in R&D expenditure,

with the business sector’s contribution to R&D at 18%. The government sector contributed 8% in total R&D expenditure and

the educational institutions’ contribution stood at 60%. The remaining contributions were accounted for by the NGOs.

The Colombian government has been providing R&D incentives. These incentives come in various forms such as:

• a tax deduction of 125% on the value of a science and technology project;

• tax exemption on imports of certain capital goods for technology projects by non-profit organizations and

educational institutions;

• VAT exemptions on imported machinery, equipment and raw materials;

• income tax exemption for profits on software and natural medicines.




According to a survey conducted by the IMF, it was found that the largest share of firms’ expenditure is on so-called quasi-

fixed factors such as ‘R&D machinery and equipment’ and ‘new information technologies’. This suggests that innovation is

used in the machines, which reflects adaptation of outside technologies to the processes of the firms in question. Only 1%

of total R&D expenditure represents the so-called ‘technologies developed by the establishment’.

Furthermore, in terms of size, large manufacturing establishments are somewhat more innovative than smaller ones. Large

companies spend 1.8% of their sales on R&D, compared to 1% for medium-sized companies and 0.7% for small

companies.

Outlook

Colombia’s technological landscape indicates a dismal picture with a very low level of R&D expenditure and very little

innovative activities. The country also lags behind in terms of technical manpower and S&T infrastructure. According to

OECD recommendations, a nation must spend at least 1% of its GDP in science and technology activities to achieve

sustainable development. By these standards, Colombia has a long way to go. Despite the post-2000 economic revival, the

country has failed in improving its technological landscape.

The ICT infrastructure is not highly developed in Colombia, however it is considered to be one of the best in terms of its

internet bandwidth in Latin America, while the number of secure internet servers is relatively low. The country does not

have a significant high-tech sector, with the ICT export share of exported goods constituting around 0.3% in 2008. The

high-tech export share is 4%, and the country is ranked in 70th place on the 2009 Legatum Prosperity Index. Furthermore,

Colombians have very limited access to personal computers, with only 55 per 1,000 people in 2008 having access to PCs.

In July 2010, the World Bank approved a loan of $25 million to Colombia for strengthening the National System of Science,

Technology and Innovation Project. The project objective is to strengthen the capacity of the Administrative Department of

Science, Technology and Innovation to promote human capital for the knowledge economy, research and development,

and innovation. The project will also raise awareness of science, technology and innovation in Colombia.

Legal landscape



LEGAL LANDSCAPE

Summary

The Colombian judicial system, in the past, was influenced by Spanish and French traditions. However, the system has

undergone many changes. The most significant of these was the 1991 constitution, which provided the judiciary with

greater administrative and financial independence from the executive branch. Nevertheless, the system has been often

criticized for the lack of transparency, along with corrupt practices and cumbersome procedures. The investment

regulations of the country are comparable to other emerging markets. The policies have encouraged foreign investment,

despite threats of internal security. However, the country’s legal implementation and enforcement mechanism has

remained weak. The new Colombian government is expected to bring in greater transparency into the judicial system and

establish a permanent communication mechanism between the judiciary and government.

Evolution

With roots in Roman law and heavily influenced by the French system, the Colombian legal system is based on the civil law

jurisdiction. It has also drawn heavily from Italian and Spanish legal traditions, which established the written codification of

its laws. The first civil and penal codes appeared in 1873. The first commercial, judicial, and mining codes came into being

in 1887. These codes were subsequently amended: the commercial code was amended in 1971, the criminal code in 2000

and the judicial code was amended in 2004. This code reached its complete implementation in 2008.

The 1991 constitution strengthened the judicial administration by providing for the introduction of an oral, accusatory

system to replace the traditional system in order to expedite the judicial process and reduce the enormous backlog of

cases. This move towards a transition to the US model system has been accepted by major Colombian cities.


Judicial system

Structure of the system

The Colombian judicial system comprises the Supreme Court of Justice, the council of state, the constitutional court and

the superior judicial council at the top level.

The Supreme Court of Justice has three chambers of civil, criminal and labor matters and decides appeals on errors of law,

and has power to quash lower court decisions. It also has original jurisdiction in certain proceedings against high

functionaries, in certain admiralty matters, in controversies between departments or relating to government contracts. It is

also the highest court with jurisdiction over civil, family, labor, agrarian, commercial and criminal cases.

The council of state is the highest court of administrative law. It also takes appeals from departmental administrative courts

and some national officials.

The constitutional court reviews the constitutional validity of laws approved by the legislative branch and some decrees

issued by the executive branch, and guards the integrity and supremacy of the constitution. It is also responsible for

Legal landscape



procedures related to actions created to protect the rights of those accused of criminal offenses, or actions against abuses

of public administration officials, including members of the judiciary.

The superior judicial council, through its two chambers, is responsible for resolving jurisdictional conflicts arising between

other courts, and disciplines judges.

Besides these supreme judicial bodies, there are lower courts consisting of ordinary courts, administrative courts with

jurisdiction over administrative matters, courts with peace jurisdiction (over minor criminal and civil matters), and authorities

of indigenous territories with jurisdiction on indigenous communities. Besides these, there are the departmental

administrative courts which hear cases regarding departmental ordinances, municipal resolutions, decisions of

departmental and municipal executives, and tax matters.

Legislation affecting business

The legal climate for foreign investment is generally conducive in Colombia. After the country began liberalization in the

1990s, it provided for the national treatment of foreign investors. A number of controls on remittance of profits and capital

were also lifted, and foreign investment was allowed in most of sectors except defense and in such sectors important to

national security.

Generally, foreign investment does not require prior authorization, except when made in the restricted areas. Investment in

the financial sector requires prior authorization of the Financial Superintendence. In addition, investments in the

hydrocarbon and mining sector as well as portfolio investments are subject to a special regime for which investors need to

take prior permission.

Structure for doing business

According to Colombian law, there are five types of business companies, which are subdivided into three groups:

• interest-based companies, which include general partnerships;

• quota-based companies, which include limited partnerships, joint-stock companies and limited liability

companies;

• share-based companies, which include stock corporations.

While general and limited partnerships are normally used by family or small enterprises, a limited liability company is

frequently adopted by small and medium enterprises. The stock corporation is normally a large company. The most

common forms of companies in Colombia are the stock corporation and the limited liability company.

Tax regulations

Taxation

The Colombian tax system has national and local taxes. The main national taxes are income tax, windfall tax, wealth

(capital) tax, VAT, tax on financial transactions, and stamp tax. Local taxes include industry and commerce tax, property tax

and registration tax.

Legal landscape



Income tax

The income tax rate in Colombia is 33%, with certain exemptions and deductions applicable to the taxable income.

Besides this, there is windfall tax, which is complementary to income tax and is levied on extraordinary income. Some

sources of windfall income are profits from the sale of fixed assets owned for over two years; profits from the

liquidation of companies that have existed for over two years, income from inheritances, legacies and donations and

profits from lotteries, raffles, bets and similar chance games.

Windfall income is also subject to a 33% rate, except in the case of amounts won through raffles, bets, lotteries and

similar chance games, in which case it is 20%.

Sales tax (VAT)

This is a national tax on services rendered and on sales and imports of physical goods. The average general rate is

16%, although this tax is subject to differential rates ranging between 0% and 35%, depending on the good or service

to which it applies.

Labor laws

The constitution of 1991 provides the regulatory framework for labor legislations in Colombia. This framework, along with

the Colombian Labor Code, provides fundamental labor legislations. The Colombian labor legislations are considered as a

matter of public order. It regulates the minimum rights and guarantees to which employees are entitled, which cannot be

waived by the employees or modified by labor contracts. Moreover, the constitution protects the right to constitute labor

unions, and union members have a special legal protection that prevents them from being fired or forming unions.

Trade regulations

Colombia imposes a four tier tariff duty: 0% on capital goods; 5% on industrial goods and raw materials; 10% on

manufactured goods with some exceptions; and 20% on “sensitive” goods. In addition to the basic import duties, some

agricultural products fall under a variable “price band” import duty system.

Corporate governance

In Colombia, there are a number of regulations which put forth corporate governance requirements. The 2001 resolution of

the Superintendency of Finance contains the corporate governance standards to be followed by companies issuing

securities that may be purchased by Colombian pension funds. Additionally, since 2005, another law has introduced new

mandatory corporate governance requirements for all issuers whose securities are publicly traded in the Colombian stock

market. Moreover, the decree of 2006 regulates the information system to the securities market named Sistema Integral de

Informacion del Mercado de Valores (SIMEV). It also requires the board of directors to be composed of at least 25% of

independent directors to ensure independence.

Legal landscape



Performance

Effectiveness of the legal system

Colombia has been ranked as the 58th freest economy by the Wall Street Journal’s index of economic freedom in 2010. It

ranks 12th out of 29 countries in the Americas, and its overall score is equal to the regional average. Its overall score is 3.2

percentage points higher than the previous year, reflecting improved scores in seven freedom indexes, including

investment and monetary freedom. Despite numerous instances of domestic violence, Colombia has succeeded in

retaining its business freedom. The overall freedom to start, operate, and close a business is relatively well protected by

Colombia's national regulatory environment. Starting a business takes an average of 20 days, compared to the world

average of 35 days. Closing a business is also relatively easy, and some bureaucratic procedures have been simplified.

However, the index rates labor freedom and property rights as poor. Although the present government has stepped up

efforts to open up the economy, there are laws which restrict the movement of personnel in professional areas, such as

architecture, engineering, law, and construction. There are also limitations on employing foreign nationals. For firms with

more than 10 employees, employers are not allowed to recruit foreign nationals in excess of 10% of the general work force

and 20% of specialists. Furthermore, the Colombian business climate is plagued with judicial corruption, which makes legal

transparency difficult. The judicial system is lengthy and cumbersome. The country ranks 37th on World Bank’s Doing

Business Indicators 2010.

Outlook

Colombia has performed moderately in improving its legal climate, with favorable business policies despite the persistence

of violence and threats to internal security. The government has remained committed to the revival of the economy, and

has consistently encouraged the inflow of FDI. The opening up of several sectors for foreign investment is evidence of

growing liberalization. Although it presents a growing opportunity, the country has to improve its judicial climate in terms of

enforcement of laws. The 1991 constitution has taken the country closer towards internationalization of its laws. However,

the system has continued to suffer from a lack of transparency and the poor enforcement of laws. The lower courts have

failed to act independently and unless adequate measures are taken, these courts will remain susceptible to corruption and

intimidation. Similarly, the independence of constitutional courts has been questioned, as they are found to be interfering in

the legislative process.

The new Colombian government has made the first steps towards reconstructing battered ties with the judiciary. The

Interior Ministry sent a request in early August 2010 to the Congress to withdraw a judicial reform bill tabled by the previous

government mere days before administration was scheduled to leave office. The constitutional reform project has been

badly received by Supreme Court magistrates. They have been particularly opposed to provisions seeking to transfer the

prosecutor-general office from the judiciary to the executive branch and to give the president the authority to name the

prosecutor-general. In an effort to improve communication with the judiciary, incumbent president Juan Manuel Santos,

who assumed office in August 2010, met with the 78 magistrates of the high courts to resolve the issues pertaining to

judiciary. Alongside the establishment of a permanent communication mechanism between government and judiciary, the

most important outcome of the meeting was an agreement to reach a consensus on an encompassing judicial reform bill,

which the government hopes to send to Congress by the end of August 2010.




ENVIRONMENTAL LANDSCAPE

Summary

In the Latin American region, Colombia has remained at the forefront with respect to maintaining environmental standards.

Since the 1970s the government has instituted a number of acts and regulations to improve environmental compliance. The

environmental management system is also decentralized, given the size of the country. The country is ranked ninth in the

2008 Environmental Performance Index (EPI). Colombia has made substantial progress in curbing ozone depletion;

however, the country is faced with the challenges of soil erosion, deforestation and the preservation of its wildlife. The

regulatory and enforcement mechanism also needs to be strengthened to ensure greater compliance to environmental

standards.

Evolution

The conservation of Colombia's natural resources began in 1974, when the country enacted the regulations governing the

protection and management of renewable natural resources: the Renewable Natural Resource and Environmental

Protection Code. The 1991 constitution took an important step to modernize the environmental regime. It enshrined rights

and obligations related to the duty of every citizen to protect natural resources. Furthermore, various government agencies

were entrusted with environmental planning, prevention and defense responsibilities. In 1993, the government created the

Ministry of Environment, now known as the Ministry of Environment, Housing and Territorial Development. It was

instrumental in the creation of the National Environmental System (SINA; Sistema Nacional Ambiental), and established

general environmental principles in subsequent years.


The Ministry of Environment, Housing and Territorial Development is the main agency in charge of managing all

environmental matters. It is responsible for the administration of the nation's renewable natural resources and setting the

policies and regulations for the management of renewable natural resources and the environment. Besides this ministry,

there are the Autonomous Regional Environmental Authorities (CARs; corporaciones autónomas regionales), which are

government agencies composed of the territorial agencies of areas in the same ecosystem, or a geopolitical, bio-

geographical or hydro-geographical unit. These authorities have financial and administrative autonomy and work with their

own corporate capital.

The Urban Environmental Units operate in municipalities, districts or metropolitan areas with over one million inhabitants,

where they play the same role as the CARs do in the rural areas. The CARs and the Urban Environmental Units act as the

environmental authority of their corresponding jurisdictions and enforce the general guidelines given by the Ministry of

Environment, Housing and Territorial Development. Nevertheless, the regional CARs are subject to audit by the National

Comptroller's Office.

Environmental regulations

The environmental law of 1993 set the general principles as follows:




• The country's economic and social development will be guided on the basis of the sustainable development and

universal principles contained in the June 1992 Rio de Janeiro Declaration on Environment and Development.

• Since the country's biodiversity is a national heritage of interest for all mankind, it must be protected as a priority,

and exploited on a sustainable basis.

• The state shall promote the implementation of environmental costs and the use of economic instruments to

prevent, correct and restore environmental deterioration and to preserve renewable natural resources.

• Disaster prevention shall be a matter of collective interest and any measures taken to avoid or mitigate the

effects of any disasters that occur shall be mandatory.

In pursuance of such rules, the country currently has a set of regulations applicable to the renewable natural resources,

including: the atmosphere and national air space; water, land, soil and subsoil; and flora and fauna. These sets of rules

also regulate all other elements and factors comprising the environment, such as: leftover products, wastes, garbage and

trash; noise; and living conditions resulting from urban or rural human settlement processes.

The environmental legislation has also established administrative procedures for environmental licensing and permits to

use renewable natural resources.

Participation in global efforts/agreements/pacts

Colombia has ratified nearly 105 environment treaties and has remained at the forefront in the Latin American region with

respect to conservation of natural resources. Colombia is party to the Antarctic Treaty and various other treaties on

biodiversity, climate change (namely, the Kyoto Protocol), desertification, endangered species, hazardous wastes, marine

life conservation, ozone layer protection and ship pollution. It has signed the Law of the Sea but is yet to ratify it.

Copenhagen conference on climate change

The United Nations Framework Convention on Climate Change (UNFCCC) sets an overall framework for intergovernmental

efforts to tackle the challenge posed by climate change. It recognizes that the climate system is a shared resource whose

stability can be affected by industrial and other emissions of carbon dioxide and other greenhouse gases. The convention

has a universal membership, with 192 countries having ratified the convention. No deal could be clinched in Copenhagen,

however, talks on a binding international climate change pact continue in 2010.

Performance

Environmental impact

Colombia was ranked 10th out of 163 countries in the 2010 EPI, conducted by Yale and Columbia universities. The EPI

looks at success in environmental protection based on two broad objectives: reducing environmental stress on human

health, and promoting strong ecosystems and sound natural resource management. The index measures 25 indicators in

six different areas: environmental health; air pollution; water; productive natural resources; biodiversity and habitat; and

climate change. Colombia performed well in forestry, fisheries, cropland use and reducing local ozone or ground level

ozone, a pollutant from human activities that causes significant health problems. According to the Colombian Ministry of




Environment officials, the country reduced the national consumption of ozone-depleting substances, such as

chlorofluorocarbons, by 86% between 1995 and 2008. However, there was an increase in carbon dioxide emissions and

carbon fuel usage during 2000–08.

Despite the country’s progress in environmental conservation, it faces the challenges of soil erosion, deforestation and the

preservation of its wildlife. Soil erosion has resulted from the loss of vegetation and heavy rainfall, and the soil has also

been damaged by the overuse of pesticides. Increasing demand for palm oil, a significant source of biofuel has led to

deforestation to make room for new plantations. The land used for oil palm plantations in the country increased from

145,027 hectares in 1998 to 275,317 hectares in 2005, and the Colombian government has stated its intention to increase

production to six million hectares by 2020. This would lead to a significant loss of forest land, which implies a reduced

ability to absorb greenhouse gases and therefore contributing to climate change. Large tracts of forest are also

disappearing because of gold mining.

Colombia, which is the second most biologically diverse country on earth, is home to about 10% of the world's species.

Growing deforestation has also led to an increase in the number of endangered species. According to UNEP estimates, by

2001, 35 of Colombia's 359 species of mammals, 64 out of 1,770 breeding bird species, 15 reptile species out of a total of

356, and 429 out of 51,000 plant species were endangered. The CO2 emissions in Colombia increased from 53 million

metric tons in 2002 to over 71 million metric tons in 2009.

Figure 22: Carbon dioxide emissions in Colombia, 2002–13

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Figure 23: Carbon fuel usage in Colombia, 2002–12

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Outlook

Colombia has been successful in putting environmental concerns at the forefront. Environmental regulations ensure the

country meets its environmental objectives, which is reflected in the country’s high rank on the EPI. Colombia has played

an active role with respect to its commitment in various international environment treaties. There are expectations of high

market potential for Certified Emissions Reductions (CERs). Few sectors like cement, power plants, agro-industry (panels)

and forestry are the front runners in drawing up CDM projects. However, there are risks related to investment and a lack of

funds may also restrict the financing of such projects.

In March 2010, the World Bank has approved a $7 million grant from the Global Environmental Facility (GEF) for the

Sustainable Stockbreeding Management Project in Colombia, which is to be carried out by the Colombian Federation of

Stockbreeders (Federacion Colombiana de Ganaderos, FEDEGAN), and whose focus is to improve production systems to

benefit farmers and the environment. The project, to be implemented in five of the country's regions, aims at promoting the

adoption of Forest Grazing Systems (FGS) that allow improvements in natural resource management, increasing the

provision of environmental services and augmenting productivity in participating farms. This financing mechanism will

generate important local and global benefits, as it will contribute to the conservation of global biodiversity critical to

stockbreeding systems, to the reduction of emissions caused by deforestation and forest degradation, improvements in

rural adaptation to climate change and to the reduction of land degradation.

APPENDIX



APPENDIX

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