Located on the northern tip of the continent, Colombia is gatekeeper of South America. This emerging nation shares borders with Panama, Venezuela, Brazil, Peru and Ecuador, with coasts on both the Pacific Ocean and Caribbean Sea.

Often ignored by the financial press, Colombia is now an increasingly attractive investment destination that is escaping the shackles of its troubled history.

The country has long been a victim of its own geography and natural wealth, first being divided up by developed powers in 1831 and again in 1903, when Panama was created out of Colombia as an independent territory.

Since then, Colombia’s sparsely populated hinterlands such as the dense Amazonian rainforests in its south, the Orinoco plains in its east and its Pacific coastline have been used as rebel bases and drug running havens. Most of the country’s population is clustered around its central capital of Bogota, which has made the rest of the country prone to lawlessness.

More than 8 million of Colombia’s 46 million people live in the Bogota-dominated heart land, which is connected to the country’s major ports by the Magdalena River. Gaining effective control of the hinterland has been one of the government’s biggest challenges.

For the past half century, the country’s central government has been battling the Revolutionary Armed Forces of Colombia, or FARC, for control of those very regions. FARC’s precursor organizations had been active in Colombia since at least the late 1940s; FARC became a militant Marxist-Leninist group in 1964 when it first took up arms against the government.

Claiming to be fighting for the country’s poor against foreign political influence, resurgent imperialism and the monopolization of Colombia’s mineral wealth, FARC has staged a guerilla war against the government to achieve meaningful agrarian reform in the country.

Despite professing noble goals, FARC has become involved in kidnapping, illegal gold mining and is perhaps best known for its production and distribution of drugs, particularly marijuana and cocaine. It has also assassinated key law enforcement and political leaders, as well as conducted bombing campaigns against police and civilian targets.

In addition to FARC, drug cartels and other criminal groups have posed a serious challenge to Colombia’s government. Thanks to its geography and climate, Colombia is not only well suited to the cultivation of drugs such as marijuana and coca that are important cash crops for impoverished farmers, it’s also a convenient transshipment point for drugs produced in the rest of South America.

Despite those challenges, the Colombian government has stepped up its efforts to gain control of the country and now has a functioning presence in each of its administrative areas. That wasn’t true just five years ago. In 2006, a number of paramilitary organizations demobilized after negotiations produced amnesty programs and, in October 2012, the government began formal peace negotiations with FARC.

While the talks have not yet produced a definitive peace accord between FARC and the government, they’ve advanced much further than any previous negotiations. The government is in a much stronger negotiating position than in years past, thanks to strong economic growth and greater control over its administrative regions, as well as FARC’s waning military and political strength. FARC is now estimated to have just 9,000 troops who have been forced to operate out of increasingly remote areas of the country, a far cry from the 1980s when its strength was estimated at more than 30,000.

So far, agrarian land reform has proven to be one of the main sticking points in negotiations, because the government refuses to seize land from private owners. But the government has acknowledged the need to address the plight of the rural poor and the two sides are reportedly discussing ways to address that concern.

While there’s no guarantee that a formal peace accord will be reached, the fact that the talks have progressed this far is certainly an encouraging sign. Previous negotiations have typically broken down in a matter of weeks, but a tired FARC and a strengthened government bodes well for this round of negotiations.

It’s also helpful that the Colombian economy is extremely strong at this point. As shown in the graph below, it has been more than a decade since Colombian GDP has failed to grow, rising by 1.7 percent even as the global economy was plumbing the depths of recession in 2008 and 2009.



The Colombian government is known for welcoming foreign investment, particularly from the US. A year ago, the US approved a Colombian free trade agreement that allows Colombian businesses almost unfettered access to US markets, while lifting Colombian tariffs on American industrial and agricultural products.

In 2011, the US imported USD23.1 billion worth of goods; imports jumped to USD24.6 billion last year. This year, the US is likely to import more than USD27 billion worth of Colombian goods, particularly if the Colombian peso depreciates. The peso has provided a serious headwind over the past year.

Given Colombia’s vast mineral and agricultural wealth, an end to the FARC conflict would open even greater opportunities for economic development. Colombia’s well-managed economy—the government’s budget is running a primary surplus, has very low debt and little inflation—is making the Colombian peso extremely attractive.

Between 2008 and last year, the peso has appreciated by more than 25 percent. To halt that rise, the government has been buying an average of USD5 billion in US currency a year in the spot market and it recently announced that it would be doubling its purchases to USD10 billion. In addition to central bank dollar purchases, the country’s finance ministry has also been aggressively purchasing dollars.

Moreover, Colombia has been shortening its sovereign debt maturities to increase its demand for US dollars, another move designed to halt the peso’s rise. The country has also set its benchmark interest rate at 3.75 percent, the lowest in South America.

The government is aggressively pursuing more fee trade agreements (FTA). In December, an FTA was finalized with the European Union and last month a deal was reached with South Korea, which awaits final government approval. Another FTA is currently being negotiated with China.

In addition to opening up for trade, Colombia is also working to improve and modernize its infrastructure. Massive flooding destroyed or damaged huge stretches of Colombia’s roads in 2010, creating severe transportation bottlenecks. These roads are used for more than 80 percent of the country’s internal transportation.

In September, the country’s National Infrastructure Agency (NIA) announced that it would invest about USD22 billion in building new roads over the next two years. Although this construction would focus its efforts primarily in the coastal regions, it would essentially divide Colombia into quadrants. The plan calls for the widening of several two-lane arteries to four-lanes and the upgrading of bridges and tunnels.

That program falls within the NIA’s goal of spending USD32 billion on transportation infrastructure by 2014 and USD100 billion by 2021. In all, the government hopes to double its current 6,000 kilometers of road concessions to 12,000 kilometers by the end of 2014. This infrastructure spending will help drive Colombia’s amazing pace of capital formation (see graph, below).



This spending should also make a dent in the country’s high unemployment rate of 10.3 percent. While urban unemployment is low, a large portion of the rural population is out of work. Not coincidentally, that’s precisely where most of the new roads will run, ultimately converging on Bogota.

So while Colombia has a serious perception program to overcome, it is growing rapidly and has plans in place to address those very real economic shortcomings. The fact that both the government and FARC remain at the negotiating table, even if progress is being made in fits and starts, is also a sanguine sign.

Meanwhile, the 2012 World Competitiveness Report, issued by the International Institute for Management Development, an influential Switzerland-based business school, states that Colombia has one of the most qualified labor pools available in the region and offers a high-quality education in science and mathematics. It’s also deemed one of the most “business friendly” countries in the region, with high marks for investor protection.

Given those positives, Colombia should soon shake its image as a South American frontier and assume the role of a stable, democratically progressive nation.