Economy

Colombia is a free market economy with major commercial and investment ties to the United States. Transition from a highly regulated economy has been underway for more than a decade.

After experiencing decades of steady growth (average GDP growth exceeded 4% in the 1970-1998 period), Colombia experienced a recession in 1999 (the first full year of negative growth since 1929), and the recovery from that recession was long and painful. Colombia's economy suffers from weak domestic and foreign demand, austere government budgets and serious internal armed conflicts. The IMF Economic Indicators published on September 2006, forecast the Colombian GDP to reach US$149.869 billion in 2007. Inflation has been below 6% for 2004 and 2005, and is expected to remain below 5% during 2006.

Colombia's main exports include manufactured goods (41.32% of exports), petroleum (28.28%), coal (13.17%) and coffee (6.25%) and is the largest exporter of plantains to the United States. Within Latin America, Colombia is known as a provider of fine lingerie, with the industry being centred in Medellín. All imports, exports, and the general trade balance are in record levels, and the inflow of export dollars has resulted in substantial revaluation of the Colombian Peso.

The problems facing the country range from pension system problems to drug dealing to high unemployment. Several international financial institutions have praised the economic reforms introduced by current President Alvaro Uribe, which include measures designed to bring the public-sector deficit below 2.5% of gross domestic product (GDP). The government's economic policy and its controversial democratic security strategy have engendered a growing sense of confidence in the economy, and GDP growth in 2003 was among the highest in Latin America.

Mining and Energy

Colombia is well-endowed with minerals and energy resources. It has the largest coal reserves in Latin America and is second to Brazil in hydroelectric potential. Estimates of petroleum reserves in 1995 were 3.1 billion barrels (0.49 cu km). It also possesses significant amounts of nickel, gold, silver, platinum and emeralds.

The discovery of 2 billion barrels (0.32 cu km) of high-quality oil at the Cusiana and Cupiagua fields, about 200 km (125 miles) east of Bogotá, has enabled Colombia to become a net oil exporter since 1986. Total crude oil production averages 620,000 barrel/day (99,000 cu m/day); about 184,000 barrel/day (29,000 cu m /day) is exported. The Pastrana government has significantly liberalised its petroleum investment policies, leading to an increase in exploration activity. Refining capacity cannot satisfy domestic demand, so some refined products, especially gasoline, must be imported. Plans for the construction of a new refinery are under development.

Whilst Colombia has vast hydroelectric potential, a prolonged drought in 1992 forced severe electricity rationing throughout the country until mid-1993. The consequences of the drought on electricity-generating capacity caused the government to commission the construction or upgrading of 10 thermoelectric power plants. Half will be coal-fired, and half will be fired by natural gas. The government also has begun awarding bids for the construction of a natural gas pipeline system that will extend from the country's extensive gas fields to its major population centres. Plans call for this project to make natural gas available to millions of Colombian households by the middle of the next decade.

As of 2004, Colombia has become a net energy exporter, exporting electricity to Ecuador and developing connections to Peru, Venezuela and Panama to export to those markets as well. A pipeline connecting western Venezuela to Panama through Colombia is also under construction, thanks to cooperation between presidents Alvaro Uribe of Colombia, Martín Torrijos of Panama and Hugo Chávez of Venezuela.

Industry and Agriculture

The most industrially diverse member of the five-nation Andean Community, Colombia has four major industrial centres: Bogota, Medellin, Cali, and Barranquilla, each located in a distinct geographical region. Colombia's industries include textiles and clothing, particularly lingerie, leather products, processed foods and beverages, paper and paper products, chemicals and petrochemicals, cement, construction, iron and steel products, and metalworking. Its diverse climate and topography permit the cultivation of a wide variety of crops. In addition, all regions yield forest products, ranging from tropical hardwoods in the hot country to pine and eucalyptus in the colder areas.

Cacao, sugarcane, coconuts, bananas, plantains, rice, cotton, tobacco, cassava and most of the nation's beef cattle are produced in the hot regions from sea level to 1,000 metres elevation. The temperate regions - between 1,000 and 2,000 metres - are better suited for coffee; certain flowers; maize and other vegetables; and fruits such as citrus, pears, pineapples and tomatoes. The cooler elevations - between 2,000 and 3,000 metres - produce wheat, barley, potatoes, cold-climate vegetables, flowers, dairy cattle, and poultry.

Tourism

Even though Colombia has been plagued with travel warnings because of FARC and other guerrilla groups, it has continued to attract more tourists in recent years. The apparent cause appears to be the current hardline approach of President Álvaro Uribe to push rebels groups farther away from the major cities and other tourist sites that may attract international visitors. Since President Uribe took office in 2002, he has notably increased Colombia's stability and security by significantly boosting its military strength and police presence throughout the country. This apparently has achieved fruitful results for the country's economy, particularly international tourism. In 2006, tourism officials are expecting approximately 1.5 million international visitors to visit Colombia, an astonishing increase of about 50% from the previous year. The World Tourism Organisation reported in 2004 that Colombia achieved the 3rd highest percentage increase of tourist arrivals in South America between 2000 and 2004 (9.2%). Only Peru and Suriname had higher increases during the same period.

Foreign Investment

In 1991 and 1992, the government passed laws to stimulate foreign investment in nearly all sectors of the economy. The only activities closed to foreign direct investment are defence and national security, disposal of hazardous wastes, and real estate - the last of these restrictions is intended to hinder money laundering. Colombia established a special entity - CoInvertir-to assist foreigners in making investments in the country. Foreign investment flows for 1999 were $4.4 billion, down from $4.8 billion in 1998.

Major foreign investment projects underway include the $6 billion development of the Cusiana and Cupiagua oil fields, development of coal fields in the north of the country, and the recently concluded licensing for establishment of cellular telephone service. The United States accounted for 26.5% of the total $19.4 billion stock of non-petroleum foreign direct investment in Colombia at the end of 1998.

Colombia is the United States' fifth-largest export market in Latin America-behind Mexico, Brazil, Venezuela, and Argentina-and the 26th-largest market for US products worldwide. The United States is Colombia's principal trading partner, with two-way trade from November 1999 through November 2000 exceeding $9.5 billion-$3.5 billion US exports and $6.0 billion US imports. Colombia benefits from duty-free entry-for a 10-year period, through 2001-for certain of its exports to the United States under the Andean Trade Preferences Act. Colombia improved protection of intellectual property rights through the adoption of three Andean Pact decisions in 1993 and 1994, but the US remains concerned over deficiencies in licensing, patent regulations, and copyright protection.

The petroleum and natural gas coal mining, chemical and manufacturing industries attract the greatest US investment interest. US investment accounted for 37.8% ($4.2 billion) of the total $11.2 billion in foreign direct investment at the end of 1997, excluding petroleum and portfolio investment. Worker rights and benefits in the US-dominated sectors are more favourable than general working conditions. Examples include shorter-than-average working hours, higher wages and compliance with health and safety standards above the national average.