Colombia foreign investment surges 26%

Posted on July 17, 2012

Foreign direct investment into Colombia soared 26 per cent in the first half of the year as companies poured billions of dollars into the Andean country’s oil and mining sectors despite a recent uptick in violence.

The Central Bank said foreign investment grew to $9.3bn in the six months to June, 82 per cent of which went into energy and commodities. Colombia is the world’s fourth exporter of coal, and the region’s fourth-largest oil producer.

    “This is long-term term money,” said Rupert Stebbings of the Celfin Capital brokerage in Medellín. “Such foreign investors…look at the bigger picture. They are used to West Africa, the Middle East, so recent skirmishes are not a huge concern to them.”

    The leftwing guerrilla group, The Revolutionary Armed Forces of Colombia, or Farc, has lately stepped up attacks on oil workers, pipelines, and railway lines. In early July an explosion hit a railway line that feeds into Cerrejón, Colombia’s biggest coal miner jointly owned by BHP Billiton, Anglo American and Xstrata. Last week Emerald Energy, a UK-based subsidiary of the Chinese-owned conglomerate Sinochem Group, also suffered an attack on an oil tanker.

    The surge in foreign investment, combined with a domestic credit boom, has led some Wall Street pundits to christen Colombia “The New Brazil”. Last year, the economy grew by almost 6 per cent, outpacing much of the rest of the region, although growth has since slowed in the first quarter to 4.7 per cent.

    “Such attacks, whilst high profile, should not be confused with some sort of overall security slippage,” added Mr Stebbings. “Besides, where else would you put your money in the region? Argentina is out, Brazil is probably out; Colombia and Chile seem to be the options.”

    Colombia’s investment popularity has also raised the problem of sustained dollar inflows, which has led to the country suffering almost Brazilian-style currency appreciation, prompting howls of protest from non-commodity based domestic exporters. The Colombian peso is among the world’s best performing currencies so far this year, rising almost 9 per cent against the dollar.

    Juan Manuel Santos, Colombia’s president, suggested this weekend that the country’s traditionally orthodox central bank should intervene more heavily to stem the peso’s rally.

    Mr Santos, a former finance minister, said such decisions were the bank’s to take, but added that while he “respects very much” the institution’s independence its reserves could arguably be some $13bn higher than they are now. Central bank reserves are currently $34bn – equivalent to about seven months of imports.

    The central bank has a nine-month dollar-buying programme of $20m a day already in place, which ends in November.

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