The FTA era has arrived

After decades of internal conflict, political wrangling and security issues, Colombia is now regarded as one of Latin America’s most politically and economically stable countries. Overseen by President Juan Manuel Santos, the country is still engaged in an ongoing battle against drug lords and the FARC, but in the areas of business and productivity the transformation has been little short of miraculous: Colombia is now one of Latin America’s top five economies.

Since coming into power, one of the Santos administration’s main goals was to diversify foreign relations – and the strengthening of economic links with its neighbors was vital to achieving this objective. In April 2011, Colombia, Peru, Chile and Mexico joined forces to form the Pacific Alliance, and a month later an integrated stock market involving Colombia, Peru and Chile was created, resulting in increased cross-border investments.

Strengthening Colombia’s already robust bilateral relations with the United States was another top priority for President Santos. U.S. policy toward Colombia has always backed its battle against illegal rebel organizations such as the FARC, and its war against drug proliferation. “We have been strategic partners to the U.S. for many years in the struggle against drug trafficking… And we still are,” says President Santos.

Signing the FTA will help us work tirelessly on the areas of common interest such as the environment, technology transfer and education. Juan Manuel Santos, President of Colombia

The creation of a free trade agreement (FTA) that would encourage economic diversification and stimulate further growth was a goal that Colombia had pursued for years. Initially submitted during the Bush era, Colombia’s FTA proposal was left to gather dust amidst concerns over tariffs, overseas labor practices, and the effect increased competition might have on U.S. jobs. But the proposal was eventually picked up by President Obama, who brought it before Congress for approval in October 2011, and the FTA is on track to come into effect on May 15.

Although the U.S. economy is still recovering from the crunch that hit American and European markets in 2008, the FTA will certainly bring positive impetus to both markets. The United States is Colombia’s largest trading partner, accounting for over two fifths of its exports and 29% of its imports, and it is the largest source of new foreign direct investment (FDI), particularly in the areas of coal and petroleum.

“Today Colombia is the fourth largest economy in Latin America; it was the fifth four years ago. We are in the process of transforming the country so that we can say we are the largest economy in Latin America after Brazil and Mexico,” says Colombia’s Minister of Commerce, Industry and Tourism, Sergio Díaz Granados. While Venezuela and Argentina might argue with the above statement, Colombia certainly has the potential to boost its position within the continent’s top five economies.

According to The Economist, real GDP is expected to grow by 4.9% throughout 2012, supported by growing domestic demand, and this expansion is forecast to continue at an average rate of 4.8% for the period 2013 to 2016, following the ratification of the FTA. The good news continues with inflation figures, which currently stand at little over 2%. Following the investment grade ratings approved last year by the top three global rating agencies – Standard & Poor’s, Moody’s, and Fitch – Colombia’s investment climate is thriving. Colombian government officials confidently expect a record-breaking $16 billion in FDI this year, while the World Bank’s Doing Business 2011 report classified Colombia as the best country in Latin America, and fifth-best in the world, for foreign investor protection.

In his State of the Union address earlier this year, President Obama referred to Colombia as an important export market for the United States, which will contribute to America’s economic recovery, saying: “With the bipartisan trade agreements we signed into law, we are on track to meet that goal ahead of schedule.” He also described the agreement as “a major win for American workers and businesses.”

In turn, when signing the treaty President Santos announced: “Today is a historic day for relations between Colombia and the United States. The free trade agreement ends the uncertainty that has been discouraging long-term investment and it now guarantees to all investors stability in the rules of the game.”

Where previously many Colombians had felt emigration or even crime were their only routes to a better future, the present situation is vastly different, and the FTA ratification – along with other positive indicators – has presented the country’s citizens with genuine prospects for long-term growth and prosperity.