Thomas White Global Investing
Colombia Stamp
December 23, 2011
A Postcard from the Americas
Colombia: Infrastructure spending gets a fillip

Colombia’s infrastructure gets a boost

Colombia’s infrastructure is getting a makeover. The country’s president Juan Manuel Santos wants to retool the entire country’s transportation network for the better. China’s trade intentions in Latin America are also providing a fillip for Santos’s vision.

Sitting atop the South American continent, Colombia is at the crossroads of trade between some of the world’s fastest-growing economies and Latin America. Almost a hundred years ago, the Panama Canal, one of the greatest engineering feats of the world, was created adjacent to Colombia. Massive ships passed through the canal as trade between Latin America and the rest of the world flourished. Still, the trade boom of the last century largely bypassed Colombia even as the country boasted some of the world’s most desired minerals and natural resources.

Partly, Colombia’s own actions were to blame for its isolation. Decades of political instability, drug violence, economic inequality and irresponsible governance frightened away both foreign and domestic investors. The result was a massive underinvestment into Colombia’s economy.

But since the turn of the 20th century, Colombia’s economy has taken a turn for the better. Beginning in the early 2000’s, Colombia’s economy has boomed. In the past decade alone Colombia’s GDP has doubled, touching $288 billion in 2010. The number of tourists visiting Colombia in 2010 was 300% more than the 2003 figures. Bilateral trade between Colombia and the U.S. zoomed to $5 billion from almost nothing in the 1980s. The rise of China has helped the country emerge as the world’s fifth largest producer of coal.

Sadly though, Colombia’s infrastructure has not kept pace with that of its economy. Often, trucks carrying coal bound for China queue up for kilometers before crossing narrow bridges. Roads in main cities get clogged during peak hours, robbing precious time. Torrential rains habitually ruin badly-built roads connecting the ports. Even the water navigation system supported by river Magdalena, which longitudinally spans the entire length of the country, badly needs a makeover. Shippers grouse that it costs 20% more to transport goods within Colombia than Argentina for the same distance.

But all this could change. Colombia’s infrastructure could get a facelift under its dynamic president Juan Manuel Santos. While his predecessor Alvaro Uribe restored law and order by pushing back armed terrorists from the cities and brought inflation under control, Santos wants to keep the momentum rolling by boosting infrastructure. In a country where the stock market capitalization amounts to just only a few billions of dollars, Santos has announced an infrastructure development worth $55 billion through 2020. Almost $18 billion of the money will be spent over the next three years.

Santos wants to put his stamp on the country’s roads first. With treacherous mountains and thick forests defining Colombia’s topography, laying and maintaining roads is certainly not easy. But that has not deterred Santos’s vision of connecting Medellin, Colombia’s second largest city and until a decade ago notorious for drug gangs and kidnapping, with the major ports cities of Santa Marta in the Caribbean and Buenaventura in the Pacific. The Economist magazine reported that this project alone will stretch across 900km and may include 600 bridges and 131 tunnels.

Santos also alluded to a grand railroad project that could one day rival the Panama Canal. Earlier this year, China confirmed a plan where it envisions a new 280 mile railroad project connecting the Caribbean city of Cartagena in Colombia to the Pacific coast. Such a project could help advance Chinese trade interests into Latin America, which serves as a key source of raw materials. Not to be left behind, Eike Batista, the Brazilian billionaire too opened his wallet to invest in the infrastructure initiatives of Colombia. The Colombian government plans to transform Cartagena into a manufacturing behemoth as well.

The other grand project on the Santos anvil involves dredging the nearly 560 mile course of the Magdalena River, the country’s main water artery. In fact, a single barge could carry the same weight as 100 trucks without much noise and even much less fuss. Once again, Colombia has turned to China, this time for help in engineering the mighty river. HydroChina, a Chinese state-owned firm that specializes in water asset management, has come forward to study the river that serves nearly 80% of all Colombians.

According to The Economist report Colombia now spends almost 1.6% of its GDP on transport investment, up from 0.7% in 2004. That might look like impressive performance but pales in comparison to the nearly 4% of GDP that the Inter-American Development Bank recommends should be spent on transportation infrastructure in the country.

But Santos is trying. He is hopping between China and Spain and Britain and Canada to attract investments and is currently signing free trade agreements with anyone interested in doing business with Colombia.

Who said attracting a century’s worth investment in a decade would be easy?

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