Thomas White Global Investing
Colombia-U.S. trade ties in full bloom
Colombia-U.S. trade ties in full bloom Stamp
July 13, 2012
A Postcard from the Americas
Colombia-U.S. trade ties in full bloom

In full bloom

Colombia stands to gain more from friendly trade ties with United States, its powerful neighbor.

These days Colombia seems to be on a “new” high so to speak, putting its reputation for drug trade in the shadowy past. Now, the present day Colombia presents a picture of a fast-growing emerging economy, which is sometimes even referred to as “the new Brazil.” Political stability apart, the recently signed free-trade deal with the United States marked the full blossoming of a business relationship between the two countries. It may have been just a coincidence, as The Economist pointed out, but the newly minted trade relations between the two countries was marked by a flight which landed at the Miami airport on May 14th loaded with freshly cut roses, carnations, and lilies straight from the gardens of Colombia.

But Colombia’s rendezvous with its biggest trading partner is nothing new. The country has remained a loyal U.S. ally ever since Uncle Sam started rolling out generous aid to quell its Latin American neighbor’s extremist violence and drug trade. The Andean Trade Promotion and Drug Eradication Act and the trade pact signed by President Bush and his Colombian counterpart Alvaro Uribe in 2006 were landmark agreements, which gave a fillip to bilateral trade.

The current trade agreement will likely benefit both parties, especially Colombia, which hopes that its exports will grow at least 10%, apart from the addition of some 300,000 new jobs, The Economist said in a report. On the other hand, America expects that the value of exports to Colombia, which includes chemicals, machinery, oil derivates, and cars, would go up by more than a billion. The importance of the agreement lies in the fact that it puts an official stamp on some trade practices that had been followed by the two countries for some time.

Colombian flowers may be much sought after in the U.S., but there is more to South America’s third-biggest economy than delicate petals. According to a Financial Times report, mining and oil exports have grown sevenfold since 2003 and foreign investment is pouring into these sectors. At $37 billion in 2011, they accounted for two-thirds of exports, the report said. Constituting 27% of the GDP, the rate of foreign investment in Colombia is among the highest in Latin America. The country’s $370 billion economy is booming, with output growing at 6% a year, the FT said. Inflation, at 3.4%, remains within the central bank’s target.

The free-trade deal is probably the icing on the cake for Colombia, which has been making giant strides in the last decade or so. The second most populous Spanish speaking country in the world is in the safe hands of President Juan Manuel Santos, who has earmarked $100 billion to develop infrastructure. However, Santos has to thank his predecessor Alvaro Uribe who laid the foundations of a modern economy and ensured that economic growth returned to the country in 2004. Around the same time, Uribe also strengthened the security forces, which succeeded in crushing the rebel militants and the rampant drug cartels that had held sway over wide swathes of the country. Thanks to the reforms, the city of Medellin, formerly the hotbed of violent crime, has been transformed into a buzzing commercial center, complete with a modern transport system.

Having sealed the trade deal with the United States, Santos now has his sights set on seeking a business relationship with China. If everything goes well, one could read about cargo planes going back and forth between Beijing and Bogota in the near future. Colombia’s exotic flowers, and its economy, appear to be in full bloom.

 

Image Credit: Pamsai on Flickr under a Creative Commons License

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