Business is booming in Bogotá

Business is booming in Bogotá

Colombia is fast shedding its image of violence and drug activity. Its capital city is emerging as a friendly place to do business and investors are taking note.

Bogotá is a city transformed. The city of 8 million inhabitants is losing its association with the drug activity, killings and kidnappings that drove away professionals and foreign direct investment. Increasingly, multinational companies are taking interest, workers see opportunities at home and previously dangerous areas are being reborn.

The comparison with neighbouring Venezuela and other volatile economies in Latin America makes Colombia an attractive emerging market. The rate of inflation was 3.7 percent in November, which is below Brazil (6.6 percent), Chile (5.4 percent) and well under Venezuela (63.4 percent) and Argentina (presumed to be around 40 percent). The country has become the third largest economy in the region and FDI inflows have leapt in successive years to $16.8 billion in 2013.

Growth has been particularly concentrated among manufacturing, agribusiness and service sectors such as tourism, IT and private equity. Jobs creation is up and Bogotá’s burgeoning middle class continues to expand, creating further demand for credit. Colombia experienced the biggest inflow of investment in any emerging bond market earlier in 2014.

Foreign investors have identified Bogotá as a desirable location for production as well as an attractive consumer market. US fruit producer Dole has opened production facilities there and coffee giant Starbucks launched a three-storey store in 2014 with plans for a further 50 outlets over the next 5 years. The transformation of the city’s neighbourhoods is easily spotted.

Areas such as Zona Rosa and La Macarena are home to luxury brand boutiques, exclusive clubs as well as an increasingly well educated and young demographic. Expats that sought work abroad are returning and people generally feel safe, even in former crime hot spots such as La Candelaria.

This progress is attributed to policy reform, prudent macroeconomic management and a significant improvement in internal security (the commodity boom of the 2000s also helped to support high growth in Colombia).

Initiatives to attract business have worked, property is booming and the country is even seen as a place for entrepreneurship to thrive. Yet it is the on going peace process between the government and FARC rebels that has contributed most to the sense of security in Colombia and in its capital city.

While homelessness and crime do persist, the number of homicides per 100,000 people has fallen from a height of 80 in 1993 to just 32 in 2013. The 50-year war with the FARC guerrilla army that took 220,000 lives may be coming to an end. It has restricted the country’s development and modernisation and now, more than before, it is in the interests of both sides to reach an agreement.

Where former president, Álvaro Uribe, took a tough, hawkish stance on negotiations with the FARC, his successor Juan Manual Santos has opted for more open dialogue with the rebel group in the Havana discussions. The two have clashed repeatedly on the issue (it formed a significant component on the presidential elections in May 2014) and Uribe, who remains a central political actor, rejects the incumbent’s decision to enter talks before the FARC have disarmed.

This stance towards a settlement has public support. Thousands marched in Bogotá in protest at the amnesty being offered to the rebels and demanded that no peace be given at the price of ‘impunity’. For many, the conflict cannot be forgotten so easily and many feel the rebels must be made to pay for the kidnappings, killings and drug activities committed.

The recent kidnapping of a high-rank general of the Colombian military looked set to derail the process, sending the negotiations the same way as the failed peace talks of 2002. Indeed Colombians are sceptical that the FARC would commit to any deal given their history of breaking ceasefire.

But there are positive signs that talks will continue and a settlement can be reached. Santos’s government is committed to a solution ‘before the end of 2015’ and current talks represent the most likely end to the conflict in over a decade. Their success will depend on the stance taken by the FARC regarding demilitarisation and Colombian support for peace. As Uribe’s followers demonstrate, it is a delicate issue and many do not accept the current offer of being made to the rebels.

Bogotá has come a long way in 25 years. Property prices are rising quickly, and affluent neighbourhoods have emerged from previously dangerous areas. The city is increasingly open for business, a fact made clear by its significant share of Colombia’s GDP (around a quarter), and foreign investors and companies are interested. The continuation of the peace process, and its outcome in 2015 may further strengthen a growing sense of security and the city’s claim to being a booming place to do business.

Categories: Economics, Latin America

About Author

Alexi Hastings

Alexi has worked in Corporate Finance in London and is a Chartered Accountant. He is currently studying towards a Master’s in Global Politics at The London School of Economics and Political Science and holds a Bachelor’s in Economics and Spanish.