Will a peace agreement boost the Colombian economy?

Will a peace agreement boost the Colombian economy?

The Revolutionary Armed Forces of Colombia (FARC)’s insurgency has slowed down Colombia’s potential for economic growth for decades. However, the historical peace agreement between the government and FARC is likely to boost Colombian economic development in the long term.

Political instability is considered a negative determinant of economic performance. If true, FARC has been a major factor in stalling Colombian economic growth. FARC is the longest armed insurgency in Latin America and the group has been able to impose its authority on a large part of the country. In order to understand why the peace agreement is such an important event for the economic future of the country, one needs to comprehend how the FARC’s insurgency has caused Colombia’s economic growth to stall.

Considering the FARC as just another Colombian narco-trafficking organization misrepresents the social-political experience of their rebellion. As highlighted by several studies, the FARC’s involvement in the drug trade has been based on the logic of territorial control. The main characteristic of the FARC has been their ambition to create a state inside the state.

At the height of the rebellion, the FARC’s troops comprised more than 18,000 fighters who controlled around 1/3 of Colombian territory. The conflict between the Colombian government and the FARC lasted for 52 years, a period in which more than 260,000 people were killed and around 6.9 million were displaced.

Since 2013, the Colombian economy has not been performing well; it is suffering due to lower commodity prices worldwide and the slowdown of Chinese demand. According to Senator Roy Barreras, the minimum cost to implement the peace deal would be at least 44.4 billion dollars for ten years; however, the war has cost the Colombian economy around 49 billion dollars per year. The political stabilization of Colombia could open new economic opportunities in the medium-to-long term, boosting the flow of foreign direct investments.

The FARC’s penetration and strong influence over rural Colombia prevented the development of a modern and high intensive coffee industry. Unlocking the exploitation of agricultural lands could massively increase Colombian production of coffee and increase its exports.

Gold mining and oil extraction are two other sectors that could attract large investments once the country is stabilized. It is estimated that the revenues from illegal gold mining, around 7 billion per year, are exploited by the FARC, paramilitary groups and narco-trafficking groups.

Oil extraction also has great potential for growth. According to a 2013 study by PWC, Colombia’s oil reserve-to-oil production ratio was 6.5, the lowest in all Latin and Central America, against an average of 43.6 in the region. The underdevelopment of the Colombian oil industry is due to the inadequate infrastructure in the country. The inability of the government to exercise its power over the country has obstructed the development of an efficient system of public and private infrastructure.

Multinational companies are cautiously looking at the FARC’s demobilization, since they have been the primary targets of FARC’s terrorist attacks. The FARC’s anti-capitalistic ideology considers foreign multinationals as enemies that need to be fought. Destruction, intimidation, extortion, kidnapping and sabotage have become familiar occurrences for corporations, foreign factories and their employees. It is not surprising that in such a dangerous environment, foreign direct investments are not high.

Thus, the peace agreement will not only allow Colombian people to live in a more secure environment but will open up Colombia to new opportunities to boost the economy.

Categories: Economics, Latin America

About Author

Nicola Bilotta

Nicola Bilotta is a junior analyst at The Banker Research Team, Financial Times. He holds a BA in History, a MA in Historical Science, both from the University of Milan, and a MSC in Economic History from the London School of Economics and Political Science. He collaborates with ISAG (Istituto di Alti Studi di Geopolitica e Scienze Ausiliare) and with the Seven Pillar Institute for Finance & Ethics.


  • Martin Kopp

    No, because the cost of the “peace” is very high and Colombia has not the money to finance it. First calculations are at 3.500.000.000 a year. At the moment more multinationals companies are leaving Colombia because of high taxes. Mining and oil companies are not inventing, because there is no security of inventing in Colombia, because now every small village can have a vote if they want to have mines or not. The war on drug is going on and Colombia is not getting any help to fight this war. The financial, social and human cost is very high for Colombia with no real benefit for Colombia. Pessimism is at a very high in the last 20 years. Most of the people do not support the peace agreement in Colombia, because it was made with arrogance over the peoples will. With 3 times more drug money flowing in to Colombia, no chance this “peace” will work. There will be less terrorism financed from the FARC, but still terrorism is a good business financed from the drug users all over the world. while this is like that, there will be no peace in Colombia.

  • Petr Bohacek

    I would dismiss the oil opportunities as written here for GRI
    http://globalriskinsights.com/2017/01/late-colombia-oil-boom/