Colombia Country Risk Assessment

07 January 2020

Colombia Country Risk AssessmentColombia will face a number of security, investment and trading challenges in the coming months. In this article we provide a detailed forward-looking assessment of developments in the country.

Colombia will begin 2020 as one of the bright spots in Latin America, as resilience to domestic protests and tax reform supports growth in a rapidly diversifying economy.

Tax reform is likely to attract investment in the buoyant renewable energy sector. Downside risks to the investment environment will increase if Colombian President Iván Duque is unable to agree concessions with the National Strike Committee (NSC).

Security Environment

Colombia experienced disruptive protests in November 2019, with plans to raise the pension age and cut the minimum wage among the catalysts for demonstrations.

Given the prevalence of looting and arson in Bogotá, protests are estimated to have generated damages of approximately US$400 million.

However, the country plans to hold a national dialogue with the NSC to provide an opportunity for de-escalation.

Colombia Country Risk AssessmentThe NSC is formed of more than 300 trade unions that want to discuss a 13-point agenda with the government.

The fact that the protest movement is coordinated and prepared to negotiate marks Colombia as an exception to the mostly leaderless protests taking place elsewhere in Latin America.

The government is expected to agree to some of the demands of the NSC and introduce a new social welfare package that will include concessions on proposed tax and pension reforms.

Trading Environment

Duque reacted to protests by offering a three-day annual sales tax holiday, reimbursement of value-added tax paid by the poorest 20% of households, and measures to tackle high youth unemployment.

These measures are likely to be seen as conciliatory, particularly in urban areas where protests have been concentrated.

Over the long term, the proposals are set to cost approximately US$930 million dollars, which is likely to increase pressure on Colombia’s fiscal position.

However, Duque’s economic growth law, which includes tax reform, has been approved.

In December 2019, Duque’s minority coalition secured the backing of the Cambio Radical party and the Partido de la Unión, giving it the votes needed to push through the legislation.

The reform will lower business income tax from 33% to 30% over the next four years to boost investment. It will also strengthen the customs and tax agency in an attempt to reduce tax avoidance.

By raising government revenue, tax reform is likely to give Duque both the time and fiscal space to address some of the concerns of the protesters and improve fiscal stability.

Real GDP growth in Colombia is forecast to reach 3.4% in 2019, marking the country as a regional outperformer.

The positive growth forecast for 2019 also marks Colombia’s highest growth rate since 2014.

Growth dynamics are being supported by a significant inflow of FDI in a wide array of sectors, including tourism, real estate, and pharmaceuticals.

FDI inflows for a record 165 investment projects were valued at US$4.8 billion in 2018, more than doubling the levels of foreign investment recorded the year before.

In the first six months of 2019, 122 investment projects were approved, worth a combined US$3.3 billion. However, the protest movement is likely to have dampened investor sentiment in the short-term and will result in a drop off in growth to 3.0% in 2020.

Diversification has unlocked investment beyond Colombia’s traditional key markets, namely its hydrocarbons industry.

The tourism sector is proving particularly resilient in an otherwise politically unstable region. Colombia received a record 4.2 million visitors in 2018, marking a seventh consecutive year of growth.

In 2018, tourism and real estate combined attracted a record level of greenfield foreign investment, worth US$1.4 billion or 30% of total investment.

Transport infrastructure is also improving, with a Chinese consortium winning a US$4.3 billion contract to build the first line of Bogotá’s metro system in November 2019.

Investment Environment

Pricing Outlook ColombiaColombia is forecast to exhaust proven oil and gas reserves within the next decade.

This will create investment opportunities in renewable energy on the country’s underdeveloped Caribbean coast. For example, the department of La Guajira has an estimated wind powered generation capacity of 21GW.

La Guajira is one of only two regions in Latin America to have wind speeds classified as Class 7 (close to ten meters per second).

Long-term energy potential could also be strengthened by untapped oil reserves.

The national hydrocarbons authority (ANH) estimates the presence of more than 6 billion barrels of untapped oil in the Colombian Caribbean seabed, generating interest from multinational oil majors.

The ANH signed six offshore and production contracts worth US$1.83 billion in 2019.

Contract alteration risks in the extractive sector are declining under the Duque administration, which is keen to attract foreign investment.

A constitutional court ruling in February 2019 reaffirmed the rights of project owners by removing the rights of local communities to block project developments.

5 Key Takeaways

  • Colombia experienced disruptive protests in November 2019, but plans to hold a national dialogue with the National Strike Committee provide an opportunity for de-escalation.
  • Protests are estimated to have generated damages of approximately US$400 million in Bogotá.
  • President Iván Duque’s proposed economic growth law, which includes tax reform, will lower business income tax from 33% to 30% over the next four years.
  • Real GDP growth in Colombia is forecast to reach 3.4% in 2019, marking the country as a regional outperformer.
  • Colombia offers significant potential in renewable energy on its Caribbean Coast. The province of La Guajira is one of only two regions in Latin America to have Class 7 wind speeds.

The monthly Risk Outlook is supported by our proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Vietnam, Malaysia, Senegal and Egypt and all of which have been the subject of recent enquiries from our client base.

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  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.


    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)20 8108 9544.

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