Bogotá — Among the ways of stimulating a country’s growth are foreign direct investment (FDI) flows, but in Colombia such flows have been in decline over the past decade, and reverting that trend will be one of the many pending tasks of the next government.
According to the balance of payments of the country’s central bank (Banco de la República), in 2021 the country received $9.40 billion in FDI, equivalent to 3% of GDP, which is below the figure of 10 years ago, when it was $13.23 billion, or 4% of GDP.
With just days to go before Colombia’s first round of presidential elections, Bloomberg Linea has reviewed how the country has fared over the last decade in terms of FDI as a proportion of GDP to make the figures as comparable as possible.
Despite the strong economic rebound Colombia saw in 2021, after the crisis stemming from Covid-19 in 2020, the FDI for 2021 was the second lowest in the last decade as a proportion of GDP (3%). The worst was in 2020, with 2.8% of GDP, totaling $7.69 billion, while the third lowest of the decade was in 2018, contributing 3.3% of GDP and totaling $11.53 billion.
The Tasks for the Next President
FDI boosts economic growth by fomenting the creation of new companies, the generation of employment and increasing the money in circulation in the country, and the government should therefore worry about improving FDI, according to Germán Machado, a professor of economics at the Universidad de los Andes.
Machado said that despite the great growth of the Colombian economy in 2021, “as most of it was a rebound effect, and Colombia also lost international rating, its FDI ended 35% below what it had been before the pandemic”.
Given that the country’s international investment position is negative and has deteriorated, Machado added that to resolve this, Colombia needs to get its macroeconomic figures in order so that its profile is consistent with that of an investment-grade country.
“In addition, it needs to once again be seen as a safe country, and have a more business and company friendly environment,” he added.
“The next government should work especially on improving legal protection and contract compliance, reducing the high business tax burden, dismantling tariff barriers, and simplifying the necessary procedures for exporting and importing goods.”
According to Ana Vera, chief economist at IN ON Capital, “having more direct investment in our capital markets would benefit ordinary people’s access to cheaper financing”.
She added that the country’s next president should encourage FDI in capital portfolios, as this could reduce financing costs.
“At an international level, large portfolio managers can offer resources, not only for the government, but also for companies, which could greatly boost the Colombian capital market, which without this support has liquidity problems and higher costs compared to those of other countries,” Vera said.