Looking Back On 10 Years Of Progress In Colombia

Global X launched its first ETF, the Global X MSCI Colombia ETF (GXG), 10 years ago this month. The fund was born out of a need for targeted exposure to a growing economy that was often overlooked by investors or represented a miniscule portion of broad emerging market indexes. With a decade of history behind the fund, we thought it would be an opportune time to revisit Colombia – to see what’s changed, and what’s stayed the same, since 2009.

Colombia, 2009

After decades of controlling the political climate and narcotrafficking business, the guerrilla paramilitary group, the FARC, was losing territory and assets to aerial fumigation, military intervention, and international sanctions. Colombia’s President Álvaro Uribe, who was two years into his second term, restarted Colombia’s peace talks with the FARC, in an effort to set the country on a peaceful path of growth.

Despite working towards peace, foreigners rarely traveled to Colombia during this time, given the lack of Open Skies agreements, residual violence related to narcotrafficking, and skeptical views on Colombia’s overall national stability.

Economic growth was stymied by limited trade, with few free trade agreements in place and regional integration efforts unrealized. Foreign capital was limited, Colombia’s capital markets were comparatively small versus other Latam emerging markets like Mexico and Brazil, and efficient tools for direct access were sparse (hence the launch of GXG).

Progress was slow, steady, and uneven.

Yet today, Colombia is a bright spot in the developing world, endowed with rich natural resources, a stable political environment, and prudent market-friendly policies. Investors are increasingly attracted to Colombia’s growth potential, liberal market values, and favorable business conditions. Below are some key stats illustrating Colombia’s transformation from 2009 to today:

Macroeconomic Backdrop

Colombia’s history is marked by its strong democratic institutions and prudent macroeconomic policies. It is one of a few Latam countries that never experienced dictatorship or defaulted on its sovereign debt, largely escaping the swell of a populist “Pink Tide” in the 2000s and the waves of populism and protracted Import Substitution Industrialization (ISI) policies that defined regional politics for decades.

As such, Colombia’s economic development over the past decade was steadily built upon the solid foundation of an independent central bank, a healthy current account, increasingly strong trade relations, and a modernizing economy.

  • Independent Central Bank: Colombia’s Central Bank is among the most well-respected across EMs and is seen by some as Colombia’s strongest institution. Utilizing an inflation-targeting regime, a flexible exchange rate, and supervisory tools, the central bank has maintained autonomy and credibility and buttressed investor confidence. In 2011, policymakers introduced a structural fiscal rule seeking to anchor government finances and debt sustainability. Colombia also benefits from the support of the IMF, which extends a Flexible Credit Line (FCL) of over $11 billion to the country
  • Healthy Current Account: Despite strong commodity exports, Colombia is a net importer, causing its current account deficit to grow in nominal terms since 2009. As a percentage of GDP, however, the deficit has remained stable. The deficit is narrowing faster than expected,1 and could accelerate with the growth of domestic and international demand as Colombia continues diversifying its exports and attracting FDI
  • Strong Trade Relations: Colombia joined Chile and Mexico in the OECD (the only other Latin American members), and signed several bilateral and multilateral trade agreements, including with the US, Canada, EU, South Korea, and the Pacific Alliance (a trade bloc formed in 2012 by Colombia, Chile, Mexico, Peru). It continues negotiating with Turkey and Japan and has an agreement pending with Panama.2 These agreements cover trade in goods and services and expand capital markets access by granting legal protections and better terms to foreigners
  • Modernizing Economy: As Colombia grows its service sector, it reduces the size of its informal economy, which expands the tax base, improves access to education, and encourages female labor participation. Further, the country has made significant efforts to diversify away its dependence on oil and has committed to modernizing its infrastructure to create a better business environment
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