Colombia - Country Commercial Guide
Market Overview

Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.

Last published date: 2020-10-29

The Republic of Colombia is the fourth-largest economy in Latin America, after Brazil, Mexico, and Argentina, and has the third-largest population with approximately 50 million inhabitants. An improved security environment and steady economic growth prior to the COVID-19 pandemic made Colombia one of Latin America’s more attractive destinations for exports and investment. The country’s current President, Ivan Duque, is a pro-business political moderate and a strong ally of the United States. President Duque implemented aggressive measures in March 2020 to contain the COVID-19 pandemic, which included a national quarantine and closure of the country’s airspace to international and domestic flights through September 1, 2020. While Coronavirus infection rates and fatalities in Colombia have not been as high as other countries in the region, most notably Brazil, the pandemic has nonetheless had a negative impact on employment, government revenues, economic growth, and has delayed implementation of many key projects and government acquisitions.

The U.S.-Colombia Trade Promotion Agreement (TPA), in effect since May 2012, initially gave a boost to U.S. exports to Colombia, but the growth rate has slowed in recent years due to a combination of factors. The main contributor has been a depreciating and undervalued Colombian currency -the peso- that has generally fallen in line with global oil prices (the county’s principal export). A drought and a national strike in 2016 by transportation workers led to a spike in inflation and put further downward pressure on the Colombian peso. Compounding these events was a tax reform package in 2017 that was viewed by many analysts and credit rating agencies as insufficient to shore up government revenue. The tax reform also raised the national sales tax (VAT) from 16 percent to 19 percent and put a damper on consumption. The country was seeing an uptick in economic growth in 2019 following a rebound in consumer confidence and domestic manufacturing, but the COVID-19 pandemic has reversed much of this momentum, with the Colombian peso sinking to a record low against the dollar on March 17, 2020.  

According to the Colombian National Statistics Department (DANE), Colombia’s Gross Domestic Product (GDP) growth was 3.3 percent in 2019, compared to 2.7 percent in 2018. Before the onset of COVID-19 in March 2020, the DANE had projected 2020 GDP growth of 3.7 percent, but the most recent projection by the International Monetary Fund (IMF) estimates a contraction of Colombia’s economy of 7.8 percent in 2020. Foreign Direct Investment (FDI) into Colombia in 2019 increased by almost 26 percent and was valued at USD 14.5 billion. Investments were concentrated in the extractive industries. 

Colombia’s inflation rate remained stable at 3.8 percent throughout 2019 and within the Central Bank’s target range of two-to-four percent. Inflationary pressures have remained low in 2020 and rates have stayed within the Central Bank’s target rate due mainly to depressed consumer demand during the pandemic. Colombia’s Central Bank (Banco de la Republica) maintained benchmark interest rates at 4.25 percent throughout 2019 but has cut rates in 2020 down to two percent as of September in an effort to stimulate economic activity.

In addition to the impact of COVID-19, the presence of Venezuelan migrants in Colombia, estimated at approximately 1.7 million as of March 2020, will continue to put downward pressure on Colombia’s economic growth and widen budget deficits. Colombia’s Ministry of Finance estimates the cost of Venezuelan migrants to Colombia’s economy, especially the country’s healthcare and education systems, was USD 1.2 billion in 2019 and will be USD 1.3 billion in 2020, which equals almost one percent of Colombia’s annual economic output. The Minister of Finance announced in March 2019 that the country’s annual fiscal deficit target will be relaxed from 2.4 percent to 2.7 percent of GDP due to the economic impact of Venezuelan migrants. Colombia’s Fiscal Rule, introduced in 2012, sets a goal for budget deficits to be within one percent of GDP by the year 2022.  In 2020, the Ministry of Finance announced a suspension of the fiscal rule for the years 2020 and 2021, citing the negative impact of COVID-19, the continuing slump in petroleum prices, and the global economic recession. Colombia’s budget deficit is currently estimated to be approximately eight percent of GDP. Credit rating agencies did not downgrade Colombia’s credit rating following the decision to relax the Fiscal Rule, but the move puts increased scrutiny on the country’s finances in the near term, and several credit rating agencies revised their outlook for Colombia from stable to negative due to the economic contraction and increased government spending on social programs and assistance related to COVID-19.   

While the current exchange rate and strong dollar make U.S. exports to Colombia relatively expensive and less competitive, certain sectors are nonetheless seeing strong growth, especially U.S. agricultural exports like pork, chicken, seafood, soy products, dairy, corn, and beans, and exports related to the commercial aviation sector. Colombia’s ranking as an export market for U.S. agricultural products jumped from 24th place in 2011 to 12th place in 2019. Agriculture exports to Colombia from the United States were valued at USD 2.6 billion in 2019, more than double their 2011 value.  Grains used in animal feed continue to see significant gains in the Colombian market. Other U.S. exports to Colombia that have enjoyed significant growth since the implementation of the TPA include aircraft and aircraft parts, which benefited from the elimination of a five percent tariff and which continue to see strong growth into 2020 despite the COVID-19 pandemic and its impact on the airline industry. These exports reached an average of nearly USD 666 million per year during the period 2013-2018, up from USD 334 million in 2011. Exports of pharmaceutical products, which amounted to USD 199 million in 2011, have averaged almost USD 274 million per year under the TPA.

The United States is Colombia’s largest trading partner and Colombia was the 22nd largest market for U.S. exports in 2019. U.S. exports to Colombia in 2019 were valued at USD 14.7 billion, a decrease of two percent compared to the prior year. Due to Colombia’s close political ties and geographic proximity to the United States and Colombians’ appreciation for the quality and reliability of U.S products, consumers in Colombia generally have a preference for U.S. products and services. However, Colombia is a price-sensitive market and price often dictates purchasing decisions. The impact of the COVID-19 pandemic on government revenues has made price an even greater consideration in public procurement decisions. Consequently, Chinese products are increasingly capturing market share and China is now Colombia’s second largest source of imports after the United States.  China mainly buys commodities from Colombia such as petroleum and coal and is now Colombia’s second largest export market, with 2019 exports from Colombia to China reaching USD 4.5 billion. The United States, however, is still the largest buyer of Colombian products and imported over USD 11 billion in 2019.

In terms of Foreign Direct Investment (FDI), China has been slower to make inroads in Colombia to the same extent it has elsewhere in the region, where Chinese firms are dominant players in energy and infrastructure projects. This scenario is changing rapidly, however, as 2019 saw increased Chinese participation in various sectors of the Colombian economy, including transportation, port and highway infrastructure, and ICT/Telecoms.  China’s FDI flows to Colombia in 2019 contracted by an estimated USD 9 million, compared to an increase of USD 2.6 billion for the United States.  Extractive industries, such as coal mining and oil and gas exploration and production, are the principal areas of U.S. foreign direct investment in Colombia, followed by consumer goods, information technology, franchising, and tourism. Greater investments in Colombian infrastructure projects ranging from roads, airport modernization, port construction and expansion, and major hotel developments are projected over the next 10 years. President Duque recently announced the rollout of the country’s Fifth-Generation, or 5G, infrastructure initiative, a program that aims to invest over USD 4 billion in waterway, rail, and airport transportation improvements.  

The U.S.-Colombia Trade Promotion Agreement (TPA) entered into force in May 2012 and immediately eliminated import tariffs on 80 percent of U.S. exports of consumer and industrial products to Colombia, with remaining tariffs to be phased out over 10 years.  Other provisions include stronger protection for U.S. investors (legal stability), expanded access to service markets, greater intellectual property rights protection, market access for remanufactured goods, and improved dispute settlement mechanisms (arbitration). The Colombian Government has implemented bilateral or multilateral trade agreements with most countries in the Western Hemisphere, including the United States and Canada, and has trade agreements with the European Union, the Pacific Alliance (Colombia, Chile, Mexico and Peru), South Korea, and a pending agreement with Panama. Colombia is also in discussions with the United Kingdom to implement a Post Brexit trade deal.

Colombia has five commercial hubs in the country: Bogota, Medellin, Cali, Barranquilla, and Cartagena.  In contrast, most Latin American countries have only one or two major cities, while Colombia offers U.S exporters access to multiple commercial hubs, each of which has its own American Chamber of Commerce.  While these cities and many other secondary cities offer unique market opportunities, they are close enough via air routes that it is common to have one partner (agent, distributor, or a representative) cover the entire country.