Bogota, Colombia–After years of economic turmoil and social upheaval Colombia is poised to spend big to bolster its languishing infrastructure. But it isn’t going to be easy for this developing country known for its drug kingpins and jungle-based insurgents.
The government of President Alvaro Uribe has made infrastructure development a priority while hoping for a free-trade agreement with the U.S. His government is pushing dozens of major projects worth several billions of dollars. In addition, private companies, particularly those in the energy sector, are pushing multi-million dollar upgrade projects.
All that’s missing is the money for the public works and confidence in the national economy. Laws and regulations skewed against foreign firms are also a problem. But there is hope. Rising oil prices have lifted the Colombian economy and Uribe’s battles against druglords and insurgents and paramilitary units, together with a more stable economy, may be enough to inspire investors.
“There is confidence that these projects will appeal to national and international investors and put us on the right path with the respect to infrastructure development,” says Transportation Minister Andres Uriel Gallego.
The centerpiece of the administration’s effort is the ambitious Plan 2500 that will address Colombia’s long neglected highway system. The $770-million project will include the construction and upgrading of more than 3,100 kilometers of highway by the end of the decade.
Uribe has been pushing the project since taking office in 2002 and, if and when completed, it will be the largest infrastructure overhaul in the country’s history.
It will be a key step forward in a country where almost 70% of cargo is transported by truck. That’s a drawbacl because Colombia has one of the lowest ratios of paved roads per inhabitant in Latin America. Of the estimated 115,000-145,000 km of road, less than 15% was paved as of 2004. Less than 400 km was multiple-lane, paved highway.
Plan 2500 is only one of a series of sweeping infrastructure improvements the government is working to implement. They include at least $285 million for expansion of Colombia’s ports, a $500-million upgrade of El Dorado International Airport in Bogota, refurbishing more than a third of the country’s 3,000 km of railway and the increasing of the more than 11,000 kilometers of navigable inland waterways.
Those efforts are critical for helping the country find the right balance to attract more foreign investment for future development. On the one hand, Colombia has to drastically upgrade its infrastructure to spur development that will make it an attractive investment.
Yet, Colombia is limited in the amount of infrastructure work it can undertake until it wins more foreign investment.
The prospect of a free-trade agreement with the United States has upgraded the issue from a priority to a critical necessity. For the past two years Colombia has been seeking the agreement in conjunction with Peru and Ecuador. Peru signed an agreement with the U.S. in December after Colombia pulled out of discussions a month earlier. Talks between Bogota and Washington are expected to resume in January.
The infrastructure improvements seek to take advantage of Colombia’s position on the northern edge of South America, a location that suggests the country could be a trade gateway for the continent, says Juan Martin Caicedo, a former mayor of Bogota and current president of Colombia’s infrastructure chamber.
“We simply cannot afford to waste our position as an international point of entry,” he said at an infrastructure development conference last November.
While the possibility of a free trade agreement is the impetus for infrastructure improvement, it is the relative economic stability that makes it a realistic possibility.
Colombia, along with much of South America, rode a strong growth trend in the early 1990s that many expected would provide the answer for many of the country’s ills. But the boom came as the drug trade and guerrilla movements began a period of violence that engulfed the entire society.
By the late 1990s, weaknesses in the economic system had become apparent and things plunged downhill.
“It was basically a huge housing bubble that went bust,” says Juan Carlos Echeverry, an economist with the University of the Andes in Bogotá. “As confidence diminished, interest rates spiked and it began to snowball.”
That has turned around 180 degrees in the past few years and the economic outlook for the country is extremely positive, say many experts. According to the International Monetary Fund, Colombia’s GDP grew at 4.5% in 2005, faster than envisaged and the fastest since 1995. Investments and exports pushed the higher than expected growth.
“The amount of infrastructure investment has been stable over the past few years but there is an increase in the amount being planned for the future,” says Fernando Aguirre, infrastructure director for the Colombian Institute of Cement Producers. “We have a lot of projects being planned and we are needing a lot of investment.”
Due to the limitations of the government to amass its own funding, private investment is key to moving forward on such projects, Aguirre says. The IMF noted that foreign investments are on the upswing and the trend is expected to continue. Currently, Colombia sees about $10 billion of investment from foreign sources. According to the central bank, foreign direct investment topped $546 million in the first quarter of 2005, up from $326 the year prior.
One internal financing option is Colombia’s $11.3-billion private pension system. Luis Fernando Alarcon, president of the Association of Pension Fund Administrators, Asofondos, says the fund administrators are very interested in investing in infrastructure projects planned for the country in the next few years. “The real...