Colombian Oil Fuels Economic Progress

This post was originally published in the Washington Business Journal’s WBJBizBeat Blog. | Washington Business Journal

Colombia, a country followed closely by Chevy Chase Trust’s investment team, continues to ride a wave of good news. At the top of the list is Time magazine’s cover story: The Colombian Comeback. In a related blog, President Santos discussed the need for Colombia to improve economic ties with Asia, and last week President Santos followed up by traveling to China where a deal was announced. A major part of the deal is the agreement with the China Development Bank to finance the building of an oil pipeline across Colombia that will transport 600,000 barrels of Venezuelan and Colombian oil per day to Colombia’s Pacific Coast for export to Asia. The additional pipeline capacity is needed as Colombia finds new markets beyond its traditional trading partner (the U.S.) for its rapidly expanding oil production and status as a rising energy powerhouse. The Colombian Mines and Energy Minister announced that the country’s oil output would climb to 1 million barrels per day within a matter of weeks. This is a remarkable increase; just five years ago, in 2007, Colombia produced only 531,000 barrels of oil per day. Additionally, to take advantage of Colombia’s position as one of the world’s largest coal exporters, China continued talks on building a railroad linking Colombia’s Atlantic and Pacific coasts as a Panama Canal alternative.

The oil story is providing the backdrop for a revitalization of the Colombian economy that is beginning to be noticed worldwide. Christina Sommer, Vice President in the Global Insights Group of MasterCard Worldwide, wrote in January about Colombia as “The Next Brazil.” She highlights many of the positives for the Colombian economy, including favorable demographics, foreign investment in the economy, and a doubling of per capita GDP since 2004 as reasons to consider Colombia as a thriving economy. This theme of Colombia as a rising star in the emerging markets and on its way to becoming the next Brazil is increasingly embraced by the investment community and is an important investment story that continues to be written.

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