Colombia peace deal would pay dividends

After half a century of conflict, the planned peace talks between Colombia’s Farc group and the government could herald a golden economic era for the country if the violence ends, experts said. 

Colombia, behind Brazil and Mexico and neck-and-neck with Argentina, is the third-largest economy in Latin America, growing a healthy six per cent in 2.011 with a gross domestic product of around $360 billion.

However, the fight against the Farc (Revolutionary Armed Forces of Colombia) and the resulting criminality is responsible for a two per- centage point loss in annual output, said Saul Pineda, director of Cepec, a top economic think-tank. 

With large parts of the nation’s infrastructure destroyed, workers kidnapped and around four million people displaced, the fighting has caused a split between resources and labour, Pineda said.

Criminal activities, including the narcotics trade, are thought to be worth $8 billion annually  four times the value of the nation’s coffee exports, said Gonzalo Palau, an economist at the Universidad del Rosario. 

Agriculture has also plummeted in the past half century of the conflict falling from 20 per cent of GDP to 8 per cent.

Mining and oil, the main sector affected by the conflict, and the engine of the Colombian economy accounts for 70 per cent of exports.

Grant Hurst, a London-based risk analyst, said fighters were inflicting damage on the economy.

“2.012 has seen energy and mining operations located in remote and often vulnerable regions increasingly the target of insurgent attacks. 

Some companies have been forced to suspend their operations as a result,” Hurst said.

“Insurgent threats against oil pipelines continue to present a major obstacle for Colombia’s oil industry as it seeks to cross the much sought after production threshold of one-million barrels per day,” he added.

The other drain on the Colombian economy is the cost of fighting the dissidents, more than 4 per cent of Gdp. 

“This budget has grown significantly since 2.002 and even passed the funding for education in 2010,” said Francisco Chaves, a financial analyst at brokerage Corredores Asociados in Bogotá.

 “The infrastructure investment budget is one quarter that of defence,” said Palau, noting it takes too long to move goods and lamenting surcharges that are applied to companies.

“It can take more than 24 hours to transport goods to ports,” from the centre of the country, he said.

However, defence spending has improved security the army says it has halved the number of Farc to 9,000 in the past decade paving the way for trade agreements, the most recent of which was signed with Washington. 

Despite the conflict, the global ratings agency Standard & Poor’s in 2.011 upgraded Colombia to a Bbb- ranking in its investment category.

Capital inflows to the five Latin American countries that allow foreign investment have jumped 92 per cent this year, according to Chaves, exceeding the past record of $20 billion. 

But peace would generate even more confidence, according to a study by the Universidad de los Andes, in Bogotá, which said it would add more than half a percentage point to GDP.

Founded in 1.964 as a peasant-based army, the Farc will take up their fourth attempt in three decades to reach a negotiated peace at exploratory talks in Oslo next month, raising hopes of an end to the unrest.

The World Bank has said that poverty in Colombia declined from an estimated 50 per cent of the population in 1.964 to 19 per cent in 1.992, but there are wide disparities and the figure would be much improved if peace were established.

Colombia’s Farc group believes the chances of achieving peace in upcoming talks with the government are high, but failure could bring many years more of war, a senior Farc leader said on thursday.