Better Than Brazil: How to Invest in a Colombian Safe Haven

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What's an investor to do?…

The Eurozone is about to collapse. The United States is struggling out of the deepest recession since World War II. And the IMF forecasts global growth will drop from 5% in 2011 to 2.6% in 2012.

How about investing in a safe haven far away from all of these troubles – one where you can actually watch your money grow?

I have found one in Colombia. Let me tell you why.

It is because Colombia is no longer a place controlled by drug kingpins or ripped apart by civil war. Colombia is a country on the comeback.

This revival began in 2002 when former president Alvaro Uribe decided to take on both the leftist guerillas and the drug barons. Since then, his successor Juan Santos has followed up on those policies, and they have worked.

In 2011, Colombia's homicides dropped by 5% to 14,746 and its murder rate dropped to 33 per 100,000 of population.

Admittedly, that's still five times the U.S. level, but these things are relative – it's half the level it was just four years ago.

Foreign investors have noticed, and last year, foreign investment in Colombia was up 56% to $14.8 billion.

Colombia Beats Brazil

In fact, according to the World Bank's "Doing Business" survey, Colombia ranked 42 out of 183 countries.

That was near the top spot in Latin America and far above Brazil's appalling rank of 126. Only Chile was higher with a rank of 39.

Stock market investors have noticed this, too – in the second half of 2011 Colombia had $4.9 billion of initial public offerings, the most in Latin America – and yes, again ahead of Brazil!

On the macroeconomic side, Colombia is sound, with public debt at just 45% of gross domestic product (GDP), a modest budget deficit, inflation just over 3% and the central bank base rate at 4.75% — no Ben Bernanke nonsense of zero interest rates!

Colombia has also gotten a boost by a surge in oil production, with exploration now possible in areas that had been "no go" for foreign investors for decades.

In November 2011, oil production was 920,000 barrels/day, up 17.5% from the previous year. Oil and minerals were responsible for 82% of Colombia's 2011 foreign investment, so the potential for investors is immense.

However, the real reason why Colombia is so attractive is the "catch-up" that needs to happen with its neighbors. Fifty years of civil war have left its infrastructure badly in need of an update.

For example, there is no railroad across the Isthmus of Panama – vital for shifting exports to the West coast for on-shipment to California and China. There is not even a decent road along the northern coast – you have to make a huge detour through Medellin.

But with China's thirst for minerals, there is ample opportunity for deals to get the infrastructure built. As that begins to happen, Colombia's per capita income – currently only $9,800 (ranked 110 in the world) compared with Chile's $15,400 – will catch up fast.

How to Invest in the Colombian Comeback

That's the beauty of Colombia's emerging position, and what makes it a special opportunity for investors.

Here's why.

Colombia's people are considerably poorer than they should be, given its decent business climate. So the forces pushing its GDP upwards are strong.

Third-quarter GDP growth in 2011 was 7.7%, and the overall year's growth is expected to be 6%. Of course, another demand crisis for raw materials would hurt Colombia. But even if its worldwide growth is merely sluggish in 2012, it won't be sluggish in Colombia.

Finally, the U.S.-Colombia Free Trade Agreement finally comes into force in the first half of this year, which should boost growth even further.

With any kind of decent global economy, Colombia should see several years of growth above 5% with low inflation and no balance of payments crises. There are few places you can say that about.

If you want to invest in Colombia, the best broad fund is the Global X FTSE 20 Colombia ETF (NYSE: GXG). This is a $120 million fund, but its annual expenses are a reasonable 0.83%. However, with a price/earnings (P/E) ratio of 16 times and a yield of only 1.16% GXG isn't especially cheap.

Alternatively, you can go straight to the source of Colombia's current growth and buy Ecopetrol S.A. (NYSE: EC).

Colombia operates a much more friendly investment environment than other Latin American oil exporters like Venezuela, Mexico, and even Brazil, so foreign competition in Colombian oil exploration keeps Ecopetrol efficient. That also prevents the government from using Ecopetrol as a piggy bank.

Ecopetrol also offers investors a very nice 4.6% dividend yield. While on a trailing earnings basis that my look expensive at 22 times, you have to remember that the company's output is growing rapidly. And with oil prices around $100 per barrel, its profits are doing even better – so on an estimated prospective P/E ratio of 11.8 Ecopetrol is much more reasonably priced.

Either way, take a serious look at Colombia for its energy and mineral resources. Its emergence from darkness makes it a unique safe haven.

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Join the conversation. Click here to jump to comments…

  1. emilio | January 27, 2012

    So you quote the World Bank as a reliable source for your opinion… Why don't you quote the IMF too?
    The U.S.-Colombia Free Trade Agreement will be the slow death of any Colombian chances for real growth as it has been with Mexico. If I may, you should really learn a little more about Latin America and how it is outperforming the rest of the western world. Not precisely following the Master's Voice. LOL!

  2. Ted | January 28, 2012

    "In 2011, Colombia's homicides dropped by 5% to 14,746 and its murder rate dropped to 33 per 100,000 of population.

    Admittedly, that's still five times the U.S. level, but these things are relative – it's half the level it was just four years ago"

    This is nonsense. You will find the murder rate is HIGHER than it was four years ago, not LOWER (nevermind HALF) – wait for both the health and statistical agencies' statistics and do not believe ANYTHING the police say.

    In the last three years, the police have been ORDERED by Santos or Uribe to misclassify many murders as "death by unknown causes" or take them out of the statistics alltogether (the evidence speaks for itself, Google it).

  3. sofia | January 29, 2012

    This is really funny!
    This is pure and simple political publicity…Colombians are going very bad…and a "colombian spring"is around the corner if no body does something different….

    • Alvaro | January 30, 2012

      "Colombian Spring"? Has Colombia been under a dictator's rule for 20 to 40 years? Are Islamo-terrorist trying to convert the country to Islam? Please keep smoking your "kreepy" and wait for the FARC to save you….

      • actor44 | May 8, 2012

        The neo marxists or islam which one will save the world first? Colombians will fill the streets begging the farc to save them I am sure.

  4. Camillo | January 31, 2012

    The former president `Jose` Santos ? did you take that name (Jose) from the bible ?

    The successor of Alvaro Uribe and former president was named `Juan Manuel Santos` since he was borned. I´m Colombian, living in Colombia right now.

    Regards,

  5. enthusceptic | March 21, 2012

    I'm a Norwegian living in Colombia, but too short a time to know what is true about murders etc. One thing is sure though, people all over the world aren't accepting bad government, corruption etc any more.
    Also I believe that the only way to world peace is prosperity that benefits everyone. By investing wisely in companies in developing countries or developed countries that do business in developing countries we can't only make lots of money, but help develop the world and create even bigger investment opportunities.

  6. enthusceptic | March 22, 2012

    Dear Sofia and Alvaro! The term "Arab Spring" can be applied as the need for change anywhere. This is a good thing, because otherwise we get terrorism and a lack of development and no good investment opportunities.

  7. jr1tupapa | May 23, 2013

    I do agree that Colombia is place that's virgin for businesses.there are many different things to invest on. I don't know the ratios about crime, but I can say that thankfully I've never had any trouble while visiting the country. There is money in colombia and money to be made. I currently live in the USA, this is getting worse than the king hernrys time. Everything is a freaking Tax. Soon they'll tax us even to go to the bathroom.

  8. theapprentice | November 4, 2014

    (I was born and live in Colombia)

    Its interesting for me, how the world see us from the outside.

    nevertheless, misspelling the name of the president (a datum that you could fastly google check) makes me feel not too trustworthy,
    I mean, although I am not analyst, I would consider these article was lacking of debugging before being released to the public as advice.

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