A Critical Analysis of Colombia

A Critical Analysis of Colombia

2983 words

                                        40204936

Jennifer Berridge

Table of Contents

1.        Introduction and overview of Colombia        3

2.        Key Characteristics and Challenges of emerging markets in relation to Columbia        3

2.1 Key Characteristics of Emerging Markets        3

2.2        Why Colombia is Classed as an Emerging Market        4

2.4 Challenges of Emerging Markets        5

3.        Social Factors        5

3.2 Poverty        5

3.3 Violent Conflicts        6

3.4 Human Rights        6

4.        Economic Factors        7

4.1 Economic Background        7

4.3 Economic Impact of Doing Business in Colombia        7

5.        Political Factors        8

5.2 Political Framework        8

5.3 Political impacts on Business in Colombia        8

6.        Why Invest in Colombia?        9

7.        Conclusion        10

8.        References        11

1. Introduction and overview of Colombia

In order to conduct a critical analysis of Colombia as an emerging market, there are specific factors that must be investigated. We will look at why I chose Colombia as an emerging market as well as looking at an overview of Colombia as a country. Specific factors that also must be investigated include the key characteristics and challenges of emerging markets and the social, economic and political factors of doing business within the country.

Colombia was a good emerging market to select to investigate for a few reasons. There are significant problems involving crime that could potentially cause momentous problems for businesses trying to operate within or invest in the country. Colombia also has had significant growth, can captivate large amounts of foreign direct investment (FDI) which is also why it was a good country to investigate as it has some of the characteristics of an emerging market. (Ángel, 2017)

Colombia is well known for their diversified culture and their natural resources. However, it has also become closely linked to years of violent struggles with drug cartels, rebel groups and infringement on human rights.  Colombia is the fourth largest country in South America, with one of the highest populations which is also a trait of large emerging markets. In terms of trade, Colombia produces significant gold, silver, emeralds, platinum and coal as well as having considerable oil reserves which is what makes it attractive to investors as an emerging market. (BBC NEWS, 2012)

1. Key Characteristics and Challenges of emerging markets in relation to Columbia

Emerging markets offer significant potential for investors as foreign and local investments allow them to gain massive returns. (Loth, 2014)

2.1 Key Characteristics of Emerging Markets  

Emerging markets do not have a specific definition exactly to describe them, however there are some key characteristics that can indicate a country is an emerging market. Characteristics of emerging markets can be described as market liberalization, industrialization, modernization, urbanization and privatization which have led to extremely quick economic development and transformation in emerging markets which cause a boom in consumer and business markets.  Some common features of emerging markets include demographic characteristics like, high population, higher share of working age groups within the population, higher share of young age groups within the population and rapid urbanization. There are some political characteristics that have included a financial crisis that has resulted in reforms with government presence in the economy often being higher. There are market characteristics including the role of relationships in business being significant and infrastructure weaknesses. (S. Tamer Cavusgil, 2002)  

An Emerging market characteristic can be described as a country which is growing rapidly and economies making a transition. For example, an emerging market is a country that has moved up from a developing country and has the potential to become a developed economy but hasn’t quite reached that stage yet. Colombia can therefore be described as an emerging market as their economy has a very strong economic growth rate, it usually sits around 4.5% per year and isn’t likely to change anytime soon. (DePersio, n.d.)

Another emerging market characteristic includes having more rapid continual economic growth than most of the developed countries worldwide. Other characteristics include many of the population still living in poverty as well as their businesses struggling to access global markets due to trade barriers etc. Both of these characteristics relate to Colombia as it one of the most successful emerging markets in terms of rapid continual growth over the years in comparison to its neighbours. As well as this, Colombia also has a significant amount of people under the poverty line which will be discussed further on, however this does mark it as an emerging market.

1. Why Colombia is Classed as an Emerging Market

Colombia can be classified as an emerging market as it meets a lot of the criteria that is required for them to be counted as an emerging market. Colombia’s GDP per capita sat at $7,992.80 in 2015 which is far below the threshold for developed countries but is still considerably higher than the rest of the developing countries.

The BRICS are a group of the most powerful emerging markets, similarly, Colombia is included in the CIVETS, alongside Indonesia, Vietnam, Egypt, Turkey and South Africa. As well as this Colombia is also said to be part of the neo-emerging market group PPICS which includes Peru, The Philippines, Indonesia, Colombia and Sri Lanka. These groups are meant to have significant potential for growth which means growth rates above 4%, they have diversified economies to avoid extreme reliance on commodities and can be resilient when it comes to potential shocks, these countries also should have strong financial systems.