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Colombia Defence and Security Report Q1 2011
Business Monitor International, Dec 2010, Pages: 87
The Colombia Defence and Security Report provides industry professionals and strategists, corporate analysts, defence and security associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Colombia's defence and security industry.
Colombia continues to struggle with its two major guerrilla groups, the Fuerzas Armadas Revolucionarias de Colombia (FARC) and the Ejército de Liberación Nacional (ELN). FARC recently asked to engage in peace talks with the Colombian government. However, the rebel group's refusal to lay down arms is likely to will hold back tangible progress towards a near-term resolution. Nevertheless, this second call for peace talks from the FARC in less than two months highlights the success of the tough security stance that the state has assumed over the last decade. In turn, this should allow greater government and privatesector investment in regions of the country that, have been largely controlled by guerrilla forces. Relations with Venezuela remain poor, particularly following Colombia’s accusation that Venezuela is harbouring five leftist group leaders. In addition, Colombia’s military co-operation agreement with the US is seen by Venezuelan President Hugo Chavez as a regional security threat.
Colombia’s defence spending continues to increase and it remains second only to Brazil in Latin America. Indeed, compared to the size of its economy, Colombia spends the most on defence in the region. In 2009, defence spending was more than US$10bn, markedly up from US$2.6bn in 2001. Spending is funded in part by a wealth tax introduced by former president Uribe. This is expected to provide US$3.7bn for the military and will be used to purchase such equipment as aircraft, armoured vehicles and small arms to upgrade and modernise the armed forces. These will be sourced from US, French, German, Israeli and Russian suppliers.
President Juan Manuel Santos' administration is taking advantage of cheap finance. The country appears to be on track to hit our forecast for a fiscal deficit of 4.0% in 2010, in line with spending plans outlined in the 2011 budget. It seems likely that a gradual improvement of Colombian current account dynamics over the coming years, driven primarily by healthier trade dynamics, which should ease pressure on the capital and financial account. The country's investment outlook is becoming brighter, particularly for the energy and infrastructure sectors. Strong fixed capital investment will help drive economic growth, while improvement in Colombia's current account deficit, is likely to continue.
President Santos's commitment to running a balanced budget by 2014; Colombia's major plans for onshore oil production expansion, leading to expected strong oil-generated revenue flows; and recent support from US Secretary of State Hillary Clinton for a free trade agreement (FTA) are all reasons to remain positive about the Columbian economy. Nevertheless, it is unlikely that consumers will start spending heavily without access to easy credit, and we see little chance for credit growth to return to precrisis levels in the near term. The fiscal accounts remain under pressure, especially from healthcare and the need to spend on infrastructure.
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