Colombia A Bright Spot in a Blighted Neighborhood

There are few starker signs of the decline of the principles over which decades of Cold War were fought such as US/Western style free enterprise, free economy and democratic institutions than the demagogic populism that has engulfed and infected many countries in South America. Much of it has been fueled by oil and Venezuela’s Hugo Chavez who has felt secure enough not only to foment movements in many countries but to also rub America’s nose. On November 24 Chavez received in Caracas Iranian President Mahmoud Ahmadinejad and at a state reception with full military honors and pomp, he used three words to characterize Ahmadinejad, each with pause for applause: “Leader. Brother. Comrade.”

Venezuela’s trajectory, an interesting case study in the Barack Obama Administration’s non-reaction and perception of its role in the region, is contrasted by an amazing transformation taking place across the border, in Colombia, a country with a historical rivalry with Venezuela and with a large number of spats of varying degree of seriousness during the last few years.

To be certain there are still problems in Colombia, still suffering from the FARC insurgency. The country has a long way to go in providing security and a favorable climate for development everywhere. But the changes in visiting the country after seven years of government headed by Harvard-educated Alvaro Uribe are visible and in many ways stunning. The airport is clean, well organized and modernized; taxis are plentiful and run quite efficiently and honestly; hotels and restaurants are thriving and bustling. The people seem to be a lot happier than my earlier visits several years ago. The contrasts with Venezuela are palpable.

International observers have also noticed Colombia. In the latest Economic Freedom Index, a clear indication of attractiveness for foreign investors, Colombia ranks just behind outlier Chile among major South American countries, higher than Brazil and sharply-declining Argentina. Venezuela is a basket case, languishing at number 174 out of 179 ranked countries.

In Transparency International’s ranking of the Corrupt Practices Index, again after Chile’s European level ranking, Colombia shows a great improvement and ranks along with Brazil, at the level of EU member Greece and much higher than Argentina. Venezuela under the self-proclaimed successor to Simon Bolivar ranks 167 out of 180, barely above countries such as Somalia and Afghanistan.

Colombia’s meteoric rise has helped its petroleum industry, partially privatized and liberalized in 2004. That success is a textbook case of how a good investment environment, a welcoming society and government and proper industrial practices can reverse trends dramatically. While the size is different, perhaps only Russia’s Yukos and Sibneft stories before their forceful takeover by the Vladimir Putin regime can compare with the Colombian success.

After peaking in 1999 at 830 thousand barrels per day, oil production declined around 540 thousand and remained as such from 2004 to 2006. But in 2008 it increased to 600 thousand and is expected to reach 700 thousand this year a 30 percent increase over the low of 2006. For a long-time petroleum exporter the 1999 forecasts were bleak and they suggested that by now Colombia would have to become an importer of oil.

Ecopetrol, Colombia’s national oil company has also developed into a world class oil company, emphasizing skill development and its social and environmental responsibility. In talking with its foreign partners they give the company high marks in both professionalism and the absence of capriciousness so prevalent in joint ventures in many other countries dominated by a national oil company.

At the Colombian Petroleum Congress last December, Ecopetrol’s president Javier Gutierrez predicted that Colombia will continue to be an exporter at least through 2019 and he went on to say that Colombia can reach a production of one million barrels per day. This prediction is as brash as I have heard in years in this industry and it flies in the face of the US Energy Information Administration’s prediction that Colombia’s oil production would “decline to 590 thousand in 2009 and 550 thousand in 2010.” Apparently the EIA needs to update the Colombia country report on its web page.

In addition, Colombia is poised to become a sizeable natural gas producer and, while surprising to many, it already exports natural gas to, guess who?, Venezuela. Several geological structures, recently explored, look quite interesting and promising. There is even thought to convert a large number of vehicles to use compressed natural gas (CNG) thus freeing more oil for exports with an expected large jump in foreign income.

No doubt, Colombia as a country and its petroleum industry are a huge success story, one to emulate by many other countries.