Colombia’s foreign direct investment (FDI) suffered a significant blow in the first half of 2024, plummeting by 28% to USD 6.7 billion, according to the latest data from the Central Bank (Banco de la República). This sharp decline, representing 3% of the country’s semi-annual GDP, stands in stark contrast to the same period last year when Colombia attracted USD 9.4 billion in foreign capital.

This downturn in FDI is the worst on record since 2021 when USD 4.4 billion entered the financial system during the peak of the COVID-19 pandemic. The decline is largely attributed to a marked decrease in investments within the mining and oil sectors. Although these industries have traditionally been major attractors of foreign capital, they now account for only 34% of total FDI, down significantly from previous years. The financial and business services sector, which has grown in importance, now represents 21% of the total, while manufacturing comprises 17%. Other sectors include commerce and hotels at 12%, electricity at 9%, and a variety of smaller industries making up the remaining 7%.

The Central Bank’s report reveals that of the USD 6.7 billion in FDI received, USD 4.2 billion were equity contributions, while USD 2.5 billion were reinvested earnings. If these most recent numbers are discouraging, it’s worth noting that direct foreign investment fell by 46.5% over the past twelve months.

As Colombia’s investment potential becomes less attractive on the global market, the financial services sector has seen notable gains. In the first half of 2024, the country received USD 2 billion in foreign portfolio investments, equivalent to 1% of the GDP for the semester. This inflow was driven by USD 1.3 billion in long-term debt securities issued in international markets and USD 757 million in net purchases of financial instruments by non-resident investors in the local market.

During this period, Colombia also witnessed large capital outflows, estimated at USD 4.5 billion for the first half of 2024. This figure represents a slight decrease of USD 389 million compared to the same period in 2023. The outflows were primarily driven by USD 2.1 billion in direct investments abroad and USD 2.3 billion in the establishment of financial assets overseas.

As Colombia grapples with shifts in both inbound and outbound capital flows, it faces an increasingly challenging economic landscape. This is compounded by a deteriorating security situation, highlighted by recent attacks on oil and gas infrastructure by the National Liberation Army (ELN) guerrilla group, the looming threat of energy rationing affecting 10 million households along the coast, and a freight transporters’ strike that could disrupt supply chains and jeopardize food security. Banco de la República’s report underscores the growing difficulties facing one of Latin America’s previously robust markets, which is increasingly overlooked by investors in favor of economies offering greater political stability and more secure economic prospects.

Source: THE CITY PAPER BOGOTA