Farc Peace Talks: What Will It Mean For Colombian Investors?

Courtesy of The Financial Times, a report on the potential impact that recent Farc peace talks may have on Colombia’s investment profile:

Start spreading the news: the Farc guerrillas and the Colombian government agreed to begin peace talks during a meeting in communist-led Cuba, local media reported on Monday.

The Andean country has attracted record foreign direct investment in recent years as the military has been forcing the guerrillas deeper into Colombia’s jungles. Would this mean foreign investors are expected to rush in (even) more?

Some local analysts remain cautious.

“One cannot really overestimate what could be conquered in these accords,” Alejandro Gaviria, an economist with the University of the Andes in Bogotá, told beyondbrics.

Back in 2000, investment roamed around $2.4bn. Twelve years later, thanks to the improved security situation, the number could reach as much as $17bn by the end this year – mostly into oil and mining, according to estimates from the country’s central bank.

“It would be really complicated to try and negotiate peace while the military is still shooting at the guerrillas. And if [the military] stops, [the guerillas] might still blast pipelines. If that continues, [the negotiations] could be perceived as ceding by foreign investors, and they won’t really like that,” added Gaviria.

News of the possible peace talk could not have come at a better time. After a period of relative calm, Colombia has seen an uptick in guerilla-led violence over the past two months. According to Colombia’s defense ministry, there has already been 67 attacks on the country’s oil industry in the first 6 months of the year, compared to 84 for the whole of last year. This is costing the Andean country about 20,000 barrels a day.

In this context, reports that some rebel groups are open to negotiation with the government is encouraging.

As Nicolás Rodríguez – known as Gabino – leader of the National Liberation Army (ELN), Colombia’s second-biggest rebel group after Farc, told Reuters in a taped interview.

We are open; it’s exactly our proposal, to seek room for open dialogue without conditions and start to discuss the nation’s biggest problems

But investors shouldn’t get too carried away with the potential “peace dividend” that would result from any talks.

Any truce will be a fragile one. As Rodríguez of the ELN said:

If there’s dialogue, there’ll be accords and new ways of exploiting the riches of the country, but if there’s no dialogue and on the contrary they insist on taking the side of capitalist demands, inevitably the fighting will continue.

Moreover, while the country is spending 2 per cent of its GDP, or $16bn, in waging the war,  don’t expect the money to be immediately diverted to be spent on education or health, even if peace accords go forward. Security will remain the government’s top priority.

And then, there’s the money.

Both the Farc and the ELN have denied this, but some experts claim both rebel groups are financed, in large part, by illegal activities such as drug-trafficking, informal gold mining, and arms smuggling.

According to Gaviria who has been studying these trends, these activities represent about 2.5 per cent of Colombia’s GDP, or about $20bn.

“One can negotiate peace, yes, but there will still be a lot of money around but others to come and jump into those businesses. Not all of the guerrilla factions might agree on signing a peace deal.”



This entry was posted on Thursday, August 30th, 2012 at 4:24 am and is filed under Colombia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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