As Colombia looks forward to a time of peace, what can the country’s economic and industrial sectors expect as the guerrilla group the FARC and Juan Manuel Santos’ government ink an agreement?
Certainly, Colombia has been hit hard by the recent devaluation of the peso against the U.S. dollar – good news for foreign investors perhaps, especially those interested in the energy sector.
It is Colombia’s oil and gas sector which has been worst hit in recent months, as job cuts galore, slowing production rates and an unstable export market have hit this sector of the country’s economy hard.
So what can we expect to see next? Latin Correspondent spoke to Paulo Tovar from Bogotá-based think tank Fundación ideas para la Paz as to what Colombia’ business market could expect to see when peace is officially declared next March.
Latin Correspondent: In a “peace time” Colombia is it realistic to expect that the dollar will keep rising against the peso?
Paulo Tovar: It is hard to predict whether the end of the peace conflict may have an impact on the relationship dollar-peso. Much of the recent rise of the dollar was tied with processes internal to the U.S. economy, and the current state of the world economy at large. What is somewhat clearer is that a post-conflict scenario may stimulate foreign direct investment to a new extent, and this, in turn, may have an impact on the current value of the peso and its relationship with the dollar.
Latin Correspondent: Is now a good time for investors to look into Colombia’s oil and gas market?
Paulo Tovar: It looks as though with the end of the peace talks and the beginning of a hopefully less violent state foreign investors may have new incentives to expand their influence inside Colombia’s natural resources market, particularly the oil sector. There are a number of territories yet to be fully explored by oil companies, especially in the Guaviare and Guainía regions, where mineral resources abound.
Of course, much will depend on the type of oil that will be discovered. Should it be similar to the kind extracted close to Venezuela, which tends to be “heavy” and thus leads to high extraction costs, foreign investors will have to think carefully about the costs that the drilling will entail.
A key point to be raised at this stage is that the FARC have not, historically, proved to be particularly interested in reaping the benefits of the oil economy by implanting and developing their own industries in the territories they controlled. This could be, at least in part, explained as a byproduct of their ideological aversion to the capitalist, large-scale economies, and their embracing of other, small-scale subsistence-oriented economic models (mostly from within the farming sector). There are, in sum, huge benefits to be reaped by entrepreneurs, provided the undiscovered resources will not require high costs to be extracted and exploited and the FARC shall not jeopardise the new businesses.
Latin Correspondent: If the FARC enter into Colombian politics will the oil and gas sector be a priority for their mandate?
Paulo Tovar: Issues related to the oil and gas sector will no doubt play a huge role in the FARC’s political strategies, once the peace process will be over and they will be able to form a political body of their own. It is likely that the guerrilla will not abandon the territories wherein they have historically enjoyed a strong presence, and developed their own families and personal ties. These happen to be some of the most oil-rich areas of the country, and have for the most part been scarcely exploited by investors.
Where companies have settled, the FARC usually asked entrepreneurs for money in exchange for the promise that their business will go on undistributed (incidentally, it is not clear whether the post-conflict stage will herald the end of such practices). What is crucial, the legal framework which deals with Colombia’s resources has generated some tensions between the country’s capital and the country’s regions. The norms that affect the extraction and exploitation of raw materials are discussed and implemented by Colombia’s Capital, with often little or no attention paid to the needs of local populations, which have objected in many cases the penetration of oil companies across their territories. The FARC may capitalize on this fracture and ensure the antagonism of local polities towards the oil and gas sector may be turned into a mechanism that will allow them to retain their influence over the territories they have historically controlled.
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