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Bogota 2015 Blog: Colombia Adjusts to Oil Price Drop

A truck loaded with crude oil crosses a bridge over the Manacacias River in Colombia. (AP)

Thursday, June 4, 2015

While much of the world’s markets will be closely watching a meeting of OPEC nations on June 5 and how oil production will affect the world’s economy, Colombian President Juan Manuel Santos’ administration is working to make the country’s budget less dependent on oil by diversifying its export portfolio.

In the last year, oil has come down from a 52-week high of $97.27 per barrel of crude in June 2014 to a 52-week low of $47.46 per barrel in March of this year. Some 20 percent of the Colombian government’s revenues come from oil, and the Andean country is the fifth-largest producer of crude oil in the Western Hemisphere.

As a result, Colombian export revenues were down 34 percent from $9 billion to $6 billion in the first two months of 2015. The decrease is driven primarily by the crude oil industry, whose revenues fell by more than 50 percent for losses of $2.3 billion in January and February (the latest months for which data is available) compared to the same months in the prior year. The next largest losses in export revenues came from non-crude, unconventional oil sources ($475 million), gold ($112 million), and electricity ($107 million).

Although the price per barrel of crude oil has risen 23.5 percent from its nadir to $58.61 as of June 4, recovery won’t go hand in hand, and analysts expect a loss in value of the Colombian peso, which fell sharply last fall, to continue over the next couple years. On the plus side, economists say the depreciated peso should help boost nontraditional exports (i.e. anything beyond energy and mining)—the very sectors the government wants to develop and expand.

This spring, Trade, Industry, and Tourism Minister Cecilia Álvarez-Correa announced a plan to increase nontraditional exports to $30 billion by 2018, including tourism to $6 billion. On May 29 in the Atlantic port city of Barranquilla, she presented a plan to increase nontraditional exports out of Atlantic ports by 30 percent, singling out sectors such as food and drink, furniture, agriculture and livestock, and chemical products as those with the best possibility for growth. Her ministry’s March 2015 exports report also noted that the pharmaceuticals, flora, and industrial and auto parts sectors are on an upswing.

The day before, Santos announced $347 million in new credit to improve the competitiveness of Colombian businesses; funds will be used to support export companies, as well as the government’s efforts to diversify exports and develop new markets for export destinations. The president has also focused on developing the country’s infrastructure, pledging $20 billion over the next six years to ease transport of goods to the country’s ports.