What Colombia Needs to Grow Its Economy

| About: Global X (GXG)

Latin America is dotted with some of the world’s fastest growing economies, though the Global X Colombia ETF (GXG) has stumbled. The country may have to develop technologically to remain competitive in today’s world.

Colombia’s economy expanded on average 5.5% a year between 2002 and 2007, but weaker export demand and the financial downturn diminished growth to 2.6% in 2008 and negative growth in 2009, writes Alejandro Ruelas-Gossi for Harvard Business Review.

Alejandro suggests that Colombia should follow policies that increase revenues instead of reducing costs. The government should follow strategies that would enhance value in the economy. The only way to accomplish this feat would be to invest more in technological development.

Colombia does have an enormous opportunity here and there’s still much to like:

  • The Colombian Central Bank held intrabank rates at a record low 3% as inflation is expected to fall under 3% for 2011, report Helen Murphy and John Quigley for BusinessWeek. The Central Bank will likely keep rates unchanged until the second half of 2011 or if the GDP grows 5.1%.
  • With companies recovering and high consumer confidence, domestic demand is increasing, which will help the economy expand around 4.5% for this year and the next.
  • President Juan Manuel Santos believes that the economy will expand 6% annually within two years.
  • Santos also aims to create 2.4 million new jobs in order to bring unemployment rates down to the single digits from 11.1% in October.

Colombia has come a long way in recent years, and Global X/InterBolsa FTSE Colombia 20 Index (NYSEArca: GXG) might be an ideal opportunity to get in on the country at a bargain rate as it grows. The fund has struggled lately – it’s down 5.5% in the last month – but it’s still above the long-term trend line.

As an emerging market, there are still a number of risks lurking, so have an exit strategy before you get in.

Max Chen contributed to this article.

Disclosure: None