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Luis Hernesto Holguin, left, and his sister Resfa Holguin use outdoor escalators, newly installed at Comuna 13 shantytown as part of an urbanization plan to improve living conditions of residents, in Medellin, Colombia. The improvement in Colombia’s security situation is critical to its economic prospects. (Luis Benavides/AP)
Luis Hernesto Holguin, left, and his sister Resfa Holguin use outdoor escalators, newly installed at Comuna 13 shantytown as part of an urbanization plan to improve living conditions of residents, in Medellin, Colombia. The improvement in Colombia’s security situation is critical to its economic prospects. (Luis Benavides/AP)

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Colombia's turnaround: from bullets into drill bits Add to ...

Colombia’s murder rate last year, though still high, was the lowest since 1984. For investors, the Latin American economy enjoyed strong expansion and record foreign investment. With order returning, wages low and resources abundant, Colombia has near bullet-proof potential for rapid growth.

The improvement in Colombia’s security situation is critical to its economic prospects. The country suffered a civil war for decades and major cities were dominated by drug gangs. Now, although the murder rate is still five times the U.S. rate, the main guerrilla group is reduced to cattle-rustling and the nexus of the drug business has moved elsewhere.

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With energy and commodity prices high, foreign investors have rushed in. Foreign direct investment in 2011 was up 56 per cent at $14.8-billion (U.S.), 82 per cent of it in the oil and mining sectors. The stock market has been active also: In the second half of last year, Colombia’s $4.9-billion of initial public offerings was the highest volume in Latin America, ahead of Brazil.

Colombia’s long trauma has left it some catching up to do. Infrastructure investment lagged, so the potential for new projects to add real value is high. With GDP per capita still under $10,000 and the literacy rate over 90 per cent, there’s potential for decades of wage growth before labour cost pressures become onerous. Moreover, the new U.S.-Colombia Free Trade Agreement should enter in force this year, providing a further boost to growth.

Colombia currently ranks close to the top among Latin American business climates, according to the World Bank, providing further opportunities once security fears subside further. And macroeconomic policy is solid, with interest rates modestly higher than inflation and public debt under control at 45 per cent of GDP. The country’s 7.7-per-cent annualized growth rate in the third quarter last year may have been a spurt, but the prospects for solid growth are excellent.

A big driver of economic expansion is oil production, up 17.5 per cent year-on-year in November to 920,000 barrels a day. A global downturn could again make finance hard to come by and undermine oil prices. Short of that, though, the forces working in Colombia’s favour make it look like a rather surprising haven for growth.

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