Most people think of Colombia as a Wild West of cocaine, paramilitary violence, corruption, and more violence.
They have vague memories of watching Pablo Escobar being gunned down in a police shoot out in 1993. They remember an episode of Dateline in which proselytizing hostages begged for release, and a hot Kathleen Turner fought bad guys and crocodiles.
But things have changed dramatically.
In fact, over the past ten years, the Colombian forces of law and order have made significant progress over the leftist rebels like FARC, and many of the right-wing paramilitary groups have been dismantled.
1. Uribe and Santos Win the War
Since President Uribe was elected with 63% of the vote in 2002, the country has seen dramatic improvements in both security and the economy. Uribe increased military funding, stopped negotiating with the rebels, and boosted foreign investment.
The guerrillas have lost control of vast amounts of territory. The homicide rate has been cut in half. Kidnappings have fallen from 3,700 in the year 2000 to just 172 in 2009.
The total number of insurgents continues to fall. Attacks on high-voltage power pylons are 30 a year compared to 500 a year the 90s. Attacks on pipelines have dropped to a couple of dozen per year from 270 in 2001.
2. Peaceful Transition of Government
Uribe stepped down after serving his two-term limit. He was replaced in June 2010 by President Juan Manuel Santos, the former Defense Minister and Head of the International Coffee Organization. Santos has a Master’s degree from the London School of Economics.
In September 2010, government soldiers killed the FARC commander Mono Jojoy. Presided Santos called him “the impersonation of terror and a symbol of violence”.
This turnaround has been remarkable— and the stock market reflects it…
Colombian Blue Chip Bancolombia SA (NYSE) is up about 3000% from 1990 and continues to climb:
And that’s just the backstory.
3. Economy Ramping Up
What’s going on now is a full-fledged oil boom.
Colombian GDP grew at 4.4% last year, according to the CIA Factbook. Unemployment is at 11%. Inflation is running around 3%. The stock market is valued at $217.3 billion as of December.
Colombia’s peso hit a five-month high on speculation dollar inflows will increase due to repatriation and a free trade agreement with the United States.
The peso has the biggest gain of the 26 most-traded emerging market currencies tracked by Bloomberg.
4. Oil Production Growth
Colombia’s average oil production last month reached 884,000 barrels a day, a gain of 100,000 since August. Again, this 12% jump represents the biggest increase in that time of any country.
Colombia is now the tenth largest oil exporter to the U.S. and shipped an average of 365,000 barrels a day to the Gulf state refineries in 2010 — up from 276,000 barrels in 2009.
This increase in production is a direct result of winning the war against the rebels because most of the oil sat in the FARC-held Llanos region, which borders on Venezuela. Foreign wildcatters are swarming the region. FDI is up 25% to $4 billion from 2009.
In fact, oil production has grown so fast that it is overwhelming the transportation grid. Plans are being proposed to build up ports and pipelines. Ecopetrol is talking about creating a $7 billion pipeline to the Pacific, which will increase Colombia’s capacity to 1.4 million bpd by 2014.
No one invests $7 billion if they are worried about insurgents…
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5. Free Trade Agreement
Free trade agreements are hugely beneficial for the smaller countries that sign them with the U.S.
For example, the Peru agreement was signed in 2006, and between 2007 and 2008, U.S. exports increased 51%. Recently, Peruvian President Alan Garcia touted the increase in jobs, the economy, and Peru’s “extraordinary economic success story” on the free trade agreement.
Now it’s Colombia’s turn…
President Obama is saying the Colombian free trade agreement will be signed. Farm associations and companies like Caterpillar (NYSE: CAT) have come out in favor of the deal, which will cut 80% of tariffs on imports to the U.S. and will cut U.S. exports by 50%.
It is expected that U.S. exports will climb $1 billion.
For the past ten years, Colombia has taken free market measures to increase its economy and develop its natural resources. They allow 100 percent foreign stakes in oil ventures and have a lower royalty rate than most countries. This FTA will lower the barriers even further.
Like Picking 10-Baggers off a Tree
I make my living finding small exploration companies that discover hidden pools of oil in dark places. Big finds translate into massive share price jumps.
I am developing a short list of Colombian companies as I write this.
Last year, I discovered one such company that has proven reserves of 250 million barrels with a low cost of extraction. This is a Mongolian company.
The President of Mongolia has recently been quoted as saying Mongolia has 8 billion barrels of oil. The company I’ve recommended to my readers could have the license to about a billion of those barrels.
It is already up 957% since I recommended last year, and it still trades for around $300 million — crazy cheap! But it won’t be for long…
You can read more about this time-sensitive oil opportunity — and your chance to cash in — right here.
Christian DeHaemer
Editor, Energy & Capital
