Colombia holds fast to the right

Colombia’s Minister of Mines, Hernan Martinez, assured investors at the Prospectors and Developers Association of Canada (PDAC) convention in Toronto that his country has put its worst days behind it.

Onlookers crammed into a small presentation room eager to hear how Colombian President Alvaro Uribes policies continue to re-shape the South American country.

While the most pressing issue continues to be security, Martinez assured the audience that drug-fuelled violence was coming under control, just as poverty is on the decline and economic growth is humming along.

The data backs up the claims. Homicides are down 37% since 2002, kidnappings are down 72%, poverty has come down 10% in the last five years and the latest estimates put growth at 7%.

But despite such positives there are still concerns over the countrys growing deficit. Public spending exceeded government income by 0.9% — double the governments estimate of 0.4%, and that is despite the country being the largest recipient of U.S. aid in the region. Uncle Sam forks over US$700 million a year, largely to help fight the narcotics trade.

And while poverty levels are lowering, nearly half the country still falls into the category. Strides made in security have caveats as well. While Uribe has had success disbanding the paramilitary groups that have fought violently with the FARC — a narco-dollar fed rebel group — the FARC maintains a disturbing presence in some regions of the country.

But despite such obstacles Martinez says the administration is undeterred in its commitment to promoting open markets and encouraging foreign investment as a means improving the lot of most Colombians.

That very position has made Martinez and the administration he is a part of, somewhat of an anomaly in the region. Of the member and associate members of Mercosur – a group of South American countries bound by a trade agreement — only Colombia is governed by a party on the political right.

Explaining the different fundamentals that lead Colombians, even poorer ones, to support Uribe, while many of its neighbours favour the socialist rhetoric of leaders such as Venezuelas Hugo Chavez, Martinez says:

Colombia doesnt have the wealth of oil that Venezuela hasWe need the markets, we need capital, thats the difference. We dont have those resources.

And it isnt just the vast sums of oil that Colombia lacks. In terms of mining, Martinez readily admits his country doesnt have the mineral wealth of some its neighbours either.

We just have a superficial knowledge of our mineral potential, but its lower than Chile and Peru. We were not competitive with them before, but now with the increases in metal prices our deposits have become more attractive, he says.

Traditionally Colombia has established itself as a supplier of thermal coal and ferro-nickel. But the mining of precious metals, base metals and gems has remained on the periphery of the country’s economy.

To beef up activity in those areas, the government is reducing the corporate tax rate to 33% from 38.5%. And while Martinez concedes that some foreign investors may find that number still too high, he says the government is not in a position to go any lower.

While it is still early days for mining in Colombia, foreign direct investment in the sector is showing signs of being attentive to the governments message. For 2005 foriegn direct investment in the sector totaled US$2.1 billion — up from just US$52 million in 1996.

The government is doing its best to ensure those new dollars are spread throughout the system. Specifically, it wants communities around mining projects to see benefits.

Currently the central government takes 20% of royalties paid by mining companies, while the local municipality and province split the rest with 70% and 30% shares respectively.

Also, environmental plans now include consultations with communities with education programs and land recovery projects being ramped up.