Note: this piece was originally published by Colombia Risk Analysis, a political risk consultancy that provides analysis, context, and projections on the political, economic, and social environment that affects Colombia and the region. The consultants and founding partners of Colombia Risk Analysis have extensive experience in consulting for clients of all types, including Forbes 500 corporations, NGOs, and governments.
2020 was a year of enormous challenges for Colombia and our organization. On a personal level, social distancing, virtual work, and the changes in daily routines that became the “new normal” were anything but normal.
The year began with great expectations concerning the Colombian government’s approach to the protests and movement that began in November 2019 and the proposed “National Conversation.” Additionally, the cabinet shuffle that took place from mid-January to February with the intention of improving President Duque’s governance presented challenges of its own. It seemed that the legislative sessions, which would have started in March, would be where Colombia could finally debate structural issues, such as pension and labor reform, to close gaps in competitiveness and address some of the issues left by previous half-baked reforms. The government was counting on the tax reform passed in 2019 to become the central argument for many international investors to take advantage of the opportunities the country offered and contribute to the ambitious 4.6 percent GDP growth goals it had set.
However, COVID-19 change those plans and forced the entire country to change its political, economic, and social agenda. We analyze these changes in our report on Duque’s final two years. 2020 ended up being a poor year in terms of economic growth. Colombia officially entered a recession in the third quarter, after two consecutive periods of contraction (-15.7 percent in the second quarter and -9.0 percent in the third quarter). Although we managed to see the beginning of the end of the pandemic by the end of the year—with the first announcements of vaccine success and administration in the United States and the United Kingdom—it is expected to take another 3 to 6 months for the vaccine to arrive in Colombia and for the country to secure vaccinations for the majority of the population, despite the government’s plans that say otherwise.
That said, 2021 will bring its own set of challenges to Colombia and will not be an easy year. Colombia Risk Analysis believes the six main challenges the country will face in 2021 will be the following:
- Responding to COVID-19: The government must work on ensuring there are sufficient vaccine doses to immunize the majority of the population and be prepared to take on the logistical and value chain challenges this will entail. At the same time, the tensions between the national government and local governments will be more evident after a year of restrictions and quarantines. The government should also continue its economic assistance program to continue pushing aggregate demand that has been affected by unemployment.
- Managing economic and fiscal policy: Rating agencies have been clear: the government must improve its revenue position to maintain investment grade. This will involve difficult political decisions as the debate will focus on the sale of state assets, tax reform, and pension reform to overcome the structural challenges of the national budget. All of this will depend on the political agenda and how the government deals with the legislature in the first semester of 2021. Delaying reforms will mean that significant economic adjustments will come in the run up to the 2022 elections and would likely give an advantage to incumbent opposition.
- Starting the 2022 electoral campaign: Although the political campaigns already began almost six months ago, the official start of the pre-electoral period will take place in 2021. The approval of the president will play a determining role in the viability of coalition candidates to succeed President Duque and maintain their dominant position in Congress. However, the poor economic performance, the response to COVID-19, and the security situation will harm the interests of incumbents and fuel political campaigns by opponents. The role of the business sector will also shape political opinion regarding the country’s economic model.
- Mitigating climate change risks: 2020 was marked by natural disasters that have had an impact on the functioning of the local economy in places such as San Andrés and Providencia, Chocó, and Bolívar. This will put environmentalism at the center of the political agenda— especially because it is a priority for the incoming U.S. administration. Central topics of discussion will include deforestation, the energy transition, the Paris Agreement, and the Escazú Agreement. The climate crisis that we experienced in 2020 is likely to worsen in 2021 unless changes happen soon.
- Navigating foreign policy challenges: A new presidential administration in the U.S. will mean changes in substance and form in the U.S.-Colombian bilateral relationship. Although the main issues will continue to be drug trafficking, trade, and strategy towards Venezuela, it is clear that a Biden administration will make changes in the way the U.S. addresses these issues. The government of Colombia and the Venezuelan opposition have few diplomatic and economic options to influence regime change in Venezuela, as Maduro consolidated his grip over the country after the National Assembly elections, and any action they take will depend on collaboration with the United States, the Lima Group, and the European Union. Finally, Colombia and Latin America will continue to be a centerpiece of the geopolitical strategies of both the U.S. and China.
- The security and implementation challenges of the Peace Agreement: There is no doubt that the end of the war with the FARC sparked the interest of many international investors in Colombia. In the minds of many, Colombia left behind decades of violence, which opened numerous opportunities in different sectors including infrastructure, mining, oil and gas, technology, agriculture, tourism, and services—a large part of them located in the municipalities most affected by the conflict. However, the deterioration of the security situation in rural areas and the expansion of territorial control by various organized armed groups has led to an increase in the number of homicides of former combatants and social leaders (more than 200 and 900 murders respectively) since the signing of the Peace Agreement. The lack of state guarantees regarding security for ex-combatants and inhabitants of the PDET municipalities puts the peace process in jeopardy and deteriorates investor confidence.
It is not difficult to foreshadow that 2021 will be a tough year for Colombia. While all the major economies in Latin America were badly hit by COVID-19, the subsequent recovery will be a chance for different countries to distinguish themselves and it may prove difficult for Colombia to do so as it continues to grapple with issues such as the implementation of the Peace Agreement with the FARC, the gradual deterioration of the security situation in urban and rural areas, and drug trafficking.