Colombia looks to recast tarnished image

When a country known more for narcotics-funded guerilla warfare than its mineral potential gives a presentation at the world’s largest mining convention, there’s no shortage of intrigue.

And so it came as little surprise that when a contingency of representatives from the Colombian government came to speak to investors at the recent Prospectors and Developers Association of Canada (PDAC) convention in Toronto, the crowd spilled out into the hallway from the crammed presentation room.

The strong showing was, no doubt, encouraging to Colombia’s Minister of Mines, Hernan Martinez, who stressed that Colombia is putting its infamous past behind it and clearing the way for foreign investment to help it partake more robustly in the commodities boom.

“President Uribe has made his main task security,” Martinez said in an interview after the presentation. “And the army is now in control of one hundred per cent of the country.”

Martinez also said poverty is on the decline and economic growth is humming along. The data seem to support the claims. Homicides are down 37% since 2002; kidnappings, 72%; poverty has come down 10% in the last five years; and the latest estimates put growth at 7%.

But while poverty levels are dropping, nearly half the country remains impoverished, and strides made in security have caveats as well.

While Uribe has had success in disbanding paramilitary groups that fought violently with the Revolutionary Armed Forces of Colombia (FARC) — a narco-dollar fed rebel group — the FARC maintains a disturbing presence in some regions of the country.

Albert Berry, a professor of economics specializing in Colombia at the University of Toronto, says it’s a stretch for Martinez to assert the army holds 100% of the country.

“While it’s true that security in an average sense has improved, it’s still a strange definition of ‘hold,'” he says. “Is the government now in a position to keep foreign enterprise safe? That’s a tough one to answer. It is possible that it is even though the one-hundred-per-cent hold is overstated.”

Berry contends that Colombia’s long history of violence is tied to being one of the least centralized countries in the region. With no history of a strong military dictatorship, the country has lacked a strong military presence across its territory — a fact further amplified by a rugged topography that historically made travel between areas difficult and fostered a strong sense of regionalism.

But continued concerns over the FARC aren’t the only worries that Colombia has to address. There are also concerns over its growing deficit. Public spending exceeded government income by 0.9% in 2006 — double the government’s estimate of 0.4%, despite the country’s status as the largest recipient of U.S. aid in the region. The U.S. forks over US$700 million a year, largely to help fight the narcotics trade.

Despite such obstacles, Martinez says the administration is undeterred in its commitment to improve the lives of Colombians by driving economic growth through the promotion of open markets and the encouragement of foreign investment.

It’s a position that has made the Colombian government something 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.

“Colombia has always been the most conservative country in South America in an ideological sense. There’s never really been a strong leftist element,” Berry says.

“Colombia doesn’t have the wealth of oil that Venezuela has,” Martinez says, attempting to explain why even poorer Colombians support Uribe, while many of the country’s neighbours favour the socialist rhetoric of leaders such as Venezuela’s Hugo Chavez. “We need the markets, we need capital, that’s the difference. We don’t have those resources.”

And it isn’t just vast sums of oil that Colombia lacks. In terms of mining, Martinez readily admits his country hasn’t proven up the mineral wealth of some its neighbours, either.

“We just have a superficial knowledge of our mineral potential, but it’s currently lower than Chile and Peru. We were not competitive with them before, but now with the increase 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 still find that figure too high, he says the government is not in a position to go any lower.

While it is still early for most foreign miners in Colombia, foreign direct investment in the sector is showing signs of responding to the government’s message. For 2005, foreign direct investment in the sector totalled 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 benefit.

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.

TSX-listed companies with assets in Colombia include Greystar Resources (GSL-T, GYSLF-O), Coalcorp Mining (CCJ-T, CCJFF-O), Bandera Gold (BGL-V, BDRGF-O) and Sur American Gold (SUR-V, SURBF-O).