Wikipedia Deep Dive

Economy of Colombia

15 min read

The Paradox of Plenty

Colombia is a country that shouldn't make sense on paper. It has the fourth-largest economy in Latin America, sprawling modern industries, the fastest-growing information technology sector in the world, and a coastline dotted with shipyards that rival anything outside of Asia. Yet more than half of Colombian families don't know where their next meal is coming from.

This is the central tension of Colombia's economy: extraordinary growth alongside persistent, grinding inequality. The country has slashed poverty rates from a staggering sixty-five percent in 1990 to around twenty-seven percent by 2018. That's remarkable progress. But the wealth generated by that growth has pooled at the top with stubborn persistence. Colombia's Gini coefficient—a statistical measure where zero represents perfect equality and one represents a single person owning everything—hovers around 0.6. That makes it one of the most unequal societies not just in Latin America, but in the entire world.

Oil and Everything Else

If you want to understand Colombia's economy, you have to start with petroleum. Oil accounts for more than forty-five percent of everything the country exports. When global oil prices rise, Colombia's economy swells. When they crash, as they did in 2014 and again during the pandemic, the pain ripples through every sector.

But Colombia is more than just an oil exporter. The country has quietly built Latin America's second-largest domestic electronics industry, trailing only Mexico. Its manufacturing sector grows at over ten percent annually. Colombia boasts the longest fiber optic network anywhere in Latin America, enabling an information technology industry that's expanding faster than any other on the planet.

There's even a shipbuilding industry that would surprise most outsiders. Colombia ranks among the largest shipbuilding nations outside of Asia—a remarkable feat for a country better known internationally for coffee and, unfortunately, for the cocaine trade that once dominated headlines.

The Korean Wave, Colombian Style

Speaking of changing perceptions: since the early 2010s, the Colombian government has embarked on an ambitious cultural export strategy. The goal is nothing less than rebranding the entire country.

The model they're following is South Korea's phenomenally successful "Korean Wave"—or Hallyu—which transformed a war-torn nation into a global cultural powerhouse through K-pop, Korean dramas, films, and fashion. Colombia wants to do the same with its music, telenovelas, video games, cosmetics, and cuisine.

It's already working. Colombia now trails only Mexico in Latin American cultural exports. The country has become a regional leader in cosmetics and beauty products. Colombian reggaeton artists fill stadiums worldwide. The strategy reflects a sophisticated understanding of modern economics: in a world where attention is currency, exporting culture builds the soft power that opens doors for everything else.

The Conquistador Economy

To understand why Colombia struggles with inequality despite impressive growth, you have to go back five hundred years.

Spanish explorers first reached what is now Colombia in 1510, establishing Santa María Antigua del Darién in the lush Chocó region. For the next several decades, the territory remained largely unexplored. But between 1533 and 1600, expeditions pushed into the interior, driven by one thing above all: the legend of El Dorado, the mythical city of gold.

The conquistadors who followed—Pedro de Heredia, Gonzalo Jiménez de Quesada, Sebastián de Belalcázar, and the German explorer Nikolaus Federmann—weren't building an economy. They were extracting one.

This is crucial to understanding Colombia today. The colonial settlements that emerged served a single purpose: extraction. First it was precious metals, then other natural resources, then human beings through the slave trade. The Spanish built almost nothing in the way of institutions for economic development. The main exceptions were the fortified port of Cartagena—which developed military defenses primarily because pirates kept attacking it—and a rudimentary colonial administration in Bogotá under the Viceroyalty of New Granada.

One viceroy, José Solís Folch de Cardona, actually tried to build something lasting during his tenure from 1753 to 1761. He conducted a census, constructed roads, bridges, and aqueducts. But he was the exception. The colonial economy was designed to take, not to build.

This extractive DNA persists. Even today, Colombia's exports remain overwhelmingly commodity-based. The country still struggles to translate resource wealth into broadly shared prosperity.

Coffee, War, and the Modern Economy

Colombia's journey into modernity began with coffee and catastrophe.

The Thousand Days' War ravaged the country from 1899 to 1902. It was one of the bloodiest civil conflicts in Latin American history, leaving perhaps a hundred thousand dead in a nation of only four million. But in the war's aftermath came a coffee boom that would transform everything.

Coffee brought railroads. Railroads brought communications infrastructure. Both brought the first serious attempts at manufacturing. By the mid-twentieth century, Colombia had established itself as Latin America's third or fourth largest economy—a position it would maintain for most of the century.

The modern economic era truly began in 1990, when President César Gaviria Trujillo launched what Colombians call apertura económica—economic opening. His finance minister, Rudolf Hommes, designed a radical liberalization program: slash tariffs, deregulate finance, privatize state enterprises, let the currency float, and open nearly every sector to foreign investment.

The theory was elegant. Colombia would stop protecting agricultural products it couldn't grow competitively—corn, wheat, cotton, soybeans—and instead focus on what it did well, like fruits and flowers. Let comparative advantage work its magic.

The Hidden Cost of Cheap Food

The results were complicated.

On one hand, the first five years of liberalization produced growth rates between four and five percent annually. Food became cheaper for the average Colombian. The strategy seemed to be working.

On the other hand, the agricultural sector lost seven thousand square kilometers to imports over the following decade. That's an area larger than Delaware. Rural employment cratered. The communities that had grown the crops Colombia now imported were devastated.

This tension—between cheaper goods for consumers and destroyed livelihoods for producers—would echo through Colombian economic policy for the next three decades. It's a debate that plays out in every country that liberalizes trade, but in Colombia, where rural areas were already struggling and where armed groups found fertile recruiting ground among the desperate, the stakes were higher than most.

Crisis and Recovery

The 1990s reform era ended badly. By 1998, growth had slowed to just 0.6 percent. The following year brought Colombia's first recession since the Great Depression. The economy shrank by 4.5 percent. Unemployment spiked above twenty percent.

What went wrong? Several things at once. President Ernesto Samper's administration had expanded social welfare programs for poorer Colombians—noble goals that increased government spending, blew out the deficit, and required ever-higher interest rates to finance the resulting debt. The peso was overvalued. And Colombia's internal security situation—the ongoing conflicts with guerrilla groups and drug cartels—made foreign investors nervous.

When Andrés Pastrana Arango took office in August 1998, he inherited a crisis. His government responded with a series of controlled currency devaluations, eventually letting the peso float entirely. Colombia signed an agreement with the International Monetary Fund for a $2.7 billion credit guarantee, committing to budget discipline and structural reforms in exchange.

By early 2000, recovery had begun. The weaker peso made Colombian exports more competitive abroad. Oil prices rose. Growth returned, reaching 3.1 percent. Inflation, which had been a chronic problem, began its long decline toward stability.

The Uribe Years: Security and Growth

Álvaro Uribe Vélez won the presidency in 2002 on a platform of security and economic reform. His approach was straightforward: defeat the guerrillas, cut the deficit, and let business flourish.

The results were impressive by conventional economic measures. Gross Domestic Product growth in 2003 was among the highest in Latin America, exceeding four percent. That pace held for the next decade, averaging 4.8 percent annually from 2004 to 2014.

Uribe's "democratic security" strategy—a controversial militarized approach to the country's armed groups—did succeed in improving the security situation. Business confidence grew. Investment flowed in. Colombia became, for a time, a darling of emerging market investors.

But Uribe also examined harder structural problems that remained unsolved: the pension system needed reform, unemployment stayed stubbornly high, and the Gini coefficient—that measure of inequality—remained among the worst in South America. The economy was growing, but the fruits of that growth weren't reaching everyone.

Santos and the Peace Dividend

Juan Manuel Santos succeeded Uribe in 2010, initially as his chosen successor but eventually as something quite different. Santos would spend his eight years in office pursuing a peace agreement with the Revolutionary Armed Forces of Colombia, known by its Spanish acronym FARC—a guerrilla group that had been fighting the government since 1964.

The economic argument for peace was compelling. Economists estimated that ending the conflict could add up to two percentage points to annual Gross Domestic Product growth. War had prevented development in the most affected areas for, quite literally, centuries.

The Santos years delivered solid growth: 4 percent in 2010, peaking at 6.6 percent in 2011, then settling into the 4 to 5 percent range through 2014. Colombia regained its investment-grade credit rating in 2011, which was upgraded in 2013. Over Santos's eight years, 3.5 million jobs were created and 5.4 million people rose out of poverty.

Perhaps more importantly, monetary poverty—the share of people living below a defined income threshold—fell from 37.2 percent in 2010 to 26.9 percent by 2017. The most vulnerable households were finally seeing higher incomes.

But there was turbulence too. When global oil prices collapsed in 2014, Colombia felt the impact immediately. Inflation rose. The peso weakened. Santos's government managed to contain the instability—no major companies went bankrupt, the financial system remained stable—but it was a stark reminder of how dependent Colombia remained on commodity prices set in global markets it couldn't control.

The Missing Safety Net

Here's something that might surprise you about Colombia: there is essentially no welfare state.

The country has almost no unemployment insurance. The pension system barely functions—only about one million elderly Colombians receive pensions, while five million go without. Social assistance exists but is minimal. The result is that many people in their seventies and eighties are forced to keep working or to beg.

The informal economy—jobs that exist outside the tax system and labor regulations—accounts for an estimated forty-seven percent of all economic activity as of 2020. That's nearly half the economy operating in the shadows, with workers who have no access to benefits, protections, or the formal financial system.

This helps explain how a country can have strong headline growth numbers while more than half of families remain food insecure. The economy is growing, but much of that growth never enters the formal system where it could be taxed and redistributed. The people at the top capture the gains. Everyone else scrambles.

The Organisation for Economic Co-operation and Development—a club of mostly wealthy nations that Colombia joined in 2020—has identified Colombia as its most unequal member. In a group that includes the United States, Mexico, and Chile, that's a significant distinction.

Pandemic and Protest

The coronavirus pandemic hit Colombia hard.

In the second quarter of 2020, the economy contracted by sixteen percent. Household consumption—the engine of any modern economy—dropped by twenty percent as lockdowns, income uncertainty, and restricted mobility kept people home and fearful. Investment collapsed by more than thirty-one percent as businesses abandoned plans and hoarded cash.

Unemployment, which had improved significantly from the twenty percent crisis levels of 2000, spiked back to 19.9 percent. The labor market deterioration hit hardest in retail, hospitality, and informal employment—precisely the sectors where Colombia's poorest workers earned their living.

Government spending rose in response, with fiscal stimulus and social aid programs helping to stabilize the worst effects. But the damage to poverty reduction was severe. By 2021, thirty-nine percent of Colombians lived below the poverty line—a decade of progress erased in a single year.

The administration of President Iván Duque attempted to address the fiscal damage with a tax reform bill in early 2021. The response was explosive. Massive protests erupted across the country on April 28, continuing for four weeks until Duque withdrew the bill.

The protests reflected accumulated frustrations that went far beyond tax policy. They were about inequality, about a pandemic response that seemed to protect the wealthy while abandoning the poor, about a government that appeared out of touch with the daily struggles of ordinary Colombians.

The Gold Sale Controversy

One decision during the Duque years drew particular criticism. Between May and June of 2020, Colombia's central bank sold nearly two-thirds of the country's gold reserves—dropping from $710.5 million to $237.4 million.

The timing was unfortunate. While the sale occurred during a period of rising gold prices, it came before gold reached record highs. Critics argued the country had essentially sold low, abandoning a hedge against economic turmoil at precisely the moment such hedges matter most.

The Duque years also saw Colombia's debt balloon. Between 2019 and 2021, the debt balance increased by thirty-three billion dollars. The fiscal deficit reached 7.1 percent of Gross Domestic Product—a level that would have been unthinkable just a few years earlier.

The Social Elevator That Doesn't Move

Perhaps the most damning statistic about Colombia's economy isn't about growth or inflation or debt. It's about mobility.

According to research cited by the Colombian newspaper El Tiempo, social mobility in Colombia is among the slowest in the world. On average, it takes eleven generations for a family born into poverty to reach the middle class. Eleven generations—that's roughly three hundred years.

To put that in perspective: if your ancestors were poor when the Spanish colony was still extracting gold and slaves, probability suggests your descendants might finally reach middle-class status around the year 2320.

The middle class itself represents only about twenty-five percent of the population. Meanwhile, more than 560,000 children under five are chronically malnourished—their bodies and brains permanently affected by lack of adequate food during the critical developmental years.

This is the paradox that defines Colombia. The economy grows. Foreign investment flows in. Tech industries flourish. Cultural exports spread Colombian music and fashion around the world. But the wealth concentrates at the top, and the mechanisms that might spread prosperity more broadly—functional pension systems, unemployment insurance, quality public education, progressive taxation—remain weak or absent.

What Colombia Gets Right

It would be a mistake to focus only on Colombia's problems. The country has genuine economic strengths that distinguish it in the region.

Colombian economic policy has been remarkably consistent for three decades now. Unlike neighbors who have lurched between populism and austerity, Colombia has maintained what economists call "sound economic policies"—relatively stable currencies, controlled deficits (pandemic excepted), and openness to trade and investment. This consistency has helped the country weather external shocks that might have devastated less disciplined economies.

The aggressive pursuit of free trade agreements has opened markets for Colombian exports. International reserves grew from $8.35 billion in 2000 to $58.57 billion by 2021—a massive cushion against currency crises. After losing its investment-grade credit rating during the 1999 crisis, Colombia successfully climbed back to BBB status by 2013.

The infrastructure improvements during and after the Santos years addressed decades of underinvestment. New roads, bridges, and communications networks began connecting parts of the country that had been isolated—sometimes deliberately, by armed groups who preferred operating in ungoverned territory.

And there's the peace dividend still being realized from the 2016 FARC agreement. While implementation has been uneven and violence hasn't disappeared, ending the major armed conflict has opened regions to investment and development that were simply impossible before. The economic effects may take decades to fully materialize, but the foundation has been laid.

The Road Ahead

Colombia faces a familiar challenge for middle-income countries: how to move from growth driven by commodities and cheap labor to growth driven by innovation and productivity. The tech sector offers promise. The cultural export strategy suggests creative thinking. But structural barriers remain formidable.

The informal economy presents both problem and opportunity. Bringing forty-seven percent of economic activity into the formal sector would expand the tax base, provide workers with protections, and enable the kind of welfare state that could address inequality. But formalization requires that the formal sector offer something better than what informality provides—and for many Colombians, it currently doesn't.

The pension system crisis looms larger every year. As the population ages and fewer workers support more retirees, the gap between those with pensions and those without will become increasingly untenable. Reform is politically difficult but economically unavoidable.

And inequality—the thread that runs through every aspect of Colombian economic life—shows no signs of resolving itself through growth alone. The evidence of the past three decades is clear: Colombia can grow at four or five percent annually, create millions of jobs, lift millions out of poverty, and still remain one of the most unequal societies on earth.

The conquistadors who arrived five centuries ago built an extractive economy designed to funnel wealth upward and outward. Their institutions are long gone, but the pattern persists. Breaking it will require more than good macroeconomic policy. It will require a fundamental reimagining of who the Colombian economy is for.