Foreign Direct Investment in Colombia: A Critical View

Colombia has recently become very attractive to multinational corporations, particularly in the mining and oil sectors. Over the last three years foreign direct investment in these Colombian sectors has more than doubled. With this rise in investments land conflicts are only expected to increase, violating ever more human, cultural, labor and environmental rights.

Nazih Richani 1/23/2012

 

In recent years Colombia has become very attractive to multinational corporations, (MCs) particularly those in the mining and oil sectors. Last year alone foreign direct investments (FDI) amounted to about $13 billion, up from roughly 5 billion in 2008. Most of these FDI were in oil and coal and gold mining. 707Pacific Rubiales, Colombia's largest private oil producer (dinero.com)Vast lands, including natural reserves, were given as concessions to foreign companies exacerbating chronic land conflicts in various departments. With this rise in investments those conflicts are only expected to increase, violating ever more human, cultural, labor and environmental rights, particularly for indigenous tribes and Afro descendent groups.

 

There are several severe problems with these FDI. The following are only a few:

  • In attempt to attract these investments, the Colombian state’s regulations are seriously lax.
  • The state is awarding contracts that favor these companies at the expense of the Colombian people and the future of the country. Colombia charges MCs the lowest tax rates in Latin America. The MCs pay the Colombian government only 4% of the value of its extractions of gold and 9% of the coal. In other countries these rates top 20%. The same applies to the oil sector, where most of the costs are transferred to the state while oil companies increase prices and roll in the profits.
  • Under the government of Álvaro Uribe’s (2002-2010), the state offered MCs contract security in which the terms of agreements were difficult to re-negotiate and the tax rates were fixed for the duration of the contract. Most importantly the risks of investments and transaction costs are mainly shouldered by the state through partnership contracts such as the ones between the largely state-owned oil company ECOPETROL and the private Canada-based Pacific Rubiales.

 

Why do decision-makers concede such concessions without weighing the costs and benefits? The answer is not that simple. For one, because MCs exercise more leverage than a state beleaguered by a war, making the country more dependent that ever to mortgage its future to these companies. Second, and perhaps as important, is that the Colombian policy makers are prisoners to an economic policy that will only generate an enclave development, because they lack an overall development policy that factors in two core elements: people’s rights and the environment.

 


 

For more from Nazih Richani's blog, Colombian Cuadernos, visit nacla.org/blog/cuadernos-colombianos, or see the NACLA Report July/August 2009, "Coercion Incorporated: Paramilitary Colombia."

 

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