Colombian economy grows despite oil and mining sectors

The National Administrative Department of Statistics (DANE) in Colombia announced that the country’s economy grew by 4.6% in 2014, despite a 0.2% slowdown in the mining and hydrocarbon sectors, which previously had driven economic growth in Colombia. This shortfall was compensated for by growth in areas like the construction sector, which grew by 9.9% over the previous year.

Things likely will just get worse for the oil sector this year, with the Colombian Finance Ministry predicting a fall of more than 60% in the government’s oil-related revenue from $3.55 billion in 2014 to a projected $8.96 billion in 2015. Reuters added that the Colombian government will need to act fast to counteract this revenue shortfall. Colombia has already announced spending cuts for this year and imposed a new tax on businesses just last year. However, this is not enough, and according to Colombia economist Andrés Pardo, “The government will need to raise taxes, make a larger cut in spending, and surely the budget deficit will be even greater.”

To add to the bad news for the Colombian oil sector, Francisco Lloreda, president of the Colombian Petroleum Association (ACP), warned once again that the sector is running into a “perfect storm” of problems in 2015. Despite dwindling reserves and an urgent need for new proven oil reserves, oil exploration activity dropped by 96% during the first two months of 2015 as compared with the same period in 2014. Lloreda emphasized that now is the time for “the national government and congress to make fundamental decisions that will allow the industry to overcome the crisis, and if the industry does well, so will the country.”

The one piece of good news for the oil industry this week is that a new pumping station has more than doubled the capacity on Colombia state oil company Ecopetrol’s Transandino pipeline. This will allow more than 85,000 barrels of oil to be pumped each day from the Putumayo department to the Tumaco terminal on Colombia’s Pacific coast. One of the biggest obstacles to growth in the Colombian oil sector is the high cost of transporting oil due to the country’s poor oil infrastructure. This represents an important step in the right direction.