Now a tricky question: which is the second most populated country in South America? A fairly educated guess could lead us to answer Argentina. It looks pretty big on the map, and is the kind of country that has made headlines several times in the past few years.

You may be surprised to find that the second most populated country in South America is actually Colombia, home to 48.7 million people, five million more than Argentina.

So, if you’re looking for a new market to expand your business to, Colombia is an option you should consider. With such a sizable population, there’s a lot of market potential for many businesses. Even just the city of Bogotá, with over 9 million inhabitants in its metropolitan area, is a larger market than any of the individual countries in Central America.

Who is your target market in Colombia?

So, let’s look at some Colombia statistics to help identify the best opportunities. In 1994, Colombia put in practice a household economic classification system comprised of  six “Estratos” (strata or layers). This was intended to charge differentiated rates for services such as water and electricity. Estratos 5 and 6 pay an extra quota that subsidizes Estratos 1 to 3, while Estrato 4 neither pays extra nor receives a subsidy.

This method of stratification produces a socio-economic classification that highly correlates with marketing relevant variables, such as purchasing power. Graphically, the Colombian population sorted by Estrato looks like this:

So 87% of the households, and consequently more than 90% of the population, belong to these three subsidized Estratos. The average monthly income per household in Estratos 1, 2 and 3 is around $300, $420 and $600 USD respectively, as of June 2015. The number rises to $700 USD for those in Estrato 4, $1,400 in Estrato 5 and $2,350 for Estrato 6.

The first insight you can draw from these statistics is that Colombia is a large market of low income consumers. This is a very normal picture for a Latin American country, with the exception of Chile.

Higher growth means higher future purchasing power

Now let’s take a look at how the purchasing power of these low income consumers has evolved in the previous 20 years. The following chart compares the evolution of minimum wage vs. inflation rate in Colombia:

Successive governments have committed to increase minimum wage by more than the inflation rate year after year. In parallel, they have controlled inflation, which hasn’t been a two-digit figure since it hit 16.7% back in 1998. This marks an important difference between Colombia and the rest of the countries in South America, many of whom have struggled with higher inflation.

Colombia’s gross domestic product (GDP) has also consistently grown over the past 20 years, with the sole exception of a -4.19% rate in 1999. By 2015, Colombia’s GDP was 3.17 times that of its GDP in 1995, while Brazil and Argentina’s GDPs were only 2.25 times what they were in 1995, demonstrating Colombia’s continued potential as a market.

It turns out that this large, lower income country has a recent history of steady growth in terms of purchasing power. In the future, it is likely that this trend will be sustained and even grow.

An open economy offers enticing opportunities

It is clear that Colombia has several structural limitations, which are common to countries under development. But there are some distinctive traits that make Colombia an interesting market to explore.

Its economic system is quite open. You can register a company by yourself in just one week.

Prices go up and down depending on demand, with little to no government intervention. Both customers and vendors are used to having plenty of options, often composed of a mixture of national and imported products and services.

Politics makes a big difference between Colombia and its neighboring countries. For several administrations the country has been ruled by presidents with important academic and political backgrounds, whose policies have promoted an open market. The same has been true for ministers and those who hold key positions such as the president of the General Bank. Overall, a close relationship with the U.S. has also been a constant, making trade with Colombia easier for American businesses.

Some of the limitations to Colombia’s economic development have come from armed guerrillas that have ravaged the country for more than 50 years. Potential business opportunities, like oil exploration, have been limited by the security issues associated with this conflict.

The good news is that the military power of irregular forces has been gradually reduced over last 10 years, and peace negotiations seem to be leading them to an end. Improvements in transportation infrastructure has recently started to develop as well, replacing old small roads and allowing goods to move more quickly throughout the country.

Big companies are already here, so make sure you don’t fall behind

Technically, Colombia is a country under construction. It has about the same population as Spain, spread across a geographical area that is twice as large.

Many international companies have successfully launched businesses here. In most of the high level malls, you can find many of the same stores as in New York or London.

You can also buy a Ferrari, if you have the money, in the recently opened authorized dealer of Bogotá’s Carrera 19. Or maybe you prefer to simply enjoy a Starbucks coffee in one of more than 10 locations opened since July 2014.

There is, by far, much more to discover in Colombia. If you are considering expanding your business to South America, make sure it’s at or near the top of your list. If it’s not, you could be missing out on one of the region’s best opportunities for decades to come.

The post Colombia – a market worth exploring appeared first on Trade Ready.

Barack Obama became the first U.S. president to visit Argentina in 20 years last week, another landmark trip on the heels of his recent visit to Cuba.

The trip marks a significant turning point in bilateral relations between the two countries. Under the previous 15 years of Kirchner rule – first President Nestor Kirchner from May 2003 to December 2007, and then his widow Cristina Fernandez de Kirchner from December 2007 to December 2015 – the bilateral relationship suffered.

U.S.-Argentine relationship breakdown

Following the Argentine fiscal crisis of 2001-02, the U.S. supported the decision of the International Monetary Fund to cut off assistance to Argentina until the Argentinian government agreed to an economic recovery plan.

Anti-American sentiment in Argentina increased in 2011 when the White House neglected to visit Argentina during Obama’s first trip to South America.

Tensions between the two states mounted in August 2014, when a U.S. court declared Argentina’s plan to address its debt default to be illegal.

The Argentine government under Fernandez de Kirchner had planned to ask investors to swap roughly $100 billion in defaulted bonds for new, locally issued debt.

However, the U.S. court instead labelled the plan as a “violation of the current orders” of the court.

Fernandez de Kirchner fired back, telling Argentinians the next month that “if anything happens to me…look North.”

Bilateral trade deteriorated between the two countries. In 2014, only 5.9% of Argentine exports were purchased by the U.S., down from 11% in 2005. American imports in Argentina also fell from 18% in 2001 to 12.7% in 2014, according to the Clarin newspaper in Argentina.

New Argentine leadership signs TIFA

Fernandez de Kirchner left office in December 2015 after completing maximum term limits, while opposition candidate Mauricio Macri, the staunchly pro-business outgoing mayor of Buenos Aires, won the presidency.

Macri moved quickly to resolve Argentina’s outstanding debt to creditors, reaching a US$4.65 billion settlement which would see the largest remaining holdout creditors get 75% of the outstanding amount on their full judgments.

The move also allowed Argentina, Latin America’s third-largest economy after Brazil and Mexico, to return to international capital markets for the first time in over a decade.

That set the stage for renewed talks with the U.S., and resulted in the signing of the bilateral Trade and Investment Framework Agreement (TIFA) on March 23. The agreement gives the two countries a framework under which to advance economic cooperation.

A renewed commitment to bilateral trade relationship

Included in the trade agreement is a commitment to work together to increase their cooperation in the World Trade Organization, improve market access on both sides, and strengthen Argentina’s capacity to combat organized crime.

The agreement also sets plans in motion for the U.S. to send six trade delegations to the Latin American country.

The first will take place in April and be led by U.S. Small Business Administrator Maria Contreras-Sweet, who will then sign a Memorandum of Understanding with Argentina’s Ministry of Production. The focus of this delegation will be on supporting and promoting women entrepreneurs.

The bilateral pact will also help the Argentine government establish a network of business assistance centers, and help connect existing Argentine businesses to international partners via the Small Business Network of the Americas.

The U.S. also expressed support for Macri’s economic reforms, and vowed to provide assistance. Reforms include devaluing the peso, slashing export taxes, and cutting the red tape previously required to import parts and equipment.

U.S. Trade Representative Michael Froman said:

The agreement provides a vehicle for strengthening U.S.-Argentina trade and investment relations at an important time.

“It reflects President Obama’s strong interest in improved bilateral relations with one of the most important economies in the western hemisphere, and to promoting increased economic opportunities between us.”

The post Obama secures trade deal with Argentina, bringing Latin American economy in from the cold appeared first on Trade Ready.