Building Billion-Dollar Businesses in Latin America



Wenyi Cai goes to plop down in a chair in a cramped, bare-bones office with white walls, sticky notes and black scuff marks. I pin her at about 29, but to be polite, I pass over the question. Plus, she’s just jumped off a call with an investor that she admits was stressful. “Do you want this one?” I ask, hastily pushing the more comfy chair toward her. “No, it’s fine, whatever,” she shoots back. “Let’s do this. So, I’ve got like … what? Fifteen minutes.”

Cai, who is actually 30, is in a rush because she and her four other partners are out to build businesses through venture capital, but not Silicon Valley Cool. Her Colombia firm, Polymath Ventures, is all at the unglamorous end of the business, searching for ways to build scalable companies and services in underserved markets for Latin America’s emerging middle class. Continue reading on OZY…

photo credit: Juan Felipe Rubio

The Sweet Wet Heavens Come Falling Down



I wanted to go to the Tasajera fish market on Saturday, but we were forced to cancel our trip. Just before we were about to go, it started to rain hard, and it hadn’t rained the whole year on Colombia’s Caribbean coast. It started soft, and then the drops got bigger and came down faster, and soon it came down in monsoon-like proportions. Benedicto, my guide, told me, “we’re not going today, amigo – with the rain, it’ll be chaos… it’s too risky.”

No one in Tasajera knew it was going to rain that day. It hadn’t rained on Colombia’s Caribbean coast for the entire year, and a drought was plaguing the land. So when the rains came, the people celebrated. But the fishmongers still took the risk and went out for a night on Big Swamp. A personal essay about facing the rains, fishing in Tasajera, and the chaos of water. Continue reading on Beacon…

Latin America’s Newest Experiment in Tearing Down Trade Barriers

peru.night.ozy article.pacific alliance


Colombian industrial designer Carlos Maya grabs his luggage, steps off the plane and, like other passengers arriving in Mexico City, heads straight for the immigration line. But Maya’s Colombian passport only gets a quick review, a stamp, and that’s it — no visa required. He’s free to stay for half a year. Why’s he in Mexico? Maya’s selling machinery, and hopes to make a killing under a new trade deal uniting Mexico, Colombia, Peru and Chile. Continue reading on Ozy…

Colombia’s Security Export



Mexican, Brazilian and even Chilean students pull up seats in Mr. Carlos Ardila Castro’s classroom in the Escuela Superior de Guerra in Bogotá, Colombia. Lesson for the day? How to stop arms trafficking.

At 46 years old and with 23 years of military and intelligence experience under his belt as an officer in Colombia’s military, Mr. Ardila Castro is now a consultant for the United Nations. Colombia is known for exporting coffee and bananas. But Ardila Castro is a provider of Colombia’s new export to the world: war and security know-howContinue reading on Ozy…

How China’s Appetite is Changing Latin America

Ozy Magazine

Protesters fed up with rising prices and cheapening currencies march by the tens of thousands in Caracas and Buenos Aires.

Others tired of woeful public services fill Brazilian cities, decrying the billions of dollars being spent to host the World Cup this summer. A year of discontent is rolling out across Latin America, with a new middle class demanding more from their leaders and hitting the streets to make their voices heard.

Yet behind all the instability sits an unexpected force on the other side of the globe: China’s domestic appetite. Continue reading at Ozy…

Who is Garry Neil Drummond?

Gary Drummond

Who is Garry Neil Drummond? Is he H.E.’s boy, the son of Drummond Co.’s founder, H.E. Drummond, who started the company in Jasper Alabama by putting up his 3 mules for collateral on a $300 bank loan in 1935? Is he Garry, the young civil engineering student who graduated from the University of Alabama in 1961 and became the company’s first engineer?

Or is he Mr. Drummond, the man who owns 100% of the U.S.-based coal mining company, whose majority of assets are made up of a series of open-pit coal mines sprinkled across Colombia’s Northern Caribbean coast? Is he Mr. Drummond, the man who directs a volume of mining activity in Colombia that turns out most of Drummond’s $3 billion in revenues (2012), pays some $278 million in royalties to the Colombian state, and accounts for 25% of Colombia’s total mining royalties?

Most in Colombia recognize him as the latter man. And since 1986, when Drummond Co. acquired its first mine in Colombia, Garry Neil Drummond has earned more and more attention for the controversy surrounding his company.

Recently, Mr. Drummond’s company has been fined more than $100 million and got its shipping license revoked for a a series of blunders, including failure to pay taxes and intending to cover up an environmentally hazardous coal spill through 2013. From Colombia Reports

The Alabama-based company was forced to close its private Caribbean port two weeks ago when it failed to meet the January 1st deadline for the implementation of a direct-loading conveyer belt system. The deadline was set by the Colombian Environmental Ministry after a company barge dumped almost 2,000 tons of coal into the Bay of Santa Marta last year. The regulation outlawing crane-and-barge coal loading had been in place for six years prior to the incident.

But the company has also come under attack in the US for alleged links to paramilitaries and funding the murder of several union leaders who represent Colombian miners at Drummond. From Business and Human Rights

In 2002, the families of three deceased Colombian labour leaders and the union they belonged to, Sintramienergética, filed suit against Drummond Company, Inc. and its wholly-owned subsidiary Drummond Ltd. in US federal court.  The plaintiffs alleged that Drummond hired Colombian paramilitaries to kill and torture the three labour leadersin 2001.  Sintramienergética represents workers at Drummond’s coal mining operations in Colombia…

Drummond Co. seems generally quick to dispute the legal matters it faces in its Colombian operations. But it’s hard to know exactly what Garry Neil Drummond really thinks about any of the complex matters surrounding Drummond’s coal mining in Colombia. For example, in 2012, beset by accusations that he sponsored murder in Colombia, Garry Neil Drummond reportedly confessed,

“I was never in charge of anything in Colombia.”

photo credit: Portafolio

New Information on Old Resources: Coverage of Mining in Colombia

Screen Shot 2014-01-23 at 11.09.50 AM

I once asked a Colombian business leader why her business publication was set to cover topics like Electric Power, Oil & Gas, and Infrastructure… but not mining.

“It’s very difficult to get accurate data on that sector,” she said. She also added that there is a mix of legal and illegal actors in the mining sector, making it very difficult to profile.

La Silla Vacia, a Colombian digital magazine, is doing something about that difficulty. They’ve just launched a special page (español) that will cover Colombia’s complex mining industry.

From the site…

Aunque la locomotora minera que prometió el presidente Juan Manuel Santos apenas prendió motores y todavía no ha comenzado ningún proyecto nuevo en su gobierno, la minería ya se convirtió en uno de los temas de debate más polarizadores en el país.

Even though the mining engine that President Juan Manuel Santos promised is hardly turning, and none of the new projects of his government have begun, mining has already turned into one of the most polarizing matters of debate in Colombia.

La Silla Vacía covers the mining sector, but also provides a database of the companies, players and interest groups that make it go.

More on Colombia’s mining sector here (español)

Colombia Looks to Turn Commodities Wealth into Development

Published in World Politics Review

Following a decade-long oil and mining boom, Colombia is facing the challenge of how to harness its energy wealth and push development forward.

Since former President Alvaro Uribe opened up Colombia’s oil and mining sectors in the early 2000s, Colombia has gone from producing just more than 500,000 barrels per day (bpd) in 2002 to nearly 1 million bpd in 2012. Over the same period, it has seen foreign direct investment inflows jump from $2.1 billion to $15.8 billion, more than half of which was destined for the oil and mining sectors last year. Some 68 percent of Colombia’s $369 billion GDP in 2012 came from oil and mining. With the economy growing at 4 percent, the oil and mining boom has left Colombia with enough wealth to make a big difference in its development.

“Part of that growth is coming from a commodities supercycle that has clearly helped Colombia and other Latin American countries,” says Jamele Rigolini, Andean region economist at the World Bank. But growth does not always mean development. For Colombia, structural limitations behind its shining oil and mining sectors could hold development back if the country doesn’t put its energy wealth to good use.

One of those limitations is infrastructure, particularly an outdated transportation network that is eroding Colombia’s competitiveness. Manufacturers pay more to truck their products from the interior to port than it costs to ship those products from port to markets halfway around the world. Julian Trujillo, an executive at industrial adhesives manufacturer Saint-Gobain, says that the government has neglected infrastructure development, letting costs fall on businesses and in turn denting industry’s ability to compete globally.

Jorge Restrepo, professor of economics at Universidad de la Javeriana, agrees. He says that going forward, Colombia has to learn how to use its wealth to develop not just infrastructure, but also education, observing, “Those are major bottlenecks. We’ve tried, but failed. We still don’t know how to do it.”

The key, says Restrepo, is how royalties from the oil and mining sectors are managed. He says that rent-seeking behavior on the local level has gotten in the way of opportunities to reinvest royalties into development. Moving forward, a 2012 reform promoted by President Juan Manuel Santos that moves the control of royalties from local politicians to central authorities could reverse that.

In addition to the need for reforms, Colombia should feel a sense of urgency to diversify its economy. Earlier this year, the International Monetary Fund cautioned that Colombia was particularly vulnerable to a downturn in oil prices, warning the energy-rich country of “overdependence on the volatile commodities sector.” More than 80 percent of Colombia’s exports are commodities right now. If commodities prices take a dive, that overdependence could come back to haunt Colombia.

Where other countries in the region, like Peru and Chile, have taken advantage of China’s commodities binge over the past decade, Colombia seemed to miss the boat. Now, even as China keeps steady with 7 percent growth, Colombia still only exports 5.5 percent of its commodities to the world’s second-largest, and energy-hungry, economy.

Rigolini says that as the commodities supercycle comes to an end, Colombia will have “to find new sources of growth to expand. And moving from a time of growth in commodities to different sources of growth is the most challenging part.”

As for Colombia’s ability to meet that challenge, there are some hopeful signs on the horizon. First, Colombia is a member of the Pacific Alliance, a regional trade bloc made up of Chile, Peru and Mexico that promotes regional free trade. As a member, Colombia is looking to benefit from expanding trade with its partners beyond commodities. If the trade bloc is as good in practice as it sounds in its leaders’ rhetoric, the alliance might be part of the solution for getting Colombia’s shrinking industrial sector going again and spurring growth in other sectors.

It might not be too late for Colombia to take advantage of China as well. China’s appetite for energy is changing, shifting away from high levels of coal consumption toward oil and natural gas, according to Beijing’s 12th Five-Year Plan. That could be an opportunity for Colombia, as right now Colombia’s energy sector is strongly positioned toward the petroleum market, with 50 percent of its commodities exports coming from crude. Last year, President Juan Manuel Santos signed preliminary agreements with China Development Bank for financing a pipeline that would link Venezuelan and Colombian oil with the Pacific coast.

“Infrastructure has to keep up with oil production,” observes Christian Gomez, director of energy at the Americas Society. “So China’s looking at this as an interesting opportunity.”

But feeding China’s new energy appetite is unlikely to be the saving grace for Colombia’s development in the long term. The other crucial ingredient for Colombia’s long-term development is whether the government arrives at a peace deal with the FARC, the country’s largest and longest-standing rebel group. Peace with the rebels would likely mean more security for Colombia’s entire economy, not just its energy infrastructure; guerrilla attacks still set back production. A peace deal could also mean less military funding and more spending on transportation, health and education in the future.

In the meantime, one country in the region Restrepo says Colombia could look to as a role model is Chile, which manages its mining royalties in a way that lets Chileans save for a rainy day and invest in development. Chile has figured out “how to transform their mining royalties into development in science, technology and infrastructure,” says Restrepo. “We envy that here in Colombia.”

Colombia’s boom is still strong, and it still has the potential to open a new chapter for the country’s development. But if Colombia fails to make smart investments and seed new sources of growth, the country’s renewed fortune could slip, making for a lost opportunity and adding regret to envy.

Financial sector resists adopting central bank rates

April 5th, BOGOTÁ (Colombia Reports) – Colombia’s financial sector has resisted lowering mortgage rates in accordance with the central bank interest rate cut to 3.25%, the bank’s most recent cut in March.

“The central bank has developed an expansionary monetary policy since July 2012, but the interest rate cuts have not yet been transferred to the rates of financial institutions,” said international market analyst Cristian Lancheros of Acciones y Valores, a Bogota-based brokerage firm.

“This scenario requires a greater commitment of financial institutions with reduced rates to encourage consumption … it will not deteriorate significantly household demand,” Lancheros added.

Worries of rising new real estate prices, which increased by 2.4% in the latter trimester of 2012, have fueled a fiery debate over the severity of the housing sector’s impact on the Colombian economy.

Finance Minister Mauricio Cardenas recently called on banks to be more responsive with the central bank in order to decrease interest rates in accordance with the cut, and in turn decrease the cost of mortgage lending for buyers.

“We are planting our concern with the financial sector regarding this situation … it doesn’t seem that the financial sector, let’s say, is helping in proportion to the central bank’s interest rate cut,” said Cardenas.

Cardenas, however, has kept the focus of Colombia’s growing pains toward the peso, naming it “the mother of all problems”. A strong peso, he has said, is the culprit behind a sluggish manufacturing sector and struggles in the agriculture business, which in turn is flaying the country’s exports.

Yet some experts disagree about where the problem is, saying that the most important risk to the Colombian economy right now is soaring housing prices.

Economist at the University of the Andes Marc Hofstetter told Colombia Reports that “the most important risk is that the central bank is lowering rates, but housing prices are still high.”

“By lowering rates, the central bank intends to stimulate the economy. Most of the economy needs a stimulus, but the housing sector does not need a boost in the middle of rising prices,” Hofstetter added.

Although lower interest rates intend to kick start the economy the central bank says it is growing below its potential, lower mortgage rates could further drive up prices in the housing sector. That could be dangerous for consumption.

And that potential danger is the same concern that was recently investigated by a handful of central bank researchers. Earlier this month, a report published by researchers at Colombia’s central bank warned of a housing bubble in Colombia’s market that could mirror the same conditions which led up to the United States mortgage crisis in 2008.

“We find evidence of a bubble (defined as explosive behavior in a sub-sample of the series) during the second semester of 2012,” Jair Ojeda-Joya, co-author of the central bank’s research said to Colombia Reports.

MORE: Colombia’s central bank warns of possible housing bubble

Rich Holman, a real estate broker and founder of First American Realty Medellin, is not convinced though. He says that the worry over Colombia’s housing market “is uniformed diatribe” and declares the idea of a bubble is nothing more than a “myth”.

“Is Colombia being overbuilt, is there too much inventory, is the property market overvalued and is Colombia having a real estate bubble?” asks Holman. “The answer is no, not yet.”


Foreign investment could hurt Colombia peso, economy: Analysts

January 14th, MEDELLÍN (Colombia Reports) – Analysts worry over the consequences of a strengthening peso after Colombia recorded a jump in Foreign Direct Investment in 2012.

Colombia, the third largest economy in Latin America, reportedly received $16.7 billion in foreign direct investment in 2012, far exceeding the Ministry of Commerce’s goal of $10.8 billion. This marked a 25% increase from 2011.

Roughly 59% of capital inflows, however, poured in to Colombia’s booming energy and mining sectors, provoking concern amongst some analysts over the severity of a potential “Dutch disease,” which occurs when currency appreciation, in response to a steep rise in commodity demand, erodes the price competitiveness of other export products.

David Reese, an emerging markets economist and Colombia analyst with Capital Economics in London told the Financial Times that “on the one hand, it is good that Colombia is being seen as a favorable destination for FDI. It shows how far the economy has come in building investor confidence.”

But Reese expressed concern over the negative consequences that come with a sharp increase in foreign investment inflows.

“We’ve seen industry struggle for a long time now,” said Reese. “We have seen consumer spending slow and we have reached the point of low growth and rate cuts.”

The Colombian economy experienced an extreme slowdown in the third quarter of 2012 when GDP grew just 2.1% — a five percent drop from the same period in 2011.

As Reese explained, pressure on the peso warps sectors other than energy and mining.

Economist Ed Dolan explained that the behavior of the peso has in turn produced a loss of competition for Colombia’s manufacturing and agriculture sectors.

The peso’s gain in 2012 prompted the Central Bank to shore up its dollar-buying policy in order to cool down the peso and prevent a more dangerous onset of Dutch disease. Jose Dario Uribe, Manager of the Central Bank, told local media that in 2013 the bank plans to buy at least $4.6 billion in US currency.