Colombia, Brazil see booming trade, investment

Colombia wants to double trade and increase investment with Latin American powerhouse Brazil, but tariffs and shipping costs remain obstacles, an investment conference was told on Thursday.

Brazil’s booming economy has increased its consumption across the commodity chain, and its companies, mainly in oil and coal, have already begun investing in Colombia, a major global producer of thermal coal and regionally of crude oil.

“There’s a special synergy, this integration with Brazil generates very important gains for both countries in all respects … South-South integration strengthens us,” Colombian President Juan Manuel Santos told an investment conference.

It was the first-ever Colombia-Brazil investment summit and was attended by the CEO of Brazil oil giant Petrobras (PETR4.SA), as well as by the presidents of Odebrecht, Brazil’s largest diversified construction group, and Itau Unibanco (ITUB4.SA) (ITUB.N), the country’s top private-sector bank.

The Andean nation expects bilateral trade with Brazil to double to $5 billion by 2014, and sees investment by Brazilians in Colombia and Colombians in Brazil increasing.

Brazil is Colombia’s second-largest Latin American investor, with foreign direct investment of $775 million between 2005 and 2010, mainly in the oil and mining sectors.

Improved security after a U.S.-backed crackdown of leftist rebels and drug lords, coupled with better fiscal terms for companies, has raised foreign investment in Colombia, and production of oil and coal is at record highs.

Brazil’s MPX (MPXE3.SA) is investing $3 billion in a project that will produce 35 million tonnes of coal a year, and which will come on stream in 2020. Vale (VALE5.SA) has coal-producing projects in northern Colombia. [ID:nN1E76K0U0]

Santos said last year that Brazil was interested in investing in infrastructure projects in Colombia, specifically railways, which would allow Colombia to export metallurgical coal for use in Brazilian steel mills.

Colombian companies are also reportedly seeking to invest in Brazil. Colombian state-run energy company Ecopetrol already has investments in Brazil, and so does power distribution company ISA (ISA.CN). [ID:nN10190980]

TARIFFS AND SHIPPING COSTS

Luis Alberto Moreno, president of the Inter-American Development Bank — the largest multilateral lender in Latin America — said the two governments must work to lower tariffs and design strategies to reduce shipping costs.

“We can start doubling bilateral trade in five years, which requires not only public policy actions, but also fundamentally private-sector engagement,” Moreno told the conference.

“This would significantly close the integration gap.”

Brazilian companies are eager to increase investments in Colombia’s petroleum and coal sectors as they need more and more raw materials to continue growing at break-neck speeds.

Colombia’s rebound to historic levels of oil output is attracting major producers such as Petrobras whose experience in deep-water drilling may help Colombia gain access to important reserves off-shore, experts say.

The big question for the future of petroleum production in Colombia is whether it can find new oil reserves to sustain ambitious targets over the coming decade or whether it will fall prey to “peak” oil. [ID:nN25156487]

“Colombia has a major attractive point, its stability,” Petrobras CEO Jose Sergio Gabrielli told reporters.

“Expectations of increasing reserves are also very attractive.”