Seeking Profits in This Emerging Market

I grew up in the 1980s, and in some ways I never left it. I still wear Ray-Ban Wayfarer sunglasses. I still enjoy those big hair bands like Guns N’ Roses and the bluesy rock of Stevie Ray Vaughan. And I still get a kick out of watching re-reruns of 1980s TV shows (Miami Vice holds up well) and movies. Say Conan to me and I think of a buff Arnold Schwarzenegger, not a late night host.

The 1980s also left its indelible mark on certain places. Say “Nicaragua” and it likely conjures up images of guerilla fighting between Sandinistas and Contras. Or say “Colombia” and you likely think of the drug trade. Cigarette boats. Violence. Drug mafias. Rich cocaine kingpins. Back in the day, as the saying went, Colombians didn’t rob banks. They bought them.

Both countries have changed dramatically, though.

Nicaragua has changed a lot since the 1980s, of course. I was down in Nicaragua with a group of readers exploring property in Rancho Santana. I also poked around other developments nearby. The country is enjoying a revival of investor interest.

As for Colombia… Well, I recently read a very entertaining book titled The Fruit Palace: An Odyssey Through Colombia’s Cocaine Underworld by Charles Nicholl. Published in 1985, the author sets off, Hunter S. Thompson-style, in search of the Great Cocaine Story, “a one-eyed glimpse up the skirts of South America.” The book takes its name from a little whitewashed café in the seaport of Santa Marta, where the author had his first encounter with drug trafficking.

Colombia is ideal for growing coca, which thrives in the lush, hot, semitropical slopes of its mountains, which run north-south up the country like primeval spines. Nicholls writes, “Fiercely hot, plentifully watered, full of hidden cul-de-sac valleys and mostly impassable to any vehicle larger than a mule… They call this the continent of fugitives, where a man can lose his own shadow.”

This is the South America of imagination, shrouded in greenery, fringed with mist and full of steamy valleys and half-hidden villages and lost shrines. Slow-moving rivers, rice paddies, cane fields, coffee plantations…

Today, though, Colombia may be the best economic story in Latin America. The drug violence has been mostly rooted out. Bogotá, the capital, is now safer than Miami, Washington or Atlanta. The economy is growing 5% per year and has a large middle class. In just the last six years, foreign investment in Colombia has gone up fourfold, and exports tripled.

The famous IMD survey recently ranked Colombia second best in Latin America in protecting private property, behind only Chile. And the World Bank rated Colombia third in Latin America in the “business friendly” category, behind only Mexico and Peru.

The Colombian stock market has been on a tear since the ’08 financial crisis. But valuations remain reasonable given the high growth rate.

As a resource story, Colombia has huge potential for oil production. There have been a number of success stories already.

Colombia is currently the world’s 25th largest producer of oil. Colombia’s history as an oil producer goes back to 1918 with the discovery of “La Cira — Infantas,” a giant oil field. Oil companies continue to make big finds here, adding to Colombia’s reserves.

The Colombian oil story peaked in the late 1990s, though. Production declined and has been flat in recent years. The reasons for the decline are complicated. The turmoil in the country certainly took its toll. Some of it had to do with the shifting nature of contracts and concessions. Some of it had to do with just neglect and poor management. And some of it was just that the easy oil was found and pumped out.

But things have turned in the last couple of years. In 2009, production increased for the first time since the 1990s. Colombia’s oil industry is thriving amid better security, a better investment climate and the use of the new technologies.

Some ex-Venezuelan oil hands, chased out by Hugo Chavez, wound up in Colombia. They used their knowledge of Venezuela’s Orinoco fields, which produce heavy oil, and applied it to the same geology found over the border in Colombia. The rich source rocks that produce oil from Venezuela’s massive oil fields share a history with those found in Colombia.

The results have been fantastic. Now oil watchers expect Colombia to pump out an average of 800,000 barrels of oil per day this year, up 50% from 2007. The stocks of Colombia oil companies have exploded on the growth.

There are companies here, locking down acreage, exploring relatively untapped basins. I think it’s still early in Colombia’s oil boom, and may be a good time to start keeping an eye on this market.

Sincerely,
Chris Mayer
Penny Sleuth

April 12, 2011

Seeking Profits in This Emerging Market was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.

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