Colombia Investment Risk Assessment

The assignment content discusses the assessment of Colombia's economy using three indicators: Gross Domestic Product (GDP), Inflation, and Current Account Balance (CAB). The GDP analysis shows a low growth situation with medium risk in 2014, suggesting investors to invest. The inflation rate is stable at 1.8% in 2014, indicating low risk. However, the CAB is -5.2, which indicates high risk. Considering these indicators and other factors such as population growth, poverty reduction, per capita income, life expectancy, and environmental improvements, it can be concluded that Colombia presents a good investment opportunity, particularly for companies in the service sector.

Answer 1 (I)
The economic indicators that have been selected for the assessment of Colombia are Gross
Domestic Product, Inflation, and Current Account Balance. Considering the Gross Domestic
Product, below risk table has been identified using which the risk level of Colombian
economy will be assessed:
As per current economic data of Colombia, below assessments can be made regarding its risk
and return:
Colombia
Year GDP (%) Condition Risk/Return
2014 4.6 (4.0-5.9) Low Growth Medium
2000 4.4 (4.0-5.9) Low Growth Medium
1990 6 (6.0-10.0) Sustainable Low
Considering the data of 2014, it can be stated that the economy is in Low Growth situation.
Therefore, the investors can consider investing due to the Medium risk.
The second indicator is inflation, whose indicator values have been shown below:
Inflation (%) Inflation
Type
Risk
<0.0 Deflation High
0.0-0.9 Low Medium
1.0-3.0 Price Stability Low
>3.1 High High
Considering the above table and the current economic data of Colombia, below table can be
developed:
Year Inflation Rate (%) Inflation Type Risk
2014 1.8 (1.0-3.0) Price Stability Low
2000 31.8 (>3.1) High High
1990 26.1 (>3.1) High High

The data for the year 2014 indicates that the risk of investment in the economy is low due to
price stability. Therefore, this data also suggests investors to invest in the economy.
The third indicator considered for the assessment is Current Account Balance. CAB for
Colombia is -5.2, which is worse. Therefore, the risk of investment considering this indicator
is very high for the country.
Answer 1 (II)
The company that has been selected is in the service sector. Now considering the GDP of
2014, it can be stated that the economy has medium risk and return and therefore, company
can enter into the country. Moreover, the inflation is also appropriate and risk is low with
stable prices. These show the appropriate economic state of the Colombia for investment. The
population growth has declined over the years, but still the population of 47.79 million is a
good consumer market. The level of poverty has also reduced over the years from 49.7% of
the population in 2000 to 40.0% of the population in the year 2014. This is a good indication.
The per capita income has also increased appreciably with GNI per capita being $7,970 in
2014 which is comparatively higher than 2000 at $2,320. These shows good overall situation
of the country and seems ok for the investment. The life expectancy has also increased over
the years from 68years in 1990 to 74years in 2014. Moreover, more number of students went
to school in 2014 in comparison to 2000. These shows better situation of the people within
the country. All the positive indicators related to environment can be seen on rise such as
water source improvement and sanitation facilities. Though, the forest area has reduced but
can be overcome in the coming days.
Overall, it can be stated that the situation of Colombia is right for the investment. Good thing
is, the contribution of service sector to the GDP has also increased over the years. This means
that the opportunities for companies in the service sector is good.