Six Challenges Facing Colombia in 2023

Colombian President Gustavo Petro delivers a speech. Source: AP.

2022 was characterized by international events such as the “end of the pandemic” declared in many countries (except China), the invasion of Ukraine by the Russian Federation, an economy marked by inflation in response to the effects of COVID-driven economic stimuli and an increase in food prices as a consequence of the war in Ukraine, the COP 27 climate summit, the continuation of trade tensions between the United States and China, and key electoral cycles in the United States, France, Brazil, and Colombia. Undoubtedly, these events have had global repercussions and will change the way of doing and understanding business going forward.

Obviously, the event of the year in Colombia was Gustavo Petro and Francia Márquez’s election as President and Vice President, respectively. In their first five months at the helm of the country, they have stirred the pot. Their announcements to put an end to oil and coal exploration, radically reform the country’s healthcare and pension systems, seek total peace with all of the country’s armed groups, and pursue an ambitious political reform to allow members of congress to become cabinet ministers have generated economic uncertainty and also provoked a shock to the political landscape—with some elements of political backscratching and bureaucracy, but with a huge dose of symbolism that we cannot ignore.
It was not an easy year for anyone. Unfortunately, we cannot say that 2023 will be any easier. Here are the top risks that Colombia will face in 2023. 

1. The economic outlook is negative: In 2023, Colombia will face a complex global economic outlook. Inflation, unemployment, and the twin deficits will harm productivity making the government’s development and inequality reduction goals more difficult to achieve. The Central Bank already forecasts that Colombia will enter a technical recession next year after contracting during the second and third quarters of 2023. The economic slowdown, the increase in interest rates, and the weakness of the peso against the dollar will continue to weaken the productive sector and job creation. Similarly, the 16 percent increase in the minimum wage will elevate what are already high levels of informality, further hindering the government’s aspirations to maintain the unemployment rate in single digits.
2. Insecurity will continue to be a headache: Security will continue to be one of the main challenges during 2023 affecting public opinion and private sector confidence. The government will face an outlook marked by the complexities of rural and urban insecurity, difficulties in negotiations with armed groups, and its relationship with the armed forces. The “Total Peace” policy is unlikely to lead to successful negotiations with the ELN, organized armed groups, and FARC dissidents. It is unclear whether the government’s efforts to appoint new “gestores de paz” be it from organized armed groups, high-risk youth, or leaders for the 2021 social outbreak will provide positive security returns, although it remains early to say. The relationship between Petro and the military will be a key point to watch as the government’s insistence on restructuring the military career and purging alleged corruption within the institution is likely to unsettle the military ranks.
3. Relations between the executive and Congress: The government will have the challenge of maintaining its congressional coalition to move forward with its ambitious reform package that includes pension reform, healthcare reform, a reform to the mining code, the second round of the political reform, and a host of vanity projects that will likely clog the agenda. The erosion of President Petro’s favorability and special interests from parties poses a serious governance obstacle and could end up breaking the coalition. Decisions from the government and Congress in 2023 obey electoral calculations. It is very likely that the ambitious reform agenda will end up reduced to fairer proportions in order to have the support of the majorities and, in particular, of the Conservative, Liberal, and U parties—similar to what happened last year with the tax reform.
4. Social unrest is simmering: In 2023 there will not be a social outbreak like the one in 2021, but economic conditions such as the projected recession and the increase in inflation will negatively affect the administration’s favorability and increase the likelihood of social unrest. In this sense, the government’s ability to generate spaces for dialogue with communities and manage unsatisfied demands will be put to the test. The balance will hang on the government not resorting to populist solutions (price controls, tariff increases, extraordinary increases in the minimum wage, or an unusual increase in social transfers) that, instead of alleviating inflation, would worsen it and consequently fuel social unrest. It also remains to be seen how Petro will exercise the use of force and particularly how he will use the Mobile Anti-Disturbances Squadron (ESMAD, per its abbreviation in Spanish) during the foreseeable bouts of protests.
5. There will be changes during the local elections: The elections on October 29, 2023, present many unknowns about the possible candidates and Colombia’s future political map. Coalitions will be key to advancing the interests of all political parties. Likewise, the Pacto Histórico will need to overcome its divisions to consolidate power at the local level. The ruling party’s wager with the political reform is to take full advantage of political turncoats and pork barrel spending to maximize their chances of winning local elections. Our forecast is that defending the government and its thesis for change will become more difficult as the economy worsens, insecurity increases, social unrest grows, and the government becomes increasingly reluctant to negotiate political differences with opponents. 
6. Climate change will be harsh: The winter season, coupled with increasing deforestation and a potential El Niño phenomenon will require the leadership of the government to mitigate climate risks and develop sustainable growth in coordination with the private sector and local communities. The government will need to make additional efforts to clamp down on illegal logging, prevent the construction of illegal deforestation corridors—linked to other illegal activities—and protect nature reserves. Until now, Petro’s environmental discourse has earned him international acclaim, but it remains to be seen if the implementation of these initiatives manages to meet the expectations that the government has set for itself. We are not optimistic that the government will manage, considering that it is a globally shared responsibility and the government’s management capacity continues to be weak, despite its strong discourse.

Sergio Guzmán is the Director of Colombia Risk Analysis, a political risk consulting firm based in Bogotá. Follow him on Twitter @SergioGuzmanE and @ColombiaRisk.

This piece was adapted from Colombia Risk Analysis’ most recent report on the country’s national risk, read the full report when it goes public in February.