"Like Scarface," he continues, shifting to his Pakistani/Latino gangster accent: "Say hello to my little friend! Pow! Pow!" He hands me my bags and reminds me to call my mom and make peace with the Almighty before I embark for certain death. "You are crazy, my friend."
Traveling to Colombia to chronicle the investment miracle unfolding there seemed perfectly reasonable a few weeks earlier. The stats all scream "Go! Go! Go!": Colombia's stock market has soared fourteenfold since October, 2001. Foreign direct investment and capital inflows have more than doubled, while real estate prices have tripled in many areas. Citigroup (C ) CEO Chuck Prince even kicked off his February "world tour" in Bogotá, where the bank is building branches and a Latin American call center. But when most Americans hear the name Colombia they think about the late Medellín drug lord, Pablo Escobar. And roving paramilitary death squads. And speedboat-loads of cocaine headed for Miami.
I've been assured by bankers that things are getting much better in this nation of 42 million. But it isn't until I step onto the packed 737 to Bogotá that I get my first real sense of the intense interest in Colombian investments. I spy at least 20 business suits, including the laptop-toting Swede sitting next to me who's building a boutique hotel in the beautiful 16th century city of Cartagena on the north coast.
Investors like these have visited many exotic ports in recent years. Colombia's surprising rise has been fueled by two larger trends: the enormous amount of money sluicing through global markets and investors' increasing risk tolerance. First, cash poured into the so-called BRIC countries—Brazil, Russia, India, and China. Next it flooded riskier secondary destinations such as Turkey and Poland, and last year, with ferocity, Vietnam. Now money is gushing into third-tier hinterlands fraught with political and economic problems, where even the rule of law isn't a given.
THE CONFIANZA INDEX
Call them extreme emerging markets. The Standard & Poor's/IFCG Frontier Index of 22 such destinations, which includes investing curiosities like Lebanon, Côte d'Ivoire, and Bangladesh, has gained nearly 400% in the past five years. The question is whether these nascent markets have what it takes to parlay the fickle enthusiasm of hedge-fund traders and other investors into long-term economic development.
Yet Colombia is so extreme that it hasn't even made the Frontier Index. Its stock market has an aggregate capitalization of just $59 billion. In this parallel investing universe, price-earnings ratios take a backseat to fuzzy measures such as confianza, which translates into confidence and trust but is more accurately described as the general sense that people can safely transact business and get through everyday life unharmed. The handful of Wall Street analysts who cover Colombia supply their clients with charts of murder rates and kidnappings.
President Alvaro Uribe, who took office in 2002, nearly five decades into a civil war that has pitted Marxist guerrillas against right-wing death squads, has made confianza his overarching goal. Killings and abductions are down sharply in the big cities, and that has been a boon for all manner of investments, from stocks to real estate. "I guarantee that if you graph the decline in kidnappings to investment gains, the correlation would be one-to-one," says Ben M. Laidler, head of Andean research for UBS Pactual.
On a continent whose economic history is the stuff of a blooper reel, Colombia's strong fundamentals stand out. Its $130 billion economy, a world leader in the production of coffee, petroleum, textiles, and flowers, is growing at 6.8% a year, two full points faster than the Latin American average. In the past 10 years, Colombia has slashed its inflation rate from 18% to 5%, and since Uribe was elected, unemployment has dipped from 16% to 13%. The nation has never defaulted on its debt or experienced hyperinflation. And entrepreneurial thinking is spreading. Run a Google (GOOG ) geographical-hit query, and you'll see that, per capita, nowhere in the world are there more searches for the words "Peter Drucker," the late management guru, than in Bogotá. No. 2? Medellín.
Yes, Medellín. Once the murder capital of the world, this city of 2.4 million is regaining its status as a commercial hub, hosting regional offices for a growing roster of multinationals including Philip Morris (MO ), Toyota (TM ), and Renault, as well as globally minded Colombian companies that make up 70% of the country's stock market value. More high-rises are under construction here than in Manhattan and Los Angeles combined.
But all of it—the stock market gains, the development, the rising living standards—rests on confianza. Foreigners' view of Colombia as a lawless, violent, riven land won't change quickly. As Commerce Minister Luis Guillermo Plata acknowledges, "Why would I invest in a country if I can't go there?"
As I get into the cramped cab that's taking me to my hotel, I can't help thinking about the fabled "millionaire's tour of Bogotá," a stretch of road where colluding cabbies and thieves once drove passengers from ATM to ATM to drain their bank accounts. And then there's the drugs. Colombia still produces the majority of the world's cocaine, an ongoing crisis that draws a steady supply of U.S. military and financial aid. Even corporate crime here takes on deadly overtones: Cincinnati-based banana giant Chiquita Brands International (CQB ) was in the news recently for admitting to having paid $1.7 million in protection money to a Colombian paramilitary group on Washington's list of foreign terrorist organizations.
I'm here to find out whether Colombia's fledgling stock market can keep surging, whether its financial and physical infrastructures can accommodate the flood of investment, and whether an equity culture can take hold.
At the center of everything is President Uribe. "We need to rescue international confidence in our country," he tells me in his heavily guarded compound in Bogotá's historic center full of Spanish colonial architecture. Access to Uribe is preceded by an hour of security checks and chilling looks from guards holding bayonet-tipped machine guns.
The 54-year-old Uribe is a rarity in increasingly leftist Latin America. A center-right ruler with an approval rating of more than 60%, he won a landslide second term in 2006 after having amended the constitution to allow him to run again. Uribe knows Colombia's history of violence firsthand: A decade ago he was governor of Medellín's province, and in 1983 his father was murdered by kidnappers. The sometimes dour leader has driven most of the drug traffickers and leftist guerrillas out of urban centers, though they still reign in remote regions.
But allegations have surfaced in Colombia that the President himself has links to right-wing paramilitaries who murdered hundreds, including labor-union activists. On May 14, 20 Colombian lawmakers and businessmen were arrested on charges in connection with the scandal. Colombia's police chief and head of police intelligence, meanwhile, were ousted amid allegations of illegal wiretapping of opposition politicians and journalists. Uribe vehemently denies any personal connection to the affair.
Despite his obsession with law and order, the economy is never far from his mind. "The state is the most important private enterprise," he says, "and the public is like a universe of shareholders." Javier Vargas, a Colombian banker with Credit Suisse (CS ), has heard Uribe sound that theme many times. "He talks like a person who is selling and marketing his country," he says. "Investor confidence is key for him." In May, Uribe visited Washington to meet with supporters in the Bush Administration and lobby congressional Democrats on a free-trade pact between the two countries. Democrats have been uneasy with Uribe since the recent allegations surfaced. But Colombia is a vital strategic ally in an increasingly hostile continent, bordered by Hugo Chávez' Venezuela and left-leaning Ecuador. Washington has sent Colombia $5 billion in aid since 2000, including $650 million last year; only Iraq, Egypt, Afghanistan, and Israel receive more.
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