Colombia and Venezuela Face Challenges as Border Reopens, Trade Resumes

While a revival of tourism and binational trade are the positive aspects of the thawing in relations, there are issues to be overcome, such as the currency triad in Venezuela and outstanding debts to Colombian companies, among others

Representatives of the Colombian and Venezuelan governments have met to fine-tune details of the reopening of the two countries' common borders and the resumption of trade.
September 23, 2022 | 07:00 PM

Bogotá — Colombia and Venezuela are fine-tuning the details for the reopening of their commo border after seven years of a stalled bilateral trade flow that fell to its lowest figure in 2020, at $222 million, compared to $7 billion in 2008.

The neighboring nations believe that the reopening of the border and the resumption of air connections will allow them to revive their binational trade, but much has changed in the last seven years and the task will not be easy.

This week, authorities of both countries and representatives of the two countries’ border provinces met to finish coordinating the actions that will allow the reopening of cargo transit from September 26. Cargo will begin passing across the international bridges in the Simón Bolívar (in Villa del Rosario, Venezuela) and Francisco de Paula Santander (in Colombia’s Cúcuta) from 10 a.m..

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Colombia’s highways authority Invías informed that routine maintenance of the bridges connecting the department of Norte de Santander with Venezuela has already been carried out this week.

In addition, an investment by Colombian of round 8 billion pesos ($1.8 million) has been announced for the repair and maintenance of the Simón Bolívar and Francisco de Paula Santander international bridges, “an intervention that will leave the structures ready for the transit of vehicles of no more than 30 tons”, according to the Invías’ operations director Carolina Barbanti Mansilla.

Despite the rapid progress of the reopening process, there are important aspects to be considered regarding the future of the two countries’ trade relationship, as well as several challenges to be overcome in order for it to be long-lasting, as is the Colombian government’s intention, according to Trade, Industry and Tourism Minister Germán Umaña.

The reopening of the border between Colombia and Venezueladfd

The gray areas

Among the main gray areas of the reopening is the resolution of the debts owed by Venezuelan companies to Colombian companies, which Umaña estimated in an interview with Bloomberg Línea earlier this month at between $100-150 million.

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“That has to be put in its exact magnitude, it will have to be solved between the companies that transacted and we will accompany the businesspeople in that dialogue. Of course, there were many companies that disappeared in Venezuela, and that is a concern, but they will have the accompaniment of the government to be able to solve the issue,” he said at the time.

He said the debts have largely been settled, and that one was with airline Avianca, but when contacted about the issue the said it preferred not to make a statement in the run-up to it resuming flights to Venezuela.

“It is necessary to think that a process of stimulus for the payment is primarily needed”, Raúl Ávila, a professor at the Economic Sciences Faculty at Colombia’s National University, but who warned about the risks of default on the Venezuelan side.

“That is one of the biggest risks, and we have to be careful because that is going to be the fundamental pillar for the relationship,” he said.

Although the first Colombian companies returning to Venezuela have stated their intention, and others that will reinforce their strategy in that market, there is still a lack of confidence on the part of local businesses with respect to making investments in Venezuela, and they prefer that payments be made in cash, Colombian textile entrepreneur Arturo Calle told Bloomberg Línea.

“It is very interesting, but the deal is: ‘I sell to you, but you pay me in cash’. Otherwise, if you don’t pay in cash and with guarantees, it is impossible, because you don’t know if whoever buys from you is going to have the foreign currency at the moment of paying you,” he said.

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Colombian President Gustavo Petro (left) and his Venezuelan counterpart Nicolás Maduro.dfd

Another of the gray areas in the renewed bilateral relationship has to do with the monetary triad that exists in Venezuela with the circulation of Venezuelan bolivars, US dollars and Colombian pesos.

For example, in the Venezuelan border state of Táchira, it is estimated that the Colombian peso is used in more than 90% of transactions, as financial platforms become more widespread in that region.

But residents of the area consulted by Bloomberg Línea said that with the arrival of Gustavo Petro to the Colombian presidency, dollarization on the Venezuelan border gained strength. This coexistence between different currencies and exchange rates could pose significant challenges to the flow of trade amid the persistent smuggling of goods along the porous 2,219km border between the two countries.

The issue of security continues to be another complex issue. Criminal gangs dispute smuggling and drug trafficking, and which will be an issue to be analyzed by the authorities.

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Positives

The reestablishment of relations between both countries will mean a relief for some 1.8 million Venezuelans living in Colombia who remained disconnected from consular services. Proof of this reality is that the Venezuelan consulate in Bogotá is abandoned and practically in ruins since former Colombian president Iván Duque severed relations with that country in 2019.

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The Colombian Association of Travel and Tourism Agencies (Anato) says the reestablishment of ties is an opportunity for the reactivation of the sector as of October 4, when the first commercial flight from Colombia to Venezuela will take off, operated by local airline Wingo.

Flights between both countries were suspended due to the operational restriction issued by Venezuela in March 2020.

According to Anato figures, between 2014 and 2015 some 380,000 Colombians (the annual average) traveled to Venezuela, while 250,000 Venezuelans entered Colombia in the same period.

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In Venezuela, the main destinations chosen for Colombians were Caracas, Margarita Island, Los Roques Archipelago and Colonia Tovar, while on the Colombian side Bogotá, Norte de Santander, Antioquia, Bolivar and Atlántico stand out as destinations for Venezuelans.

“The reestablishment of air routes will contribute to the rekindling the offer of travel agencies. This, added to the good commercial conditions and the work carried out on investment and security issues, will make possible a good development of the tourism industry between the two nations,” according to Anato.

According to figures from the Ministry of Trade, Industry and Tourism, last year the commercial exchange closed at $394 million and this year it totaled $383 million to July.

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Umaña has said that the reopening of the border improves expectations, since the binational trade figure could reach $1-$1.2 billion by the end of the year.

In line with the forecasts of the Venezuelan government, Umaña sees a possibility of trade between the two countries reaching $2 billion in 2023, and that by the end of the four-year period of Petro’s government the goal is to see between $4 billion and US$4.5 billion in trade.

“From the commercial side it is a large market, with a fairly large population to supply in goods and services, in productive processes in which Colombia can deliver a large amount of them. Strategically, it is necessary to think about how to manage these relationships and the care that they must take regarding the payment relationship,” Raúl Ávila said.

“This issue is fundamental to leverage all the initiatives. Without that development and without that level of payment, it would be difficult for us to achieve anything,” he added.

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