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Colombian economy 44

Published in Colombian economy Written by February 28 2019 0

Colombia’s national economics statistics agency (DANE, Departamento Administrativo Nacional de Estadistica) on February 28 revealed that its latest studies indicate national gross domestic product (“PIB” in Spanish initials) hit 2.7% for full-year 2018, up from a feeble 1.4% in 2017.

Meanwhile, Fedesarollo – Colombia’s leading economic think-tank – now foresees a continuing rebound in the national economy, with GDP likely hitting about 3.3% this year and gradually increasing to around 3.8% GDP by 2022.

For 2018, relatively strong growth (4.1%) came in public administration and defense; compulsory social security plans; education; health care activities, and social services, according to DANE.

Wholesale and retail sectors, repair of motor vehicles and motorcycles, transportation and storage, lodging and food service sectors meanwhile grew by 3.1%, according to DANE.

Professional, scientific and technical activities, as well as administrative and support services activities grew by 5.0%, according to DANE.

Mining and quarrying, however, declined by 0.8% year-on-year, including a 12% drop in extraction of metalliferous minerals and a 6.7% drop in extraction of coal and lignite.

Extraction of crude oil and natural gas and support activities grew by 1.4%

In manufacturing, this sector grew by 2.0%, mainly thanks to a 3.7% hike in manufacture of furniture and mattresses, along with a 3.2% hike in production of food products, beverages and tobacco products.

The study also found a 2.2% hike in sectors including manufacture of basic metallurgical products; manufacture of fabricated metal products; manufacture of electrical apparatus and equipment; manufacture of computer, electronic and optical products; manufacture of machinery and equipment; manufacture of motor vehicles, trailers and semi-trailers; manufacture of other types of transport equipment; and installation, maintenance and specialized repair of machinery and equipment.

Manufacture of textile products; clothing; tanning and retanning of hides; footwear manufacturing; manufacture of travel articles, suitcases, handbags and similar articles; and manufacture of saddlery and saddlery articles decreased by 0.2% year-on-year.

In construction, 2018 growth came-in at a relatively weak 0.3% year-on-year, with residential and non-residential building growth at 1.0%. Meanwhile, “specialized activities for the construction of buildings and civil engineering works (rental of machinery and construction equipment with operators) decreased by 0.9%,” according to DANE.

Construction of roads and railways, public service projects and other civil engineering works also decreased by 0.6%.

As for the information and communications sector, this grew by 3.1% year-on-year, matched by the same 3.1% growth in the financial and insurance sector, according to DANE.

As for real estate activities, this sector grew 2.0% year-on-year, according to DANE.

Published in Colombian economy Written by December 20 2018 0

Colombia President Ivan Duque and Minister of Finance Alberto Carrasquilla on December 19 both hailed final votes in the Colombian House and Senate to approve a revised tax package for 2019.

“The approved bill retains the initial spirit of protecting the most vulnerable population of the country and strengthening the collection through the taxation of the population with the highest income,” according to a Finance Ministry press statement.

The new law “aims to recover investment in the country and allow the economy to grow above 4% [annually], removing the burden on the generators of employment and encouraging investment,” the Ministry added.

Unlike the original proposal, the new law won’t extend the current 19% value-added tax (VAT) on many products to the basic “food·basket” that includes what most Colombians buy every day. However, beer and carbonated soft-drinks – previously exempt from IVA -- will now be hit by that tax.

On the other hand, neither pensions nor certain service contracts will be taxed, contrary to the original tax proposal.

Meanwhile, the new law strengthens the hand of the national tax-collection agency (DIAN) in the fight against tax evasion, including possible prison sentences for evaders.

Responding to a proposal from President  Duque, “tax conditions were created so that companies related to the ‘orange’ economy [high-tech, environmentally ‘green’] could develop, benefiting cultural and technological ventures that generate added value to economic growth,” the Ministry noted.

According to President Duque, the new law “promotes entrepreneurship, simplifying and facilitating the work of micro-, small, medium and large companies, which currently face a huge and inequitable tax burden that does not allow them to grow, and substantially reduces the fiscal asphyxia in sectors generating formal employment.”

Corporate income-tax rates will be gradually reduced from 33% today to 30% over the next four years.

“To increase productivity, VAT will be allowed to be deducted from the investment in capital goods starting in the taxable year 2019. In addition, companies will be able to deduct 50% of the ‘Industry and Commerce Tax’ from the taxable year 2019 and 100%l in 2022. The deduction of 50% of the ‘Lien on Financial Movements’ is maintained,” according to the Ministry.

Meanwhile, a new “SIMPLE” alternative taxation system “seeks to simplify compliance with the tax obligations of legal or natural persons with annual gross income of less than COP$2.75 billion [US$847,500]. Using a single form, they can settle their income tax obligations and ICA [Industry and Commerce Tax], reducing the costs of compliance with their tax obligations and promoting formalization [of employment],” according to the Ministry.

“In addition, SIMPLE system rates for small stores, mini-markets, micro-markets and hairdressers already are included in VAT liability. On the other hand, restaurants will liquidate the consumption tax in the same form,” according to the Ministry.

The new law also includes a 1% tax on assets of more than COP$5 billion [US$1.54 million], while real estate sales valued at more-than COP$918 million [US$282,760] will be hit by a 2% consumption tax, except for rural properties destined for agricultural production.

In addition, the personal income tax rate is increased for people with average monthly incomes greater than COP$40 million [US$12,320].

The extra tax revenues resulting from the new law “will be directed mainly to address the subsidized health system, social programs such as ‘Families in Action’ and the ‘Elderly and School Feeding Program,’” according to the Ministry.

Published in Colombian economy Written by November 16 2018 0

Wall Street bond rater Fitch on November 14 issued a “stable” outlook for Colombian sovereign debt and simultaneously upgraded its GDP forecast to 3.3% growth in 2019 and 3.5% in 2020.

“Ivan Duque’s 2018 presidential election victory is expected to lead to continuity in the government’s monetary and fiscal policies, including abiding by its fiscal rule,” according to Fitch. “The new president also has pledged to enhance the business climate in Colombia.

“Growth prospects are consolidating towards Colombia’s medium-term growth potential of 3.5% after three years of underperformance (with average growth of 2.1% in 2016-2018). Higher exports, supportive consumption and higher investment are expected to underpin higher growth."

On the other hand, “infrastructure projects related to the 4G [fourth-generation highways] rollout have witnessed several bottlenecks that have slowed their progress, representing downside risks to the growth outlook,” Fitch added.

Meanwhile, a proposed tax reform in Congress “is key to achieving the [government revenue] target as well as meeting spending pressures such as from the immigration crisis stemming from Venezuela, although higher expected oil revenues from Ecopetrol dividends will help,” according to Fitch.

However, “if the tax reform does not pass or is heavily watered-down, [then] we think the government would revise the 2019 budget passed by the Congress in October 2018 with significant cuts in budgeted capital expenditure,” Fitch concluded.

DANE: 3Q 2018 Rebound

On a related front, Colombia’s national economic statistics agency -- Departamento Administrativo Nacional de Estadística (DANE) – on November 15 released its latest study on national economic indicators.

For the third quarter (3Q) of 2018, Colombia’s GDP (“PIB” in Spanish initials) grew at a 2.7% rate, up sharply from the 1.7% rate in 3Q 2017, DANE found.

Sectors showing relatively strong GDP growth (4.5%) in 3Q 2018 were public administration, defense, social security, voluntary pensions, health services and education, according to DANE.

Wholesale and retail commerce, vehicle repair, transport and warehousing, and hotel-and-restaurant services grew at a 2.6% rate, according to DANE. Industrial manufacturers meanwhile saw a 2.9% GDP growth in the latest quarter, the agency added.

In the mining sector, metals extraction grew by 14.3%, while oil-and-gas extraction rose 1.3%. However, carbon and lignite extraction declined by 4.1%, according to the agency.

Published in Colombian economy Written by July 09 2018 0

A new report from the United Nations Economic Commission for Latin America and the Caribbean (CEPAL) finds that foreign direct investment (FDI) in Colombia grew by a relatively modest 0.5% year-on-year in 2017, whereas FDI in Latin America actually fell 3.6% region-wide.

According to the report (see: https://www.cepal.org/es/comunicados/inversion-extranjera-directa-america-latina-caribe-cae-tercer-ano-consecutivo-2017-llega), “FDI inflows into Colombia reached US$13.924 billion in 2017, up 0.5% on 2016 levels and close to those recorded between 2011 and 2014.

“Reinvested earnings increased significantly for the year, especially in the fourth quarter, reflecting the increase in the price of oil, as well as the overall improvement of the economy in the second half of the year.”

Transport and telecommunications sectors were the biggest FDI recipients in 2017, at US$3.136 billion, “matching investment flows to the oil sector (US$3.135 billion), traditionally the largest recipient of FDI in Colombia,” according to the report.

Following the crash in global oil prices starting in 2014, “between 2011 and 2014, the oil sector [in Colombia] recieved over US$5 billion annually, but these [FDI] inflows halved in 2015 and 2016,” the CEPAL report noted.

In contrast, Colombia's oil-and-gas FDI rise seen in 2017 and in the first months of 2018 “reflects the pick-up in investment resulting from the increase in [oil] prices,” according to the report.

Colombia’s mining sector also benefited from a global rebound in prices for basic materials, as 2017 mining FDI rose to US$953 million. “FDI in the manufacturing sector also increased, almost reaching its highest level in the past 10 years, at US$2.523 billion,” the report added.

Following a trend of recent years, Spain was the biggest single source of FDI to Colombia, at US$2.616 billion, with the United States a close second, at US$2.121 billion.

“Mexico was the third largest investor [to Colombia] in 2017 with FDI totaling US$1.717 billion, including an investment by Grupo Salinas, which injected an additional US$100 million into its fiber-optic infrastructure subsidiary, Azteca Comunicaciones Colombia,” according to the report.

“Investments from Spain and Mexico increased owing to the recapitalization of the [telecom] subsidiaries of Telefónica and Claro, after a Colombian court ordered the companies to pay the Colombian government US$500 million and US$1 billion [respectively] in compensation for contractual infringements in the framework of the concessions awarded to them in 1994,” the report added.

In contrast to the positive signs for Colombia, 2017 FDI actually declined 9.7% year-on-year in Brazil and 8.8% in Mexico, while Chile saw FDI plunge 48% and Peru dipped 1.4%.

Commenting on the CEPAL report, Maria Lorena Gutierrez, Colombia’s Minister of Trade, Industry and Tourism, stated: “Colombia is a stable country. We have instruments that attract investors such as investment agreements, free zones and double-taxation [avoidance] agreements.

“But the prospects are even better. The peace agreement [between the government and the FARC terrorist group] and the entry of Colombia into the Organization for Economic Cooperation and Development are aspects that make the country even more attractive,” she added.

Published in Colombian economy Written by May 25 2018 0

The Organization for Economic Cooperation and Development (OECD) – the group of the 37 biggest free-market democracies in the world – announced May 25 that Colombia has now completed all main steps to join the group.

Formalization of affiliation will take place May 30 in Paris, when President Juan Manuel Santos and OECD Secretary-General Angel Gurria sign the official “access agreement” papers during the reunion of the OECD Council of Ministers, according to the organization.

The recent, successful conclusion of talks between OECD and the Colombian government on intellectual property rights had been the main sticking point holding-up Colombia’s final approval.

“It’s great news for our country. OECD is the most important organization that promotes the best public policies in the world,” as well as providing a “stimulus to investment,” President Santos said.

As an OECD member, “we have immense possibilities to advance in health, education, the fight against corruption and protection of the environment,” Santos added.

During the seven-years-long accession process, Colombia underwent “in-depth evaluations, carried out by 23 OECD committees, and Colombia has undertaken major reforms to align its legislation, policies and practices with OECD standards on issues including labor, the judicial system, corporate governance of public enterprises, the fight against bribery and the field of trade, and has introduced new policies at the national level on industrial chemicals and waste management,” OECD added.

Published in Colombian economy Written by May 15 2018 0

Colombia’s national statistics agency (Departamento Administrativo Nacional de Estadistica, DANE) announced May 15 that first quarter (1Q) gross domestic product (“PIB” in Spanish initials) grew by 2.2%, a big improvement over the 1.7% PIB growth in 1Q 2017.

The finance/insurance sector topped every other sector at 6.1% PIB growth, followed by 5.9% growth in public administration/defense; 5.6% growth in professional, technical and scientific activities; entertainment/recreation at 4%; wholesale/retail commerce at 3.9%; communications/information sector at 3.1%; and real-estate activity at 2.9% (see chart, above).

Explaining the decline in the construction sector, the sharpest drop was in residential/nonresidential building (down 9.2%), followed by an 8.2% drop in civil engineering and a 6.4% drop in highway/railroad construction, according to DANE.

The dip in the mining sector was blamed mainly on a 17.5% drop in metals mining. However, the oil-and-gas sector saw a slight (0.8%) increase in 1Q 2018 PIB.

The decline in industrial manufacturing was blamed mainly on a 4.6% drop in textile manufacturing and a 4.2% drop in finished metals production.

Over-all, Colombia’s economic output had a value of COP$210 trillion (US$73 billion) in 1Q 2018, up from COP$207.8 trillion (US$72 billion) in 1Q 2017 (as measured in constant 2015 Colombian pesos), according to DANE.

Published in Colombian economy Written by April 30 2018 0

The International Monetary Fund (IMF) on April 30 announced that it foresees 2.7% growth in Colombia’s gross domestic product (GDP) this year.

In its latest annual “executive board” report (see: http://www.imf.org/en/News/Articles/2018/04/30/pr18154-imf-executive-board-concludes-2018-article-iv-consultation-with-colombia?cid=em-COM-123-36986), IMF found that during the 2017 calendar year, “adequate policy management brought Colombia near completion of its adjustment to large external shocks while further advancing inclusive growth.”

However, “economic growth moderated as private investment and consumption weakened in line with lower national income. Some delays in the infrastructure [development] agenda also contributed to the decline in private investment.”

On the other hand, “fiscal consolidation continued, guided by the fiscal rule and contributed to the narrowing of the current account deficit which was also buttressed by some recovery in oil and non-oil exports,” IMF found.

“Despite the growth moderation, social indicators improved with both poverty and income inequality decreasing in 2017.

“The current-account deficit declined to 3.4% of GDP and continued to be financed by FDI [foreign direct investment] to a large extent. Portfolio inflows moderated somewhat but remained ample with further increases in foreign participation in the local government debt market,” the organization added.

“Colombia’s outlook is favorable as continued efforts to advance the structural reforms will foster economic diversification and productivity growth. Economic growth is expected to rebound strongly in 2018 and further over the medium-term, led by strengthening investment and exports.

“The combined impact of the structural tax reform, a brighter outlook for oil prices and the authorities’ 4G [fourth-generation highway construction] infrastructure agenda will underpin investment while reducing Colombia’s relatively large infrastructure gap.

“Continued efforts to reduce trade barriers and some recovery in global growth will help sustain strong export growth. The implementation of the peace agreement will promote regional development and reduce inequality,” IMF’s report added.

On the other hand, “the economy remains vulnerable to uncertainties from a sudden tightening of global financial conditions and escalation of trade or geopolitical tensions.”

In addition, “placing public debt on a declining path is an appropriate fiscal target which would also leave room to fine-tune the consolidation pace as guided by the fiscal rule.

“IMF directors encouraged [Colombian] authorities to focus on improving tax administration, as associated revenue gains will create space for public investment. They highlighted the need for a comprehensive pension reform to increase coverage and progressivity.

“The current monetary policy stance should be conducive to a recovery in activity and reducing the [discount] rate further in line with inflation expectations could be warranted if the recovery faltered.

“Directors agreed that the flexible exchange rate regime has served Colombia well and should remain the first line of defense against global shocks as well as help accumulate adequate buffers.

“Directors noted that the banking system has been resilient amid the economic slowdown, reflecting partly effective financial supervision and ample capital and liquidity.

“They welcomed recent regulatory measures to homogenize banks’ loan restructuring practices and to bring regulation closer to Basel III standards, including through the implementation of the conglomerates law,” the IMF report concluded.

Published in Colombian economy Written by April 18 2018 0

Medellin-based national electric-power grid operator and power-trading center XM announced April 17 that power demand in Colombia is up 3% year-on-year through first-quarter (1Q) 2018, compared to a 1.8% net year-on-year decline in 1Q 2017.

Over the last 12 months through March 2018, Colombian power demand is up 2.5%, whereas power demand actually fell 1.5% over the comparable 2016-2017 period, XM found.

Meanwhile, power demand in Antioquia rose 3.7% year-on-year for the month of March 2018, versus a 3.2% net decline year-on-year in March 2017.

The power-demand figures indicate that Colombia generally and Antioquia specifically are starting to emerge from recessions that hit in 2016 and especially 2017, when a hike in value-added tax (VAT) slammed consumer spending and (consequently) industrial output.

For the month of March 2018, national power demand rose 4.4% year-on-year, compared to a 0.3% year-on-year contraction in March 2017, XM noted.

The relatively strong demand growth has exceeded prognostications by Colombia’s national energy-planning agency -- the “Unidad de Planeación Minero Energética" (UPME), XM noted.

Residential and small-business demand grew 4.4% in March 2018 versus March 2017, while combined industrial-commercial demand in March 2018 grew an even stronger 4.6% year-on-year, the agency noted. However, manufacturing demand in March grew by just 0.8% year-on-year, according to XM.

The greatest year-on-year demand growth in March 2018 was in Guaviare department (up 9.4% year-on-year), while the Tolima-Huila-Caqueta region saw demand jump 8.1%, and the Atlantic Coast region saw demand grow 6.8%, XM found.

Published in Colombian economy Written by February 05 2018 0

Colombia’s national economic statistics agency (Departamento Administrativo Nacional de Estadistica, DANE) revealed February 5 that full-year 2017 exports jumped 19% year-on-year, to US$37.8 billion, up from US$31.7 billion in 2016 -- a year that saw exports drop 11.8% year-on-year.

By dollar value, petroleum and mining exports led the field, up 32.4% year-on-year, mainly from coal, petroleum coke and briquettes, DANE found.

Agricultural, food and beverage exports rose 7.2% -- mainly thanks to a rise in palm-oil export -- while manufacturing exports rose 2.4%, up from a 10% net decline in 2016, according to DANE.

By department, Antioquia once again led the nation in 2017, accounting for 18.1% of total national exports (excluding petroleum).

Exports in the broad “other” category in 2017 rose 15.7%, mainly from a rise in gold exports (dominated by Antioquia).

The USA once again led all nations in share of receipt of Colombia exports, at 29.7% of the total, followed by (in order) Panamá, China, Netherlands, México, Ecuador and Turkey, according to DANE.

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Medellin Herald is a locally produced, English-language news and advisory service uniquely focused upon a more-mature audience of visitors, investors, conference and trade-show attendees, property buyers, expats, retirees, volunteers and nature lovers.

U.S. native Roberto Peckham, who founded Medellin Herald in 2015, has been residing in metro Medellin since 2005 and has traveled regularly and extensively throughout Colombia since 1981.

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