Wednesday, September 19, 2018

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Roberto Peckham

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.


The Supreme Court of Colombia on January 17 notified a group of investors suing a fiduciary over a failed medical-office-building project near Medellin that a fiduciary has extremely limited legal obligations to oversee performance of shaky real-estate development projects or verify crucial financial assertions made by the developer.

The group of investors had sued Colombian fiduciary Corficolombiana (a subsidiary of banking giant Grupo Aval) arguing that project developer Arcor Inmobiliaria SA had failed to achieve the mandatory 50% “equilibrium point” of funding from project investors -- as required by the contract -- before receiving the investor funds from Corficolombiana.

(Editor's full disclosure: Medellin Herald obtained a copy of the Court ruling directly from the lawyer who represented the plaintiffs, among which included myself and my wife).

Arcor asserted that it had accumulated COP$4.57 billion (US$1.6 million) in investor deposits for the project -- supposedly exceeding the Arcor-calculated 50% “equilibrium point” that triggered disbursement of investor funds from Corficolombiana to Arcor.

However, Arcor’s claim that it had supposedly reached the 50% “equilibrium point” lacked a required signed statement from the official financial auditor, the Supreme Court ruling noted.

Nevertheless, the Supreme Court ruled that the lack of this signed document was “insufficient to demonstrate the non-compliance of the fiduciary.”

The only actual work Arcor performed at the site was demolition of an old building, digging a hole for the proposed basement parking lot and erecting a handful of pillars. No new building was ever constructed, leaving the investors with a loss that collectively exceeds US$2 million.

Following Arcor's abandonment of the project, a Circuit Court in Cali (where Corficolombiana is headquartered) confirmed its liquidation. Years later, the lot upon which the building was to be erected was resold to a third party, the funds from which enabled the project investors to recoup about half their original investments.

A hard lesson for investors in Colombian development projects (“sobre planos”) supposedly guaranteed by fiduciaries: Don’t assume that fiduciaries are actually checking the performance of construction contractors or that they truly know whether the “equilibrium point” has in reality been reached. Under the Supreme Court ruling, fiduciaries can just take the word of contractors about contract compliance, no matter how phony or flimsy those claims may be.

For example: Arcor provided documents -- obtained by the suing investors -- claiming to show that it had bought numerous plumbing fixtures for the office building. But these fixtures never showed up at the site -- and neither the fiduciary nor the contractor ever explained to investors what happened to these materials.

Investors also had been led to believe that the 50% “equilibrium point” supposedly pertained to funds obtained for the actual proposed office building, not later add-ons. Yet Arcor had included in the “equilibrium point” funds it supposedly obtained from the sale of additional mini-booths (“burbujas”) – which in any case were never built.

So, a first warning: naive investors shouldn't assume that having a fiduciary involved in a new-build project in Colombia somehow provides guarantees protecting investors against contractor non-compliance or fraud.

Second warning: Investors also should note that Corficolombiana has been tied to several other, high-profile construction scandals in Colombia.

One example: Corficolombiana’s ex-president José Elías Melo is now facing criminal charges in the massive Odebrecht bribery scandal involving highway construction projects in Colombia.

Melo – who has denied the charges – is alleged to have known about bribes totaling US$6.5 million that Odebrecht officials admit they paid to high government officials in order to obtain contracts for the giant “Ruta del Sol” phase-two highway project, according to the Colombian attorney general.

Another example: More recently, 132 national and international investors in the unfinished, abandoned, multi-million-dollar “Meritage” condominium and commercial-center project adjacent to the "variante al aeropuerto" highway between Medellin and the international airport at Rionegro have been victimized by another scandal involving Corficolombiana.

In total, the Meritage investors had paid more than COP$47 billion (US$16.6 million) for future apartments and commercial spaces in a project snarled by criminal charges involving alleged narcotraffickers.

A lawyer representing investors filing suit to recover their funds claims that the investors have been “abandoned” by project fiduciary Corficolombiana as well as the Colombian attorney general, who moved to halt and seize the project.

According to the lawyer, the attorney general supposedly should have warned investors about investing in a site whose legal ownership is entangled in a dispute between alleged drug-mafia kingpins.

In an October 7, 2017 report about the Meritage scandal by Colombian daily newspaper El Tiempo, foreign investor Paul Torres was quoted as saying that “Colombia doesn’t offer any guarantees to foreign investors.”

Similarly, a June 15, 2017 report from Medellin-based newspaper El Colombiano had this to say about the Meritage scandal: “In this country, it’s no longer enough to study the history of property titles, according to the Civil Code, but rather one must search until infinity to discover possible crimes of previous [property] owners. A very grave issue for legal security.”


The World Bank’s International Finance Corporation (IFC) and Colombia’s Financiera de Desarrollo Nacional (FDN) development agency jointly announced January 29 a COP$209 billion (US$74 million) investment in building new schools in Medellin.

The private-sector winners of concession bids to build and maintain the new buildings will enter into “public-private association” (PPA) contracts with a duration of 20 years.

Colombia’s Education Ministry and the Medellin municipal government will co-finance the projects, tapping the expertise of IFC and FDN.

The private concessionaires not only must construct the new buildings but also must “guarantee their good quality, their maintenance and provide cleaning, security and [computer-internet] connectivity,” according to the IFC-FDN joint press statement.

In all, 13 schools will be built, rebuilt, expanded or upgraded in Medellin, adding the equivalent of 290 new classrooms and 161 other public spaces -- benefitting some 11,280 students, according to the agencies.

The school construction project is necessitated by Medellin’s decision to lengthen school days, effectively adding two-years’ of classroom education time-and-space for students, explained Education Minister Yaneth Giha.

The new PPA project in Medellin and a similar project in Barranquilla are Colombia’s first-ever PPA school-construction deals, according to the agencies. PPAs enable “efficiencies gained from experience in the private sector, such as introducing technologies that permit improvements in service delivery,” according to the agencies.

Payments to the concessionaires in the PPAs will begin upon successful completion of construction, as well as satisfactory maintenance – an incentive for the concessionaires to ensure timely, quality completion, according to the agencies. Unsatisfactory completion will result in payment deductions.

This scheme “has many benefits such as better access to financing, greater efficiency and a better distribution and transfer of risk,” added FDN president Clemente del Valle. “In addition, this is a scheme that guarantees optimal maintenance of the schools and quality services, which will assure the well-being and care of school children over the long term.”

The contracting agencies will measure 81 indicators of concessionaire performance related to infrastructure and services. For its part, the city of Medellin will be in charge of student education, hiring the teachers, school administration and school cafeteria service.

At the end of the concession period, the schools will revert to Medellin city ownership and operation, according to the agencies.

 


Medellin-based multinational retail giant Exito is enjoying ever-greater success with its “Didetexco” clothing manufacture/export subsidiary – even in the face of Colombia’s  competitive problems with illegal, below-cost, and unethical clothing vendors (mainly exporting from Asia).

In a presentation to the Colombiatex 2018 annual show here January 23, Didetexco general manager Ramiro Arango and fashion coordinator Juliana Rincon pointed to tremendous growth in the division’s production, sales and exports – with 97% of clothing for Exito’s domestic and foreign markets made right here in Colombia.

“To ‘democratize’ fashion is our goal, with everyday-low-prices and sustainability,” Arango said.

The Didetexco clothing division – launched here in 1949 by Exito founder Gustavo Toro Quintero – initially tapped relatively low-cost supplies (scraps and remains from Medellin’s major textile manufacturers) and also provided dignified labor for seamstresses coming from vulnerable economic sectors.

Today’s business model for Didetexco involves tapping “sinerproveedores” – that is, scores of independent workshops in many Colombian towns and cities (including municipalities in Antioquia). These workshops employ some 9,000 directly or indirectly, mostly female heads-of-households.

While these workers aren’t direct employees of Exito, Didetexco nevertheless ensures that these workers receive all legal Colombian salary and benefits packages – in contrast to certain Asian countries that unethically employ slave-like child labor in clothing manufacture, dump toxic chemical byproducts, or sell to third parties that might be laundering illegal drug money by importing below-cost clothing.

In 2017, Didetexco’s “sinerproveedores” produced 33 million items of clothing -- up 153% since 2015 -- with 2.79 million of those units sold for export, up 390% since 2015, Arango boasted here.

For Exito, having Didetexco enables expansion of its domestic clothing retail sales to its recently acquired retail chains in Argentina and Uruguay -- via clothing exports from Colombia -- as well as to Brazil, which until recently (December 2017) had tariffs that made it cheaper to export designs rather than clothes.

However, thanks to a new free-trade agreement (eliminating tariffs on clothes), it’s possible that Exito in future could export at least some clothes from Colombia to Brazil.

The Didetexco subsidiary also is now exporting clothes from Colombia to France as well as to Africa, Arango showed.

Thanks to special agreements between Didetexco and several well-known clothing designers (including Silvia Tcherassi), Exito clothing brand-names now include Arkitect, Bronzini, People, Bluss, Custer, Myst lingerie, WKD, Coqui, Carrel, Eventi and Ama’s.

Besides having strong brand names, other competitive advantages enjoyed by Didetexco/Exito include: mid- and long-term deals with the “sinerproveedores;” strong capacity and expertise in exporting; creative designers; strong knowledge of fashion trends; seasonal product lines; “complete package” products; strong marketing and communications; ethical labor and environmental practices; aggressive brand promotion; strong controls on product supply in response to demand; and growing consumer awareness, Arango said.

In addition, “we can react fast and produce fast” in response to changing fashion trends, he said. “From runway to retail, we do fast turnaround. You can’t do that with Bangladesh or China,” even though those countries may offer relatively cheap costs for clothing -- but can't offer fast shipping.

The Didetexco business model also employs a firm “gross margin return on investment” (GMROI) policy that ensures relatively fast inventory rotation, as products will go straight from factories to stores, not to warehouses, he said.

“We also fight [alongside Colombia’s fellow law-abiding clothing makers] to ensure just import duties, so that we can formalize more jobs,” he added.


The Medellin-based “Vias del Nus” (“Vinus”) highway construction concessionaire announced January 22 that it won crucial permits from Agencia Nacional de Licencias Ambientales (ANLA) to build twin tunnels through “La Quiebra,” the principal obstacle blocking cost- and time-efficient freight traffic between Medellin and the Rio Magdalena.

The “Quiebra” pass currently only has an obsolete, narrow-gauge railway tunnel as well as a steep, winding highway nearby that snarls freight traffic.

According to the Vinus partners, the environmental permits from ANLA enable start-up of construction of the Quiebra highway tunnels (each 4.1-kilometers in length) as well as 5.1 kilometers of four-lane divided highway between Porcesito and the “Portal del Tunel” in Santiago, all in northern Antioquia.

“The objective of the Vias del Nus concession, which is part of the ‘Autopistas para la Prosperidad,’ is to generate a road interconnection between the city of Medellin and the main [fourth-generation] highway concessions in the country, as well as linking commercial exchange centers such as the Caribbean Coast, Pacific Coast as well as the Rio Magadalena,” according to the Vinus partners.

“This concession will allow easier and cheaper transport of products destined for export, in addition to favoring the entry of products from other regions to the department of Antioquia.

“Additionally, significant time savings will be achieved by having a design speed of 80 kilometers per hour for the new divided-highway roads and for the specific section of Cisneros-Alto de Dolores to the existing Magdalena-2 highway junction.

“Part of the work to be done consists of rehabilitating existing road and building a third lane on the uphill side of highway between San Jose del Nus and Alto de Dolores in order to improve the characteristics of the road and allow a better speed of operation than today,” according to the partners.

In total, the “Vias del Nus” project includes 154.7 kilometers of new and rehabilitated highway that begins in the northern Medellin suburb of Pradera, joining the existing Hatovial highway concession.

“Within this concession is the functional unit between Bello and Pradera that is currently concessioned to Hatovial and that will become part of the project from May 2, 2021,” according to the partners.

“This concession provides for the operation of five toll stations; four already existing in the corridor -- Niquía, Trapiche, Cabildo (Trapiche control toll station), Pandequeso -- and Cisneros, which will be moved because of the new geometry of the highway when the Quiebra tunnels enter into operation.

“To avoid the [potential] diversion of cargo traffic through the northeast route, it is expected that the Agencia Nacional de Infraestructura (ANI) and the Minstry of Transport or the government of Antioquia will issue a restriction upon cargo carriers for categories V, VI and VII on the Porcesito-La Cortada-Yolombó-Yalí-Vegachí-El Tigre-Remedios route (Northeast Trunk),” the Vinus partners added.

The Vinus concession partnership includes Mincivil S.A. (51.8%); SP Ingenieros (22.2%), Construcciones El Cóndor (21.1%); EDL (3.7%) and Latinco (1.1%).


Medellin-based Celsia – the electric-power division of corporate giant Grupo Argos – on January 26 reported full-year 2017 net profits of COP$251 billion (US$89 million), up 47% from COP$171 billion (US$61 million) in 2016.

Earnings before interest, taxes, depreciation and amortization (EBITDA) hit COP$1.12 trillion (US$399 million) for full-year 2017, up 9% year-on-year -- an all-time record.

As for fourth-quarter (4Q) 2017, net profits dipped slightly, to COP$71 billion (US$25 million), down from COP$75 billion (US$27 million) in 4Q 2016. However, 4Q 2017 EBITDA rose 21% year-on-year.

Consolidated earnings for full-year 2017 dipped 18% year-on-year, to COP$3.1 trillion (US$1.1 billion) because of a decline in thermal-power generation and lower power prices in Colombia, the company explained. However, 4Q 2017 consolidated earnings rose 4% year-on-year.

Total power generation in Colombia for full-year 2017 totalled 5,226 gigawatt-hours (GWh), down from 5,596 GWh in 2016. However, 4Q 2017 generation rose 31% year-on-year thanks to heavier rainfall that enabled greater output at Celsia’s hydroelectric plants.

Celsia’s power operations in Central America generated 9% more income in 2017 versus 2016, hitting US$245 million.

Celsia president Ricardo Sierra added that the company is “very content” with its 2017 financial results, adding that Celsia is now a leader in development of solar-photovoltaic power arrays as well as photovoltaic roofs for commercial operators -- including the Compañia Nacional de Chocolates chocolate factory in Rionegro, just outside Medellin.

Meanwhile, Celsia hailed a recent decision by Colombia’s national power regulator (CREG) that has boosted the financial outlook for thermal power generation -- via a “marginal scarcity price” scheme that allows thermal power generators to tap special revenues mainly generated by hydropower operators. These special revenues enable thermal power generators to survive for months or years until called-upon to boost output during occasional droughts that sap Colombia’s overwhelmingly hydropower-dependent electrical grid.

The company also hailed the recent start-up of a natural gas regasification plant in Cartagena, enabling thermal power generators to tap liquefied natural gas (LNG) imports during periods of peak demand for gas in Colombia.


Inexmoda -- the Medellin-based national trade group for Colombia’s textile and fashion industry – announced January 25 that the 30th annual “Colombiatex” show here generated new business deals likely to top US$356 million, surpassing last year’s estimate of US$326 million.

In total, 36% of the dollar value of projected new-business deals here involved purchase of textiles; 28% involved machinery, 19% in feedstocks other than fibers; 10% in fibers, and 7% in “other” supplies.

In all, 22,653 people from 60 nations attended this year’s version of Colombiatex – up 3% year-on-year – among which were 14,023 commercial buyers, 13% of those international. Among the internationals, 28% came from Ecuador; 10% from Mexico and 8% from the USA.

During the three-day event (January 23-25), Colombiatex once again cemented its position among Latin America’s leading textile-industry trade shows -- with growing evidence of renewed industry optimism this year, following a difficult 2017, when Colombian consumers were hit by higher retail value-added (IVA) taxes and an economic slow-down, as noted in a closing press conference by Inexmoda president Carlos Eduardo Botero.

This year’s show over-flowed the entire Plaza Mayor inside-space capacity, spilling into tented staging-areas adjacent -- resulting in more-than 12,000 square meters of commercial show area for the 579 exhibitors from 22 countries.

Brazil – which in December 2017 approved a two-way, free-trade agreement with Colombia, eliminating duties on textiles and clothing -- led the field in international exhibitors (21%), with India second (19%) and Spain third (10%), according to Inexmoda.

“The Colombiatex model gives us a very positive cost-benefit and the [participating] companies are very satisfied, especially given the new agreement between Mercosur nations [Brazil, Paraguay, Uruguay, Argentina] and Colombia, which stimulates bilateral trade relations,” added Rafael Cervone, executive director of the Texbrasil textile promotional group.

In addition to the surging crowds and bigger buying deals, Colombiatex also hosted 21 lectures on industrial, technical, social, environmental, marketing and fashion trends -- organized by Medellin’s Universidad Pontificia Bolivariana (UPB) and attended by 7,300 in-person, plus another 6,700 via internet streaming to international audiences, thanks to live broadcasts by local TV station Telemedellin.

Another nine “trends-forum” sessions here attracted 1,038 attendees for special insights into textile and fashion concepts, while 10 other workshops examined emerging challenges facing textile and clothing manufacturers.

Meanwhile, a concurrent “fashion system business roundtable” organized by the Mayor of Medellin and business-promotion agency ProColombia brought-together 161 local exporters and 85 international buyers, generating an estimated US$9 million in additional business deals.

Yet another new feature to this year’s edition of Colombiatex included 32 independent graphic and visual artists who showed their designs and explained the latest technical trends in graphics, colors and textures. Meanwhile, “Denim Day” demonstrations -- now a leading feature at Colombiatex -- showed the latest innovations in design and manufacture in jeans-wear.

Finally, according to figures provided by the Medellin Mayor’s office, each foreign attendee to Colombiatex this year was estimated to have spent (on average) about COP$2,416,320 (US$858) per day in hotel, meals, transport and other expenses, with a net economic benefit to the city of about US$12 million.


Medellin-based multinational electric-power giant EPM announced January 19 the start-up of a 590 megawatt-hours/year (MWh/year) solar-voltaic power system for the “El Tesoro” shopping mall in the Poblado district.

The photovoltaic system will operate in parallel with conventional grid power (overwhelmingly hydroelectric-sourced), according to EPM.

It’s EPM’s first-ever such system installed and financed for commercial customers, under a 15-year contract deal, according to the company, whose sole owner is the municipality of Medellin.

According to EPM general manager Jorge Londoño de la Cuesta, the new system includes 1,568 solar panels, covering a roof area of 2,570 square meters and supplying power mainly to the common areas of the shopping center.

With the new system, “we expect to generate approximately 590 MWh annually, equivalent to the power consumption of approximately 341 homes,” de la Cuesta said.

El Tesoro general manager Adriana González Zapata added that the new system “will bring great benefits – economically, because it will substitute for about 24% of [grid power], and environmentally, as part of our commitment to reduce our carbón footprint.”

The solar-power system will have dispatch priority in power supply, with grid-power serving as backup.

EPM’s 40.9%-owned “Erco Energia” affiliate built and installed the system and will provide maintenance. EPM now can offer similar systems to commercial customers that have “ample” space for photovoltaic panels, the company added.

EPM will assume the up-front cost of the system as well as handle installation, operation and maintenance. The company will recoup its investment via long-term contracts at “stable” and “competitive” prices per kilowatt-hour -- paired with conventional grid energy supply to ensure constant, reliable power, according to EPM.

Companies employing such solar-power systems can now claim credits as socially responsible entrerprises (“Responsabilidad Social Empresarial,” RSE), and also can get real-time reports on solar power use, according to the company.

The solar-power system EPM is offering doesn’t employ battery storage, but rather is custom-designed for each customer’s power profile, according to the company.

For each 100 kilowatts of newly installed solar power capacity, a commercial company could claim an annual reduction of 28 tonnes of carbon dioxide (CO2) emissions, equivalent to the typical CO2 footprint of 81 homes, according to EPM.


Medellin business-development agency Agencia de Cooperación e Inversión de Medellín y el Área Metropolitana (ACI) announced January 19 that Switzerland-based multinational consultant Amaris plans to expand its Colombian and South American operations following start-up of new offices at Medellin’s “Ruta N” high-tech hosting center.

“Teamwork between ACI Medellín, Ruta N and ProColombia, managed to consolidate the presence of this company in the country,” according to ACI.

Amaris – now operating through 65 offices in 50 countries, with some 700 corporate clients – chose Medellin for expansion because of the “innovative environment offered by the city and its strategic geographical location to support its other offices in the provision of recruitment services, human resources, administration, finance and technical support,” according to ACI.

“Ruta N offered us a pleasant work environment,” added Sara Mondragón, platform manager at Amaris Medellin. “Thanks to the other [high-tech] companies installed [here], we are surrounded by an innovative and challenging environment. We constantly interact with the members of other foreign companies that are part of the Ruta N ecosystem” and “we see an excellent opportunity to benefit from their knowledge of the Colombian market.

“To make this decision we made an analysis of the environment and the quality of life in Latin America. Medellín was the best decision [considering] cost, safety, quality of life, institutional support and human talent,” Mondragón concluded.

Amaris -- founded in Switzerland in 2007 -- specializes in business-administration consulting, information technology, telecommunications, engineering, biotech and pharmaceutical sectors.

“With a turnover of €187 million [US$228 million], its goal in 2018 is to reach a team of 5,000 employees -- currently amounting to 3,650 -- and thus ratify itself as a world leader in independent consulting,” according to the company.


The latest study by Medellin-based XM – Colombia’s national power-grid operator and wholesale power-trading center – finds that demand for electric power in Antioquia slipped by 0.8% year-on-year during full-year 2017, while nationwide power demand actually rose 1.3%.

Nationwide power demand in 2017 totaled 66,893 gigawatt-hours, the study found.

Power demand growth in 2017 was relatively strong compared to 2016, when demand rose just 0.2% year-on-year, XM revealed in a report issued January 17.

Strongest power-demand-growth in 2017 occurred in the Atlantic Coast (up 3.8%) and in Guaviare (up 2.4%), XM found.

Nationwide power demand growth for the month of December 2017 rose 3.2% year-on-year, the study found. Residential and small-business power demand rose 4.1% year-on-year in December 2017, but industrial-commercial demand rose by just 1.1%, the study found.


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About Medellin Herald

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.

Medellin Herald welcomes your editorial contributions, comments and story-idea suggestions. Send us a message using the "contact" section.

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