Tuesday, May 17, 2022

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Medellin-based multinational health, insurance and financial services giant Grupo Sura announced May 13 that its consolidated net income for first quarter (1Q) 2022 rose 109% year-on-year, to COP$442 billion (US$113 million),

Consolidated revenues likewise rose 25% year-on-year, to COP$6.9 trillion (US$1.76 billion), according to the company.

“This level of results was driven by revenues obtained from associated companies as well as double-digit growth on the part of [insurance subsidiary] Suramericana,” mainly in the life and health-care segments, according to Sura.

Grupo Sura also cited gains from its partial holdings in Medellin-based banking giant Bancolombia and its Medellin neighbor, foods giant Grupo Nutresa.

Operating expenses increased 22.3% for the latest quarter, “due to an increase with Suramericana’s claims rate, specifically in the car segment, given difficulties with the auto parts supply chains,” according to the company.

“On the other hand, this increase in expense was also due to our subsidiaries resuming their investments and projects, which had been temporarily suspended due to the pandemic,” the company added.

Grupo Sura’s varied-sector investment strategy “demonstrates, once again, the advantages of having a diversified, well- balanced investment portfolio as well as the benefits of our efficiency efforts,” added Sura Chief Finance Officer Ricardo Jaramillo.

The Suramericana division saw a 21.4% increase in written premiums during 1Q 2022, totaling COP$5.6 trillion (US$1.42 billion), “given the positive levels of performance obtained with the Life (16.7%), Health Care (27.2%) and Property-Casualty (15.8%) insurance segments,” while also enjoying an 89% jump in investment income, at COP$376 billion (US$96 million), according to the company.

While auto accident claims rose, “this increase was partially mitigated by the reduced impact of the pandemic across the region, as Covid claims declined by 60.5% compared to the same quarter last year and by 11.4% compared to 4Q 2021,” according to Sura. .

Meanwhile, the Sura Asset Management investment services division saw a 1.9% dip in fee and commission income, “due to issues such as the regulatory cap on commissions charged in Mexico along with losses in value on the global capital markets, which impacted the funds' own investments (reserve requirements). This was compounded with the depreciation of Latin American currencies against the dollar, which produced a negative exchange difference,” according to Sura.


Medellin-based construction giant Conconcreto announced May 13 that its first quarter (1Q) net income rose 76.8% year-on-year, to COP$22 billion (US$5.3 million), from COP$12.6 billion (US$3.06 million) in 1Q 2021.

Gross revenues rose 70%, to COP$237 billion (US$57.6 million), while earnings before interest, taxes, depreciation and amortization (EBITDA) rose 31.8%, to COP$29.8 billion (US$7.2 million).

In its U.S. operations, Conconcreto now boasts a hefty US$229.9 million construction backlog.

Meanwhile in Colombia, Conconcreto’s “Devimed” highway concessions on the Medellin-Bogota highway and on the “Oriente” (east of Medellin) highway between Llanogrande and Rionegro saw operating earnings rise 3.2% and EBITDA by 1.1% year-on-year.

Meanwhile, the “doble calzada oriente” (DCO) project east of Medellin – tentatively scheduled for construction start in October 2022 – aims to add another group of investors, with Conconcreto already holding a 60% participation share.

As for the “Via 40 Express” highway project being developed between Bogota and Girardot, this project saw an 86% drop in EBITDA for 1Q 2022 because of year-on-year differences in compensation payments during the Covid-19 crisis in the year prior, the company added.

 


Medellin-based construction giant Construcciones El Condor on May 13 posted a COP$9.4 billion (US$2.28 million) net loss for first quarter (1Q) 2022, an improvement over the COP$51 billion (US$12.4 million) net loss in 1Q 2021.

Gross revenues were nearly flat year-on-year, at COP$164 billion (US$40 million) in 1Q 2022 versus COP$165 billion (US$40.1 million) in 1Q 2021, according to the company.

“Revenues for this period are mainly driven by the EPC [engineering, procurement and construction] contracts with the Concesiones Autopista Rio Magdalena, Ruta al Mar y Pacífico Tres, and the construction contracts with the Ruta al Sur Concession and Invias (El Toyo),” according to El Condor.

“Operating costs as of March 2022 were COP$133 billion [US$32 million], decreasing 9% compared to the same period in 2021. Gross profit was COP$28 billion [US$6.8 million], equivalent to a gross margin of 17.36%.

“Operating profit amounted to COP$22.4 billion [US$5.4 million], equivalent to 5.45% of revenues.

“Earnings before interest, taxes, depreciation and amortization (EBITDA) reached COP$33.4 billion [US$8.1 million], with an EBITDA margin of 20.76%,” up from 12.91% margin in 1Q 2021, the company added.

“This result is due to the ascending pace of execution that all work fronts have and is in line with the EBITDA margins generated by the company in the years prior to the pandemic and the transition of the renewal of the backlog that it faced in 2021,” the company added

Meanwhile, in March 2022, Construcciones El Cóndor won contracts to continue works on the Magdalena River Highway Project 2. “The absolute maximum price of the new intervention amounts to COP$756 billion [US$184 million], of which the company will receive an advance payment of COP$70 billion [US$17 million],” according to the company.

Commenting on the Colombian economy and its infrastructure sector, El Condor added: “Market analysts project that the variation in the Gross Domestic Product for the first quarter of 2022 compared to the same period in 2021 would be 7.8%. This growth would be mainly driven by the agriculture and real estate services sectors. The construction sector is projected to have a stable behavior for this quarter.”

At the end of 1Q 2022, El Condor reported a construction backlog for contracts worth COP$3.47 trillion (US$844 million).


Toronto-based GCM Mining announced May 12 that its first quarter (1Q) 2022 adjusted net income fell to US$14.8 million, from US$21.9 million in 1Q 2021.

“Net earnings in the first quarter 2021 included the benefit of a US$56.9 million gain on loss of control of Aris, a US$42.8 million gain on financial instruments and a US$8.9 million gain on sale of the Zancudo Project, offset partially by US$9.8 million of transaction costs incurred by Aris in connection with the loss of control in early 2021,” according to GCM, formerly known as Gran Colombia Gold.

The 1Q 2022 adjusted results also reflect a US$4 million decrease in income from operations together with a $2.5 million increase in finance costs and an increase in income tax expense due to the tax rate increase in Colombia effective in 2022," according to the company.

Commenting on the results, GCM CEO Lombardo Paredes stated: “We have started-off 2022 on a positive note, meeting our expectations for production, costs and cash flow in the first quarter.

“We are on track to once again meet our annual production guidance for 2022. Following the favorable mineral reserve and resource update at Segovia [Antioquia], our exploration and mine geology teams have continued to execute the ongoing drilling campaigns at our four producing mines and the brownfield areas in our mining title.

“At our Toroparu Project in Guyana, we are advancing the infill drilling and the pre-construction activities. We are on track to finalize the prefeasibility study in the third quarter of 2022, at which point formal construction of the project is expected to commence.”

GCM’s 1Q 2022 gold production from its Segovia operations totaled 49,951 ounces, up 2% over 1Q 2021, and the company expects annual production this year at between 210,000 and 225,000 ounces of gold.

Meanwhile, GCM's new polymetallic recovery plant constructed in 2021 at Segovia produced approximately 252,000 pounds of payable zinc and 338,000 pounds of payable lead during 1Q 2022, according to the company.

Consolidated revenue, “all of which was sourced from the Segovia operations in the first quarter of 2022, amounted to US$101.3 million compared with $101.9 million in the first quarter last year, which included $5.1 million from Aris Gold Corporation -- prior to the loss of control of Aris on February 4, 2021,” according to GCM.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for 1Q 2022 dipped slightly year-on-year, to US$45.2 million, from US$46.3 million in 1Q 2021, according to the company.

“GCM Mining’s balance sheet remained strong with a cash position of US$315.1 million at March 31, 2022,” according to the company.

“The company also has US$138 million of funding available for construction of its Toroparu Project in Guyana through a precious metals stream facility with Wheaton Precious Metals (Caymans) Ltd. Other than scheduled interest payments, the company has no maturities of its long-term debt in the next 12 months,” the company added.


Medellin-based textiles and plastics-recycling specialist Enka Colombia announced today (May 13) that its first quarter (1Q) consolidated net income was essentially flat year-on-year, at COP$13.79 billion (US$3.35 million), versus COP$13.78 billion (US$3.35 million) in 1Q 2021.

Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) dipped slightly, to COP$17.1 billion (US$4.15 million) in 1Q 2022, versus COP$17.5 billion (US$4.25 million) in 1Q 2021.

Consolidated operating income likewise came-in essentially unchanged at COP$155.78 billion (US$37.8 million) for 1Q 2022, versus COP$155.97 billion (US$37.89 million) in 1Q 2021.

“The year 2022 begins with a solid behavior of the demand, which has allowed us to maintain good sales levels in strategic markets,” according to Enka. Positive results came from an “increase in international prices as a result of the high prices of the petrochemical chain and high global demand, and at a higher rate exchange” between the Colombian peso and the U.S. dollar, according to the company.

While EBITDA remained steady as measured in pesos, “the EBITDA margin showed a decrease of 15%, to 11%, due to the effect of transferring higher production costs to sales prices,” according to Enka.

On other 1Q 2022 fronts, Enka noted investments of COP$59 billion in a new “EKO-PET” recycling plant, “advancing under estimated schedules and budgets.”

Assets during the quarter rose by COP$48 billion (US$11.6 million), to COP$732 billion (US$177.8 million), while liabilities rose COP$33 billion (US$8 million), to COP$253 billion (US$61 million). “The debt ratio ends at 0.6-times EBITDA, increasing compared to the end of 2021 (0.15-x EBITDA) -- but at healthy levels for future investments,” according to the company.

During 1Q 2022, exports totaled US$18.9 million, accounting for 47% of total sales -- better than the 40% share seen in 1Q 2021, once including the impact of polyethylene terephthalate (PET) waste-plastic sales.

For all of its “green” waste-plastics recycling businesses, Enka saw a 45% year-on-year over-all hike in revenues, “mainly due to higher international prices that offset a 5% lower sales volume,” according to the company.

“The capture of plastic bottles grew by 25% compared to 1Q 2021, fulfilling the growth plan of the collection network with a view to supplying the-entry-into operation of the new 'EKO-PET' plant,” according to Enka.

Meanwhile, the “EKO-Fibras” line saw sales dip 7%, mainly because of an increase in “Asian imports at low prices and closure of Coltejer” textile production in Medellin.  “However, the exports grew 19%, driven by new developments for Geotextiles, made from bottles of colors that are difficult to recycle,” according to Enka.

On the other hand, the “EKO-Polyolefins” line saw sales rise by 28%, mainly for the local market rather than exports.

Textile/Industrial Businesses

Once excluding the production of virgin PET, textile revenues grew 51% year-on-year, “mainly due to the strong increase in international prices. Exports reached US$17.2 million, which represents 63% of the income from this line and 91% of the company’s total exports,” according to Enka.

The industrial yarns line saw a 6% hike in volume, “with growth in both canvas for tires as well as technical yarns, thanks to the good behavior of the demand in United States and the recovery of the Brazilian market,” according to Enka.

As for textile filaments, this line grew 6.3%, “mainly in exports, both in Argentina and Brazil, which offset the reactivation of Asian imports Asian in the local market,” according to the company.


Medellin-based cement, electric-power, real-estate and airport/highways conglomerate Grupo Argos announced May 12 that its first quarter (1Q) 2022 net income rose 65% year-on-year, to COP$315 billion (US$77 million).

Earnings before interest, taxes, depreciation and amortization (EBITDA rose 28%, to COP$1.2 trillion (US$293 million), while revenues rose 23.6%, to COP$4.6 trillion (US$1.12 billion), according to the company.

“Increased revenues from the sales of goods and services during 1Q 2022 is mainly explained by increased contributions from the Celsia electric power group (+COP$328 billion/US$80 million), Cementos Argos (+COP$260 billion/US$63 million), and the Opain concessions business (+COP$139 billion/US$34 million),” according to Grupo Argos.

“Increased costs and expenses for the period (+ 24% YOY) were due to increasing variable costs due to higher sales volumes during the period and to cost inflation occurring in all sectors, but particularly in the cement business where the cost of fuel has increased substantially.

“Financial expenses for the quarter increased 27.5% year-over-year due to higher index rates even with a reduction in overall debt during the period,” the company added.

Real Estate Business Boost

“The real estate business achieved historical figures in 1Q 2022, with positive net cash flow and EBITDA,” according to Grupo Argos.

“This is a milestone for the real estate business as all property taxes are paid during the first quarter and deeding plots is difficult because of a lack of free-and-clear certificates.

“This was achieved thanks to property tax management by the team, where this expenditure was reduced by 11%, and deeding of a plot for building a Four Seasons Hotel in Baru [near Cartagena].

“This business deal, signed in November 2021, required timely management of the land division license with the Cartagena authorities. This procedure was approved in December 2021, and, after meeting certain legal deadlines, we were able to divide and sell the property,” netting Argos COP$40 billion (US$9.7 million).

“We also highlight the signing of a promise of sale for COP$17 billion [US$4 million] for a housing project in Barranquilla of which we received COP$5 billion [US$1.2 million) this [first] quarter. The above figures plus customer interest and ongoing negotiations allow us to foresee a positive year for the real estate business,” the company added.

Odinsa Concessions Revenues Dip

As for the Odinsa airport/highway concessions business, gross revenues dipped 15% year-on-year.

Revenues from the road concessions business fell 30% year-on-year, to COP$157 billion (US$38 million). “This decrease is mainly due to deconsolidation of the concessions in the Dominican Republic concessions, which were terminated in advance at the end of 2021,” according to Grupo Argos.

“All other concessions in Colombia -- Túnel de Oriente, Autopistas del Café, Malla Vial del Meta, and Green Corridor -- made positive contributions to year-over-year variations in revenue, except for Pacifico 2, with a 33% decline in contributions via the equity method,” according to Argos.

In the airport concessions business, Odinsa saw 1Q 2022 year-on-year gains in revenue, EBITDA, and net income “as a result of an evident recovery in passenger traffic,” according to the company.

Over-all, Grupo Argos consolidated financial debt ended 1Q 2022 at COP$1.9 trillion (US$464 million), down 35% year-on-year.

“This reduction corresponds mainly to deconsolidation of the debt from Autopistas del Nordeste and Boulevard Turístico del Atlántico and early payment of debt in Odinsa Holding and Odinsa SA,” according to the company.

During the latest quarter, cost of debt in as expressed in U.S. dollars rose 39 basis points, while cost of debt expressed in COP increased 475 basis points “explained by the increases Bank of the Republic interest rates, higher inflation, and other index rates,” according to Grupo Argos.


Medellin-based multinational banking giant Bancolombia announced today (May 12) that its first quarter (1Q) 2022 net income skyrocketed 219% year-on-year, to COP$1.73 trillion (US$421 million), from COP$542 billion (US$132 million) in 1Q 2021.

Interest income grew 26% year-on-year, while interest expense rose only 13.7%, thus yielding a net 31% gain.

Assets likewise grew 15% year-on-year, to COP$291 trillion (US$70.8 billion), while liabilities rose 13.7%, to COP$259 trillion (US$63 billion), according to the company.

Gross loans amounted to COP$222 trillion (US$54 billion), up 12.9% year-on-year. When excluding the COP/U.S. dollar effect, the loan bookings rose 12.1%.

During the latest quarter, the Colombian peso appreciated 5.7% against the U.S. dollar, but had depreciated 2.1% against the dollar over the last 12 months. The average peso/dollar exchange rate was 4.4% higher in 1Q 2022 versus 4Q 2021 and 9.9% higher in the last 12 months.

Meanwhile, “retail loans continue with an increasing dynamism while gaining share within the total portfolio on a consolidated basis,” according to Bancolombia.

“Net interest margin expanded from 5.3% in 4Q 2021 to 6.0% in 1Q 2022. This performance is due to higher interest rates driven by the current contractionary monetary policy in Colombia.

“Total provision charges net for 1Q 2022 was COP$267 billion [US$65 million], which indicates a low cost of risk when compared to a normalized level, led by loan-losses provision releases in line with better asset quality trends,” the company added.

During the last 12 months peso-denominated loans grew 14.3% and dollar-denominated loans grew 7.8%.

At the end of 1Q 2022, Bancolombia’s “Banco Agricola” operations in El Salvador, “Banistmo” in Panama and “BAM” in Guatemala represented 26% of total gross loans.

“Gross loans denominated in currencies other than COP -- generated by operations in Central America, the international operation of Bancolombia Panamá, Puerto Rico and the U.S. dollar- denominated loans in Colombia -- accounted for 33.3% of the portfolio, and decreased 3.8% in the quarter when expressed in COP terms,” according to the company.

“During 1Q 2022, as seen in previous quarters, a growing trend on the loan portfolio persists at the consolidated level, increasing across all geographies.

“Banco Agromercantil [BAM] denotes the highest quarterly growth (6.1% when measured in U.S. dollars), showing good results in all loan categories. The increase of 11.3% in the consumer portfolio is in-line with the strong performance from 2021, gradually gaining market share in Guatemala.

“The operation in Colombia shows a 3.1% growth in the loan balance, again with a positive performance in individuals. When analyzing the annual variation, products such as payrolls and credit cards stand out in retail, as well as mortgages growing 15.9%.

“Banco Agricola reports a positive performance across all segments, growing 1.2% (measured in U.S. dollars) during the latest quarter. The credit portfolio continues to show a balanced share in commercial and retail, representing 43% and 42% respectively within the total loan book, without major changes over the past 12 months.

“Banistmo reveals a 0.1% growth (measured in U.S. dollars) during the quarter. Originations maintain an encouraging trend not only in commercial loans but also in retail and home-lending.”

As for electronic digital-banking efforts, “Bancolombia shows a positive trend in line with 2021 results. As of March 2022, the bank has 6.8 million active digital customers in the retail app, as well as 17.6 million accounts in its financial inclusion platforms -- 6.1 million users in ‘Bancolombia a la Mano’ and 11.5 million in ‘Nequi,’” the company added.


Medellin-based multinational gold miner Mineros SA announced May 9 that its first quarter (1Q) profits fell to US$10.47 million, from US$13.77 million in 1Q 2021.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) also dipped to US$41 million, from US$45 million in 1Q 2021.

Revenues dipped 1% year-on-year, to US$124.7 million, although the average price per ounce of gold sold rose 6% year-on-year, to US$1,884, according to the company.

Despite the profits decline, Mineros president Andres Restrepo added that the company is “on track to achieve its projection for 2022,” having already produced more than 66,000 ounces of gold so far this year, up 1% over 1Q 2021.

While cash costs for producing gold were up 8% year-on-year, all-in sustaining costs (AISC) actually dropped 6% year-on-year.

The company’s main operations are in Antioquia, Colombia (alluvial mining), Nicaragua (Hemco, underground mining) and Argentina (Gualcamayo, open-pit mining), with “significant gold exploration projects in Chile (La Pepa),” according to Mineros.


Medellin-based multinational cement/concrete giant Cementos Argos announced May 9 that its first quarter (1Q) net income dropped 60.6% year-on-year, to COP$55 billion (US$13.46 million).

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) also dipped 17.8%, to COP$437 billion (US$107 million), but gross revenues actually increased 11.2% year-on-year, to COP$2.57 trillion (US$629 million), according to the company.

Cementos Argos produces cement and ready-mix concrete (RMC) in 16 countries including the U.S., Colombia, and Caribbean-Central America (CCA) region, with total annual capacity of 23.1 million tons of cement and 14.7 million cubic meters of concrete.

Explaining the profits dip, Argos cited cost increases of COP$395 billion (US96.7 million), whereas price increases didn’t keep pace, at COP$330 billion (US$80.7 million).

“Cost increases were mainly related to raw materials and energy, which had a consolidated negative impact of COP$120 billion [US$29 million] and COP$80 billion [US$19.5 million] respectively. Other costs associated with freight, distribution, maintenance and labor also impacted the cost of sales,” according to the company.

On the upside, “dynamic conditions in our key markets have led to the continuation of a solid volume performance and the highest sequential cement price increase in the last seven years, allowing us to achieve all-time high quarterly revenues,” according to the company.

“Cement dispatches decreased 1%, while ready mix volumes increased 6.3% on a comparable basis year over year,” the company added.

U.S. Volumes Rise

In its U.S. operations, Cementos Argos realized “annual increases in cement and ready-mix volumes of 7.3% and 2.6%, respectively on a comparable basis. Prices across the region were increased in January and generated a 9% increase in the cement business and 9.5% in ready-mix,” according to the company.

“We remain optimistic regarding the willingness of the current [U.S.] government to close the gap of underinvestment in infrastructure, through the approved bipartisan infrastructure bill that will come into effect in the mid to long term,” according to the company.

Colombia Exports Rise 31%

In Colombia operations, cement volumes were flat year-on-year, but exports rose 32.3%. Ready-mix concrete sales also rose 13.4% year-on-year, but adjusted EBITDA fell 18%, according to the company.

“The solid demand conditions in Colombia continued during the first three months of the year, driven by the retail segment, residential construction and infrastructure projects,” according to Argos.

“Despite lower-than-expected volumes during the first few weeks of the year, we evidenced a strong recovery, which led to reaching in March the highest figure of monthly cement dispatches for Cementos Argos during the past five years.

“The residential segment in Colombia continues delivering positive signals. During the quarter, social and non-social housing sales grew 6.4% and 5.5% respectively year-over-year, despite a challenging comparison base. Additionally, housing starts grew 11% and remain on the highest level in seven years.

“On infrastructure projects, we remain optimistic due to the positive advances being made on ‘fourth-generation’ [4G] projects, 5G projects that are expected to begin their construction phase by 2023, the Bogota Metro which is underway and is projected to generate an important demand during the next three to four years, and other projects such as Puerto Antioquia, a port located in the Uraba region with an estimated investment of US$700 million, that is currently set to begin its construction phase and its contract is in the process of being awarded to bidders,” the company added.

Caribbean-Central America Region Prices Rise

“Positive market conditions in the [Caribbean-Central America] region continued, leading to the continuation of solid pricing dynamics. Cement prices increased double-digit sequentially and 6% year over year,” according to Argos.

However, “cement dispatches decreased 11% compared to the same period of last year, due to operational difficulties in Haiti and Dominican Republic, the government transition in Honduras and lower trading volumes.

“In Honduras, cement dispatches for the quarter were 9% lower versus the same period of last year as self-construction remained strong but the transition to a new government slowed down demand in public infrastructure construction.

“In Dominican Republic we evidenced solid demand conditions but mechanical difficulties in our cement mill resulted in a 5% decrease in cement dispatches.

“Haiti experienced lower volumes during the quarter due to technical challenges at the plant and social unrest in the country combined with complications in fuel supply. Additionally, trading volumes decreased 11% during the quarter, mainly due to the increase in exports, which allowed us to supply our Puerto Rico operation from Cartagena, but we postponed two shipments due to high FOB prices,” the company added.


A sometimes-popular belief that just legalizing cocaine would eliminate Colombia’s bloody wars among violent gangs (and their left-wing or right-wing extremist allies) – while providing a policy alternative to the Colombian government’s flawed attempts to corral the trade -- is pure nonsense, according to a remarkable Brookings Institution publication quoting Colombian experts.

“Legalizing Drugs and Illegal Economies is No Panacea for Latin America and the Rest of the World” is the title of the report, by Colombian drug-policy experts Vanda Felbab-Brown and Catalina Niño (see: https://www.brookings.edu/on-the-record/legalizing-drugs-and-illegal-economies-is-no-panacea-for-latin-america-and-the-rest-of-the-world/).

Felbab-Brown and Niño -- both experts at the Friedrich-Ebert-Stiftung Foundation here in Colombia (FESCOL) -- originally published their findings (in Spanish) in Colombia’s intellectual magazine, “El Malpensante.”

Fortunately, the Washington, DC-based Brookings Institution – one of North America’s leading independent think-tanks – has since translated that report to English, enabling a much-wider global audience to understand why hard-drug legalization in Colombia (or elsewhere) is no panacea.

The experts instead offer alternative -- but not simple -- solutions for Colombia’s (and the world’s) chronic drug-trade problems.

The report is a fair warning to those who look for an “easy way out” to Colombia’s problematic drug wars -- and the massive social violence and population displacements that result.

One such nebulous proposal is the recent “amnesty” scheme that socialist-populist Colombian presidential candidate Gustavo Petro has proposed for Colombia’s drug kingpins and their affiliated corrupt politicians.

Such a scheme would merely institutionalize and further incentivize violent drug gangs and their political pals in Bogota and elsewhere, the report finds.

Below we summarize and highlight the remarkable findings of this report, now freely available on the Brookings Institution web-site:

“Organized crime and illicit economies are enormously varied and diverse, highly dynamic and adaptive and innovative, with innovation often emerging in response to law enforcement actions,” Felbab-Brown explains in the report, presented in question-and-answer format.

“The illicit economies involve a wide scope of commodities and services, with some of the most iconic ones including drug trafficking, human smuggling and trafficking, illegal logging and mining, poaching and wildlife trafficking, smuggling in counterfeiting of goods, cybercrime, gun smuggling and money laundering.

“Illicit economies and organized crime groups pose a wide variety of threats to states and societies, but they also bring various socio-economic and semi-public-goods services to vast segments of marginalized populations around the world.

“Hundreds of millions of people are dependent on illicit economies for basic livelihoods, social mobility, and access to public goods, such as street security [like protection rackets], and thus the sponsors of illicit economies – criminal and militant groups or corrupt states and politicians – derive vast political capital from sponsoring them,” she explains.

While mass imprisonment of ordinary drug users has to date proved ineffective and wasteful, “with the exception of cannabis, I do not support drug legalization,” she explains.

The rationale: “Drugs such as cocaine, heroin, synthetic opioids, and methamphetamine are highly addictive and the substance-use disorder can destroy the lives of users, their families, and communities as much as imprisonment can.

“The United States has been going through the most devastating drug epidemic ever in U.S. history – the opioid epidemic. It started with legal prescription drugs and eventually mutated into heroin and then synthetic opioids,” she explains.

“Those who believe that legalization will solve problems of drug policy should learn from the U.S. disaster, and its equivalent in Canada where extensive harm-reduction approaches almost melted underneath the onslaught of commercialized legal prescription opioids.

“Those very same companies and their international branches that unleashed the opioid epidemic in the United States are actively promoting the same disastrous and nefarious policies abroad, including in Latin America, in places such as Brazil and Mexico.

“On the supply side, I warn of premature and highly counterproductive eradication of drug crops without alternative legal livelihoods being in place. Such policies strengthen the political capital of criminal and militant groups.

“But that doesn’t mean, once again, that I believe drug trafficking should be legalized. Instead, I often urge prioritizing in targeting the non-intensive-labor-side of drug trafficking, such as by targeting trafficking. Creating legal jobs on a sufficient scale should be a critical element of most strategies for dealing with drug economies . . .

“Legalization will merely allow criminals to operate in a newly legal economy, often with the same violent practices as they practiced in the illegal space. Thus, avocado farming in Mexico is dominated by extortion by violent criminal groups, and fights over land and territorial control among them are as much about access to legal economies as to local drug retail markets or drug routes.”

Felbab-Brown then specifically cites historic problems of the war on drug trafficking in Colombia.

“Colombia is unique in the Andean region in how its political leaders and government officials are wedded to the so-called zero-coca policy – namely, that all coca needs to be eliminated in a particular area or community before the community receives any kind of socio-economic, alternative livelihoods, support from the state,” she explains.

“The zero-coca policy was the hallmark of the [former President Alvaro] Uribe administration, and is again a key feature of [current President Ivan] Duque administration – such as in the way the administration ties titles to all coca being eradicated in a community. It was also a policy of prior governments, including that of the [former President Juan Manuel] Santos administration, and goes back to the 1980s. Yet this zero-coca approach in Colombia has failed over and over again, and it will continue to fail.

“Destroying all coca rapidly is easy. Bringing in adequate legal livelihoods is hard and takes many more years than eradicating a particular coca plot, which only takes days.

“I’ve often urged, and want to emphasize again, that Colombia would benefit enormously from moving away from the zero-coca mindset. It should learn from effective strategies in Thailand and policy experimentation in Bolivia — demanding, for example, that in a development area, such as a PDET [‘Programas de Desarrollo con Enfoque Territorial,’ or (in English) Territorial Development Programs], each family eliminates 30% of its coca fields to start with, and once certain development targets are reached, another 20% or 30%, for example, would be eliminated.

“Such a sequenced approach gives both the communities and the state a stake in working toward the establishment of viable legal economies and livelihoods without leaving farmers who agree to eradicating their drug crops high-and-dry and without income, thus making them sour on collaborating with the state. The community could also be informed that once certain development targets are reached and legal income reaches and stays at certain level, all coca will be eradicated, forcibly if necessary.

“Eliminating all coca without alternative livelihoods already being actually in place, not merely promised, also generates violence, alienates local communities from the state, and thrusts them into the hands of violent nonstate actors.

“The right response from the state instead would be to prioritize secure delivery of goods and services to communities selected for legal rural development efforts, and to minimize access by violent trafficking groups.”

While anti-drug policies in the U.S., Europe and elsewhere may change in future, “I am skeptical, however, that in the next 15 years we will see any equivalent effort to legalize cocaine, heroin, or synthetic drugs,” she added.

“A rogue regime like the [President Nicolas] Maduro regime of Venezuela could possibly fantasize about it – but even that is unlikely, given its dependence on Russia and China. China and Russia have emerged as determined drug cops, increasingly active in promoting rigid, doctrinaire, unreconstructed tough-on-drug policies like the United States embraced in the 1980s, not just in regional settings like East or Central Asia but also at global multilateral fora.

“Any Latin American government that would seek to legalize the drug trade beyond cannabis and beyond permitting personal use would end up contending with strong opposition from China and Russia as well as the United States.

“The more likely shock to the drug systems in Latin America, and one that is potentially transformational, is a wholesale switch away from plant-based drugs in the United States -- with the exception of cannabis -- toward synthetic drugs.

“Already, a significant reason why U.S. drug users are still interested in cocaine is that fentanyl is being mixed into cocaine quite frequently. That also means that cocaine users are encountering fentanyl and synthetic drugs.

“Traffickers, and even dealers, prefer highly potent synthetic drugs such as fentanyl that are much superior to cocaine or heroin: Smuggling those drugs is very easy and does not require the same territorial control, nor therefore as much violence or corruption.

“Thus, one can contemplate a world in which the U.S. drug market is predominantly not supplied either by cocaine or drugs from Latin America – with the exception of Mexico, where fentanyl smuggling is already strongly established and production can easily develop.

“In such a world, Latin America, particularly the Andes, would lose a lot of relevance to the U.S. in terms of anti-coca and cocaine policies.

“Latin America itself could easily become the principal consumer of cocaine produced there, surpassing the market in Europe.

“Pressures to reduce its supply and production may start coming strongly from within Latin America, with countries such as Brazil and Argentina demanding that the Andean countries crack down on production.

“Alternatively, or simultaneously, new cocaine markets in East Asia, such as in China -- the development of which Latin American criminal groups are actively promoting -- could reinforce China’s embrace of a new role for itself as an international drug cop.

“And if Latin American countries allow themselves to be entrapped in China’s debt diplomacy, particularly as a result of seeking Chinese financial flows with bad terms as a result of Covid, then China would have high influence in demanding doctrinaire drug policies,” Felbab-Brown explains.

“Latin America may thus finally see the de-narcoticization of U.S. policy toward Latin America, for which the region so often asks.

“But such a de-narcoticization of U.S. policy toward Latin America could also come with an undesirable reduction of U.S. interest in and resources for economic and rural development, law enforcement institutions, and rule of law.

“The United States should avoid such a flip: Even if Latin America stops being a large source of illegal drugs for the United States, the United States should still strongly want to promote multifaceted policies to reduce violence and all kinds of criminality in the region, and to foster effective law enforcement and public safety, equitable development, and expansion of justice and rule of law to all citizens of Latin America,” she concluded.


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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.

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