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Colombian economy 51

Colombia President Ivan Duque on March 29 hailed the move by the Ministry of Finance to extend COP$70 trillion (US$17 billion) in favorable credits to banks and their commercial, industrial and consumer customers -- in order to enable broader debt refinancing, maintain employment and keep paying wages to workers during the Coronavirus crisis.

With this program and other new measures, “I have no doubt that Colombia will succeed” in meeting the longer-term economic challenges of the Coronavirus crisis and the current quarantine, Duque said.

Apart from quarantine-exempt grocery and pharmacy buying today, much of consumer spending -- the biggest driver of the Colombian economy -- has been crushed.

What’s more, some restrictions on movement and gatherings are likely to continue past the presumptive April 13 end of the current quarantine, according to President Duque.

With millions of people no longer reporting to work -- and certain industries such as shopping malls, restaurants, hotels, airlines, real estate, entertainment, schools, colleges, museums, gymnasiums and parks shut down – the Colombian economy isn’t generating enough cash velocity to cover many current debts under existing repayment terms.

If this situation continues for months, then (ultimately) banks, industries, retailers and consumers would face a devastating financial crisis. Unless people get back to work, return to spending, and currently shut-down commercial/industrial ventures get back to production, the future looks bleak, as noted in a penetrating new investigation by Colombia-based financial giant Corficolombiana (see: https://investigaciones.corficolombiana.com/documents/38211/0/200316%20-%20Informe%20especial%20coronavirus%20en%20Colombia-2.pdf/b1178cd1-f4f2-73fb-2838-cd54db7d43b4).

On the brighter side, the COP$70 trillion(US$17 billion) newly-extended credits via the “Fondo Nacional de Garantías” (FNG) include COP$20 trillion (US$4.9 billion) for micro-, small- and medium-size enterprises (MSMEs), which account for the vast majority of employment in Colombia. This new government credit line for MSMEs includes a 50% payback guarantee, cutting lender risk in half.

Because of the new credit lines made available to banks, Duque urged lenders to “speed up the credit lines and facilities that allow small entrepreneurs and other entrepreneurs to attend to the situation caused by the coronavirus pandemic.”

“This is a moment where [creditors] have to contribute with solidarity, and I know that the Financial Superintendent [Colombia’s ‘Superfinanciera’ regulatory agency] has been having dialogues with many providers of banking services. The call is to effectively streamline their [processes] to deal with this storm,” Duque added.

Colombia faced a similar financial crisis in 1999/2000, Duque recalled.

“Twenty years ago, our country made a great effort to save the financial system at a time of crisis. Today, at this time, we need a financial system that is also contributing in solidarity to overcome these difficult moments,” Duque said.

Besides the new FNG credit fund, the Colombian government also is now waiving certain taxes and mandatory payments of certain less-critical worker subsidies to help many small and medium-sized companies, he said.

In addition, Colombia’s Bancóldex agency just boosted its credit facilities to COPR$650 billion (US$160 million) for affected export sectors as well as second-tier backstop funding for lenders, he noted.

Meanwhile, in a separate but related March 27 announcement, the Finance Ministry confirmed that Colombia’s poorest people (“estratos uno y dos”) won’t have their utility connections cut during the crisis -- and the national government will help local utilities recover these losses.

“Here we give guarantees to all companies that provide public services so that they have the capacity to continue providing them and they will not be in difficulties,” Finance Ministry vice-minister Juan Alberto Londoño stated.

“This [assurance] is not only for utilities but also for the health sector,” Londoño added. “Companies in the health sector -- hospitals, laboratories that need credits to continue providing their services and that need aid -- will have guarantees from the state,” he said.

In addition, “universities and other sectors that we have been identifying -- and that we ask everyone to help us identify -- will be extended credit,” he added.

ANDI President Urges One-Year Debt Holiday

Meanwhile, in a March 29 opinion column published in Bogota daily newspaper El Tiempo, Bruce MacMaster, president of ANDI -- Colombia’s main industrial/commercial trade association -- stated that the Colombian government should start to consider even-more-radical credit measures.

“Three months ago, no one would have imagined that countries closed their borders, hotels and restaurants no longer are working, much less that 90% of the population would remain locked up in their homes, with society threatened by an illness that we are not capable of controlling, and with an economy totally at risk,” MacMaster wrote.

“If this situation continues, a good part of the economic achievements of the 20th and 21st centuries can be lost, unemployment levels will increase, the capacity of institutions to finance universal health and education could be compromised, and the business fabric that has played a major role in building development and generating massive employment could be seriously affected.”

Today’s private-sector solidarity measures and new government-aid initiatives are helping to alleviate the current crisis – including the new COP$70 trillion FNG credits, he noted.

But these alone wouldn't be enough to head-off a longer-term disaster if current the crisis continues, MacMaster warned.

Besides cash liquidity-crunches for consumers, “there is the liquidity of companies, which are the vehicles to generate employment and income for millions of families,” he said.

“A good part of the [industrial/commercial] financial commitment today has to do with debt service,” MacMaster explained.

As a result, the Colombia government “ought to think of doing a massive program -- hopefully automatic -- that would allow companies that require [financial relief] to postpone all debt service payments for a year.

“By allowing the [Superfinanciera financial regulator] to waive current repayment terms, the Bank of the Republic could [step in] to provide liquidity to the financial sector,” which in turn would pass-through this aid to the industrial/commercial sectors, he explained.

“For the financial sector, it is better to leave [debt] resources with good clients than to put them into receivership [bankruptcy]. This [one-year debt holiday] would free up resources necessary to meet the primary need – that is, people -- by supporting the viability of the productive sector, which will ultimately will have to pay back the credits,” MacMaster concluded.


Colombia President Ivan Duque announced March 27 that the Coronavirus crisis and the resulting quarantine of most of the population is likely to cut Colombia’s gross domestic product (“PIB” in Spanish initials) this year.

While late-2019 and early-2020 forecasts had indicated that Colombia seemed on track for around 3.5% PIB growth this year, Duque stated that “we are going from, perhaps, in the first quarter of this year -- one of the best first quarters of the last 10 years -- to a tough second quarter, painful.”

In the face of the current economic downturn, both government and the private sector must “prepare to see how we are going to make an economic recovery that is sustainable and that also allows us to live with this virus while a vaccine appears,” he added.

Employers in both the private and public sectors are going to have to adopt “best practices in terms of control in labor scenarios,” he said.

“I believe that this is going to change many policies within companies where we are going to need [body] temperature mediators [to detect fevers]; where do we go, if someone has symptoms, to know how to say to that person: look, stay at home while you get better,” he said.

Meanwhile, the global oil-price crash triggered by falling global demand and a market-share war between Russia and Saudi Arabia will hurt Colombian government oil-revenues temporarily.

“It’s natural for the price to fall due to lower demand, but deliberately trying to generate an oversupply [from the market-share war] leads to negatively impacting the world economy [and] seems to me an act of extreme irresponsibility,” he said.

Fedesarrollo Cuts 2020 PIB Outlook

Meanwhile, Fedesarrollo -- Colombia’s leading economic think-tank – on March 27 cut its full-year 2020 PIB outlook for Colombia to 1.2%, down from its 3.5% 2020 growth forecast last December.

The “optimistic” scenario for Colombian PIB growth is 2.3% while the “pessimistic” scenario is a negative 0.4%, according to Fedesarrollo.

Colombian exports are likely to fall by 8.8% while imports would declined by an even steeper 15.8%, according to the forecast. Meanwhile, domestic consumer spending likely will dip by 2.2% and capital formation would fall by 11%, according to the latest forecast.

 

 


 Colombia’s Ministry of Commerce, Industry and Tourism (“MinCIT”) announced March 3 that Colombia’s exports of goods and services in 2019 hit a record US$25.29 billion, while foreign direct investment (FDI) in Colombia soared 25.6% year-on-year, to US$14.49 billion.

FDI in the commerce, restaurants and hotels sector jumped by 85.7% year-on-year, according to Banco de la Republica statistics cited by MinCIT.

In all, 68.1% of FDI to Colombia (US$9.87 billion) went to non-mining, non-energy sectors, up 30% year-on-year, according to MinCIT.

“The Colombian economy is one of the fastest growing in the region and is one of the most stable,” stated MinCIT Minister José Manuel Restrepo.

“We have instruments on the fiscal, regulatory and institutional fronts to attract foreign capital efficiently. These [policies] are those with the greatest potential to generate benefits in terms of productivity, employment, human capital, insertion into global value chains, knowledge transfer, technology and production standards,” Minister Restrepo added.

An especially notable FDI growth area was in financial services, up 26.7%, to US$2.98 billion – the largest single recipient of non-mining FDI in 2019, at 20% of the total, according to MinCIT.

In manufacturing, FDI rose 18.7% year-on-year, to US$1.55 billion, or 15.7% of total FDI, while export of services hit US$9.98 billion, or 39.5% of all exports when excluding mining and energy.

According to MinCIT forecasts, Colombia now expects to see its exports of goods and services to hit US$27 billion by 2022.

The strong results in 2019 came despite global trade wars -- mainly between China and the USA -- which led to “contraction of international demand, lower growth in different economies and a decrease in the prices of basic goods,” Restrepo added.

While mining and oil-and-gas sectors captured 31.9% of total FDI last year, the financial and business services nabbed 20.6% of the total. Commerce and hotels took another 14.7%; manufacturing industry got 10.7%; transportation and communications at 8.6%; electric power at 2.1% and “other” sectors, 11.4%.

Taking note of the favorable economic news during a Washington, DC press conference, Colombian President Ivan Duque highlighted record exports of services and the highest exports of Colombian agricultural products in years.

Meeting with President Duque afterward, top business leaders from the United States showed even more interest in investing in Colombia in different sectors of the national economy.

“We had a meeting in which business leaders, presidents, vice presidents or members of their boards of directors participated, from about 40 companies in the United States, all with a great interest in investing in Colombia in the energy sector, in the infrastructure sector, in the technology sector, in the aviation sector, in the logistics sector, ” Duque added.


A just-released December 2019 study by the United Nations Economic Commission for Latin America and the Caribbean (CEPAL in Spanish initials) finds that Colombia not only outstripped nearly all of Latin America in 2019 economic growth but also is likely to continue the trend in 2020.

According to the study, “Preliminary Overview of the Economies of Latin America and the Caribbean 2019,” Colombia likely will end-up 2019 at about 3.2% growth in gross domestic product (“PIB” in Spanish initials) -- more than triple that of Latin America as a whole and outstripping every South American country as well.

Only a handful of mainly tourism-dependent Caribbean islands outstripped Colombia in 2019, although mainland Panama also bested Colombia at 3.5% PIB growth, the study shows.

For 2020, CEPAL foresees Colombia once again leap-frogging over nearly all of Latin America and tying Panama at an estimated 3.5% PIB growth, the study shows.

By contrast, neighboring Venezuela’s socialist dictatorship not only delivered a disastrous 25% net decline in PIB in 2019, but also is expected to continue a horrendous trend in 2020, at a net 14% decline, the study shows. The socialist government’s catastrophic, anti-free-market policies explain a growing tidal wave of millions of Venezuelan refugees fleeing to Colombia and elsewhere.

On a related front, Wall Street bond rater S&P this month announced that it foresees a 3.2% PIB growth for Colombia in 2020 -- easily outstripping all other major Latin American economies.

S&P meanwhile slashed its economic outlook for Chile, Mexico and Peru, and likewise foresees relatively weak growth in Brazil and Argentina.

 


Colombia President Ivan Duque announced July 31 on his state visit to China that Chinese President Xi Jinping signed protocol deals that eventually will boost exports of Colombian bananas, avocados, coffee, meats and shellfish to China.

Initial deals enable export of 4 million boxes of bananas (mainly produced in Antioquia) and 960 tons of Haas avocados to China this year, according to the announcement.

Further initial agreements “open up the possibility for us to have greater exports of Colombian coffee,” according to President Duque.

In addition, the Chinese government announced that it will grant 100 full academic scholarships so that more young Colombians can study in the best Chinese universities.

On another front, a new communications deal will enable exporters “to use the electronic commerce platforms of the People's Republic of China to offer Colombian products,” according to the announcement.

As for the possibility of expanding Chinese tourism to Colombia, President Duque said he talked to President Xi about a project that eventually would open a direct flight between China and Colombia.

“Chinese tourism in Colombia barely represents 0.5% of our visitors,” according to President Duque. “Last year [2018], we had only about 15,000 Chinese visitors to the country, and that figure can be multiplied,” he added.


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.


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.


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.


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.


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