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Economy & Finance 9

Written by January 03 2020 0

Andi -- Colombia’s biggest and most influential industrial-commercial trade association, born in Medellin – on January 3 issued its latest annual economic outlook report, finding that Colombia continues to improve in several key economic competitiveness areas -- but still lags in others.

“Colombia ends 2019 with a fairly acceptable performance in the economic field,” stated Andi president Bruce MacMaster.

During 2019, Colombia’s manufacturing industry showed “moderate” growth year-on-year, although slightly lower compared to 2018's growth, the study found.

Between January and October 2019, Andi’s “Joint Industrial Opinion Survey” ("EOIC" in Spanish initials) reported an increase of 1.8% in industrial production (down from 2.9% in 2018); a 2.8% rise in total foreign plus domestic sales (down from 3.3% growth in 2019) and a 2.9% hike in sales for the national market (up from 2.6% in 2018), according to the trade group.

As for the general economic growth (“PIB” in Spanish initials), Colombia is outstripping nearly all of Latin America, rising above 3% for full-year 2019 – in contrast to 10 consecutive quarters in prior years that had growth rates below 2.5% and even in some quarters below 2%, Andi noted.

“However, 3% [annual PIB growth] rates are not enough. They are far from Colombia's long-term [historic] growth, which is between 4% to 4.5%, and [3% annual growth] will not allow us to respond to the great challenge that the country has today to generate quality jobs and meet great needs in social and competitiveness,” according to Andi.

“Household consumption, which had grown 3.6% [year-on-year] in 2018, at the end of the third quarter of 2019 grew 4.7%. Meanwhile, investment measured by gross formation of fixed capital went from 0.8% in 2018 to 4.6% in the same period of 2019.

“This behavior of investment [growth] is explained by the confidence that national investors and foreigners have in the country and also thanks to the incentive represented by the new Financing Law that corrects a lag that we had with respect to other countries by allowing VAT [value-added tax] deduction for the purchase of capital goods.

“With all of the above, Colombia remains one of the promising economies in the region and this is perceived by the risk rating agencies that keep the country in investment grade. In the same direction, foreign direct investment (FDI) flows to the country have been maintained this past year and recorded growth of over 20%, both in FDI towards the oil sector and oriented towards other sectors.”

Meanwhile, “2020 will bring great challenges. The recovery phase that began in the last two years should be consolidated and the country should look for growths greater than 4% and even 5%.

“For this [to happen], the recently enacted tax package [dubbed ‘Economic Growth Law’] constitutes a positive investment incentive. It is also important that both the public and private sectors closely monitor the commitments of the Growth Pacts, which would also contribute to a better environment to boost the economy. No less important is a strong export strategy that allows us to penetrate new markets and diversify the export basket.

“Another great challenge is in formalization. Colombia still has high levels of labor, product and business informality. The country has already made progress in making decisions to reduce informality such as the reduction of [company formalization] procedures, a simplified taxation system and electronic invoices.

“To this is added the CONPES [the national economic planning organization] initiative for business formalization, whose main purpose is the implementation of an action plan to improve the cost-benefit ratio of a company to be formal,” Andi added.

Competitiveness: Crucial for Growth

While Andi noted that the year 2019 was generally positive, “this level of economic growth is not enough for the country to transform and achieve greater development, a better level of employment and an increase in investment.

“That is achieved with a competitiveness strategy, where policies focus on Colombia being attractive both in the region and internationally in terms of infrastructure, human capital, institutions and business development, to mention a few issues,” Andi noted.

While some major competitiveness indicators found that Colombia showed “slight improvements in the year 2019, the position that the country occupies is still lagging behind,” according to Andi.

“The World Economic Forum [WEF or 'FEM' in Spanish initials] placed Colombia at position 57 among 141 countries in the Global Competitiveness Index 4.0, reflecting a three-position advance over the previous year, when it was in position 60.

“The top positions [in the WEF survey] are held by Singapore, the United States and Hong Kong. Asian countries such as [South] Korea and China remain in high positions in positions, at 13 and 28 respectively. India on the other hand fell 10 positions with respect to the prior year, placing itself in position 68.

“In Latin America, Colombia is in position four among the [WEF] countries analyzed, and continues to be better placed in the ranking than Costa Rica, Peru, Panama, Brazil, Argentina, Ecuador, Paraguay and Venezuela. However, although Chile, Mexico and Uruguay did not show improvements in the global index [in 2019], these countries continued to place themselves in higher positions in the indicator.

“The rise by three positions [in the global WEF survey] by Colombia is mainly explained by significant improvements in macroeconomic stability, health and labor market.

“On the other hand, we deteriorated in institutions and in TIC [advanced technology, information and communications] adoption.

"Among the indicators of institutions, the fall in protection of intellectual property and verifications and balances is highlighted. On the other hand, the fall in TIC adoption is mainly due to the fall in Internet users.

“In infrastructure, we improved by two positions. The indicators that stand out for their progress are efficiency in train services and electricity.

“Macroeconomic stability had an advance of 13 positions, reaching 43, where inflation was the determining indicator.

“In human capital, the country advanced nine positions for the improvement in health indicators, specifically for healthy life expectancy. For its part, the skills indicator showed no progress, and we remain in an unfavorable position (80).

“In markets [efficiencies], we fell two positions due to the decline in the product market and in the financial system. The fall in the product market was due to significant deterioration in the following indicators: scope of market dominance, competition in professional services, competition in network services and complexity of tariffs.

“For its part, trade tariffs had an advance of 14 positions. In the financial system, the indicator of delinquent bank loans (as a percent of the value of the loan portfolio) was the one with the greatest decline.

“The labor market, meanwhile, had a significant improvement of seven positions, explained by the good performance of flexibility in salary determination, confidence in professional management and the meritocracy-and-incentive indicator.

“In the innovation ecosystem, Colombia lost six positions in the ranking, reaching 66. The capacity for innovation is the biggest challenge, since it fell four positions.

“The indicators that lost positions [relative ranking declines] were that of interaction and diversity, diversity of the workforce, status of cluster development and patent applications. The behavior in the indicator of collaboration within the company that improved 30 positions stands out as positive,” according to Andi.

“The pillars in which Colombia performed less favorably were that of business growth, legal certainty and internationalization.

“In legal certainty, the country's environment is not friendly and shows that Colombia has a lot to advance in this area, since the constant change in the rules of the game is a great limitation for companies.

“Indicators such as transparency and contract compliance time show a weak performance in the country. In internationalization, the indicator that does not show good performance is that of the [transparency] environment, due to indicators such as time to import and foreign currency reserves.

“The competitive environment of the country, although it has improved, there are many challenges and a long way to go. In infrastructure, costs and environment, we occupy the least favorable positions, while in technology and education the indicators show a better position (49 and 50).

“In [business] formalization, the position occupied by Colombia was 52, due to the country's environment in this area. The indicators of transparency and burden of government regulation are those that place the country in a less favorable position,” Andi added.

“The digital transformation in Colombia is, together with innovation and entrepreneurship, the pillar in which the country is better located, ranking 51.

“Within this pillar, the country's performance in ‘GovTech’ stands out, due to the good performance in indicators such as the government online services index, electronic participation index and the importance of TIC for the government vision.

“In the areas of [TIC development] infrastructure, digital talent and environment, we still have a long way to move forward,” Andi concluded.

IMD Rankings

“Likewise, the IMD [the Swiss-based business-development education program often ranked top in the world] in its global competitiveness ranking published in May [2019] shows a good performance for Colombia, with an improvement of six positions, achieving position 52 among 63 countries,” according to the Andi analysis.

“Within this [IMD] indicator, most of the measurement factors had improvements, which include the labor market indicator ranking (+21), prices (+17), attitudes and values (+10), fiscal policy (+7) and technological infrastructure (+7). On the other hand, the indicators for foreign trade, foreign investment, public finances and health and environment, fell between three and five positions.

“For its part, the ‘Doing Business’ [research organization] in its report, ‘Ease of Doing Business,’ presented an unfavorable panorama for the country, with a deterioration in the general ranking of two positions, going from 65 to 67 among 190 countries,” Andi noted.

Written by July 11 2019 0

Nutresa Full-Year 2018 Net Profits Jump 20% Year-on-Year

Medellin-based multinational processed foods giant Nutresa announced February 22, 2019 that its full-year 2018 net income rose 20% year-on-year, to COP$508 billion (US$155 million).

Earnings before interest, taxes, depreciation and amortization (EBITDA) climbed 7% year-on-year, hitting COP$1.1 trillion (US$336 million), while sales rose 3.7% and EBITDA margin came-in at 12.5%, according to the company.

Sales in Colombia grew 4.4% year-on-year, to COP$5.7 trillion (US$1.7 billion), according to Nutresa. International sales meanwhile rose 2.3%, to US$1.1 billion.

Costs of operations fell 42% year-on-year thanks to lower financing costs, lower debt levels and lower interest, according to the company.

Grupo Nutresa – founded in 1920 – now boasts of having some 45,600 employees in eight business units, including processed meats, baked goods, chocolates, pastas, coffees, ice creams and packaged foods.

The company also operates 46 production plants in 14 countries, while its products are sold in 81 countries across five continents.

Written by July 11 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, mattresses and mattresses, and 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, except machinery and equipment; 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, growth came-in at a relatively weak 0.3% year-on-year, with residential and non-residential building growth at 1.0%, while “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%.

The information and communications sector grew by 3.1% year-on-year, identical to the 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.

Written by March 16 2018 0

The Chamber of Commerce of Medellin for Antioquia (CCMA) projects that Antioquia likely will see 3% growth in gross domestic product (“PIB” in Spanish initials) this year, up from 2.2% last year.

As noted in a March 15 bulletin from Confecamaras (the Colombian national association of chambers of commerce), Antioquia out-performed Colombia nationally last year, with 2.2% GDP growth locally versus just 1.8% nationally.

As for 2018, the Medellin chamber foresees 3% GDP local growth thanks to “lower interest rates, growth in industrial exports, better prospects for private investment and public spending,” the report noted.

In a related report posted to the Medellin chamber’s web-site (http://www.camaramedellin.com.co/site/Noticias/Desempeno-economico-de-Antioquia-y-perspectivas.aspx), CCMA noted that exports from Antioquia grew 3.3% last year – to US$4.478 billion. Gold, fruits (especially bananas), coffee, vehicles, flowers, clothing, plastics, machinery and essential oils were the leading export products.

Meanwhile, copper exports jumped by 126% year-on-year --mainly to Spain and Singapore – while textile exports grew 15%, mainly to Brazil, Ecuador and Mexico, according to CCMA.

While local government spending grew 4% here, up from 2.4% in 2016, “industry, commerce and construction showed lower growth because of slow growth in internal demand and the negative impact of the [2017] tax reform, affecting personal consumption,” the CCMA report notes.

Investment in private corporations last year grew 18.6% year-on-year, by COP$1.01 trillion (US$353 million), with management consulting, road transport, metal-mining, machinery installation and maintenance, lumber and fisheries, health-care, and telecommunications taking leadership among all investment categories, according to the report.

However, industrial production in metro Medellin declined by 4.6% year-on-year through September 2017, while local industrial energy demand fell 7.9%, the report noted. The biggest declines were in textiles, iron works, foundries and clothing manufacture, according to CCMA.

While 139 companies relocated to Medellin from elsewhere in Colombia (mainly Bogota and Barranquilla) during 2017, 133 other companies decided to leave Medellin, mainly going to Bogota, Cali, Barranquilla and Cartagena, the report found.

Factors attracting companies to Medellin include relatively favorable access to clients and suppliers, the existence of local companies providing required services and information, relatively good urban and social infrastructure, qualified labor, relatively efficient public administration, and the existence of research centers (such as universities), the CCMA report found.

However, negative factors cited by companies included relative costs of public services, relatively high land costs, lack of local natural-resources, labor costs, lack of fiscal incentives and some concerns about security.

Written by September 27 2017 0

At a September 26 event celebrating the fiftieth anniversary of Medellin-based ISA -- Colombia’s national electric-power transmission operator and power-market trading hub – speakers praised ISA for revolutionizing and rationalizing Colombia’s power industry.

In a speech here at Medellin’s Plaza Mayor convention center, Colombia President Juan Manuel Santos recounted the painful history of Colombia’s catastrophic power outages for 13 months during 1992 and 1993, which cut a full three percentage points out of gross national product (“PIB” in Spanish initials).

That event spurred ISA to adopt measures that have since helped to avoid a repeat of similar power disasters.

However, Colombia’s heavy reliance on hydropower – about 70% of the national total – makes the nation especially susceptible to occasional “El Niño” droughts (as in 1992 and 2016) that slash water supply to hydroelectric plants, Santos warned here.

What’s more, global climate change could worsen this situation, which makes it even more important for Colombia to deploy more alternative sources including wind and solar power, which feasibly could rise from a 1% national share today to around 15% in years ahead, he added.

Aside from global warming threats, the Colombian electric power industry is facing radical market changes that threaten the historic business models of generators, transmitters and utilities, as noted by several panelists at the event.

Notably, Medellin Mayor Federico Gutierrez was among the audience members paying close attention to these warnings -- especially since dividends from the city-owned, multinational power utility EPM provide about 20% of Medellin’s annual income.

What’s more, EPM is part-owner of the under-construction, 2.4-gigawatt “Hidroituango” hydroelectric plant in Antioquia – which will be by far the nation’s biggest single power plant when it reaches full capacity in 2021. Future “El Niño” droughts aggravated by “global warming” could pinch EPM’s future revenues from that plant.

One of the panelists here -- Navneet Trivedi, chief operating officer of Vrinda, a New York-based electric power consultancy – warned that while ISA has enjoyed tremendous, profitable growth in moving electrons since its founding 50 years ago, the future for ISA likely will be one of less demand for long-distance, high-tension transmission.

Many factors account for this forecast, including greater efficiencies in power technologies and the growth of distributed energy generation (DEG) --including home, office and factory generation schemes that for example may employ diesel/natural gas generator-sets, or solar power paired with battery or hot-water storage.

Such efficiencies and innovations help explain why (for example) the Washington, DC, population has grown 13% in the last five years, yet electricity demand over that same period has fallen 6%, he said.

DEG, technology evolutions and efficiency schemes similarly are likely to cut demand for long-distance, high-tension power transmission and “change the role of the [power] grid” in Colombia, Trivedi added.

What’s more, Pablo Corredor – director of ISA’s Medellin-based power-trading subsidiary “XM” – pointed-out in his presentation that future growth of electric vehicles (EV) in Colombia could have mixed results: a favorable reduction in vehicle air pollution, but a potential power-market disruptor. Reason: EV’s potentially could represent gigawatts of stored power, newly made available to local grids through reverse transmission (vehicle-to-grid).

While Vrinda’s Trivedi told Medellin Herald that “I don’t think vehicles-to-grid will be an easy solution,” Trivedi did emphasize that ISA, power generators and utilities will need to adjust their business models radically to accommodate the coming changes in power supply and demand.

“There are multiple ways” to address these challenges, he said. “But they [power-industry players] need to focus more on services than product delivery,” he added.

In a recent column published in the U.S.-based energy journal Energy Central, Trivedi explained that “there are at least three values/colors of electricity: energy, infrastructure and services, instead of one black-and-white value: kilowatt-hours (kWh).

“In their zeal to simplify electricity charges, utilities have made a monolithic unit (kWh) and when that was not sufficient they pushed [power regulators] for a fixed charge (demand charge). Even the vocabulary is wrong! There is nothing fixed about fixed charges -- they vary and in fact now utilities want to see steep increase in them.”

On a parallel front, emerging technologies that could radically change power markets would benefit from carefully supervised demonstration-and-trial programs such as the “NY REV” project now underway in New York, according to Trivedi.

“We recommend that a framework should be developed and institutionalized for demonstration projects to ensure that NY REV [or a similar program elsewhere] is implemented with its intended benefits,” he wrote in a recent column.

Participants in technology demonstrations need to “publish methodology, selection criteria, implementation approach and monitoring mechanism for demonstration projects,” while “demonstration projects should clearly identify the need for bringing private capital, proven technology and examples of service models,” he added. “Quantification of benefits should be part of the monitoring of demonstration project governance,” he concluded.

ISA president Bernardo Vargas added in his presentation here that the Colombian power industry is heavily regulated. As a result, new-technology demonstration programs and new business models will require effective communications and close cooperation between the power industry and government regulators.

“We need to avoid obsolescence,” he added. “We have profound government restrictions on what we can do, so we have to work with government to be proactive.”

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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