Wednesday, June 3, 2020

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The Medellin Chamber of Commerce for Antioquia (CCMA) just revealed a new study indicating that the Coronavirus quarantine costs the local economy here at least COP$170 billion (US$42 million) every day -- and 95% of businesses have seen sales drop anywhere from 80% 100% during the crisis.

As a result, Antioquia regional gross domestic product (“PIB” in Spanish initials) likely will come in at a net-negative 1.5% to 2% this year -- barring some dramatic reversal, according to CCMA.

To get an idea of this impact, Antioquia’s GDP in December 2019 alone was COP$134 trillion (US$33 billion), according to CCMA.

“Of the 3 million employed persons in Antioquia department, close to 1 million work in activities at high risk of Covid-19, and losses of between 112,000 and 131,000 jobs are projected, which implies an increase in the unemployment rate close to 15%,” according to the trade group.

Because of quarantine rules to date, “55% of the companies in Antioquia are not currently operating. These represent 41.2% of formal jobs,” according to CCMA.

The controlled reopening of construction and manufacturing sectors on April 27 will help industry and employment -- but won’t solve all the current problems, the group added.

What’s more, 88% of companies only have enough cash-on-hand to survive a maximum of one to two months, CCMA’s survey found.

Meanwhile, ANDI – Colombia’s biggest national industrial/commercial trade association – on April 23 released findings of its second survey on cash liquidity among 238 member companies.

“Compared to the results of the previous survey, it can be seen that the liquidity situation of companies today with updated information as of April is more critical to the extent that the vast majority of companies have not received income and have had to continue to cover their expenses,” according to ANDI.

“In effect, with updated information, companies only have 11 days to operate if they allocate the entire cash flow of the company to fulfill all their obligations -- that is, the entire payroll including social security, suppliers, financial sector, contracts and Dian [taxes].

“In the case of manufacturing companies, they have 12 days to operate” if cash-on-hand were disbursed to cover all outstanding expenses, ANDI found.

“In the manufacturing industry, there is an average of 42 days in cash to cover the salary of employees, 31 days to meet the full payroll including social security payments, 15 days to pay suppliers, 38 days to cover fixed expenses associated with contracts and loans acquired with the financial sector, 43 days for the payment of withholding tax and 42 days for the payment of VAT [value-added tax] withholding.

“However, the situation is much more complex for a large number of companies: 38.7% of the companies surveyed only have sufficient cash to cover between one and eight days if they meet all their obligations of payroll, suppliers, fixed expenses, financial sector and Dian, while 17.1% only have between nine and 15 days left, while 27. 6% have between 16 and 30 days. Thus, 83.4% have cash to operate for a month or less.”


AngloGold Ashanti Colombia announced April 23 that its proposed “Quebradona” copper-gold mine project near Jerico, Antioquia soon will get a second information-gathering visit from Colombia’s Agencia Nacional de Licencias Ambientales (ANLA, the environmental permitting agency).

Commenting on the news, company president Felipe Marquez added that the upcoming site visit “is very positive because it will enable [ANLA] to get more information for a licensing decision that will enjoy absolute transparency, technical rigor and opportune citizen participation.”

“The second visit will be made once the national government lifts the restrictions that were established before the health emergency that the country is experiencing due to the spread of Covid-19,” according to AngloGold Ashanti.

On a parallel front, AngloGold announced that as of April 21, the company restarted some preliminary works at the site – following new Colombia Health Ministry biosafety protocols to protect workers and people near the site from contracting Coronavirus.

“Quebradona resumes some of its activities in the field with the purpose of reactivating the work and advancing the activities that are essential for the continuity of the project,” according to AngloGold.

“The restart of priority activities is carried out within the framework of a strict biosecurity protocol that seeks to protect the health and life of its collaborators, contractors, suppliers and inhabitants of its area of influence.

“There are some tasks and activities that, by their nature, require to be carried out on site and which are not a source of risk for community contagion, since they do not crowd large numbers of people around one site, they do not take place in closed spaces and they do not imply interaction with people who come from the outside.

“In line with the regulations of the Ministries of Health and Social Protection, Labor and Mines and Energy, which established the conditions under which the mining sector can operate and complying with the recommendations of the Jericho Ministry of Health, AngloGold Ashanti designed complete and detailed operating protocols aimed at minimizing the risk of spreading the Covid-19.

“The protocols include provisions related to the control and rapid detection of possible cases, mandatory hygiene measures for people, sanitation processes for facilities, measures for the transport of personnel, recommendations for extra-occupational care, guidelines for health personnel, among others.”


The east-of-Medellin “Oriente” region -- second only to Cundinamarca in Colombia’s gigantic cut-flower export industry – aims for a sales rebound for the upcoming May 10 annual “Mother’s Day” demand surge typically seen in North America, Europe and parts of Asia.

As noted in an April 14 bulletin from Asocolflores (the national flower-producers’ trade association), the Colombian government granted flower producers and exporters some limited exemptions from the national Coronavirus quarantine.

However, these partial exemptions also include extra-strict health protocols for workers at production and shipping sites, as well tougher restrictions on the number of workers allowed on company buses typically used for transport.

“President Iván Duque extended mandatory preventive isolation until April 27 due to Covid-19, but maintained the exceptions that allow the floriculture sector to operate,” noted Asocolflores president Augusto Solano.

“Our farms continue to work under strict health and hygiene measures, which implies higher operating costs because, for example, company buses are traveling with half the number of people they normally transport,” Solano said.

Meanwhile, latest figures on the evolution of the Coronavirus crisis indicate that Colombia is not only doing better than many other nations, but also beating its earlier, more pessimistic projections. Because of this, “the government hopes to begin a gradual and careful opening of the rest of the economy” in the coming months, Asocolflores noted.

In the meantime, “Colombian flower growers already have production and logistics in place to meet demand from different countries, which for the most part continues to be the United States, Japan and now some European countries,” according to the trade group.

Beyond preparing for the annual export surge for Mother’s Day, Colombia’s flower producers are also helping to address the Coronavirus crisis in Antioquia and elsewhere in Colombia, according to the group.

Among those efforts: donation of four Intensive Care Units (ICU) for Cundinamarca and Antioquia; donations to subsidize the purchase of an ambulance for Rionegro, Antioquia; delivery of Coronavirus detection tests for the small tropical-flower-growers’ region; and distribution of food packages for poor families.

In addition, “Asocolflores also delivered 120,000 stems of flowers to nine hospitals in Bogotá, Medellin and small towns in Cundinamarca to celebrate International Health Day on April 7,” according to the trade group.


The International Monetary Fund (IMF) on April 14 issued an updated forecast concluding that the Coronavirus crisis likely will slash 2020 global gross domestic product (“PIB” in Spanish initials) to a net-negative 3% -- compared to 2.9% net-positive PIB growth in 2019.

Colombia likewise probably will suffer a net-negative 2.4% PIB in 2020, IMF's report concludes.

But Colombia's PIB contraction in 2020 looks far better than Latin America as a whole, which is expected to suffer a net-negative 5.2% PIB in 2020 -- more-than twice-as-bad as Colombia's situation, according to IMF.

Fortunately -- assuming the Coronavirus crisis eventually dissipates – Colombia is likely to see a PIB-growth rebound in 2021 to a net-positive 3.7%, better than the 3.4% PIB growth seen for Latin America as a whole in 2021, according to IMF’s latest World Economic Growth projections.

“The Covid-19 pandemic is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity,” according to IMF's report.

“As a result of the pandemic, the global economy is projected to contract sharply by –3% in 2020, much worse than during the 2008-2009 financial crisis.

“In a baseline scenario -- which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound -- the global economy is projected to grow by 5.8% percent in 2021 as economic activity normalizes, helped by policy support.

“The risks for even more severe outcomes, however, are substantial. Effective policies are essential to forestall the possibility of worse outcomes, and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health.

“Because the economic fallout is acute in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses domestically,” the IMF report concludes.

In a related report on global government policy responses to the crisis, IMF noted that “to date, central banks have announced plans to expand their provision of liquidity -- including through loans and asset purchases -- by at least US$6 trillion and have indicated a readiness to do more if conditions warrant.

“As a result of these actions aimed at containing the fallout from the pandemic, investor sentiment has stabilized in recent weeks. Strains in some markets have abated somewhat and risk asset prices have recovered a portion of their earlier declines. Sentiment continues to be fragile, however, and global financial conditions remain much tighter compared to the beginning of the year,” IMF warned.


Colombia’s national industrial-commercial trade association ANDI on April 14 released results of a national member survey showing that Colombia’s business sector is close to hitting a critical wall on cash liquidity – because of the Coronavirus quarantine crisis.

The survey of 172 companies that collectively generated COP$56.8 trillion (US$14.7 billion) in operating income last year shows that “the liquidity situation of companies today is more critical to the extent that they have not received income and continue to cover their expenses,” according to ANDI.

“We have affirmed that the great problem at the moment is liquidity -- that of individuals, that of the state [governments] and that of companies -- the latter of which are the vehicles that generate employment and therefore income for millions of families,” added ANDI president Bruce MacMaster.

If companies simply were to resort to using 100% of cash-on-hand just to cover employee expenses -- excluding all other costs, and not using bank overdrafts -- then they would have just 53 days to cover the salary of employees or 42 days to meet the full payroll including social security payments, the survey shows.

If companies used all cash-on-hand instead just to pay outstanding bills to their suppliers, then they would have just 35 days to cover fixed expenses such as leasing of offices, premises, warehouses, machinery, insurance, maintenance, public services, security and others, the survey shows.

If companies instead used all current cash just to pay outstanding loans, then they would have just 33 days left.

If instead they used cash just to pay taxes to the national DIAN tax agency, then they would have 45 days to pay withholding tax and 53 days to pay value-added tax (VAT).

“In the manufacturing industry, the availability of cash resources is less,” according to ANDI. “There is an average of 42 days in cash to cover the salary of employees, 37 days to meet full payroll including social security payments, 22 days to pay providers, 37 days to cover the fixed expenses associated with contracts, 21 days for loans acquired with the financial sector, 41 days for the payment of withholding tax and 37 days for the payment of VAT withholding.

“However, the situation is much more complex for a large number of companies: 59.9% of the companies surveyed have cash flow of one-month-or-less to pay their employees' payroll including social security, while 70.8% only have enough cash to pay suppliers and 69.2% only have enough to pay their fixed expenses associated with contracts," the survey 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.

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