Colombia saw its
economy grow gradually last year, expanding 4.3 per cent in 2013. However, the
4th largest economy of Latin America will grow significantly over the next five
years. This
is due of interventions by both public and private institutions, with the sole
purpose of promoting the development of the commercial sphere and reducing
social exclusion. In other words, the growth of the Colombian economy will be catalyzed primarily by the construction and infrastructure sector.
Nevertheless, it should
be noted that the Colombian peso might be affected by the following factors:
- Continued
reduction of purchases of assets by the U.S. Federal Reserve Bank and
possible interest rate increase
in 2015.
- Moderate economic growth in the European Union and Euro
zone; as well as the possible Quantitative Easing the
European Central Bank (ECB) would carry out to combat economic stagnation.
- A
reduction in foreign direct investment (FDI), and challenges that may
arise in the new program of fourth generation of road concessions (4G).
Colombia is one of
the countries with greatest growth potential in the long run, not just in the
Latin American region, but globally. In the past decade, per capita GDP has
doubled, and there has been a robust increase in both public and private
investment. This is due to an exorbitant increase in internal security and the broad
economic diversification that enriches the country. Colombia, member of the Pacific
Alliance (AP), is a major exporter of petroleum, gold, coffee, flowers,
charcoal, among others.
International
institutions have noticed the great potential that Colombia has. The insurance
company Coface has included Colombia into its list of "neo-emergent"
countries, called the PPICS (Peru, Philippines, Indonesia, Colombia and Sri
Lanka). On the other hand, The Economist Intelligence Unit, has listed their
acronym for a very promising group, the CIVETS (Colombia, Indonesia, Viet Nam,
Egypt, Turkey and South Africa).
Infrastructure
‘Boom’ Will Bolster Economy
BMI
View:
We remain optimistic towards the construction industry in Colombia in the short
to medium term. As such, we forecast solid 8.4% real growth in 2014, when we
expect the awarding of large infrastructure projects to take place. This
positive outlook is supported by an improving business environment and a strong
pipeline of projects, particularly in the transport sector - which continues to
represent the highest proportion of infrastructure projects - and the energy
and utilities infrastructure segment. Strong growth in 2014 is a continuation
of a trend that emerged in 2013, when the industry experienced double-digit
growth estimated at 10.5%. Source:
www.businessmonitor.com
For an economy to
encourage productivity and sustained economic development, infrastructure
investment is inevitable. Over the past decades, Colombia has shown a delay
(< 1% of GDP) in the investment of its infrastructure in comparison to other
emerging economies. However, it is necessary to highlight the current
environment of the Colombian infrastructure sector. The National Agency of Infrastructure
(ANI) has raised a series of projects valued at approximately US$47 billion in
a period of five years. Among them, is the 4G program of road concessions,
which consists of a total of forty projects and over 8,000km of road. As a
result, the ANI expects it to contribute around 0.5 percentage points of GDP
growth over the next five years. Moreover, the Superior Council on Fiscal Policy
(Confis), approved a total of ten road concessions valued at US$12.7 billion,
belonging to the Highways for Prosperity Program. Colombia’s
infrastructure sector is expected to account over 3 per cent of GDP in the
coming years.
Construction Sector
Will Grow In 2014
It is clear that
over the past year, Colombia stood out in the construction sector, growing
around 15.4 per cent in construction of residential buildings. Real estate,
which will provide a continuous support to the development of the sector in
2014, is the product of the present boom in Social Interest Housing (VIS). The
VIS are aimed at medium and medium-low income households.
Additionally, the existing construction framework shows support for growth of other sectors; especially
mining, which has seen a growing demand for cement and oil. However, one of the
challenges that may arise could be an increase in housing prices. To counter
this event, there must be an improvement in household balance sheets.
Financial Inclusion
Still A Challenge
Colombia lacks of an inclusive financial system nationwide. According to the World Bank’s
Global Inclusion Financial Index (Global Findex), only 30 per cent of the
Colombian population own some kind of bank account. To encourage sustained
growth, banks should promote their services in rural areas and with low
population density.In addition, financial institutions and regulators should
create new channels of access to expand the coverage of banking services. This
would provide countless benefits such as: reduction of transactional costs,
less use of cash, reduction of corruption and illegal activities, increase
domestic demand, encouragement to initiate savings and investment accounts,
etc. The deepening of the technology channel (Internet Banking) should be first
on the promotion list mainly because of its accessibility.
Moreover, it is
necessary to highlight the law of financial inclusion which is under discussion
in the Third Committee of the Senate. The new law was described by the news
agency, Colprensa, as follows:
“The
initiative seeks the creation of entities specializing in payments, savings and
deposits, which, according to the Finance Minister, Mauricio Cardenas, will be
empowered to take deposits, and will not lend or invest public resources; but
that these must be deposited in the Bank of the Republic."
Investment Outlook
Colombia has
incredible growth potential during the next five years. Unemployment has decreased
substantially over the past decade, standing around 8.7 per cent in 2013 of a 47
million population. Inflation remains stable, ending the month of April at 2.51
per cent; between the central bank’s target (2% - 4%). Similarly, the
Government has chosen measures to diminish internal violence and drug
trafficking, shaping a safer country for foreign investors. A simple way to get
direct exposure to this Andean market is through the ETFs: $ICOL - $GXG -
$COLX. Both rating agencies, Moody's and Standard & Poors, placed a medium grade
in the nation’s sovereign credit: BBB and BAA3, respectively.
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