WEEKLY REVIEW OF THE COLOMBIAN ECONOMY September 8 – 12

 Developments on the 4G Road Infrastructure Program

On September 11, the Government of Colombia (GOC) signed three contracts totaling USD 1.5 billion to develop road infrastructure in the country, part of the Fourth-Generation Concession Plan (“4G”).  Over the next five years, the GOC plans to award a total of 40 projects worth USD 26 billion.   China’s Gezhouba Group is the only foreign company that has entered as a primary bidder.  Other companies from Portugal, Spain, Israel and Costa Rica are participating in bidding, but as members of consortiums with Colombian firms.  U.S. companies have not participated in any bids thus far.

Though the government awarded six contracts related to the 4G project in 2014 in total, none of the projects have secured financing for the construction phase.    However, the Latin American Development Bank (CAF) on September11 highlighted the creation of a debt fund of USD 500 million to provide financing in Colombian pesos to complement the work of local banks.

Tiffany & Co. Arrives in Colombia

In September, American multinational luxury jewelry and specialty retailer Tiffany & Co. opened its first store in Bogota.  The company joins several other high-end international retailers, including Dolce and Gabbana, Burberry’s and Frey Wille, recently attracted to Colombia by potential profits as the country’s economy steadily improves and local appetite for luxury items increases.   According to a recent report by El Tiempo newspaper, luxury brands are witnessing a “golden age” in Colombia, with a 12.3 percent increase in revenues in 2013 compared to 2012.  Tiffany & Co. operates in five other Latin America countries.  

Colombian Oil Production Up in August

Colombia’s oil production rose 3.2 % in August compared to July, totaling 999,000 barrels per day (bpd).  Taking into account statistics from August, average annual oil production is currently 983,000 bpd.

 

 

WEEKLY REVIEW OF THE COLOMBIAN ECONOMY September 1 – 5

Colombia Advances in Competitiveness

The World Economic Forum’s Global Competitiveness Report 2014-2015, released this week, ranked Colombia 66 out of 144 countries, an improvement from its position of 69 last year. The report cited improvements in Colombia’s use and appropriation of technology and infrastructure development. In this year’s report, Switzerland, Singapore, the U.S., Finland and Germany received top marks for competitiveness. In Latin America, Colombia ranked 7th, preceded by Chile (33), Panama (48), Costa Rica (51), Brazil (57), Mexico (61), and Peru (65).

Colombian Exports to China are Nearly Half of That to U.S.

The decrease in Colombian exports to the United States and the rapid increase in sales to China during the first half of 2014 significantly closed the gap between these two economies as the main destinations for Colombian exports. At the end of June, the value of Colombian exports to the Asian giant reached already almost 50 percent of those to the American market. In the first semester of 2013, the value of exports to China equaled only 24 percent of exports to the US. According to the Colombian National Statistics Department, DANE, between January and June of 2014 Colombian exports to the United States recorded an annual decline of 30.6 percent to drop to USD 7.0 billion, while exports to China grew 45.4 percent to USD 3.4 billion. In both cases, the abrupt changes recorded in the first half of 2014 in comparison with the same period of 2013, originally have the same cause: petroleum and petroleum derivate products, but in opposite direction: a decrease to the United States and an important increase to China.

Illegal Gold Trade in Colombia an Increasing Challenge

According to the president of the National Industry Association of Colombia (ANDI), Bruce Mac Master, money laundering and illegal trade of gold in Colombia total over USD 400 million a year, and over 45 tons of gold are destined for the illicit market annually. The Colombian Mining Association (ACM) stated that there are 300 municipalities directly affected by illegal mining in Colombia, the most critical cases occurring in the departments of Bolivar, Antioquia, Valle del Cauca and Cauca. The rise in the international price of gold has spurred increased interest in gold exploitation for illegal activities.

WEEKLY REVIEW OF THE COLOMBIAN ECONOMY August 25 – 29

President Santos expects GDP growth of 5% for 2014

President Santos announced that Colombia’s expected GDP growth for 2014 will be at least 5 percent. This strong growth forecast is due in part to greater activity in the construction and infrastructure sectors. During the first quarter of this year, construction was the sector with the highest growth rate (over 17 percent, compared to the overall growth rate of 6.4 percent).   Minister of Finance Cardenas said that the government will maintain its official target growth rate of 4.7 percent until the results of the second quarter are available on September 18.

Quaterly GDP                                 Source: DANE

 Unemployment in July reached 9.3%

According to the National Statistics Department, DANE, the registered unemployment rate in July 2014 was 9.3 percent, the lowest July rate in the last 14 years. Notably, the unemployment rate fell in 15 cities; eight cities had single-digit rates; and the differential between the cities with the most and least unemployment was eight percent.

Concern about Falling Oil Revenues

The Colombian government expressed deep concern with falling revenues from the mining and oil sectors. The decrease is mainly due to attacks on oil and mining infrastructure, which caused a reduction in the country’s oil production capacity. According to the economic think tank ANIF, the best case production scenario is now about 900,000 barrels per day for 2014, 100,000 less than originally forecasted by the National Development Plan (NDP). The NDP forecast for coal, 120 million tons per year, will also not be met and will have to be revised. Reduced oil and coal production volumes increase fiscal strain on the government. ANIF estimates that without other income streams, Colombia’s public sector will lose two points (of GDP) of income by 2019.

WEEKLY REVIEW OF THE COLOMBIAN ECONOMY August 18 – 22

Colombian Imports Rose 6.1% in the First Half of 2014

According to the Colombian Statistics Department, DANE, Colombian imports grew 6.1 percent in the first half of 2014. Colombian foreign purchases between January and June totaled USD 30.5 billion compared to USD 28.8 billion during the same period in 2013. Colombia also registered a trade deficit of USD 1.1 billion in the first half of 2014, including major trading partners such as the United States (USD 1.9 billion), Mexico (USD 1.8 billion), and China (USD 1.5 billon). Meanwhile, Colombia’s highest trade surpluses were with Panama (USD 2 billion) and Spain (1.2 billion).

Colombia Awarded Contract to Develop Magdalena River’s Navigability

The Colombian government awarded a contract to develop the Magdalena River to become navigable after two decades of discussions. The Regional Autonomous Corporation of the Rio Grande de la Magdalena (Cormagdalena) awarded the contract on August 15 to the consortium Navelena, composed of the Brazilian multinational, Odebrecht, and Valorcon from Colombia. The consortium will be responsible for ensuring continuous year-round navigability of the river on a stretch of 908 kilometers between Puerto Salgar (Cundinamarca Department) and Bocas de Ceniza (Atlantico Department). By the end of 2015, dredging of more than 600 kilometers will be completed. The contract will last 13.5 years for a total investment of USD 1.3 billion.

Coal Production Totaled 47.3 Million Tons in the First Semester of 2014

National coal production during the first half of 2014 amounted to 47.3 million tons, representing an increase of 14 percent when compared to 40.5 million tons during the same period last year. La Guajira and Cesar Departments produce 92.4 percent of Colombia’s coal. Almost 91 percent of Colombia’s coal was exported and the rest was sold domestically, primarily for cement industries and metallurgical and thermal generation. The Colombian government expects to produce 85 million tons of coal in 2014.

 

 

 

WEEKLY REVIEW OF THE COLOMBIAN ECONOMY August 11 – 15

New Renewable Energy Law

In August 2014, the Colombian government published Law 1715, integrating non-conventional renewable energy into Colombia’s National Energy Grid.  The law’s biggest challenge in the short and medium term will be the promotion and advancement of non-conventional energy within existing national energy plans, goals and policies of the Ministry of Mines and Energy.  In addition to encouraging the use of non-conventional renewable energy and minimizing coal- and oil-related environmental conflicts, the law will also generate tariffs, accounting, and tax incentives to facilitate new technologies and promote research.  This is a crucial step towards making the integration of solar, wind, and biomass energy competitive.  The law can be found at:  http://bit.ly/1pR8Lcm .

Isagén Sale Postponed by Stakeholder Concerns

The Colombian government announced it will postpone selling ISAGEN, the third largest power-generating company in Colombia, for at least another year.  According to Finance Minister Mauricio Cardenas, the delay of the sale was at the request of stakeholders/buyers to give them more time to study the sale.  The Minister also noted it would give more clarity on the operation of the company’s new and biggest hydropower plant, Hidro Sogamoso, whose reservoir is still being filled.  The government was hoping to sell its majority stake in ISAGEN (USD 2.6 billion) to fund much-needed highway construction, but is now analyzing other sources of financing for the 4G infrastructure program, including a partial sale of the government’s stake in Ecopetrol.

July Shows Foreign Direct Investment Is Down 

Preliminary figures from the Central Bank show foreign direct investment (FDI) in Colombia is down 6.7 percent for the first seven months of 2014, approximately USD 9.3 billion.  However, the Colombian government projects FDI will reach USD 17 billion this year, a four percent increase over 2013.  Analysts don’t believe Colombia will reach this goal despite increases in portfolio investment that reached USD 8.2 billion dollars in the first seven months of 2014, a 148 percent increase over the same period in 2013.

WEEKLY REVIEW OF THE COLOMBIAN ECONOMY August 4 – 8

Juan Manuel Santos Inaugurated as President of Colombia

On Thursday August 7, President Juan Manuel Santos was inaugurated for a second four-year term.  Overall the economy has fared better than expected, with an average GDP growth of 4.8 percent between 2010 and 2013.  The outlook this year looks even better with projections around 5 percent.  However, Santos’ new presidential term starts with several economic challenges, including educational and health system reforms, poverty and unemployment reductions, infrastructure development, as well as agricultural sector and security improvements.  During his inauguration speech, President Santos expressed his goal to make Colombia “… a country in total peace by 2025, a country with more equity and the most educated in Latin America.”

Colombia Attracts Record Foreign Direct Portfolio Investment

According to the Colombian Central Bank, during the first semester of 2014, Colombia received a total foreign direct portfolio investment of USD 7.9 billion, more than double the same period for 2013.  The inflow of funds to the capital market has set record levels this year.  For example, the bond market experienced high flows of funds from abroad after the JPMorgan decided to include Colombian assets in their sovereign debt indexes.  Colombia’s attractive investment culture is in large part due the perception of Colombia as a much less risky place to invest than other countries in the region.  At the same time, foreign direct investment to the hydrocarbon sector dropped 5.4 percent to USD 7.6 billion.  This reflects operational difficulties faced by new exploration in the oil sector and in executing budgets due to road blocks/protests and security issues.

U.S. Trade Surplus with Colombia in the First Semester of 2014

According to the U.S. Department of Commerce, in the first six months of 2014, the U.S. trade surplus with Colombia reached USD 659 million, a reversal in trends from the USD 2.6 billion trade deficit recorded for the same period in 2013.  This is an interesting contrast to the USD 10.1 billion in trade deficits the United States had with Latin America and the Caribbean for the same time period.  During the first semester of 2014, the United States had deficits with Mexico (USD 25.6 billion) and Venezuela (USD 11.1 billion) and trade surpluses with Argentina (USD 3.4 billion) and Brazil (USD 7.4 billion). 

WEEKLY REVIEW OF THE COLOMBIAN ECONOMY July 28 – August 1

Colombia’s Government Bond Rating Upgraded

On July 28 the rating agency Moody’s upgraded Colombia’s long-term foreign currency rating from Baa3 to Baa2 and its short-term rating from P-3 to P-2.  According to Colombian Finance Minister Mauricio Cardenas, this was the first time in history that Moody’s assigned Colombia a rating this high.  According to Moody’s a strong factor in changing the rating was Colombia’s 4.7 percent growth rate in 2013, up from 4 percent in 2012, a dramatic contrast with the downward trend in GDP growth for countries in the region.  The change in rating from Moody’s joins two major rating agencies in the world, Standard & Poor’s and Fitch, which rate Colombia two levels above investment grade at BBB/Baa2, respectively.  

The Colombian Government Defined the National Budget for 2015

On July 29, Colombian Finance Minister Mauricio Cardenas confirmed that the Santos government’s proposing general budget for 2015 will be approximately USD 90 billion with USD 24 billion for investment.  The proposed budget for 2015 would rise 6.4 percent overall compared to 2014, but increase by only 4.1 percent if the debt-service is considered.  Proposed budgets for education (USD 14.4 billion), defense and police (USD 14.1 billion), and labor (USD 13.5 billion) all received increases.  The Colombian government intends to put more emphasis on social issues, including increasing the coverage of programs like Colombia Mayor (elder population assistance), Familias en Acción (lower income families – cash transfers), and Cero a Siempre (early childhood assistance).  The proposed budget must be approved in the Congress before the end of October to take effect the following year.

Colombia and the U.S. Signed Agreement on Technology and Innovation

On July 31 Colombian Information Technologies and Communications Minister Diego Molano and U.S. Coordinator for International Communications and Information Policy Ambassador Daniel Sepulveda participated in the first bilateral meeting on information and communication technology issues.  The meeting took place in Bogota and included participation from companies like Google, Facebook, and Apple, as well as Colombian universities.  During the event Colombia and the United States signed an agreement to strengthen the training of Colombian software developers.  Under the agreement, the Ministry of Information Technologies and Communications, with the support of the multinational companies, will fund a USD 8.5 million program to promote the international certification of Colombian developers and engineering schools.

WEEKLY REVIEW OF THE COLOMBIAN ECONOMY July 21 – 25

Colombia Oil and Gas Bid Round 2014 Results

The Colombian government received 26 offers from 19 national and international companies for exploration and exploitation of hydrocarbons in the Ronda Colombia 2014.  Offers were received on 27 percent of the 95 blocks offered, below the Ministry of Mines and Energy target of 30 percent.  Of the 16 unconventional blocks that were up for auction, just one received bids.  Four offers were submitted for five offshore blocks.  Projected investment in the awarded areas is estimated at USD 1.4 billion.  

1.3 million Visitors to Colombia in the First Quarter of 2014

According to Minister of Commerce, Industry and Tourism Santiago Rojas, Colombia is becoming one of the top tourist destinations in the region.  In the first quarter of 2014, the number of visitors to Colombia increased 6.4 percent year-on-year, representing the highest growth rate in South America.  Within Colombia, the largest increases included to San Andrés Island (28 percent) and Cartagena (15.5 percent).  Vice Minister of Tourism Sandra Howard Taylor said that the tourism industry in Colombia has grown on average 5.5 percent over the last three years.

Industrial Production Grew 3.6 Percent in May

According to the Colombian Industry Association, ANDI, manufacturing output grew 3.6 percent between January and May 2014.  The following sectors showed the most improvement: printing activities (17 percent); textiles (almost 17 percent); and non-metallic minerals (13 percent).  According to a poll conducted by ANDI, the main challenges for industry include exchange rate volatility, poor infrastructure, high logistics and input costs, and smuggling.

Colombia Reduces Poverty Levels

According to Colombia’s National Statistics Department (DANE), the country’s poverty levels dropped two percentage points in 2013.  At the end of 2013, 30.6 percent of Colombians were considered living in poverty, while in 2012 that number had reached 32.7 percent.  The five departments with the highest poverty rates in 2013 were Chocó (63.1percent), Cauca (58.4 percent), La Guajira (55.8 percent), Cordoba (51.8 percent), and Magdalena (50.5 percent).  Colombia’s 2013 GINI coefficient – which measures income inequality – measured 0.539, the same as for 2012.

poverty2                                    Source: DANE

Foreign Portfolio Investment Soars in Colombia

According to the Colombian Central Bank, between January-June 2014, foreign direct portfolio investment increased by 127.6 percent to USD 6.2 billion compared to the same period in 2013.  Net foreign investment inflows to Colombia in the first half of the year rose 29 percent to USD 13.7 billion compared to the same period in 2013. The investment flow increase can be explained in part by the increased weight of Colombian public domestic debt bonds in JPMorgan indexes.

Starbucks Opens First Store in Colombia

Starbucks opened its first store in Colombia on July 16 in Bogota.  The company plans to open over 50 stores in the country within the next five years at an investment of over USD 30 million and will generate about 20 direct jobs per store.  Starbucks purchases about 90 million pounds of Colombian coffee per year, a figure that could increase with the start of its Colombian operation.  The multinational has a Support Center for coffee growers in Manizales, a program developed by the National Federation of Coffee Growers to promote research in the sector.  

WEEKLY REVIEW OF THE COLOMBIAN ECONOMY July 7 – 11

Colombia the Most Dynamic Economy in Latin America

Latin American countries had mixed economic results during the first quarter of 2014. Colombia, with a 6.4 percent GDP growth, was the most dynamic country, while Argentina fell into recession.  Peru, Chile, Brazil, and Mexico had declining economic growth rates.  Brazil and Colombia’s Central Banks are raising interest rates to try to contain rising prices.

GDP IQ2014 

                          Source: Central Banks for each country.

Colombia’s June Inflation Rate 0.09%

Colombia’s June inflation rate reached 0.09 percent, down 0.14 percent from the June 2013 inflation of 0.23 percent.  The sectors with the greatest price increases were housing (0.41 percent) and meat and meat derivatives (1.22 percent), according to Colombia’s National Statistics Department (DANE).  The accumulated Consumer Price Index (CPI) for the first half of the year had a 2.57 percent increase, up 0.84 percent from the same period of 2013 (1.73 percent).

Puerto Rico’s New Trade Promotion Office in Colombia

The government of Puerto Rico opened a trade promotion office in Bogotá this week aimed at increasing commercial ties between Colombia and Puerto Rico. According to Puerto Rico’s Department of Economic Development and Commerce (DDEC), the trade promotion office will seek to attract investment and promote exports from the island.  The opening of the Bogotá commercial office follows the start last year of Avianca’s direct route between the Colombian capital and San Juan.  Avianca also recently announced it will increase its direct flights between Bogota and San Juan to three to four times weekly.