Colombian Economic Recovery Plan To Bolster Private Investment
Fitch Solutions / Infrastructure / Colombia / Mon 10 Aug, 2020
Colombian President Iván Duque's announcement of a new economic recovery plan marks a major step toward a broad strategy to organise government efforts at the national level to boost economic activity following a slowdown in recent months due to the Covid-19 pandemic.
The Compromiso por Colombia plan points to a key role for private investment in economic recovery efforts as the government promotes the advance of privately-backed investment projects while limiting increases in public spending.
The plan illustrates the key role to be played by Colombia's infrastructure sector in particular in recovery efforts, with the government planning to accelerate works on ongoing projects while planning to launch new tenders as well, particularly of transport infrastructure concessions via the planned Fifth Generation (5G) infrastructure concessions programme.
The announcement of a new economic recovery plan by Colombia's government is the strongest step yet taken by the government toward a comprehensive national strategy to support economic activity amidst the Covid-19 pandemic. On August 5, President Ivan Duque officially presented the Compromiso por Colombia, a national economic recovery plan that Duque first announced during a July 20 speech to Congress. The plan includes four commitments around which the government's recovery efforts will be focused:
Employment generation
Clean growth
The poor and vulnerable in society
Rural areas and peace with legality
Within these commitments are additional measures aimed at realising the government's goals, including plans to pass new laws, extend existing government spending programmes and launch new initiatives, as well as efforts to accelerate the advance of both private and public-private investments, particularly infrastructure projects (see table below). According to the government, the Compromiso por Colombia plan aims for USD30.0bn in private and public investment by the end of Duque's term in 2022, with the goal of creating 1 million jobs in the country.
Compromiso Por Colombia Plan
Commitments Key Measures
Commitment to Employment Generation
Presentation of a Law of Entreprenuership (Ley de Emprendimiento) to benefit micro, small and medium sized businesses. Facilitation of participation in the public contracting, promotion of concept of "buy our own, buy Colombian" ("comprar lo nuestro, comprar colombiano"), continued efforts to support access to credit systems and other efforts aimed at supporting micro, small and medium sized businesses.
Acceleration of private initiative and public-private partnership (PPP) projects. This will include both the advance of projects tendered under the Fourth Generation (4G) transport infrastructure projects as well as the launch of the planned Fifth Generation (5G) transport infrastructure programme.
Terciary roadbuilding programme, centred on an investment of COP1.5tn (USD400mn) aimed at boosting terroritorial integration and the Pacto Bicentenario, a road improvement programme underway in the departments of Arauca, Boyaca, Casanare, Cundinamarca and Santander.
Acceleration of other infrastructure projects including the Bogota Metro Line 1 project, the Puerto Antioquia port project, and new airport projects in Cartagena, San Andrés and the International Coffee Airport (Aerocafé), and the ALO Sur and Buga-Buenaventura highway projects.
Completion of 28 road projects underway and the launch of 22 new road corridor projects.
Over COP2tn (USD532mn) in incentives for creative and cultural industries and the presentation to Congress of the proposed 'Reactivarte' Law, which would create a new Specialized Fund to support jobs linked to culture.
Support for digital industries including the training of 100,000 programmers with an investment of over COP2.2tn (USD585mn), and efforts to realise 17 digital transformation projects including remote working, digitalisation of state services, cybersecurity, internet commerce, telemedicine, virtual education and financial inclusion.
Commitment to Clean Growth
Accelerate 27 strategic renewable energy and transmission projects involving over COP16tn (USD4.25bn) in investment including 9 wind projects, 5 solar projects, 3 geothermal projects and 1 hydro project as well as 9 transmission projects.
Advance other projects including the Canal del Dique, Rio Magdalena Navigability project and the planting of 180 million trees with incentives for silvopasture and community-supported agroforestry.
Ratification of the Escazú Accord.
Presentation of a modernized legal framework to confront illegal mining, efforts to boost the sustainability of mining and hydrocarbon extraction.
Commitment to the Poor and Vulnerable in Society
Extension of the Ingreso Solidario emergency basic income programme to June 2021.
Provision of 200,000 housing subsidies, together with a modernisation of housing regulations.
Continuation of the Generation E programme, with the goal of ending 2020 with 180,000 young people in free higher education.
Commitment to Rural Areas and Peace with Legality
Continuation of contract agriculture, provision of public goods to rural communities and the implementation of the multipurpose cadastre (catastro multiproposito) territorial information system.
Acceleration of works under the Development Programmes with Territorial Focus (PDET) and efforts to support the transformation of farmers into agricultural entrepreneurs with access to credit, and sustainable commercialisation of products. Presentation of a proposed law providing support to small and medium sized farms.
Strengthening of Colombia's health system, as a transversal element of the Compromiso con Colombia. This will include multiple efforts including the acceleration of the Punto Final Accord aimed at paying the Colombian state's debts to the healthcare system, the canastas covid programme compensating hospitals for the grouped services needed to treat Covid-19 patients, payment to hospitals for the availability of intensive care capacity, bonuses for front-line healthcare workers and the spread of equipment around the country and national laboratory network. The plan also includes efforts to work with Colombia's Congress to approve structural reforms of Colombia's health system.
Source: Presidencia de Colombia, Fitch Solutions
The announcement of the Compromiso por Colombia supports our outlook for investment in Colombia to rebound over the coming quarters, contributing to a recovery of Colombia's economy in H220 and in 2021. In our view, the development of a comprehensive and unified plan to support economic recovery should facilitate coordination between ministries and various levels of government, in turn improving the likelihood that the government reaches its investment and job creation targets. Given the level of economic impact felt by Colombia's economy in recent months with a decline in monthly economic activity of 4.8% y-o-y in March 2020 followed by declines 20.5% y-o-y in April and 16.7% y-o-y in May according to official data from DANE, the government's efforts to support the country's recovery will be key to reverse the recent collapse of activity. We forecast Colombia's economy will contract 4.5% y-o-y in 2020 And return to growth in 2021, expanding 3.1% y-o-y
We expect private investment will be the primary driver of economic recovery in Colombia over the coming quarters, as the government will promote the advance of privately-backed investment projects while limiting increases in public spending. Since coming into office in 2018, the Duque government has largely focused economic policy on strengthening Colombia's business climate and promoting private investment, largely in line with efforts of prior governments under former presidents Álvaro Uribe (2002-2010) and Juan Manuel Santos (2010-2018). The Covid-19 pandemic has led the government to take a more central role in recent months and has increased spending via economic support payments to businesses and individuals to mitigate the economic devastation from the pandemic and extensive quarantines at both the national and local levels in recent months. Nevertheless, the Compromiso por Colombia plan illustrates government's continued priority of attracting private investment to facilitate an economic recovery, with private investment outweighing public investment in the plan.
The Compromiso por Colombia plan underpins our positive outlook for the country's infrastructure sector, a major investment driver in recent years. Infrastructure development accounts for a large share of overall investment included in the plan, with an emphasis on private funding for infrastructure projects. Underpinning the government's efforts will be the continuation of construction works on highway projects tendered in recent years via the Fourth Generation (4G) transport infrastructure concessions programme, as well as the tender of projects in the planned Fifth Generation (5G) transport infrastructure concessions programme in H220 and H121. Also key to the government's plans will be the advance of numerous power projects, supported by the country's successful renewable power auction held in October 2019, which awarded long-term contracts to developers of 1.3 gigawatts (GW) of non-hydro renewable capacity in Colombia. Public investment in infrastructure development, highlighted by the plan, will also be positive for the recovery of investment in the sector, including planned investments via the Pacto Bicentenario, which aims to improve road infrastructure in central and eastern Colombia.
Infrastructure Push To Support Construction Recovery
Colombia - Infrastructure Construction & Total Construction Industry Value
e/f = Fitch Solutions estimate/forecast. Source: DANE, Fitch Solutions
The advance of major infrastructure investment will underpin the recovery of Colombia's construction industry, and contribute to an overall economic rebound over the coming quarters. We forecast the real value of Colombia's construction industry will expand by 7.7% y-o-y in 2021 and grow by an annual average of 3.3% y-o-y between 2022 and 2024, following a contraction of 8.6% y-o-y in 2020 driven by the negative impact from Covid-19.