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President Juan Manuel Santos has faced a wave of protests as he mulls running for re-election next year. (Photo: Andrés Piscov - SIG)
Wednesday, October 23, 2013
Perspectives

Colombia: Confidence Declines


Growing strikes and conflicts reduce consumer and business confidence in Colombia.

 

BY LATIN AMERICA ADVISOR
Inter-American Dialogue 


In August, the level of business confidence in Colombia fell to its lowest level since 2009, according to local think tank Fedesarrollo. Why have businesses operating in Colombia become so pessimistic? To what extent have the policies of President Juan Manuel Santos helped or hindered businesses? Which sectors have thrived during Santos' administration, and which have struggled?

 

Antonio Navarro Wolff, former governor of Colombia's Nariño Department and member of the Inter-American Dialogue: I believe that the pessimism of Colombian businesses is linked to the results that the national development policy, affected by persistent revaluation, is producing. According to figures from the National Statistics Department, in August 2013 there was a decline in manufacturing activity greater than 16 percent as compared to August 2012. There was also a decline, although much smaller due to a good coffee harvest, in agricultural and livestock activity. The fundamental problem is that in more and more activities, it is more profitable to import than to produce in the country. The fastest-growing economic activity is hydrocarbons. Its dynamism has helped significantly in recent months to achieve positive growth. We cannot attribute the pessimism that business surveys show to recent government decisions, although the difficulties with public order caused by the recent strikes may have influenced them. I believe that the issue is more structural, and therefore more difficult to resolve. The mining and energy sector has thrived the most. This accounts for a large part of foreign investment in the country, but it does not have a clear enough horizon. There is large opposition by some population groups to open-pit mining projects in many parts of the country, and at the same time there is a relative decline in the price of almost all of these commodities in the last few months. And in the oil sector, although there is a slow increase in production, the level of reserves of close to eight years is not enough according to international standards.

 

Alexander Chalmers, managing director of Avenida Capital: The level of business confidence fell during the first half of the year and through the summer as a result of the deterioration of consumer expectations. This was due in part to the coal strike in the beginning of the year, the coffee industry blockage in March and the national strikes by the agricultural and mining workers during July and August. These created social turbulence which Santos promptly addressed but which created a downturn in the consumer confidence index, which has a direct correlation with consumer willingness to buy homes and cars. The peace talks with the FARC require a lot of closed-door negotiations without much transparency to the outside world, which creates distrust from the peoples' perspective since they aren't comfortable relying on the FARC to commit to a long-term solution. Also, in 2014 the presidential elections are on the table so the re-election strategies are strong for the incumbents, and with so many other actors vying for their own causes, this creates political struggle, adding to the uncertainty. However, consumer confidence turned upward again in September and has begun to recover. On a macro level, the increase in foreign direct investment is continuing its strong pace, and the signed free-trade agreements have strengthened the ability to do business in Colombia, so I feel confident in the overall direction of the country. GDP growth is targeted for 4.1 percent for 2013 so this is a strong signal for the country. The key sectors targeted by Santos' administration for closing the social economic gap have been the mining and agriculture sectors, but these haven't been as competitive as expected, and he is more focused on promoting the construction industry for low-income housing and on releasing $10 billion worth of concessions for infrastructure in a public-private framework to stimulate growth and jobs for the lower and middle class. These have been successful both socially for his reputation and economically for the country as a whole as evidenced in the recovery that is expected to continue throughout the remaining part of the year.


Andy Webb-Vidal, CEO of Latin-IQ Corporation, a business risk consultancy: 
There are several reasons for the decline in business confidence. On the streets of Colombia, there is a palpable sense of disappointment regarding Santos' political performance, a perception that there's nothing to point to in terms of national 'progress' under his tutelage. Santos' communicational handling of the farmer-led protests in August was unexpectedly ham-fisted for someone of his caliber. The view now is that Santos is aloof and out of touch. As campaigning begins ahead of elections next May, Santos' approval ratings are at a low point, and there is a degree of uncertainty over his chances of winning re-election, if he declares his candidacy. Much will depend on the evolution of the peace talks with the FARC insurgents. Given the painfully slow pace of the negotiations, public opinion is increasingly skeptical that a substantive deal will be reached, let alone implemented. The problem for Santos is that he has thrown his hand all-in on reaching a deal, which was always a dangerous gambit. All of these points have served to undermine business confidence. But there are other factors. The economy decelerated markedly over the past 18 months, and there are so far only tepid signs of a rebound. Santos' key pro-business proposals, such as investment in infrastructure and mining as 'locomotives' of growth, were positive. But their effects have been neutralized by Colombia's unyielding regulatory and administrative framework. The mining 'locomotive,' for example, remains padlocked in the engine shed.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor

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