BMI View: The government of President Santos continues to prioritise investment into the country's construction sector. Hence, backed by Colombia's national infrastructure agency (ANI)'s ambitious 2013 concessions programme, dubbed 4G, we maintain a healthy, if not attractive, outlook for the Colombian construction sector, with a real growth forecast of 5.5% for 2013. That said, we also continue to highlight persistent risks, such as corruption and security that could put a dent in Colombia's upward trend.
Key trends and developments in Colombia's infrastructure industry:
- In light of the recent Q312 construction figures released by the Colombian National Administrative Department of Statistics (DANE) we have slightly moderated our real industry construction growth estimate for 2012, from 5.5% to 4.5%. However, despite the estimated -12% annual change, we withhold that such swings are a common place in Colombia's relatively volatile construction sector (similar ups and downs were registered in both 2011 and 2010)
- Hence, on the back of continued strong backing from the Colombian government we maintain our outlook of a healthy annual average real construction growth of 5.2% between 2013 and 2017
- The infrastructure industry holds significant potential for investors, with real growth of 6.9% forecast for 2013. The residential and non-residential sector will see real growth of just below 4.0% - still a healthy recovery from the 4.9% decline seen in 2010
- Strong economic growth - with real GDP growth of 4.3% forecast for 2013 - and expansion in coal, mining, oil and gas extraction, coupled with the signed US free trade agreement are creating significant demand for new capacity and better quality infrastructure. Better access to ports and adequate highways will be essential if the country is to meet the expected increase in exports.
We highlight that corruption and security remain potent risk factors:
- Colombia scores just 3.7 out of 10 for corruption in the country risk section of our infrastructure risk/ reward ratings, following several corruption scandals within Columbia's public works sector. This illustrates our concern of the impact on the country's business environment.
- That said, a concerted effort is being made to stamp out corruption in awarding tenders. This has been shown by the creation of infrastructure agency ANI, which has replaced INCO as the official entity in charge of infrastructure concessions. This gives us hope for future improvements.
- Although the government has partly quelled left wing guerrilla insurgencies so that insecurity no longer represents a systematic threat to the state, therefore promoting investment, the risk of violence still persists - targeting both people and infrastructure.