We maintain our view that Colombia's infrastructure and construction industry will record strong real growth of 5.5% in 2013. After considerable delays to tenders in the first half of 2013, momentum in the infrastructure sector has started to pick up again thanks to the awarding of large road projects. Although the Colombian construction industry has been highly volatile over the last decade, the government continues to push ahead with necessary infrastructure investments, primarily in the transport sector, which continues to represent the highest proportion of infrastructure projects. This continues to be a priority for the government as it attempts to reap the benefits of its growing mining industry and improve the competitiveness of its exports more broadly.
Key trends and developments in Colombia's infrastructure industry:
- With continued strong backing from the Colombian government for the sector, we maintain our outlook of a healthy annual average real construction growth of 5.3% between 2013 and 2017.
- We identify a potential upside to our forecast in the official figures reported for Q113 where construction sector growth reached 16.9%. This was mainly due to a significant increase in housing construction but also an uptick in infrastructure projects.
- Strong economic growth - with real GDP growth of 4.1% forecast for 2013 - and expansion in coal, mining, oil and gas extraction, coupled with the multiple signed free trade agreements are creating significant demand for new capacity and better quality infrastructure. Improved 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 Colombia'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 the new National Infrastructure Agency (ANI) - which replaced INCO as the official entity in charge of infrastructure concessions. In addition, the government has recently started to implement the OECD Transparency Mechanism for contract procurement. This gives us hope for future improvements.
- Despite undergoing peace negotiations talks and the significant weakening of the FARC by government security forces so that insecurity no longer represents a systematic threat to the state, the risk of violence still persists.