Colombia is bracing for recovery from the economic impact of COVID-19, with most construction projects now restarted and fresh infrastructure investment funds on the horizon. As the fourth-largest economy in Latin America and with a Gross Domestic Product (GDP) of more than $325 billion, Colombia still enjoys an investment-grade credit rating, despite new assignments of a cautiously negative outlook.

Colombian President Ivan Duque announced plans to reopen economic activity fully on July 1 in an effort to stem the contraction. In April the economy shrank more than 20 percent compared with the same month last year. The contraction was said to be the largest loss on record at Departamento Administrativo Nacional de Estadística (DANE) the national statistics agency.

The cumulative year-to-date GDP contraction as of May 1 was 4.3 percent. Extractive industries, including oil and mining, fell nearly 14 percent, while manufacturing and construction dropped by 50 percent, according to DANE. In contrast, Colombia’s GDP was up 3.3 percent in 2019, thanks to consumer consumption and strong business investment.

The Central Bank predicted that the economy will contract between two percent and seven percent this year as a function of both COVID-19 and the drop in oil prices. Oil production was down about two percent at the end of April. The Colombian Petroleum Association predicts that private investment in the sector may drop by as much as $1 billion this year, assuming that Brent oil prices remain below $40 per barrel. An average price of $35 a barrel is now predicted for 2020.

The economic retraction through April was accompanied by a rise in unemployment to 19.8 percent, a 20-year record high, DANE reported. Inflation, however, stayed in check; the finance ministry projects a 2020 increase between one percent and three percent. Thus Colombian consumers may return to the market sooner than in other countries in the region where inflation is an onerous factor in growth.

The drop in construction activity does not bode well for architectural paint and coatings demand in Colombia this year, however, the pace of economic recovery will determine how much demand bounces back in 2021. Industrial paint and coatings consumption outside of the oil sector could fare better but will depend in part on consumer budget recovery.

Pintuco, Colombia’s largest paint producer with $233 million in 2019 sales, is one the few large players in the market, along with Sherwin-Williams and PPG.

Civil, Infrastructure Construction Resumption

The resumption of construction activity in Colombia is expected during the second half of the year, although the annual results are likely to be 10 percent to 20 percent lower than in 2019, according to La Cámara Colombiana de la Construcción (Camacol), the national trade association.

In January, market analyst Statista forecast that the construction industry in Colombia would reach a value of $24.8 billion in 2021, an increase of more than 16.5 percent in comparison to 2018.

One sign that a recovery in Colombia’s construction market is in the cards was the announcement in June that consulting firm Conexig has opened an office in the country. The Miami-based consultancy will focus predominantly on infrastructure, engineering and construction, the announcement indicated. “Conexig is delighted to have established a presence in that highly strategic place at this time,” said Felipe Gutiérrez, managing partner of the firm.

The credit risk for new construction in Colombia is not rising. In mid-June, Fitch announced an affirmation of its BBB-rating for the Bogota Capital District of Colombia. “The affirmation reflects Fitch’s unchanged expectations that Bogota will maintain strong operating performance and manageable debt levels. In Fitch’s view, the district is well-positioned to overcome the current global and national adverse economic scenario,” the credit rating agency reported.

Resumed growth in Bogota would lead the national recovery. “Bogota contributes 25 percent of Colombia’s GDP, which makes it the country’s most important economic center. The city has significant economic diversification, socioeconomic indicators higher than the national average and a favorable tax culture,” Fitch said.

Apart from housing and commercial construction, infrastructure construction is also warming. Work on a new 266-kilometer road between Villavicencio and Yopal in Casanare Department is expected to cost more than $950 million. Similarly, light rail and port development are underway.

New Multilateral Funding Begins to Flow

Among multilateral financial support efforts, the International Monetary Fund in June approved a two-year $10.8 billion flexible credit line for Colombia.

The World Bank is lending $70 million to the metro line construction, among hundreds of millions of dollars worth of other projects this year.

Similarly, the Multilateral Investment Guarantee Agency (MIGA) has guaranteed a $475 million loan that will be used by Banco de Comercio Exterior de Colombia S.A. (Bancoldex), the national export finance bank. Bancoldex plans to finance several government initiatives aimed at providing liquidity for companies and preserving employment in response to the current COVID-19 crisis.

The Bancoldex lending program will particularly support micro, small and medium enterprises (MSMEs) which represent 40 percent of GDP, generating 80% of employment and representing 90 percent of the country’s manufacturing.

MIGA also is supporting the $650 million new port facility at Puerto de Antioquia being developed by Financiera de Desarrollo Nacional (FDN), a development bank majority-owned by the Government of Colombia (GoC), with minority interests held by the International Finance Corporation (IFC), the Development Bank of Latin America (CAF) and Sumitomo Mitsui Banking Corporation (SMBC).

The new port, located in the municipality of Turbo in the Gulf of Urabá, within the Antioquia region, will handle containers, dry bulks, general cargo and roll-on/roll-off (RORO) cargo. The Project is also being financed by Inter-American Investment Corp.

Colombia’s Jaramillo Leads World Bank in LatAm

One favorable transition for Colombia in the multilateral lending arena was the World Bank appointment in June of Carlos Felipe Jaramillo, an economist and development expert, as Vice President for the Latin America and the Caribbean Region. Jaramillo is Colombian and has held government positions in the Ministry of Finance, the Central Bank, the National Planning Department and the Ministry of Trade.

Jaramillo was senior director of the World Bank Group’s Macroeconomics, Trade and Investment Global Practice, where he led a global team of more than 450 economists.

In April, the World Bank provided an optimistic prediction of Colombia’s recovery. “Strong rebound in growth is expected for 2021-2022, provided that the pandemic is short-lived. The low interest rate environment, facilitated by the central bank, is expected to boost private consumption growth once domestic containment measures have been eased, and facilitate a gradual rebound in investment as major infrastructure projects such as the 4G (toll) road and the Bogota metro projects resume fully,” the bank opined.

Over the next 15 months, the World Bank will be deploying up to “$160 billion in financial support to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery, including $50 billion of new resources in grants or highly concessional terms,” the bank announced recently.