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COLOMBIA
BUSINESS FORECAST REPORT
INCLUDES 10-YEAR FORECAST TO 2022
Published by BUSINESS MONITOR INTERNATIONAL LTD
ISSN 1745-0519
Published by Business Monitor International Ltd.
Copy Deadline: 15 March 2013
2
COLOMBIA MACROECONOMIC DATA AND FORECASTS
2012e 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f
Nominal GDP, US$bn [6] 363.4 383.8 411.2 447.3 489.4 534.4 586.7 632.2 669.2 723.5 762.0
Nominal GDP, COPbn [6] 652,942 696,614 750,410 811,870 880,868 956,534 1,044,277 1,138,047 1,238,109 1,338,468 1,447,819
Nominal GDP, EURbn [6] 286.1 286.4 323.8 363.7 407.8 445.3 488.9 526.9 557.7 602.9 635.0
COLOMBIA Q2 2013
GDP per capita, US$ [6] 7,642 7,969 8,431 9,061 9,797 10,576 11,483 12,242 12,824 13,725 14,316
GDP per capita, EUR [6] 6,017 5,947 6,639 7,367 8,164 8,813 9,569 10,202 10,687 11,438 11,930
Real GDP growth, % change y-o-y [1,6] 3.8 4.3 4.4 4.4 4.7 4.4 4.5 4.6 4.6 4.7 4.7
Private final consumption, % of GDP [6] 62.4 62.6 62.6 62.8 63.0 63.3 63.4 63.6 63.7 63.8 63.9
Private final consumption, real growth % y-o-y [6] 4.0 4.3 4.5 5.2 5.3 5.2 5.2 5.2 5.2 5.3 5.3
Government final consumption, % Total GDP [6] 16.0 15.8 15.4 15.1 15.0 14.9 14.8 14.6 14.5 14.3 14.2
Government final consumption, real growth % y-o-y [6] 2.5 2.5 2.0 3.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Fixed capital formation, % of GDP [6] 23.7 24.3 24.1 24.0 23.8 23.8 23.8 23.8 23.9 24.0 24.1
Fixed capital formation, real growth % y-o-y [6] 6.3 6.4 4.0 4.0 4.2 4.5 5.0 5.2 5.4 5.6 5.8
Population, mn [7] 47.6 48.2 48.8 49.4 50.0 50.5 51.1 51.6 52.2 52.7 53.2
Unemployment, % of labour force, eop [2,8] 9.6 8.5 8.5 8.4 8.4 8.3 8.2 8.1 - - -
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Consumer price index, % y-o-y, ave [3,9] 3.2 2.8 3.2 3.5 3.5 3.8 4.2 4.0 3.8 3.5 3.8
Lending rate, %, ave [10] 14.0 14.9 14.4 13.5 12.2 11.0 9.8 9.2 9.8 10.2 10.5
Central Bank policy rate, % eop [4,11] 4.25 3.00 3.50 4.50 4.75 4.75 5.00 4.75 4.75 4.50 4.50
Exchange rate COP/US$, ave [12] 1,796.81 1,815.00 1,825.00 1,815.00 1,800.00 1,790.00 1,780.00 1,800.00 1,850.00 1,850.00 1,900.00
Exchange rate COP/EUR, ave [12] 2,281.94 2,268.00 2,190.00 2,232.45 2,160.00 2,148.00 2,136.00 2,160.00 2,220.00 2,220.00 2,280.00
Budget balance, US$bn [5,11] -6.9 -7.1 -7.0 -5.6 -4.6 -4.7 -4.7 -4.6 -4.3 -4.1 -3.5
Budget balance, % of GDP [5,11] -1.9 -1.9 -1.7 -1.3 -0.9 -0.9 -0.8 -0.7 -0.6 -0.6 -0.5
Goods and services exports, US$bn [11] 72.8 86.9 101.9 116.5 133.7 153.3 175.4 200.5 229.2 255.6 282.8
Goods and services imports, US$bn [11] 73.7 86.6 99.2 112.1 126.7 143.4 162.4 184.1 208.8 233.0 260.0
Balance of trade in goods and services, US$bn [11] -0.9 0.3 2.6 4.4 7.0 9.9 13.0 16.4 20.4 22.7 22.7
Balance of trade in goods and services, % of GDP [11] -0.3 0.1 0.6 1.0 1.4 1.9 2.2 2.6 3.0 3.1 3.0
Current account balance, US$bn [11] -10.7 -11.3 -9.1 -7.9 -5.9 -3.6 -1.2 1.6 2.0 4.3 4.4
Current account balance, % of GDP [11] -2.9 -2.9 -2.2 -1.8 -1.2 -0.7 -0.2 0.2 0.3 0.6 0.6
Foreign reserves ex gold, US$bn [13] 37.5 42.1 46.4 50.1 54.1 57.3 60.8 63.2 65.7 68.0 70.4
Import cover, months [13] 6.1 5.8 5.6 5.4 5.1 4.8 4.5 4.1 3.8 3.5 3.2
e/f = BMI estimate/forecast. 1 Base year 2005; 2 Total National, 2001-2007, Metropolitan, 7 areas, 1990-2000; 3 Base December 1998 = 100; 4 Overnight Lending Rate; 5 Central Government. Source: 6 DANE/
BMI; 7 World Bank/UN/BMI; 8 DANE/BMI calculation; 9 BanRep; 10 IMF; 11 BanRep/BMI; 12 BMI; 13 IMF/BMI.
Executive Summary.................................................................................................................................. 5
Core Views:......................................................................................................................................................................................5
Major Forecast Changes:...............................................................................................................................................................5
Key Risks To Outlook:....................................................................................................................................................................5
Core Views We have revised down our end-2013 central bank policy rate forecast
from 3.50% to 3.00%, as we believe record low inflation will prompt
We believe Colombia's economy will expand at robust growth rates
monetary officials to seek additional growth-supportive monetary
in the coming years, characterised by improved macroeconomic
easing.
conditions and an increasingly friendly business environment.
Major Forecast Changes for Colombian exports and reducing foreign direct investment.
We revised down our 2012 real GDP growth estimate from 4.4% to
3.8%, on the back of an unexpected slowdown in the construction
sector. However, we expect the sector to improve in 2013 as the
slowdown was driven by a temporary delay in public works permits.
As such we maintain our 2013 and 2014 real GDP growth forecasts
of 4.3% and 4.4%, respectively.
outlook we have for Colombia, which will reduce incentives stable compared with its neighbours, we identify several political chal-
to join the insurgent cause. lenges for the government over the next decade and highlight three
scenarios for change.
which has contributed to an ideological divide in the domestic Cracking Down On Drug Trafficking
and external political spheres. And Related Crime:
Inequality Persists The Colombian government, aided by the US' 'Plan Colombia',
Gini Coefficient Between 2008-2010 has made considerable progress combating drug cultivation and
60
trafficking. But the problem remains endemic and associated
crime is now the most common cause of death after cancer.
50
According to a UN report, there were roughly 57,000 hectares
40
under coca cultivation in 2010, around one-third the level in the
late 1990s following more than US$7bn of military spending on
30 anti-drug operations. We believe counter-narcotics programmes
will continue to feature prominently in Colombian politics in the
20 long term, particularly due to the alleged ties between insurgent
groups, notably the Fuerzas Armadas Revolucionarias de Co-
10 lombia (FARC) and a significant portion of the drugs trade. This
view is further bolstered by the rise of criminal gangs (bandas
0
Colombia Brazil Chile Ecuador Mexico Peru Argentina
criminales emergentes, or BACRIMs) in recent years, many of
which are understood to have strong ties to narcotics trafficking.
Source: World Bank, BMI
Society: A Key Challenge
Components Of Long-Term Political Risk Rating
Colombia is on track to experience strong economic expansion 90
20
Key Challenges 10
Tackling Inequality: Colombia has a vast income disparity
0
and, although it has moderated somewhat in recent years, the CharacteristicsCharacteristicsScope of state Policy Long Term
of polity of society continuity Political Rating
country remains one of the most unequal in Latin America,
with a Gini coefficient of 55.9 in 2010, according to World Source: BMI
Bank data. As a result, the country falls well outside our safety
threshold of 35.0. Given rapid economic growth and rising per- However, despite our expectation of continued strong anti-drug
capita income, the pressure for the authorities to step up social operations in the long term, we believe the problem is unlikely
spending programmes and ensure a broader spread of wealth to disappear over the coming years. This view is underpinned
within the economy is likely to mount. by the fact that cracking down on drug production in Colombia
often displaces the black market industry into countries such as
Despite the current administration's plan to post a balanced Venezuela, Peru and Ecuador. This is likely to remain a potential
budget in the medium term, social development remains a key source of tension between the Andean countries.
government priority, making up one of the largest portions of
fiscal expenditures. However, income inequality in Colombia is Improving Relations With Neighbours: Colombia's rela-
very much a symptom of the unequal distribution of land, with tionships with its leftwing neighbours, mainly Venezuela and
more than 60% of rural land owned by just 0.4% of landown- Ecuador, suffered following several years of US-focused foreign
ers. Therefore, the structural nature of this political challenge policy. However, the current administration has shifted towards
offers no easy solution for any government, and we would not improving political and economic relations within the region
be surprised to see this problem drag on for decades. (although relations with the US remain important) since taking
office in 2010. That said, the inability to address the underlying with regional neighbours could improve with closer alignment of
issues of previous diplomatic spats could result in future flare- political ideology and result in a unified effort in tackling drug
ups between the Andean neighbours. trafficking and related crime around the Andes. Furthermore,
prospects for peace with leftwing insurgents would also increase
Peace With Leftwing Insurgents: FARC and the Ejrcito de significantly, particularly as a leftwing government would be
Liberacin Nacional (ELN) are much diminished. The former keen to address land reform, the crux of the nation's extreme
is estimated to have just 9,000 fighters left and many of its income inequality.
top leaders have been killed in recent years. However, they
still pose a threat to Colombia's investment climate and are an Increased Rebel Activity: While a major increase in rebel
ideological challenge to the centre-right government. Despite activity is not part of our core scenario, we note that the drugs-
a renewed round of peace negotiations between the FARC and related enrichment of the FARC or ELN could raise the risk of
the government which began in October 2012, in our view, additional confrontations with state security forces. Moreover,
strict conditions on the terms for discussions will hold back any increased disenchantment with the level of inequality in society
progress towards a near-tem resolution. Furthermore, although could lead to a considerable increase in the number of insurgent
peace negotiations with the ELN have been in the cards since fighters. Deterioration in the country's security profile would deter
2004, it is unlikely that the terms for agreement will be met by foreign investment, hamper economic growth and consequently
either party. Therefore, we expect the government to continue limit the scope for military funding and anti-drug operations.
with heavy security policies until the insurgents are eliminated
or peace is negotiated, although the former is highly unlikely
during the next decade unless the Colombian leadership shifts
to the left.
through 2013 and remain robust over the coming years, as the
Economic Activity ongoing household deleveraging cycle gradually comes to an end.
5 50
0
40
-5
30
-10
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
Q311
Q411
Q112
Q212
Q312
20
10
Private Consumption Gross Fixed Investment
Real GDP 0
-20
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Macro Strategy
While we recently revised our 2012 real GDP growth estimate Retail Sales, % chg y-o-y
Consumer Credit, % chg y-o-y
for Colombia from 4.4% to 3.8%, on the back of weak gross Consumer Confidence Index, %
fixed investment in H212, we maintain our real GDP growth Source: BMI, BanRep, Fedesarrollo
forecasts of 4.3% and 4.4% in 2013 and 2014, respectively. We
expect investment to pick up over the coming quarters, driven Government Consumption: We forecast real government
by a strong infrastructure pipeline and an attractive oil & gas consumption to grow by 2.5% and 2.0% in 2013 and 2014,
sector. Moreover, we expect private consumption to improve respectively, similar to the 2.5% expansion estimated for 2012.
Indeed, we believe the government will adhere to its fiscal con- COP1,796/US$ in 2012 to COP1,815/US$ in 2013, it will remain
solidation commitment, and therefore do not anticipate any major significantly stronger than its 2008-2012 COP1,933/US$ aver-
upticks in government spending. Moreover, the government's age. Peso strength will also bolster imports, although to a more
public-private partnership programme, will continue to reduce muted degree as the household deleveraging cycle continues
the amount of fiscal spending needed on key infrastructure will continue to weigh somewhat on the consumer. That said,
projects, given rising investor interest in the country. we expect imports to pick up gradually towards end-2013. As
such we forecast net exports to subtract 1.6 percentage points
Strong Peso Adds Downside Pressure On Exports
Export Growth, % chg y-o-y (pp) to real GDP growth in 2013, compared to an estimated
100 1.7pp in 2012.
80
Risks To Outlook
60
The main risks to our outlook lie to the downside. First, a signifi-
40 cant economic deterioration in the US, Colombia's main export
20
destination, would see lower-than-expected real GDP growth.
Slower export growth would also feed through to consumer
0
confidence and weigh on household spending. Second, were
-20 the infrastructure permit delays to extend through 2013, real
-40 GDP growth would likely come in below our current forecast,
Sep-10
Nov-10
Sep-11
Nov-11
Sep-12
Nov-12
Jan-10
Jan-11
Jan-12
Jul-10
Jul-11
Jul-12
May-10
May-11
May-12
Mar-10
Mar-11
Mar-12
0 0
Starting 2013 With A Bang -20,000 -10
Government Fiscal Revenue
-40,000 -20
120,000 60
-60,000 -30
Nov-11
Nov-12
Jan-11
Jan-12
Jan-13
Jul-11
Jul-12
May-11
May-12
Mar-11
Mar-12
Sep-11
Sep-12
100,000 50
80,000 40
YTD Fiscal Expenditure (LHS), COPbn
60,000 30 YTD Fiscal Expenditure (RHS), % chg y-o-y
20,000 10
We believe the favourable trajectory of fiscal revenue will mo-
0 0 tivate the government to increase spending at a modest pace,
-20,000 -10
while maintaining broad fiscal prudence over the long-term. A
Nov-11
Nov-12
Jan-11
Jan-12
Jan-13
Jul-11
Jul-12
May-11
May-12
Mar-12
Sep-11
Sep-12
Risk To Outlook to an estimated 2.9% of GDP in 2012. The main driver of the
A significant deterioration of the external environment poses expected narrowing in the current account deficit will be a robust
downside risks to our Colombian fiscal outlook. Weaker demand hydrocarbons oil exports supported by rising production and
for Colombian exports would see external tax revenue decline, elevated oil prices.
potentially interrupting the fiscal improvements currently re- Profit Repatriation Will Continue To Weigh On
flected in our forecast. Moreover, deterioration in the country's Current Account
Current Account Balance, US$bn
exports would also see income and consumption come in below 3
our expectations, further reducing fiscal revenue. 2
Balance Of Payments -1
-2
-3
Strong Peso To Weigh On Exports
-4
BMI VIEW -5
Q110
Q210
Q310
Q410
Q111
Q211
Q311
Q411
Q112
Q212
Q312
oil & gas sector, will ensure stability in the country's balance of pay-
ment position over the long term. However, strong capital inflows will G&S Trade Balance Income Account Balance Transfers Balance
We forecast Colombia's current account deficit will be 2.9% However, ongoing profit repatriation amid a growing presence
and 2.2% of GDP in 2013 and 2014, respectively, compared of foreign firms in Colombia, will keep the income account
balance in the red, preventing further improvements in the accounts. We expect the infrastructure, mining, and oil & gas
country's current account. sectors will continue to receive significant amounts of investment
from abroad, with the latter receiving the greatest proportion, in
Manufacturing Taking A Beating From A Strong
line with the historical trend. The country's vast untapped oil &
Currency
Export Growth gas reserves, combined with a favourable business environment
100 and investment-friendly government licensing programmes, will
80 continue to attract foreign investment into energy companies
60 such as majority state-owned Ecopetrol and Canadian-based
40
Pacific Rubiales. In the first three quarters of 2012, foreign
direct investment grew by 17.6% y-o-y, putting the country on
20
pace to a post a record foreign investment figure. Moreover,
0
we expect foreign inflows to continue rising over the coming
-20
quarters. While we believe strong foreign direct investment alone
-40
will be enough to finance the majority of the current account
-60
shortfall, at the same time, it will continue to add appreciatory
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
2014, significantly stronger than its COP1,930/US$ five-year Source: BMI, BanRep
average. A strong peso has seen growth in manufacturing ex-
ports, which account for nearly one-third of total exports, slow
from 18.8% in 2011 to an estimated 6.0% 2012, and we expect Risks To Outlook
them to remain sluggish in 2013 and 2014 as well.Moreover, a There are significant downside risks to our Balance Of Pay-
strong currency will also stimulate import growth due to strong ments outlook. First, a larger-than-expected deterioration in
consumer purchasing power, although this will be somewhat the eurozone would weigh on demand for Colombian exports,
muted due to the ongoing household deleveraging cycle (see and could see the current account deficit come in larger than
our online service, March 5, 'Growth To Accelerate In H213 we currently forecast. In addition, a break-up of the ongoing
And Remain Robust In 2014). peace negotiations between the Colombian government and the
leftwing insurgent group, the Fuerzas Armadas Revolucionarias
Oil Sector Will Remain The Main de Colombia (FARC), could see foreign investment inflows
Recipient Of Foreign Investment slow substantially. This in turn would likely weigh on future
While the income account deficit and a weak performance by export growth due to losses in production capacity, particularly
non-oil exports will keep the current account in deficit, robust in the oil & gas sector.
foreign direct investment will anchor the country's external
Record Low Inflation Will Prompt Monetary Easing Cycle Has More Room To Go
Aggressive Monetary Easing Consumer Price Inflation And Policy Rate
6
BMI VIEW 5
Following a steep decline in inflation reaching its lowest level since
4
1955 we believe Colombia's central bank will pursue more aggres-
sive monetary easing than we initially expected, to stimulate domestic 3
demand and export competitiveness. We are therefore, revising down
2
our end-2013 policy rate forecast for Colombia's central bank from
3.50% to 3.00%. 1
0
Colombia's Banco Central de l a Repblica (BanRep) has made
Nov-10
Nov-11
Nov-12
Jan-10
Jan-11
Jan-12
Jan-13
Jul-10
Jul-11
Jul-12
May-10
May-11
May-12
Mar-10
Mar-11
Mar-12
Mar-13
Sep-10
Sep-11
Sep-12
150 basis points worth of policy rate cuts since July 2012, bring-
ing the rate to 3.75%, and we expect additional monetary easing Inflation, % chg y-o-y Lower Target Range
Upper Target Range Target Inflation
over the coming months. Consumer price inflation declined to
Source: BMI, BanRep
1.8% y-o-y in February, its lowest level since 1955, and falling
be low BanRep's 3.0% (+/- 1) target for the first time since March
2010. Additionally, high frequency data that suggests that real We believe tax reforms (see our online service, October 16,
GDP growth continues to slow on the back of weak domestic 'Tax Reform Would Offer Modest Benefits To Consumption)
demand, after coming in below 3.0% y-o-y in H212, compared will see inflation remain below target throughout 2013, giving
to 4.9% y-o-y growth in H112. We are therefore revising down BanRep room to extend its ongoing monetary easing cycle over
our end-2013 BanRep policy rate forecast from 3.50% to 3.00%. the coming months. According to the new fiscal regime, the
In 2014, we forecast BanRep to hike rates to 3.50 %, as base effective consumer tax burden for many goods in the inflation
effects will see inflation tick above-target. basket has been reduced, in some cases by as much as half,
as in the case of food. This, combined with a strong currency market consensus for the time being. The nine-month interest
which will mute supply-side pressures, will likely continue to rate swap an indication of where the market expect rates to
see inflation remain at benign levels. As such, we have revised be by end-2013 is trading at 3.50%, pricing in only 25 basis
down our end-2013 inflation forecast from 3.2% to 2.8%. points worth of cuts this year. We expect interest rate swaps
to move in our direction over the coming months, particularly
BanRep Will Continue To Target Peso once upcoming inflationary data releases suggests price levels
will remain below target for an extended period.
We Remain Below Market Consensus
9-Month Interest Rate Swap, %
Risks To Outlook
6.0
There are several factors that pose risks to our policy rate outlook.
5.5 First, while monetary policy minutes suggest a high degree of
dovishness among BanRep officials, any indication that domestic
5.0
Current demand is improving could see monetary officials put further
Policy Rate 4.5
monetary easing on hold, even if inflation remains below target.
4.0
Second, while a strong peso has muted supply-side inflationary
pressures, recent disruptions in Brazilian ports could see food
3.5
BMI's End-2013 prices tick up more than expected, reducing the scope for mon-
Policy Rate
Forecast 3.0 etary easing. Third, should our expectations for a substantial
slowdown in Chinese growth in H213 not play out, demand for
2.5
Colombian exports would remain robust, reducing the pressure
Nov-11
Nov-12
Jan-12
Jun-12
Jan-13
Jul-12
May-12
Feb-12
Mar-12
Feb-13
Mar-13
Oct-11
Apr-12
Oct-12
Dec-11
Aug-12
Sep-12
Dec-12
as well as ongoing monetary easing during H113. However, recent quarters, growing by 7.2% in January-November 2012,
growing appetite for Colombian assets, as well as rising foreign down from 41.8% growth during the same period in 2011. We
direct investment, will limit the effectiveness of central bank therefore expect BanRep FX purchases in 2013 to surpass the
intervention. As such, we maintain our forecast for the peso to US$4.8bn seen in 2012, adding modest depreciatory pressures
average COP1,815/US$ in 2013, implying a slightly weaker to the peso.
unit than in 2012 when it averaged COP1,797/US$.
2,000 20
1,950
1,000 10
1,900 0 0
-1,000 -10
1,850 -2,000 -20
-3,000 -30
Nov-10
Nov-11
Nov-12
Jan-10
Jan-11
Jan-12
Jan-13
Jul-10
Jul-11
Jul-12
May-10
May-11
May-12
Mar-10
Mar-11
Mar-12
Sep-10
Sep-11
Sep-12
1,800
1,750
Central Bank FX Purchases (LHS), YTD US$mn
Total Exports (RHS), % chg y-o-y
1,700
Source: BMI, BanRep
Nov-11
Nov-12
Jan-12
Jan-13
Jul-11
Jul-12
May-11
May-12
Mar-11
Mar-12
Sep-11
Sep-12
BanRep Will Fight An Uphill Battle the Fuerzas Armadas Revolucionarias de Colombia (FARC),
Despite BanRep's aggressive currency intervention, we believe poses significant downside risks to our outlook. While we
growing investor interest in Colombian assets will limit the peso's remain sceptical that negotiations will result in a definitive
depreciation in 2013. We maintain a bullish stance on Colom- resolution to the five-decade long conflict, (see, 'Fragmenta-
bia's equity benchmark index, underpinned by our constructive tion Within The Farc Challenges Peace Talks, January 28), a
outlook on the country's energy sector (see our online service, greater-than-expected outbreak in violence would see foreign
January 30, 'Equities Remain The Preferred Asset Class'). investors reconsider their positions in Colombia.
16,000 120
1,700 1,900
110
14,000
100 2,100
1,900
12,000 90
2,300
10,000 2,100 80
70
8,000 2,500
2,300 60
6,000
50 2,700
2,500
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jul-09
Jul-10
Jul-11
Jul-12
4,000
2,000 2,700
COLTES 2024 Price Index (LHS), 30-day moving average
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jul-09
Jul-10
Jul-11
Jul-12
highlight a number of themes we have long emphasised for 2013, Fiscal Outlook', January 18), further weighing on the country's
including that the industrial metals exporters will be hit hard by 'ability to pay' score.
a rebalancing of the Chinese economy, Mexico and Colombia
will remain two of the region's most dynamic growth stories A Mixed Bag
while Argentina and Venezuela will underperform, and Central Latin America - Change In Sovereign Risk Ratings Scores Since Our
Last Update
America and the Caribbean will continue to face significant
macroeconomic headwinds (see our online service, December Mexico
Peru
12, 'Our Key Themes For 2013'). However, the average score Jamaica
for Latin America remains steady at 54, following significant Nicaragua
Barbados
declines in our previous two updates, keeping the average rating Argentina
at D (see 'Sovereign Risk Ratings: Global Headwinds Further Brazil
Colombia
Erode Creditworthiness', October 17). This comes as the majority Costa Rica
of the significant downgrades to our macroeconomic forecasts Trinidad & Tobago
El Salvador
for 2013 have already taken place. Panama
Uruguay
Ecuador
A Shake-Up At The Top Chile
Venezuela
Although Chile (76, B) retained the top spot in our regional rank- Honduras
ings, its score has declined significantly in recent months (-8) as -11 -6 -1 4
we expect that China's rebalancing away from an investment- Source: BMI
led growth model will see Chile's current account dynamics
deteriorate significantly. In addition, we expect a slowdown Despite our expectation that a rebalancing of the Chinese
in headline real GDP growth, combined with weaker copper economy will weigh on Peru (71, B-) as well, we have seen its
prices and an election in 2014, will result in net budget deficits 'ability to pay' score rise modestly on the back of upgrades to
of 0.1% and 0.8% of GDP in 2013 and 2014 (see 'An Enviable the country's fiscal outlook. We now forecast fiscal surpluses
of 0.5% and 0.4% of GDP in 2013 and 2014, up from modest Argentina And Venezuela To Remain
deficits previously, on the back of more moderate spending (see Underperformers
'Moderate Spending To Improve Fiscal Outlook', November 30). We highlighted in our 'Key Themes for 2013' that Argentina
In addition to these factors bolstering the country's 'ability to (29, E) and Venezuela (27, E) are in for a turbulent year, a view
pay' score, we have modestly upgraded Peru's 'willingness to which our SRR data continues to reflect. Following the most
pay' score on the back of our expectation that fiscal policy will
remain relatively sound in future. Venezuela And Honduras Lead The Way Down
Latin America - Change In Ability To Pay Scores Since Our Last
Update
Chile The Biggest Loser Among Major Economies
Latin America - Change In Ability To Pay Score Since Last Update Uruguay
For Selected Countries Jamaica
Mexico
Colombia
Mexico Brazil
Peru
El Salvador
Colombia Barbados
Argentina
Costa Rica
Brazil Guatemala
Ecuador
Dominican Republic
Chile
Peru
Venezuela
Honduras
-12 -7 -2 3 8
Chile
Source: BMI
-10 -8 -6 -4 -2 0 2 4 6
recent downgrades to our macroeconomic forecasts, as well as
Source: BMI
the countries' 'willingness to pay' scores, they rank at the bottom
We believe the moves in Chile and Peru are also indicative of of our league table.
a broader shake-up at the top of our regional rankings in recent
quarters, with Brazil (69, C+) and Chile losing their lustre, while CentAm Scores Head Lower
Colombia (74, B) and Mexico (75, B) have climbed toward the Latin America - Change In Willingness To Pay Scores Since Our
Last Update
top of our ratings in recent quarters. This chimes well with our
view that Brazil is set for a period of more moderate growth Dominican Republic
in the coming years and fiscal consolidation is likely to remain
Peru
off the cards in the near term due to a general election and the
Nicaragua
expiration of the government's growth acceleration programme
Mexico
in 2014 (see 'Expenditures To Keep Fiscal Deficit Substantial
Trinidad & Tobago
In 2013', January 18).
Panama
second spot in our most recent update, largely due to an improve- Honduras
in our 2013 fiscal deficit forecast from 2.1% of GDP to 2.0%, Uruguay
as well as an upgrade to our 2013 real GDP growth forecast to -15 -10 -5 0 5 10
3.6% from 3.4% previously, due to a more optimistic outlook
Source: BMI
for the US economy (see 'Stronger US Performance To Boost
Growth', January 15). Meanwhile, despite losing the second spot Following Venezuela's devaluation of the bolvar in February,
in our league table to Mexico, Colombia's 'ability to pay' score the country has seen a substantial downgrade (-9) in the 'ability
increased to 58 (out of 100), from 56 in our last update, as we to pay' category of our SRR due to rising debt-to-GDP, declin-
expect real GDP growth to rise from 3.8% in 2012 to 4.3% in ing foreign reserves and our expectation for real GDP growth
2013 and the state to continue with its fiscal consolidation agenda. to slow to 2.6% in 2013, from an estimated 5.3% in 2012 (see
'Government Intervention To Increase Following Devaluation'). mid-2013 (see 'ARS: Weakening Reserves Picture To Trigger
Venezuela's 'willingness to pay' score held steady at 26 second Devaluation', December 3).
to last in the region. This suggests that risks to the Venezuelan
economy remain significant, with the country scoring particu- However, Argentina is not the only Southern Cone country to
larly poorly in the sub-components of our 'willingness to pay' score poorly in the 'willingness to pay' portion of our ratings, as
ratings that discuss fiscal responsibility, debt management and Uruguay (66, C) has seen a major downgrade (-12) in our most
political upheaval. recent update. This is underpinned by our view there is divi-
sion within the government about whether fiscal responsibility
Default risk is higher Argentina, with the country scoring or promoting growth should take precedence, implying further
only 23 in the 'willingness to pay' category the lowest in the fiscal slippage is likely on the cards in the coming quarters.
region. The country's weak score is underpinned by a number
of factors, many of which are highlighted in the ongoing legal Central American Creditworthiness Is
battle between the government and the 'hold-out' investors who Lacking
have rejected restructuring offers, and appear on the verge of Central American countries have long languished at the bottom
winning a major decision in US courts. The Argentine govern- half of our SRR, and the most recent update is no exception,
ment has repeatedly said it will not pay the 'hold-out' investors, highlighting that the region's creditworthiness remains sub-par.
regardless of the case's outcome, leading us to believe there is a Honduras (41, E) has seen the region's largest downgrade in its
high likelihood the country will enter technical default in order overall score (-10) on the back of a major deterioration in the
to avoid doing so (see 'Technical Default Risk Remains High', country's 'ability to pay'. This comes as we believe the Novem-
January 16). Moreover, we expect the government's unsustain- ber 2013 presidential election is likely to encourage a sizeable
able economic policies will prompt a one-off devaluation of increase in government spending over the coming quarters,
the peso in 2013, weighing on its 'ability to pay score', as we weighing on the fiscal accounts. We also foresee a significant
forecast the unit to be 22.5% weaker on average in 2013 than deterioration of the external accounts in 2013 as an outbreak
in 2012. We believe depreciatory pressure on the currency will of coffee rust weighs heavily on the country's exports and the
rise during 2013, while the policies employed to keep the cur- income account shortfall widensas foreign companies repatri-
rency overvalued will grow less effective. As such, we believe ate profits on the back of rising uncertainty surrounding the
the country's international reserves position will fall to a point upcoming election(see 'Pressure Rising On External Account
where Argentina must allow the peso to depreciate, likely by Position', February 28). In addition, the country's 'willingness
to pay' score declined on the back of downward revisions to the believe the restructuring will do little to substantially improve
'election' and 'fiscal discipline' sub-components of our ratings. the country's macroeconomic position over the long term, given
our expectation for only limited reforms to bolster growth and
Panama (62, C-) and El Salvador (4 4, E) also saw their 'willing- encourage greater fiscal consolidation (see 'New Restructuring,
ness to pay' scores decline modestly on the back of an anticipated Old Problems', February 14).
uptick in spending before the May and March 2014 elections,
respectively. El Salvador's willingness to pay score was also Meanwhile, although T&T now tops the region in terms of 'abil-
negatively impacted by a downward revision of its 'debt man- ity to pay' with a score of 73, we believe this is due to a decline
agement' sub-component given that the country continues to in Chile's score rather than a substantial improvement in T&T.
post one of the highest debt-to-GDP ratios in Central America. While the country's score remains supported on the back of a
low debt-to-GDP ratio and a strong current account surplus, the
long-term decline in T&T's hydrocarbons production, as well
Risk Appetite Keeps Spreads Low as our view that the economy is likely struggle to adjust to the
Latin America - Risk Ratings
unconventional oil & gas boom in the US mean it could fall in
2,200
Argentina
our ratings over the coming quarters.
Spread Over US$ 10-Year Bond Yield, BPS
1,700
Sovereigns Continue To Benefit From
Risk Appetite
1,200
We have changed adjusted the methodology for our market
outlook slightly this quarter, looking at our SRR and the spread
Venezuela
700
Dominican Republic of similar maturity US$-denominated global bond yields over
Barbados
Jamaica Costa Rica Uruguay
average US 10-year bond yields. This comes as we look to
200 El Salvador Peru Colombi
Guatemala a Chile
neutralise the effect of rising US bond yields on emerging
Panama T&T Brazil
Mexico market debt. Investors' search for yield has continued to bolster
-300 emerging market debt in recent months, bringing the spreads in
25 35 45 55 65 75 85
BMI Sovereign Risk Rating some of the Latin America's riskier economies to near record
Source: BMI, Bloomberg
lows. While we believe risk appetite and loose monetary policy
in developed states could see this trend continue in the coming
months, we highlight rising risks due to increasing debt issu-
Caribbean Not All Rosy Despite ance in emerging markets and potential for several countries'
Upgrades macroeconomic positions to deteriorate in coming months.
Although both Barbados (47, E +) and Jamaica (33, E) have seen Our 'fair value' frontier continues to suggest room for yields
upgrades in their overall SRR scores, and Trinidad & Tobago on Salvadoran and Guatemalan debt to head higher, while Peru
(T&T, 63, C-) has taken the top spot in the region's 'ability to and Mexico remain near fair value.
pay' table, we believe significant macroeconomic headwinds,
stemming from still-weak global growth, are likely to continue As financial markets increasingly price in normalisation in US
impacting the Caribbean in the coming years. Indeed, while monetary policy in future, while creditworthiness declines in
Barbados' 'ability to pay' score rose on the back of a pick-up in some cases, we expect to see yields of some of the region's
growth and slightly more robust export and reserves positions, riskier sovereigns head higher. This highlights potential for these
our forecast for average real GDP growth of just 1.6% between spreads to widen quickly, saddling sovereigns with both higher
2013 and 2018 means that the country's debt burden is unlikely nominal debt loads and higher debt servicing costs.
to decline substantially over the coming years.
period. We do not expect any significant change in economic average of 1.4 percentage points to headline GDP growth over
policy over the medium term, and therefore market-oriented the same period. While we expect investment to cool somewhat
policies should contrast favourably with more left-leaning over the longer term, we believe the current robust investment
economic strategies pursued by several Andean counterparts. outlook places the country in a strong economic position among
However, we are cautious that a weak export picture owing to regional peers.
reduced external demand could keep public spending levels
elevated over the medium term, causing a reversal of private Risks To Outlook: The key risk to our view comes from a po-
capital investment, which might hamper growth and lead to a tential failure of the new president to live up to high expectations
deterioration in the public debt profile. placed on him from the international and domestic community.
A sudden reversal of investment flows could place strain on the
Risks To External Sector: One main concern lies with Colom- country's financial sector and significantly alter the country's
bia's external sector, which we believe is dangerously skewed strong growth outlook. That said, given that Santos' manifesto
towards dependence on oil exports, and lack of diversification is a broad continuation of the previous government's policies,
n export markets. With over 50% of all exports traditionally with no radical reforms or ambitious targets, we do not see a
destined for two countries, the US and Venezuela, Colombia high probability of this scenario playing out.
is dangerously exposed to both a consumption slowdown in the
US and the political instability of its Andean neighbour. This Another risk could come in the form of a 'double-dip' global
risk came to the fore with a trade spat between Colombia and recession, which could lead to a rise in unemployment owing
Venezuela and we continue to see a reliance on Venezuelan to poor external demand, resulting in increased political risk
demand as a potential economic threat in the coming years. (although we would not expect the type of fallout experienced by
other regional countries). This in turn may lead to a resurgence in
Recent trends show a rise in capital goods imports, which we insurgent activity or perhaps the creation of a populist-political
see as a positive for the manufacturing sector over the medium party from the remnants of the leftwing FARC rebel group.
term. Moreover, forward-looking economic policy should help Either way, this would threaten our relatively positive outlook.
boost value-added exports to other Latin American and Asian
markets in the longer term, hence our forecast of a significant The final risk to outlook of sustained economic growth is the
uptick in exports from 2013 onwards. prevalence of illicit crops, with the government estimating total
production of over COP5bn in current prices in recent years.
FDI Remains Key: One of the key drivers of Colombian eco- With stakes high in the battle for control over drug production
nomic growth over recent years has been inward flows of FDI, and trafficking, we may well see the type of spiralling violence
and we believe this remains crucial for future growth. Once currently being seen in Mexico, once the government's focus
again, an improving security environment and relative political shifts from the FARC to tackling the powerful drug cartels.
stability compared with other regional economies means stronger Such violence could well threaten FDI levels, although given
inward foreign investment is likely to flow into the infrastruc- that we are yet to see a direct correlation between violence and
tural, mining, energy and financial sectors, although global lower FDI flows in Mexico, this may not be significant enough
risk aversion remains a risk to this view in 2013. We forecast to damage investor sentiment towards Colombia.
investment growth to average 5.2% y-o-y from 2013 to 2014,
a slight moderation from 2011 levels, but still contributing an
BMIs long-term macroeconomic forecasts are based on a variety of quantitative and qualitative factors. Our 10-year forecasts assume in most
cases that growth eventually converges to a long-term trend, with economic potential being determined by factors such as capital investment,
demographics and productivity growth. Because quantitative frameworks often fail to capture key dynamics behind long-term growth determinants,
our forecasts also reflect analysts in-depth knowledge of subjective factors such as institutional strength and political stability. We assess trends in
the composition of the economy on a GDP by expenditure basis in order to determine the degree to which private and government consumption,
fixed investment and the export sector will drive growth in the future. Taken together, these factors feed into our projections for exchange rates,
external account balances and interest rates.
transmission, port and railroad development, and other activities protected than in the case of physical property, particularly in
approved by a special committee are particularly favoured by the areas of computer software piracy and video recordings. The
this regulation. Portfolio investment is specifically excluded. country has been on the US government's Special 301 'Watch
List' every year since 1991.
Property Rights
Individual rights against state actions and the right to private The registration and administration of IP rights in Colombia
property are explicitly protected by Colombia's constitution, and are carried out by four different government entities. The Su-
expropriation for public utility or for social interest reasons is perintendence of Industry and Commerce acts as the Colom-
guaranteed to be conducted through a proper process and with bian patent and trademark office. The Colombian Agricultural
adequate compensation. In the 2011 International Property Rights Institute is in charge of the issuance of plant variety protection
Index, Colombia was ranked 72 out of 129 countries surveyed. and agro-chemical patents; the Ministry of Social Protection
is in charge of the issuance of pharmaceuticals patents; and
Intellectual Property Rights the Ministry of Justice is in charge of the issuance of literary
As a member of the World Trade Organization (WTO), Colom- copyrights. However, the lack of uniformity and consistency in
bia has approved legislation to comply with the Agreement on IPR registration and oversight procedures limits the transparency
Trade Related Aspects of Intellectual Property Rights (TRIPS) and predictability of the IPR enforcement regime.
signatory obligations related to intellectual property. As a
TRIPS signatory, national laws must meet internationally agreed The FTA, with the US, provides for improved standards for
standards pertaining to copyright rights, including the rights of the protection and enforcement of a broad range of intellectual
performers, producers of sound recordings and broadcasting property rights, consistent with both US standards of protection
organisations, industrial designs, patents and trademarks. The and enforcement and with emerging international standards.
agreement also specifies enforcement procedures and dispute
resolution procedures, and is considered to be the most com- Corruption
prehensive international agreement on intellectual property. Transparency International's 2011 Corruption Perceptions
Index puts Colombia in 94th place in a global ranking of 182
Although a signatory to TRIPS, and despite increasingly ac- countries. In the Americas, the country ranks ahead of Mexico
tive law enforcement, IP rights in Colombia remain much less and slightly below Brazil
President Juan Manuel Santos is committed to fighting corrup- decade ago the government began to invest heavily in improving
tion as the influence of the FARC weakens. However, despite the network, with a US$100mn loan from the Inter-American
significant advances in fighting corruption, criminal narcotics Development Bank (IDB) and a number of large private con-
organisations have infiltrated parts of the military, the judiciary tracts. We note that the greatest risk to the realisation of the
and civil service at all levels. The government's Comptroller government's PPP ambitions is that the transport concession's
General estimates Colombia's economy loses up to US$6bn a authority, Inco, has been instructed to coordinate too many major
year to corruption, and the future of US aid to Colombia under tenders at the same time, which may cause delays.
the 'Plan Colombia' programme looks increasingly uncertain.
In the energy and utilities sector, it is worth highlighting the Hi-
droelctrica Ituango hydropower project, which when complete
will have a capacity of 2.4GW. It is a major infrastructure project
Infrastructure that has already attracted 22 companies interested in contracts.
Another key advantage is the relatively small size of its auto its locally assembled Dacia Duster mid-size SUV while GM
market. The vehicle ownership rate is 43.2 cars per thousand is looking to invest about US$250mn over the coming five
people, meaning that Colombia offers a whole new consumer years at its Colmotores plant in Bogota. Equally promising is
base with improved incomes levels and affordability. Per capita the prospect of the resumption of Colombian vehicle exports
GDP income is set to grow nearly 45% in the next five years, to Venezuela. These developments confirm BMIs view about
BMI forecasts, which will be further supported by a large up- the Colombian production segment benefitting from domestic
tick in private sector credit growth and an ongoing investment demand potential and improved trade ties with its export desti-
boom, leading to rising employment and hence spending power. nations, particularly Venezuela.
Meanwhile, General Motors (GM)s investment was prompted estimates the recently signed FTA with South Korea will in-
by the ongoing talks on a FTA with South Korea, which were crease its economic growth for 2012 by 0.5%, to between 4%
concluded in June 2012. GM has long been wary of Colombias and 5%. Over the long term, Colombia is likely to become a
increasing ties with South Korea and the consequent ease of prime location for carmakers pursuing export-orientated produc-
entry for South Korean carmakers into the South American tion in the country. The sentiment has been encouraged by the
country. To that end, in 2010, it made its investment in its local regulatory setup, government support of the autos industry and
manufacturing plant and the development of its local supply the countrys increasing trade ties with leading auto producing
chain conditional on Colombia keeping its tax-free regime for nations around the world.
completely knocked-down imports intact. The carmaker has
confirmed it plans to start its press shop in Bogota in 2013, We also see opportunities for investment in more autos manufac-
which will allow it to add 60,000 vehicles to its current installed turing as the US and South Korean carmakers could be looking to
capacity of 80,000 units. exploit their FTAs as a springboard for their increased presence
in the Latin American region on the whole.
A further boost to the production segment will come from a
possible relaxation in Venezuelas autos import policy towards Trade
Colombia, which in the past has been the biggest market for
Venezuelan autos imports. In 2007, a record 70,000 vehicles Further underlining our upbeat stance towards the Colombian
imported into Venezuela came from Colombia representing auto sector in 2013 was the news in December 2012 that the Eu-
14% of the total vehicles sold in the former country. Industry ropean Parliament has approved a FTA with Peru and Colombia.
experts believe that bilateral trade agreement between the two It is expected that this agreement will take effect in Q113. BMI
countries could make way for increased vehicle trade in as lit- believes this will boost autos imports from Europe to Peru and
tle as 90 days. Colombia, providing some upside risk to our European produc-
tion forecasts and sales outlooks for Peru and Colombia. This
At this rate, Colombia could soon be on its way to becoming follows the successful conclusion of another FTA with South
one of the leading and most competitive autos production bases Korea in June 2012, which should see an increase in Korean
in the region. auto imports into Colombia over the short to medium term.
The vehicle assembly industry currently represents 10% of the To protect the local vehicle assembly industry, auto import tariffs
Latin American countrys GDP. The Colombian government will reportedly be reduced gradually, in line with FTAs signed
between other countries. Looking forward, news that Japan is We believe this will serve to boost the quality of production,
now seeking to enter into an Economic Partnership Agreement and should help incentivise vehicle manufacturers to invest in
(EPA) with Colombia could see additional Japanese automakers the country.
looking to establish local production facilities in order to combat
the current strength of the yen currency.
In this context, the terms of the EPA should reportedly be Food & Drink
finalised in 2013, and will include an FTA covering the autos
sector, among others. A number of Japanese auto companies Executive Summary
currently sell in the country. BMI expects the FTA to facilitate Despite shorter-term weakness expected for its consumer out-
substantial growth for these companies, as lower import taxes look, Colombia is rapidly evolving into one of Latin Americas
will reduce prices. high-potential consumer markets, with this position bolstered
by its improving political risk and employment profile. Major
Previously agreed FTAs between Colombia and other countries foreign retailers can be expected to continue targeting Colombias
have dictated that tariffs on vehicle imports into the country be rising middle class, although income disparities will remain an
gradually reduced from 35% FOB (free on board) to zero over a obstacle to faster growth of food and beverage sales values, in
10-year period. We expect a similar arrangement for this FTA. the organised and non-organised retail segments.
We believe FTAs will facilitate greater investment in Colombia Headline Industry Data (in local currency)
from its trading partners auto manufacturers, which will support
the countrys development into a regional export hub. BMI has 2012 per capita food consumption = +6.61%; five-year
long maintained that the current strength of the yen encourages forecast compound annual growth rate (CAGR) to 2017
Japanese companies to produce outside of the country, as the = +8.12%.
currency makes exports more expensive. We believe that, as
Colombias auto sector matures and Japanese auto manufacturers 2012 alcoholic drink sales = +5.20%; forecast CAGR to
gain market share and establish themselves, some may attempt to 2017 = +5.89%.
develop production facilities in the country. This will, however,
only occur over the longer term. 2012 soft drink sales = +5.69%; forecast CAGR to 2017
= +8.79%.
Due to the recent signing of several FTAs with Europe, the US,
and South Korea, Colombia has decided to address some of the 2012 mass grocery retail sales = +8.34%; forecast CAGR
terms of the agreement. Initial reports suggest the key changes to 2017 = +9.92%.
will be that assemblers will not be obligated to fulfil the original
equipment manufacturers (OEM) local content meaning that Key Company Trends
they can buy OEM parts overseas and, second, assemblers
will have to pay tariffs on completely knocked-down kits. These Carrefour s Colombian Business Purchased By Chilean Cen-
changes are expected to be implemented in 2013. BMI believes cosud: Despite previous speculation that US retailer Walmart
this policy may serve to boost investment in Colombia, as it would purchase French chain Carrefours assets in Colombia,
seeks to increase trade levels through these new FTAs, and the business was finally acquired in October 2012 by Chilean
manufacturers operating in the country will be able to purchase major Cencosud. The recent cooling of the Brazilian economy
auto parts from overseas. However, we believe Colombian trade may have pushed the firm to look elsewhere, with Colombias
with Ecuador may decline on the back of this change. consumer sector currently outperforming its regional counterpart.
During 2012 Cencosud reported same-store growth in all of its
The Colombian government is investing in a research and de- markets with the exception of Brazil.
velopment centre capable of evaluating materials, quality and
design. The commerce and industry ministry is working with Retail Sales Post Stronger-Than-Expected Growth: Co-
assemblers and OEM producers on a Productive Transforma- lombian retail sales surprised to the upside, expanding by
tion Programme to improve logistics, quality, and distribution. 6.7% year-on-year (y-o-y) in November 2012, compared with
Bloomberg consensus of 1.3% y-o-y growth. We expect retail Food consumption growth will be driven by increased demand
sales growth to remain broadly subdued in the coming months for value-added and premium products, in line with rising in-
amid ongoing household deleveraging. comes and falling unemployment, with producers investing in
Colombia to tap the growing demand for indulgence products
Colombian Food Conglomerate Nutresa Expands Its Cen- such as chocolate, ice cream, yoghurt and coffee. International
tral America Reach: In December 2012, the leading domestic investors such as Danone and Nestl, and local firms such as
food conglomerate, Grupo Nutresa, acquired a 100% stake in Grupo NutresaBody 1and Alpina Productos Alimenticios,
the US-based American Franchising Corp (AFC). The value are all keen to capitalise on this rising demand and are investing
of the transaction, which includes the acquisition of the plant significant funds to increase capacity.
engaged in the manufacturing of dairy products, was reportedly
in the region of US$110mn. The move will allow Nutresa to Canned Food
significantly expand its ice-cream business in Central America,
as the Colombian company also gains the licence to distribute Canned food sales value CAGR, 2012 to 2017 (local cur-
Haagen Dazs and General Mills products. AFC owns the Costa rency): +5.78%.
Rican franchise Pops, which has around 180 stores.
Canned food sales volume CAGR, 2012 to 2017: +2.27%.
Key Risks To Outlook
As disposable incomes rise and more consumers start to look
Strong Peso Hurting Competitiveness: The peso is nowtesting for convenient meal options, canned food sales are expected
key resistance around COP1,750$/US, a level that has triggered to increase by 32.4% in value terms (local currency, nominal
greater central bank intervention in the past. The strength of growth rate), and by 11.9% in volume terms between 2012 and
the pesohas hurt export competitiveness, and with recent data 2017. In US dollar terms, the canned food market is expected to
suggesting exports grew by only around 2.5%y-o-y in Q312. increase by just over 33.0%, owing to the strengthening value
of the peso against the US dollar.
Industry Forecast It can be expected that food manufacturers will continue to invest
Food significant sums in modernising facilities and expanding produc-
tion capacities, supported by rising investor confidence on the
Food Consumption back of an improved security situation. One area of the canned
food market expected to record strong growth is canned tuna.
Total food consumption compound annual growth rate Investment from US and European companies in the regional
(CAGR), 2012 to 2017 (local currency): +9.44%. tuna-canning industry has enabled the sector to develop ahead
of other food industries, with the products gaining a reputation
Per capita food consumption CAGR, 2013 to 2017 (local for quality and traceability. Meanwhile, the internal market is
currency): +8.12%. growing because, as a predominantly Catholic region, Latin
American countries have a high demand for canned tuna during
Strong growth is still expected in food consumption (retail sales the annual Lent fasting period and on Fridays, when, tradition-
of food and drink, excluding alcoholic drinks) over the next five ally, fish is consumed instead of meat.
years, with economic growth remaining steady in the longer term,
while falling unemployment should push up disposable incomes. Confectionery
Between 2013 and 2017 total food consumption is expected to
rise by 57.0% (nominal growth rate in local currency terms). Confectionery sales value CAGR, 2012 to 2017 (local
This will stem from a projected 47.7% increase in per capita currency): +5.77%.
spending and a 10% increase in the size of the population. Using
BMI forecasts for the COP/US$ exchange rate, this translates Confectionery sales volume CAGR, 2012 to 2017: +2.83%.
into total food consumption growth of just less than 58.0% in
US dollar terms, as the Colombian peso is forecast to strengthen Sales of non-essential products such as chocolate have recorded
against the US dollar over the next five years. some of the biggest increases in Colombia over the past few
years, in line with rising disposable income. Between 2012 and and of butter at 0.51kg. By 2017 BMI forecasts that ice cream
2017 value sales are forecast to increase by 32.4%, as calculated consumption will increase to 3.54kg per capita, while cheese
in local currency terms (+33.1% in US dollars). Colombias consumption will increase to 1.44kg per capita and butter con-
confectionery sector benefits from the fact that almost two-thirds sumption will increase to 0.56kg per capita.
of the population is below the age of 30. As in other markets
Colombian confectionery sales are influenced by the health trend. In all three dairy subsectors domestic production is substantial,
accounting for the bulk of local consumption. Currently, local
Jams & Jellies producers account for around 98% of demand in Colombia, with
this dominance expected to remain for the considerable future.
Consumption of jams and jellies in Colombia is forecast to Exports account for a small proportion of total production..
increase through to 2017. From an estimated 1.57kg per capita
consumption in 2012, BMI forecasts this will rise to reach Meat
2.11kg per capita by 2017. This growth is likely to be driven by
increased demand for value-added and premium products from In terms of overall meat demand, consumption of sausages in
Colombian consumers. Domestic production of jams/jellies is Colombia is far higher than that of bacon/ham. In 2012 per capita
substantial, standing at over 74,000 tonnes in 2012, and showing consumption of sausages stood at just over 8kg, which BMI is
y-o-y forecast growth of around 9% between 2012 and 2017. forecasting will rise to 12.31kg by 2017. In contrast, per capita
consumption of bacon/ham stood at just 0.40kg in 2012, which
Pasta BMI forecasts will edge up to 0.50kg by 2017.
Consumption of pasta is climbing in Colombia as consumer tastes Domestic production of meat accounts for the majority of local
become more sophisticated in nature. Per capita consumption demand in both the bacon/ham and sausages sectors. Imports of
of uncooked pasta was 22.4 kg in 2012 andof prepared pasta bacon/ham are greater than the level for sausages and are forecast
at 0.36kg per capita. By 2017, BMI forecaststhat per capita to increase more substantially year on year through to 2017.
consumption of uncooked pasta will rise to 32.2kg and prepared
pasta to 0.54kg. Fish
In terms of uncooked pasta, domestic manufacture accounts for Colombias fisheries industry is of relevance for both domestic
virtually all consumption in Colombia. As far as prepared pasta consumption and exports. In terms of domestic demand, per
is concerned, imports are more important and through to 2017 capita consumption of frozen fish stood at an estimated 4.45kg
are forecast to increase y-o-y by about 14%. in 2012, which BMI forecasts will rise to 7.33kg by 2017. Per
capita consumption of preserved fish is much lower, standing at
an estimated 1.86kg in 2012, which BMI forecasts will increase
Dairy to 2.37kg by 2017.
With a large percentage of the population on low incomes Frozen fish exports stood at an estimated 55,700 tonnes in 2012,
the consumption of dairy products in Colombia is lower than with the rate of growth forecast to slow on an annual basis through
many other countries in the Andean region. In 2012, per capita to 2017, averaging only 1%. In contrast, although exports of
consumption of ice cream stood at 2.50kg, of cheese at 1.35kg preserved fish stood at a modest 6,530 tonnes in 2012, through
to 2017, they are forecast to grow at double-digit rates. Alcoholic drinks sales volume CAGR, 2012 to 2017:
+2.64%.
Drink
Beer sales value CAGR, 2012 to 2017 (local currency):
Hot Drinks +6.23%.
Coffee sales value CAGR, 2012 to 2017 (local currency): Beer sales volume CAGR, 2012 to 2017: +2.71%.
+4.00%.
Wine sales value CAGR, 2012 to 2017 (local currency):
Coffee sales volume CAGR, 2012 to 2017: +0.55%. +7.27%.
Tea sales value CAGR, 2012 to 2017 (local currency): Wine sales volume CAGR, 2012 to 2017: +3.72%.
+2.79%.
Spirit sales value CAGR, 2012 to 2017 (local currency):
Tea sales volume CAGR, 2012 to 2017: -0.62%. +4.53%.
Coffee consumption in volume terms has been relatively stag- Spirit sales volume CAGR, 2012 to 2017: +1.07%.
nant over the last five years, at around 1.2mn 60-kg bags a year,
which equates to 1.5kg per person. In global terms, this level In the year to March 2012, SABMiller reported a 26% rise in
of consumption is moderate, but per capita consumption is far volumes in the Colombian market.
below that of Brazil (4.6kg per capita) and Argentina (4.0kg).
This tax increase is expected to continue weighing on demand
The market for Colombian coffee is dominated by instant over the forecast period to 2017. However, the growing popu-
(soluble) coffee, and the sector has delivered only moderate larity of beer among Colombias middle classes is forecast to
growth. Traditionally, the best Colombia coffee beans had been push volume sales up by about 14% between 2012 and 2017.
reserved for export markets. This is gradually changing, with
Compaia Nacional de Chocolates and local industry asso- Consumption of wine in Colombia is low. Colombia is not a
ciation Fedecafe running campaigns to encourage Colombian major wine producer. However, wine consumption is forecast to
consumers to consume higher quality coffee. Gourmet coffee grow moderately over the next five years as a result of growing
stands and cafs in all the major cities are increasing, giving consumer affluence and growing muiddle clasee.
producers a new sales outlet and pushing up margins. As such,
BMI forecasts growth in the sector over our forecast period, Soft Drinks
with value sales increasing by just under 21% between 2012
and 2017 to reach COP1,239bn (US$692mn). Soft drinks sales value CAGR, 2012 to 2017 (local cur-
rency): +8.79%.
Alcoholic Drinks
Soft drinks sales volume CAGR, 2012 to 2017: +5.51%.
Alcoholic drinks sales value CAGR, 2012 to 2017 (local
currency): +5.89%. Carbonated soft drinks sales value CAGR, 2012 to 2017
(local currency): +7.00%.
TABLE: HOT DRINKS VALUE SALES HISTORICAL DATA & FORECASTS, 2010-2017
2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
Coffee sales (COPmn) 950,894 990,586 1,018,374 1,050,606 1,087,762 1,133,009 1,183,329 1,238,862
Coffee sales (US$mn) 501.0 536.0 565.8 578.8 596.0 624.2 657.4 692.1
Tea sales (COPmn) 2,892 3,005 3,124 3,227 3,321 3,411 3,497 3,585
Tea sales (US$mn) 1.52 1.63 1.74 1.78 1.82 1.88 1.94 2.00
e/f=BMI estimate/forecast. Source: National Department of Statistics, FENALCO, BMI
Carbonated soft drinks sales volume CAGR, 2012 to 2017: currency): +10.79%.
+3.76%.
Once the economy picks up, we expect expansion to begin again.
Fruit/vegetable juice sales value CAGR, 2012 to 2017 (local We see expansion being focused on well served areas, such as
currency): +10.25%. the capital, Bogot, and Cali and Medelln, as well as regions
of the country with a low presence of MGR outlets, particularly
Fruit/vegetable juice sales volume CAGR, 2012 to 2017: the Atlantic coast cities of Barranquilla, Cartagena and Santa
+6.77%. Marta. While progressing with their expansion, store formats
are being adapted to take account of inequalities in income
Bottled water sales value CAGR, 2012 to 2017 (local cur- distribution, hence the gradual emergence of discount retailing.
rency): +12.27%. Despite these developments significant parts of the population
will continue to be excluded from shopping in modern MGR
Bottled water sales volume CAGR, 2012 to 2017: +8.77%. outlets, with about 17% of the population estimated to be living
in extreme poverty.
Local players are likely to be increasingly squeezed by competi-
tion from multinationals in this sector. Soft drinks sales (in local Trade
currency, nominal terms) are expected to increase by just over
52% between 2012 and 2017. Growth for carbonates is forecast Exports value CAGR, 2012 to 2017 (US$): +13.64%.
to be modest, owing to the increased health consciousness of
consumers. However, bottled water, fruit juices and functional Imports value CAGR, 2012 to 2017 (US$): +12.26%.
drinks can be expected to experience particularly strong growth
as a result of the aggressive marketing and promotional strate- Colombia has a positive food and drink trade balance, owing to
gies of manufacturers. a large agricultural sector that exports worldwide and a fairly
advanced processed food industry that exports mainly to neigh-
Mass Grocery Retail bouring countries such as Venezuela and Ecuador. Agriculture
accounts for nearly 20% of Colombias gross national product
MGR sales value CAGR, 2012 to 2017 (local currency): (GNP) and employs more than 30% of the working population.
+9.92%.
TABLE: MASS GROCERY RETAIL SALES BY FORMAT HISTORICAL DATA & FORECASTS, 2010-2017
2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
Supermarkets (COPbn) 10,456 11,568 12,375 13,256 14,261 15,483 16,834 18,339
Hypermarkets (COPbn) 9,397 10,949 11,939 13,077 14,459 16,261 18,305 20,633
Convenience stores (COPbn) 468.0 542.5 596.5 655.5 722.7 804.5 895.0 995.7
Total mass grocery retail sector (COPbn) 20,321 23,060 24,911 26,989 29,443 32,548 36,034 39,967
Total mass grocery retail sector growth, COP, (y-o-y) 8.91 13.48 8.03 8.34 9.09 10.55 10.71 10.92
Supermarkets (US$bn) 5.51 6.26 6.87 7.30 7.81 8.53 9.35 10.25
Hypermarkets (US$bn) 4.95 5.92 6.63 7.21 7.92 8.96 10.17 11.53
Convenience stores (US$bn) 0.247 0.294 0.331 0.361 0.396 0.443 0.497 0.556
Total mass grocery retail sector (US$bn) 10.71 12.48 13.84 14.87 16.13 17.93 20.02 22.33
e/f=BMI estimate/forecast. Source: National Department of Statistics, FENALCO, BMI
Defence expenditure, COP, % change y-o-y [1] 15.5 8.8 9.0 9.9 10.4 10.7 10.8
Defence expenditure, % of GDP [2] 3.9 4.0 4.1 4.2 4.3 4.3 4.4
Defence expenditure, COP per capita of population [2] 515,226.5 553,155.0 595,484.5 646,356.0 704,867.2 771,132.3 844,660.8
Defence expenditure, COP per serviceman [2] - - - - - - -
Defence expenditure, US$mn, constant prices [1] 12,966.1 14,066.9 14,762.1 15,678.1 16,790.2 18,221.1 19,481.3
Defence expenditure, US$, constant prices % change y-o-y [1] 14.9 8.5 4.9 6.2 7.1 8.5 6.9
Defence expenditure, constant US$ per capita of population [1] 276.3 295.8 306.5 321.5 340.1 364.8 385.6
Defence expenditure, constant US$ per serviceman [1] - - - - - - -
e/f = BMI estimate/forecast. Source: 1 SIPRI/BMI; 2 SIPRI, BMI calulation.
This report is abstracted from BMIs industry report series, which covers 22 sectors across global markets. Every quarter, we will provide tables
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TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS (%)
US Eurozone Japan Brazil China Russia India
2013 Bloomberg Consensus 1.8 -0.1 1.0 3.5 8.1 3.3 5.6
BMI 2.3 0.0 0.9 3.5 7.5 3.4 6.1
2014 Bloomberg Consensus 2.7 1.1 1.2 4.0 8.0 3.8 6.5
BMI 2.5 1.2 1.1 3.7 6.7 3.6 6.7
Source: BMI, Bloomberg
3.7%) and Egypt (2.6% in 2013, down from the previous projec- we are more optimistic on the growth prospects of India, the
tion of 3.0%, and 3.7% in 2014, down from 5.2%). US for 2013 and, by a small margin, the eurozone.