Colombia Country Risk Report

Published 28 January 2015 | Quarterly

  • 54 pages
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$1,195.00
Colombia Country Risk Report

Core Views:

  • With the oil sector set for slower growth as global crude prices plunge, this will prompt larger net exports deficits and weigh on gross fixed capital formation, such that we anticipate slower growth over the next decade than in the last.

  • Hydrocarbon sector weakness will also weigh on Colombia's balance of payment position. Indeed, faltering oil prices and production will temper investment into Colombia and cool export growth. Meanwhile, slower oil production growth combined with increasing pressure to spend on social programmes will feed through to fiscal slippage toward the latter half of our 10-year forecast period. While the country is well positioned to withstand the storm, with low external debt and a sizeable stock of foreign reserves, the potential for deterioration in the country's macroeconomic buffers will temper investor perception of Colombia's sovereign creditworthiness.

  • We expect the government and Fuerzas Armadas Revolucionarias de Colombia will reach a peace accord in the coming quarters. However, given the splintered nature of the left-wing insurgent group, such a deal will only slowly improve the security environment.

Major Forecast Changes:

We have tempered our optimism on Colombia's growth outlook. Our increasingly cautious view toward the country's oil sector will feed through to the economy in a number of ways:

  • We are now forecasting 3.1% average real GDP growth in 2015 and 3.5% in 2016, revised down from 3.9% and 4.0% respectively. This change reflects our expectation that net exports will become a growing burden on headline growth, reduced revenues will weigh on government spending and that gross fixed capital formation, while benefitting from robust infrastructure expansion, will struggle in the face of sluggish oil output growth.

  • Colombia will post structurally larger current account shortfalls in the coming years as the hydrocarbon sector falters, dragging the trade account further into deficit. After a current...

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Security Challenges To Persist Beyond Peace Deal
8
The Colombian government will reach a peace deal with the insurgent Fuerzas Armadas Revolucionarias de Colom bia (FARC) during
The Colombian government will reach a peace deal with the insurgent Fuerzas Armadas Revolucionarias de Colom bia (FARC) during
President Juan Manuel Santos current term in office
While an important first step, the agreement will not fully resolve the myriad
security challenges facing Colombia
TABLE: POLITICAL OVERVIEW
8
Table : Poi nts Of Ne gotiatio n Betwe n The FARC and Gover nme nt
9
Long-Term Political Outlook
11
Many Structural Challenges Ahead
11
While Colombia's long-term political outlook is set to remain relatively stable compared with its neighbours, we identify several massive
While Colombia's long-term political outlook is set to remain relatively stable compared with its neighbours, we identify several massive
political challenges for the government over the next decade and highlight three scenarios for change
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Index
13
Economic Activity
14
Weaker Oil Sector To Dampen Growth
14
Real GD P growth in Colombia will face significant headwinds on the back of weak oil production and sharply lower global crude prices
Real GD P growth in Colombia will face significant headwinds on the back of weak oil production and sharply lower global crude prices
in the coming years
These dynamics will result in lower goods exports, reduced government spending, faltering consumer confidence,
and more limited fixed investment
Table: Economic Activity
14
Balance Of Payments
16
Structural Obstacles To Hinder Manufacturing Sector Revival
16
Currency depreciation will not be sufficient to revive Colombia's ailing manufacturing sector in the coming years, given the numerous
Currency depreciation will not be sufficient to revive Colombia's ailing manufacturing sector in the coming years, given the numerous
obstacles to cost competitiveness
Combined with falling oil prices and slower crude production growth, a weak manufacturing sector
will increase pressure on the country's balance of payments dynamics and weigh on real GD P growth
Table: Curent Account
16
Monetary Policy
18
Policy Rate On Hold Through 2015
18
Colombia's Banco de la Rep-blica will keep the policy rate on hold at 4
50% through 2015, after hiking by 125 basis points in the past
year
While inflation will remain elevated in the months ahead, slower growth will encourage the bank to maintain a more accom
modative monetary policy stance
Table: Monetary Policy
18
Fiscal Policy
20
Weak Revenues To Widen Fiscal Deficit
20
Colombia's fiscal deficit will widen in the coming year, as revenues are weighed down by lower oil prices and sluggish production
While
the government has implemented a number of reforms to bolster the tax take, this will not be sufficient to fully offset the impact of lower
the government has implemented a number of reforms to bolster the tax take, this will not be sufficient to fully offset the impact of lower
oil revenues
Exchange Rate Policy
22
COP: Oil Prices Stabilisation To Offer Limited Reprieve
22
Colombia will face a period of prolonged peso weakness on the back of the country's struggling oil sector, a strong US dollar and
Colombia will face a period of prolonged peso weakness on the back of the country's struggling oil sector, a strong US dollar and
slumping investor confidence in the Andean economy
A stabilisation in global crude prices will prompt a brief rally in the Colombian
peso, but downward pressures will persist over a multi-quarter period
Table : Exchange Rate
22
Table: Curency Forecast
22
Chapter 3: 10-Year Forecast
25
The Colombian Economy To 2024
25
Structurally Weaker Growth Following Oil Bust
25
Substantially lower global crude prices and sluggish oil production growth will curb investment and export growth in Colombia
As a
result, we forecast slower average real GDP growth over the next 10 years than in the previous decade
Table: Long-Term Macroeconomic Forecasts
25
Chapter 4: Operational Risk
29
SWOT Analysis
29
Operational Risk Index
29
Operational Risk
30
Table: Operational Risk
30
Table: Latin America - Availability Of Labour Risk
32
Table : Labour Force Emplo yme nt By Sector ('000)
34
Crime Risk
35
Table : Top 10 Source Countries For Migrant Workers
35
Table: Latin America - Crime Risk
36
Table: Crime Statistics
37
Chapter 5: Key Sectors
41
Autos
41
Table : Autos Total Market - Historical Data And Forecasts
41
Food & Drink
44
Table : Food Consumption Indicators - Historical Data & Forecasts
45
Table : Hot Drink Value /Volume Sales , Production & Trade - Historical Data & Forecasts
46
Table : Mass Grocery Retail Sales By Format - Historical Data & Forecasts
48
Global Outlook
49
New Era For Oil
49
Chapter 6: BMI Global Assumptions
49
Table: Global Assumptions
49
Table : Developed States , Real GD P GrowtH , %
50
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
50
Table : Emerging Markets , Real GDP Growth, %
51

The Colombia Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Colombia. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Colombia's economic, political and financial prospects through end-2019, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of Colombia's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Colombia's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Colombia, including currency volatility, the commodity price boom and protectionist policies.

The Colombia Country Risk Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Operational Risk and Key Sector Outlook.

Economic Outlook:

How will the Colombia' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Colombia through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Colombia Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Colombia and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Colombia, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Colombia over the next 5-years?

BMI's Colombia country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Colombia Market - Political Strengths, Weaknesses, Opportunities and Threats facing Colombia.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Colombia's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Colombia’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Colombia's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in Colombia?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Colombia against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate Colombia’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

Key Sector Outlook*

Which industry sectors in Colombia will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in Colombia's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express