One of the issues that has undoubtedly been mentioned a lot in the midst of the bad streak that the country’s economy has been experiencing for several months, is the fall in investment, both public and private, since although it is holding up better than what was foreseen at one time, the brake is extending more than desired, impacting strongly on certain sectors, which depend on the arrival of capital.
In this sense, it must be said that although a few months ago it was known that the possibilities of the country becoming a frontier market were substantially reduced and the efforts of the Colombian Stock Exchange to bring more players to the local context little by little They are giving results; The economic slowdown continues to take its toll on this sector of the economy and maintains unfavorable prospects for the future.
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According to the Anif Center for Economic Studies, to better understand what is happening in the stock market, the first thing to say is that everything begins with savings, an item that was one of the first to be contracted. in these lean times and until now it has begun to show signs of recovery.
In a recent analysis they maintain that although “the figure of the financial system as antagonistic to development in the country has been a participant in various discussions in recent years,” promoting this point of view could generate a wrong view of reality, since Long-term development depends on the solidity of all its actors, who are responsible for converting savings into investment.
Colombian market
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“In Colombia, when the financial system is mentioned, the first association direct are the banks. However, these are only one of the many actors that make it up. The capital market, in charge of managing and channeling investment, has historically played a secondary role, wasting its strategic potential for the country and households,” they highlighted in this regard.
Savings in decline
For Anif, the decline in domestic savings has significantly limited investment capacity in Colombia, a problem that has been identified as one of the main factors slowing down the development of the capital market in the country. According to these researchers, gross savings went from representing 17% of GDP in 2016 to only 11% in 2023, which implies fewer resources available to boost the economy.
“Beyond the lack of attention to the capital market, several factors “Macroeconomic and fiscal factors have hindered its expansion, such as those we observe, have a major influence, since an adequate level of domestic savings provides stability to the cost of financing and investment decisions and that should mark the roadmap to overcome the contingency,” they explained.
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They then highlighted that comparatively, the Colombian stock market is lagging behind in the region, since while countries such as Brazil, Chile and Peru have significantly larger stock markets, with hundreds of issuers, Colombia only has 63 listed issuers.
“The depth of this market is limited: between 2019 and 2024, the number of securities issuers decreased from 367 to 332. Comparatively, Colombia has the smallest number of listed companies in the region, with only 63 issuers, while Brazil has 353, Chile with 297, Peru with 195 and Mexico with 136,” they noted in this regard.
$874 billion is roughly the market cap Apple currently has on the stock market.
Private file.
Returning to the impact of savings on the market, Anif recalled that financial stability and the cost of financing are also being directly hit, which complicates investment decisions, especially when there are no clear rules regarding what is coming and is yet to come. A new pension system will be implemented, which will also work against the attractiveness of the market.
Regarding a possible recovery, they added that “this process could be threatened by the recent pension reform, given that approximately one third of household savings comes from mandatory pension contributions. With the expansion of the pay-as-you-go regime, the depletion of the public savings fund could further weaken the national savings position.”
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Tax burden
Furthermore, the Anif report highlights that the high tax burden faced by companies in Colombia has been an additional barrier to investment, both domestic and foreign. While the effective tax rate in OECD countries averages 22%, in Colombia it is 35%, which discourages the entry of capital into the country and has reduced competitiveness and slowed the expansion of strategic sectors.
“The recent reforms and the energy transition, together with their effects on Public finances and political uncertainty have increased the perception of risk among investors. This has contributed to a significant reduction in the investment rate, which in 2023 fell to levels comparable to those seen during the pandemic, reaching 17% of GDP. This situation is worrying if we consider that today’s investments are those that will define growth in the medium and long term,” they said.
Economic growth
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In this way they reiterated that if we take into account that there is almost no savings, that the little we have is not enough to overcome the lag compared to other countries in the region and that tax burdens and uncertainty scare away investment; They are scaring away investors, Colombia is going through an unfavorable period that cannot be extended.
That is why Anif closed by saying that it is urgent to establish clear rules and create conditions that foster a more favorable environment for investment, starting with attracting new players to the capital market and improving access to financing sources, measures that are key to boost economic growth and develop strategic sectors that require new sources of capital to grow and compete on a global level.
