One of the most important news in August was undoubtedly the favorable report of the Gross Domestic Product for the country during the second quarter of the year and within this data, the growth that investment had throughout this period, driven mainly by construction and the increasingly diminishing support of public administration and services.
For now, the balances in this area are bittersweet, since although it remained above the expected levels, the recovery is being classified as slow and as regards the arrival of capital to invest, the general perception is that the bad streak has been broken, but the country continues to lack attractiveness.
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In this regard, Control Risks recently published an analysis that goes further of 2.1% annual variation for GDP in the second quarter and focuses on purely private investment, highlighting that it cannot be overlooked that there is a 25% drop in 2023 that has not been fully recovered and that serious impacts continue to be seen in sectors such as construction, industry and commerce.
Loss of dynamism
In a chat with Portafolio, Laura Lizarazo, senior analyst in the global risk analysis area of Control Risks, began by saying that the global and institutional environment is marked by high volatility and uncertainty due to geopolitical and trade tensions, which has led to greater caution in investments at a global level.
Investment and investments.
“There is no high appetite for investment expansion at this time. and this is a global trend that now converges with domestic factors, among which, of course, the behavior of key sectors in national production such as construction and manufacturing mainly stand out,” said Lizarazo.
These consultants were therefore emphatic in stating that the main driver of this loss of dynamism is a volatile and tense global market economy, in which investment volumes and flows are increasingly limited to prudence rather than active expansion; leaving a panorama in which the most important thing is to bet on generating confidence in order to gain attractiveness.
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Hostile rhetoric
Entering into the current state of the economic rhythm of the local market, Laura Lizarazo initially focused on the effect that, although increasingly less, the speeches of President Gustavo Petro continue to have on the investment climate, highlighting that his vision is far from what previous governments had been doing, including commitments to encourage capital and the private sector.
“We are on a path, a road to recovery that of course has an inevitable gradual component due to the nature of the economic dynamics. It is not possible to have major changes in a short time because multiple factors intervene to determine the behavior of growth, which depends on the one hand on public and private investment, but also on the behavior of private demand, on the appetite of domestic consumers, for example, for consumer credit, for investment,” he explained.
For Control Risks, President Gustavo Petro’s speech, which they believe includes occasionally hostile rhetoric against some industries and unclear and potentially disruptive proposals such as calling for a constituent assembly, has negatively impacted investor confidence and the attractiveness of Colombia as a destination market.
Colombian pesos
“His style of government has led to a constant rotation of staff in ministries. “A key factor is a significant loss of technical expertise in regulatory bodies and inter-institutional coordination capabilities. This has slowed down policy formulation and decision-making, and has affected the technical quality of public policies. The effects of these executive deficiencies are especially evident in the industrial fabric,” they highlighted in their analysis.
Industrialization policy
Another factor that has been influencing low investment, according to the report, is the lack of direction for the economic recovery policy, noting that on the one hand, announcements have been made about transforming Colombia’s productive profile towards a more sustainable model that is less dependent on extraction, but on the other hand, the implementation of this policy has been limited, with little coordination between the public, private and academic sectors.
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“The Government has fallen short, for example, in the articulation of the Bicentennial Group, which is this financial conglomerate of 14 public entities that have at their disposal a pool of resources that could be strategically directed in these areas. There has been a rather timid articulation with the private sector, for example, with the ecosystem of public and private universities, which They are the ones that generate innovation, research and knowledge in the country,” said Laura Lizarazo.
This analyst also said that “there are still shortcomings in creating communication vessels between these ecosystems of science, technology and research with the private sector, with the industrial sector,” which marks a course of action that can be worked on quickly, because from her perspective “the results are very timid and time is really pressing.”
Within the review of the reactivation policy, Control Risks paid attention to the recently announced credit agreement that was announced by the Ministry of Finance and the bankers, and said that it is positive, but that “I wish there were more expeditious ways to prioritize and accelerate these discussions, because there has not been, despite the sometimes confusing rhetoric, lack of clarity in some proposals, there has not been a deviation from these frameworks of democratic dialogue and that is basically what needs to be done.”
Economic growth
Finally, Control Risks concluded by saying that the fact that some of the reactivation proposals announced by the Government depend on their passage through Congress, as is the case of the financing law, could slow down the recovery process, when what is needed is to move forward as quickly as possible.
“There are certain signals that, if read in isolation, in terms of economic performance, could give negative signals. That is why it is important to focus on more general views that take into account the behavior of several economic factors. Colombia is doing well, but slowly,” concluded Laura Lizarazo.
