3 Key Sectors Driving Growth in Colombia As We Move Into 2016
30 Mar 2016
As one of the larger economies in Latin America, Colombia has a track record of above-average GDP growth, a reputation for sound macroeconomic management and market-friendly policies.
In 2015-16 it has demonstrated resilience, absorbing a significant oil price shock, with petroleum accounting for roughly half of total exports. It has managed to absorb this shock while maintaining positive, albeit slower, growth. Looking forward to 2016 and beyond, despite continuing global headwinds, a gradual recovery is expected, driven in part by a programme of transport infrastructure investment. A peace settlement ending a long-running internal armed conflict is also expected to yield a peace dividend in the form of lower security costs, the opening up of previously closed areas of the country to development, and higher economic growth.
Colombia’s banking system is strong and has been enjoying double-digit percentage growth in its loan portfolio. Despite a relative slowdown in economic growth, bank profitability has held up well, as has capital adequacy and return on equity (ROE).
Financial sector-wide loan portfolio growth reached 15.5% in 2015, according to the central bank of Colombia. However, the Colombian Finance Superintendence reported that non-performing loans rose to 3.08% of the total loan book at the end of August 2015, up from 3.05% at the beginning of the year. Meanwhile, the capital adequacy ratio fell to 15.2% of the total portfolio, but remained comfortably above the minimum legal requirement of 9%. For its part, ROE rose to 15.4%, up from 12.3% at the start of the year.
Over the past decade the oil industry has been at the centre of Colombia’s economic growth. The sector accounted for nearly one-fifth of all foreign direct investment (FDI) over the past 10 years, approximately half of all export revenues and, through taxes and royalties, provided up to 30% of government income. Consequently, the fall in the oil price from more than $100 per barrel in mid-2014 to less than $30 in early 2016, and expected to drop even lower, has had a large impact on the national economy. Major companies have been forced to drastically re-adjust their growth plans and streamline operations.
A combination of public and private investment in infrastructure, as well as the implementation of public housing plans, continue to be the primary drivers for Colombia’s construction sector. Projects ranging from highway construction to expansion of existing port and airport infrastructure are attracting a rising number of international firms to build and operate important infrastructure across Colombia.
Additionally, the need to reduce the housing gap, as well as overall strong real estate development over the past several years, has also had a positive impact on the construction sector. This is especially true for the country’s important urban areas. These favourable conditions are expected to be maintained over the medium term, providing dynamic construction project opportunities for domestic and international contractors over the coming years.
For more key facts and figures on Colombia, view the ‘Colombia – Peace and Prosperity’ infographic