CEO Survey Analysis

En Español

CEOs in Colombia remain largely positive about the economy, in spite of the ongoing political and humanitarian crisis in neighbouring Venezuela. However, they are also in broad agreement regarding the numerous structural challenges that Colombia faces and the areas that must be prioritised in the short to medium term.

Broadly positive outlook among majority of CEOs

Even though business leaders seem unhappy with the current tax regime, they were almost unanimously positive about the country’s overall economic health. Some 91% of respondents to the OBG Business Barometer: Colombia CEO Survey 2019 state that they feel positive or very positive about local business conditions over the coming 12 months. In a similar vein, 72% of respondents signalled that they are likely or very likely to make a significant capital investment over the coming 12 months.

These results indicate a much higher level of confidence among business leaders in Colombia than was shown by Mexican C-suite executives in our latest OBG Business Barometer: Mexico CEO Survey.

These positive results may be explained partly by Colombia’s resilience in the face of challenging geopolitical, humanitarian and economic situations experienced at a global and regional level. Structural economic solidity and increasingly positive projections for 2019 and 2020 may have provided the business community with a sense of certainty and purpose.

Infrastructure remains a key focus

Given these positive growth projections and the fact that Colombia’s major cities are relatively spread out, the continual development of both hard and soft infrastructure is almost universally recognised as a priority for the country. Leading the sector’s development for the last few years has been the $25bn 4G road concessions programme aimed at boosting road infrastructure by 8000 km between 2015 and 2022.

Former President Juan Manuel Santos promised the initiative would lead to a 20% reduction in vehicle operation costs and a 30% reduction in travel time, raising expectations in the business community of an across-the-board optimisation of logistics and supply chain costs. A number of additional infrastructure programmes, such as the tertiary roads programme and the Master Plan for Intermodal Transport, should help to attract investment.

However, although this plan was announced in 2015, it has only started to recently gain traction again after being delayed by a number of factors, including the Odebrecht scandal. As a number of projects reach completion and others near financial closing, the plan should gain additional momentum as tangible results become palpable and trust is regained in Colombia’s infrastructure sector.

After roads, respondents to our survey ranked soft infrastructure as the second most necessary infrastructure development. The health care system has undergone significant reforms over recent decades, which has garnered international recognition. In October 2018 the World Health Organisation ranked Colombia 22nd out of 190 economies in terms of health care system efficiency, ahead of Germany, Canada and Australia.

The fact that survey respondents chose social infrastructure only behind roads demonstrates its importance to business leaders, whose main focus is usually on economic factors. Given Colombia’s collective objective to build a more advanced, value-added economy, it seems only logical that investment in social infrastructure such as education should remain a priority for public and private actors alike. In line with this, in late 2018 President Iván Duque committed to spending an extra COP4.5trn ($1.5bn) to higher education over the course of his administration.

New president’s reform agenda in line with business leaders’ priorities

CEOs signalled their support for a reform of the country’s tax regime, with 76% of respondents to our survey describing the tax environment to be uncompetitive or very uncompetitive. President Duque’s tax reform aims to adjust Colombia’s narrow revenue base, which accounts for under 20% of GDP, compared to the OECD average of 34%.

Although the financing law came into effect on January 1, 2019, it will take a number of years for it to be fully implemented; the final reduction in corporate tax to 30% will come in 2022 and the presumptive income tax will be eliminated in 2021. Thus, although respondents to the survey strongly reiterated the need to improve the fiscal environment, it is unfair to use this as an evaluation of the new reform, simply because it is too early to decipher its effects.

Fluctuations in commodity prices could be a concern

In terms of external events that could impact the economy, commodity price fluctuations remain the most pressing concern, accounting for 37% of responses. This is somewhat unsurprising, considering how revenues from extractive industries such as oil and coal account for much of the government’s finances. Colombia is the fourth-largest coal producer, third-largest coffee grower and second-largest flower producer globally, and Latin America’s fourth-largest oil producer. Having seen a pick-up in growth in 2018 and into 2019, the unpredictable commodity price outlook has the potential to shake confidence in both the public and the private spheres of the economy.

As the situation in Venezuela becomes increasingly uncertain, responses to our 2019 survey have highlighted the risk of instability in the region, with 24% seeing it as the top external event that could impact the economy.

Despite the current unstable global context and instability in Venezuela, it seems that business leaders will remain confident in the medium term. However, preserving this optimism will require a continued commitment to implementing business-friendly policies and the government’s long term infrastructure programmes.