Construction and industry drive growth in Atlántico, Colombia

 

Located in northern Colombia, the Atlántico department is one of 32 departments in the country. It is part of the Colombian Caribbean region, with the port city of Barranquilla as its capital. According to the National Administrative Department of Statistics, the population is estimated at 2.5m. In recent years, Atlántico has stood out for its positive economic performance in both absolute and relative terms, as reflected by growth and employment data. The employment rate has been rising steadily since 2008, reaching 58.4% in 2015, whereas unemployment has been hovering between 7.5% and 8% since 2012, posting a rate of 8% in 2015. This compares favourably with the country as a whole, where unemployment reached 8.9% in 2015.

Key Contributor

The department’s GDP, as measured by 2005 constant prices, registered an increase of 5.34% in 2015. By comparison, the Colombian Caribbean region grew by 2.49%, Colombia as a whole registered 3.05% growth and the capital, Bogotá, 4.05%. In 2015 Atlántico also accounted for 4.2% of the country’s GDP and 28.1% of the Colombian Caribbean’s GDP, up from 4.1% and 27.4%, respectively, in 2014. Atlántico’s chief economic sectors in 2015 were services at 43% of GDP, industry (15%), commerce (12%) and construction (9%), with the remaining sectors representing 21% of GDP, according to the Chamber of Commerce of Barranquilla (Cámara de Comercio de Barranquilla, CCB). The highest levels of growth in 2015 were in construction (11.4%), manufacturing (10.6%) and mining (5.3%).

Capital City

Barranquilla, the capital of Atlántico, is home to about 50% of the department’s population. Yet the city’s metropolitan area, comprising the municipalities of Galapa, Malambo, Puerto Colombia and Soledad, is much bigger, encompassing 82% of the population. In addition to being Atlántico’s capital, Barranquilla is also a major industrial and trading outpost, partly due to its strategic location on the Caribbean Sea and the mouth of the Magdalena River, which connects the Colombian Caribbean coast to the interior of the country. Barranquilla’s port infrastructure consists of 20 port concessions and 10 terminals. The Port of Barranquilla is the main multipurpose port in the Colombian Caribbean, with infrastructure for containers, bulk, coal, general cargo and project cargo (ultra-heavy and over-sized). In 2016 it handled a total of 4.6m tonnes, 131,616 tonnes more than in 2015.

Atlántico has 18 industrial parks located in the Metropolitan Area of Barranquilla, including: Metroparque Industrial y Comercial del Caribe, Parque Industrial de Malambo and Kilómetro 3, located in Barranquilla, Malambo and Galapa, respectively. There are also three permanent free trade zones (FTZs); Barranquilla Free Trade Zone, Atlántico International Free Trade Zone and La Cayena Free Trade Zone, and three special FTZs – Sykes, Clinical Portoazul and Termoflores.

Together with Santa Marta, Cartagena and a number of surrounding municipalities, including Soledad and Malambo, Barranquilla reported a growth rate of 4.9% in industrial production during the fourth quarter of 2016, the highest level recorded in this period. By comparison, Bogotá’s industry contracted by 3.1%. Furthermore, over the course of 2016 industrial production in Barranquilla, Soledad, Malambo, Santa Marta and Cartagena rose by 5%, with growth being driven by beverages at 14.9%, other manufacturing with 9.3% and chemical products at 6%.

Trade

Atlántico has had a negative commercial balance for at least 15 years, yet this has not been a major cause for concern as the majority of imports are utilised by the manufacturing industry. In 2015 the CCB reported that 60% of Atlántico’s imports consisted of primary inputs, intermediate products and capital goods destined to supply local industrial manufacturing, and therefore contribute to the production of goods oriented towards sales in various foreign markets. In 2015 Atlántico’s imports showed an increase of 4.57%. The department’s chief imports comprised aircraft manufacture at 28%; followed by fertilisers and pesticides (9%); motor and turbines construction (5%); basic iron and steel (5%); agricultural products (4%); and basic industrial chemical substances (2%), except for fertilisers. In term of trade partners, the US accounted for the largest share of imported goods at 38%.

As for exports, Atlántico reported an 18% increase in 2015. Leading exports included ships for the transport of merchandise, and those to transport people and goods (above 1000 tonnes), which accounted for 10.16%; followed by pesticides, ready for retail sale (9.69%); tugboats and pusher crafts of 50-1000 tonnes, as well as doors, windows and aluminium-based framings (5.53%). The US was the chief destination for Atlá ntico’s exports at 18.1%, followed by the Free Trade Area of Cartagena (16.2%) and Brazil (13.8%).

Atlántico’s expanding export performance in 2015 stood in contrast to Colombia’s overall exports that year, which declined 34.9%. This feat arguably reflects the diversified character of the department’s economy and the fact that its exports are not dominated by extractive resources. In turn, the evolution and composition of Atlántico’s imports suggest that, despite the local currency’s devaluation when compared to the US dollar in 2015, the industrial sector relies strongly on foreign imports, particularly highly technical products.

Attracting Investment

The chief drivers of investment in Atlántico department and its capital include its strategic location; logistics, transport and industrial infrastructure; as well as quality human capital and higher education institutions. “Barranquilla has a cost-competitive port. Many Colombian companies in the interior have set up shop here because the cost of exporting to other markets from Barranquilla and its surroundings is comparatively cheaper,” Diana Cantillo, investment promotion coordinator at local investment agency ProBarranquilla, told OBG. “The city has a strategic geographic location and its port is complementary to that of neighbouring cities, such as Cartagena and Santa Marta.”

Human capital and accredited universities also attract foreign investment, according to Cantillo. “Bayer, the German pharma and chemicals company, for instance, installed its Andean region operations centre in Barranquilla, taking advantage of not only its strategic location and logistics, but also the presence of higher learning institutions with the capacity to provide required professional preparation, namely in chemical engineering,” she added.

In 2016 Atlántico attracted a total of COP1.34trn ($402m) in net capital investment, up from COP621.2bn ($186.5m) in 2015. The industrial sector accounted for the largest share of this at 43.2%, followed by services at 24.5% and commerce at 21.6%.

Investment Incentives

Atlántico offers investment incentives to new incoming firms, as well as to those that may wish to resettle in the metropolitan area of Barranquilla. In terms of taxes, exemptions for up to 10 years are available in the industrial, commerce, property and urban planning sectors. Bancóldex, a state-owned export development bank, offers credits at special interest rates for industrial firms investing in innovation, labour capital and equipment renovation, while INNP ulsa and the Plan to Support Productivity and Employment offer support on innovation, productivity and employment. There are also a number of sector-specific schemes, including in tourism where tax exemptions of up to 30 years are offered for new hotels built between 2003 and 2018, as well as for ecotourism developments over a period of 20 years starting from 2003. The agricultural sector benefits from tax exemptions for the development of late-harvest crops, such as palm oil, rubber and forestall plantations, including timber trees and sawmills. Tax exemptions are also available for investments in software development.

Government Priorities

Eduardo Verano de la Rosa, member of the Liberal Party of Colombia and second-time governor of Atlántico since January 2016, currently runs the regional government. His administration has an unprecedented investment plan in place and is estimating capital input of up to COP10.91bn ($3.3m) until 2019, including funding from a mix of regional and national sources at 40.63% and 48.4%, respectively. Public-private partnerships (PPPs) are expected to contribute 7.3% and the Corporación Ambiental del Cuatrienio 3.56%. Regional government priorities under Verano de la Rosa range from supporting social services and economic development to focusing on environmental issues and basic needs.

Meanwhile, the 2016-19 development plan for Barranquilla foresees a total investment of COP17bn ($5.1m) during that period, up from COP7bn ($2.1m) between 2012 and 2015, and COP3.8bn ($1.1m) for the 2008-11 period. Funding sources include internal resources at 29%, followed by transfers (24%), capital resources (9%), national government investment (16%), regional government investment (2%) and public-private financing instruments (19%).

The government of Alejandro Char Chaljub, of the Radical Change political party and second-time mayor of Barranquilla since 2016, is now focusing on four priorities that cover a range of initiatives that address support for social services, infrastructure development, employment, entrepreneurship and investment in security, mobility, urban planning, housing and climate change. While tax collection efforts have generally improved, dwindling extractive resource royalties and an increasingly austere fiscal policy at the national level have some wondering whether Atlántico and Barranquilla will be able to fully execute their development plans, as they partly depend on national funds.

Competitiveness

According to the Department Competitiveness Index, which is a study conducted on a yearly basis by the Private Council of Competitiveness (Consejo Privado de Competitividad, CPC), a national non-profit organisation, Atlántico is not only the most competitive department in the Colombian Caribbean region, but it also figures among the top 10 most competitive departments of Colombia, out of a total 26 assessed by CPC. In 2016 Atlántico ranked ninth, unmoved from 2015. It is also considered to be one of the most developed departments of Colombia, alongside Antioquia, Bogotá DC, Bolivar, Boyacá, Cundinamarca, Santander and Valle del Cauca.

In 2016 Atlántico saw improvements in various areas assessed by CPC, including in terms of institutions, market size, basic and middle education, and environmental sustainability, as well as innovation and entrepreneurial dynamics. Its ranking worsened, however, in the areas of infrastructure, health care and market efficiency. Nevertheless, Atlántico continues to stand out for having good rankings in a number of areas that include: eighth in infrastructure, sixth in market size, third in health care, ninth in higher education and training, sixth in sophistication and diversification, and fifth in innovation and entrepreneurial dynamics.

Energy Growth

As previously mentioned, Atlántico has displayed strong levels of growth in recent years, offering opportunities for investment in a variety of sectors within its diverse economy. Energy is one such industry with strong potential. Opportunities in energy resource exploration, namely in hydrocarbons off the north coast of the country, are gaining traction (see analysis). There is also potential in renewable energies, including solar, wind and hydropower.

Alberto Vives de la Espriella, regional director at the National Business Association of Colombia (ANDI), told OBG, “A foreign company has been developing a pilot project in hydropower for about one year, having installed energy production equipment at 1000 metres of depth in Barranquilla’s waters, with the capacity of generating of 5-10 MW. If successful, they will likely move into other areas of the country and the world, as well. The adoption of renewable energies could help to bring down energy costs in the region.”

This is all the more relevant in the current context of the crisis affecting electricity distribution in the Colombian Caribbean, demonstrated by power cuts to individual and industrial customers alike, with the latter having to resort to alternative ad hoc solutions. In November 2016 the federal government intervened in Electricaribe, the region’s electricity distributor, managed by Spain’s Gas Natural Fenosa. While the situation may take some time to remedy, some companies are already looking at sustainable solutions. For instance, Tecnoglass, a major Colombian glass producer and the only company based in Barranquilla to be traded on NASDAQ, has invested $3m in solar power generation.

Transport

Transport infrastructure is a key driver of investment growth in Atlántico. In fact, the regional government’s development plan foresees the financing of key ongoing or pending projects through PPPs, which include: a project aimed at improving navigation on the Magdalena River, which is the largest in the country; the construction of the new Pumarejo Bridge over the Magdalena River; the construction of the Puente de la Hermandad Bridge, connecting Salamina to Puerto Giraldo; the strengthening of the Canal del Dique channel; and the construction of the metropolitan area’s Circunvalar Road, also known as Circunvalar de la Prosperidad. According to ProBarranquilla, a number of future plans are also in the works. These include a deepwater port in Barranquilla; a port corridor connecting Circunvalar Road and Pumarejo Bridge; rehabilitation and construction along the Sun Route; connecting Atlántico to Bogotá; and expanding and modernising Barranquilla’s Ernesto Cortissoz International Airport.

While some of the aforementioned initiatives, such as the new Pumarejo Bridge or Circunvalar de la Prosperidad, are reported to be advancing well, other projects have either yet to begin or have run into obstacles. The dredging of the Magdalena River and the construction of the second section of the Sun Route in particular have hit walls in the form of corruption scandals involving Odebrecht, a Brazilian construction company working on both developments.

Industry

As demonstrated by its contribution to GDP and exports, the industrial sector plays a central role in the Atlántico department’s economy. In 2016 the industrial sector attracted COP57.92bn ($17.4m) in net capital investment, which was 43.2% of the total registered for Atlántico at the time. Currently, there are investment opportunities in a variety of subsectors which include agri-business, chemicals and manufacturing.

The regional government seeks to promote the development of the agri-business sector. “Agricultural production in Southern Atlántico declined in 2010 as a result of floods, and has been improving in recent years, although it is yet to recover past production levels,” Carlos Mancera, communications director for Atlántico’s government, told OBG. “The government wants to re-energise this area as an agricultural production base, establish an agri-business processing platform in Central Atlántico and export it through developing areas like Santo Tomás. In this context, it plans to support the development of technical centres in each relevant area of the department to enhance sector-specific education and training, in turn aiding the creation of up to 18 agri-business nodes in Atlántico.”

In more general terms, “the trend in the industrial sector appears to be one of growth”, according to Bernard Saby, director-general at Uniphos Colombia. “In the chemicals sector, there has been a number of investments in production capacity in recent years, such as with Bayer, Dow or ourselves, and there is room for growth in locally sourced inputs, as in product packaging. In manufacturing, Tecnoglass is setting the trend among larger companies, feeding growth through a company investment and debt fund,” he said.

Construction

In addition to being the sector with the highest level of growth, at 11.4% in 2015, construction also attracted a significant share of investment in 2016. Bringing in COP99.87bn ($30m), construction accumulated 7.4% of all net capital investment inflows into the Atlántico department in 2016, making it the fourth-largest sector in terms of net capital investment in that year. Furthermore, 49.4% of all net capital investment in the industrial sector – a total of COP49.83m ($14,800) – went into construction materials, specifically cement, lime and plaster.

Aldryn Polo Saavedra, regional coast manager at local furniture company Milestone, told OBG, “The construction sector has been thriving for various reasons, including, among others, the signing of the peace agreements and associated growth and investment opportunities, combined with national and regional government programmes aimed at supporting infrastructure and housing development.”

Saavedra expects the department’s construction industry to continue expanding in 2017 and over the next two to three years as well. However, within this trajectory he notes a possible slowdown in social housing construction as government impetus in this area has been diminishing. While room for growth in Barranquilla and Cartagena may be more limited in the future, secondary cities are likely to offer opportunities for investment. In September 2016 Camacol Atlá ntico, the regional section of the Colombian Chamber of Construction, expected full-year growth of 7% for the construction sector in Barranquilla and Atlántico.

Business Tourism

A range of tourism destinations are present throughout the department, with Cartagena and Santa Marta particularly well known for cultural and historical tourism, and ecotourism, respectively. Barranquilla, for its part, is investing in business tourism. The inauguration of the Puerta de Oro Convention Centre – the only facility of its kind in the Colombian Caribbean region – in August 2016 is thus an important step. Cantillo told OBG, “Up to December 2016, six fairs had been organised, with double that number expected in 2017.” According to a study from Fundesarrollo, a local think tank, Puerta de Oro is expected to create around 25,000 jobs and contribute COP2.2bn ($660,000) to the region’s GDP, in addition to increasing international visits to Barranquilla by 40%.

Outlook

With a diversified economy and high levels of growth, Atlántico department and its capital, Barranquilla, have seen above-average growth compared to other regions in Colombia in recent years. A strategic location, expanding logistics and transport infrastructure, a significant industrial sector, and the development of human capital and accredited universities have drawn in investors and are likely to continue doing so in the future. Although construction, a key growth driver, may slow somewhat in the medium term, there are signs that the efforts to further diversify the economy while exploring niche sectors could lead to investment opportunities in related sectors. Areas of focus are likely to include renewable energies, business tourism and hydrocarbons offshore exploration.

Within this context, the outlook seems positive, albeit not without challenges. The adoption of a more austere fiscal policy at the national level could affect the disbursement of central government funds to the region, causing delays in regional projects. In more specific cases, surfacing corruption scandals could have a similar effect. Moreover, the energy crisis surrounding electricity distribution, despite government action, could also take some time fix. Because of this, as the department concludes a series of major infrastructure projects, the onus is expected to shift increasingly towards the quality of services provided. Ensuring high levels of service will be vital for Atlántico to remain competitive going forward, as will investing in key economic areas like innovation and entrepreneurship. Its competitiveness scores show that Atlántico is on track.

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The Report: Colombia 2017

Atlántico chapter from The Report: Colombia 2017

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