MFA: Strategic opportunities for foreign exporters
The covid-19 pandemic hit Colombia late compared to European countries. The government was one of the first in Latin America to impose strict quarantine measures to prevent the collapse of the fragile health system. A hard lockdown lasting a total of over three months began to take a heavy toll on the Colombian economy, and a gradual opening began in the second half of 2020. All areas of economic activity went through a slump.
The areas of transport, construction and trade were the worst affected. Until this year, the booming field of international tourism practically ceased to exist overnight. Colombia was also hit hard by the drop in oil prices, which accounts for 53% of the value of Colombian exports.
On the contrary, growth was recorded by financial services and agriculture. Growing internal indebtedness is a cause for concern – public debt rose to 73.2% of GDP at the end of 2020 and is estimated to reach 74.4% of GDP at the end of 2021. The government therefore announced the need to launch the tax reform in 2021 in order to maintain the stability of public finances.
The government of Colombia has adopted measures amounting to 3.0% of GDP to mitigate the effects of the crisis. On the one hand, these are tax reliefs, such as postponement of the tax calendar (postponement of tax payment), extension of the deadline for the payment of the parafiscal contribution (postponement of payment), refund of tax balances or provision of exemptions from VAT payments. It also involves financial assistance in the form of the introduction of special loans and the creation of special guarantee programs for small and medium-sized enterprises, as well as a contribution to wages in the amount of 40% of the minimum wage.
President Duque also presented the “Compromiso por Colombia” investment plan, which envisages the mobilization of public and private resources for investment and the re-creation of 2 million jobs. The plan is to focus on projects in the area of clean energy, healthcare and support of rural areas. In the budget for 2021, an increase in investment expenditure by 23.1% is expected. At the same time, the government presented 25 key infrastructure projects, the preparation and construction of which it wants to speed up as part of the reactivation of the economy.
Projects include the construction of the Bogotá metro, which began in October 2020, the construction of new airports in Cartagena, on the island of San Andrés, and the airport serving the so-called coffee zone – el Aerocafé. Another major infrastructure project is the Dique Canal and the navigation of the Magdalena River connecting the center of the country to the Caribbean Sea.
According to allcountrylist, a sudden increase in energy consumption, combined with an unexpected drought in April 2020, once again reminded Colombia of its dependence on hydropower. Hydropower plants currently provide around 68% of the country’s electricity production. Short-term hydropower outages are becoming more frequent due to climate change, and Colombia is trying to cover them with increased production from thermal plants and electricity imports from Ecuador.
Although electricity consumption stagnated in 2020, it is expected to increase in the future. Therefore, the government plans to increase the installed capacity by 4,000 MW in the next 5 years. Due to ongoing problems with the construction of the Hidroituango hydroelectric plant in the department of Antioquía, the UPME (Unidad de Planeación Minero Energética) estimates that Colombia could lack up to 1,500 MW in 2023.
For the reasons stated above, it can be assumed that thermal power plants will have their irreplaceable place in Colombia’s energy mix in the medium term, especially as a backup source of hydropower and emerging solar and wind power plants. Currently, 10 coal-fired and 15 steam-gas power plant projects are in the advanced project preparation or construction phase. In addition, Colombia has abundant coal reserves and potentially huge natural gas reserves (depending on the country’s decision on fracking). Opportunities for Czech manufacturers are in the supply of turbines (steam, water, gas), generators, transformers and electrical switchboards (including small hydroelectric plants).
Even Colombia is not avoiding the global phenomenon of the transition to emission-free energy. RES have significant potential due to local climatic conditions. Even before the crisis, the government committed to increase the share of energy from solar and wind sources from the current 50 MW to 2,500 MW in 2022. Law No. 1,715 regulates the integration of renewable energy into the national energy system. The standard regulates investment incentives, including the possibility of reducing the tax base by up to 50% over the course of 5 years or exempting the import of necessary technologies from VAT.
The government’s goal is to achieve a share of renewable energy of 15% of the total installed capacity by 2023. This opens up a lot of space for Czech companies, as currently the share of solar energy is only 0.1%. In remote areas that are not connected to the electricity grid, and which according to IPSE data (El Instituto de Planificación y Promoción de Soluciones Energéticas para las Zonas No Interconectadas) represent up to 45% of the territory, RES are almost the only solution.
In the years 2018-2022, the construction of 7 new lines for the distribution of electricity is also being prepared, mainly in the Caribbean region (the departments of Guajira, César, Magdalena and Bolívar), which, due to the increasing consumption of electricity, is struggling the most with overloading the existing network.
In the field of fintech, consumer payment habits (pre-crisis overwhelmingly cash) have changed rapidly in the last year, with a 40% increase in first-time users of online banking, bank cards and mobile phone payments. According to a survey by the banking association Asobancaria, 60% of them intend to stay with this method of payment.
This opens up opportunities for Czech companies in, for example, the supply of specialized software, cyber security, creditworthiness assessment, data processing, payment platforms, etc.
Another area with opportunities for the supply of software solutions is e-commerce. This sector grew by 40% after the measures were introduced and is expected to grow by 16% in 2021. The largest increase was recorded in online grocery shopping. In Colombia, the dominant online platform is the e-commerce application of Colombian origin, Rappi, which has since spread to other Latin American countries. Amazon also operates to a limited extent in Colombia, whose role is largely replaced by the domestic Mercadolibre.
Colombia also has ambitious plans in the field of digitalization of state administration, and the pandemic has only confirmed the correctness of this direction. The implementation of e-government is supported by Act 1413 from 2017 and the Ministry of Informatics is responsible for it. The main strategic goals of the digitization of state administration are the creation of a system for services to citizens (digital authentication, digital citizen component, interoperability), a system for access to state institutions and a system for managing the privacy and information protection of individual platforms. Extensive digitization of the cumbersome justice system is also planned, for which 500 million USD from the funds of the Inter-American Development Bank have been promised.
Water management and waste industry
Water management offers a significant opportunity. In connection with the tightening of the Waste Water Act, there is a great demand for waste water treatment plants, technologies for ecological waste disposal or liquidation of the consequences of illegal gold mining (estimates speak of 100,000 ha being polluted). According to the Ministry of the Environment, 85% of waste water is currently discharged directly into rivers and other water sources.
Although Colombia has the fifth largest supply of drinking water in the world, access to drinking water is ensured for 92.9% of the urban population, but only 71.5% of the population in rural areas, a significant part of which is also at risk of drought. The government is therefore preparing for 300 projects in 24 departments with a total value of USD 800 million. Important projects include, for example, the government’s plan to completely decontamination the heavily polluted Bogotá River by 2040, where an investment of 500 million USD is expected.
The concept of solid waste incineration currently exists in Colombia to a very limited extent. All collected waste is kept in landfills. There are 89 large municipal landfills operating in the country, which, according to the current government, do not meet international standards. The largest landfill in the country is Doña Juana, close to the capital, which covers 120 hectares and has enough capacity until 2024. The government plans to expand it and extend its use for another 37 years. At the same time, the government strongly supports the implementation of circular economy principles.
The key document in this direction is the National Circular Economy Strategy. According to it, Colombia plans to increase the share of recycling from 8.7% of waste in 2020 to 17.9% in 2030. This document estimates the market potential of the circular economy in Colombia at 1billion USD per year.
Healthcare and pharmaceutical industry
The course of the pandemic has revealed that the public health sector in Colombia is sufficiently robust, but at the same time it is one of the most corrupt due to its intertwining with local governments and the complicated financial relationship between the state and health service providers (EPS – Empresas Promotoras de Salud). Therefore, its systemic reform will be necessary, which will focus on improving the equipment and bed capacity of medical facilities, especially in remote departments, where the equipment of intensive care units is mainly lacking.
Colombia still represents the third largest market for medical supplies in Latin America. The market for medical devices is expected to continue to grow at an average of 5.3% per year over the next four years.
97.4% of Colombians have health insurance and can use the services of health facilities to a much greater extent. On the one hand there are big cities and highly developed areas with a strong private sector willing to invest and on the other hand there are very poor communities in underdeveloped parts of the country where people do not have access to quality healthcare.
Therefore, Colombia is a market both for new innovative solutions and for the development of projects where basic equipment plays a vital role. Interest is mainly in beds, diagnostic devices, orthopedic instruments and prostheses, equipment for ultrasound, mammography, digital diagnostics and devices for dermatological and laser treatment (demand supported by so-called medical tourism and growing demand for plastic surgery). On the contrary, Colombia is relatively self-sufficient in the production of consumer medical equipment.
Agricultural and food industry
Although Colombia is a predominantly agricultural country, it imports a third of its food. In order to achieve food self-sufficiency in the post-pandemic period, support for increasing production and adding value to agricultural products can be expected in the future. The agricultural and food sector was one of the few growing in an otherwise economically gloomy 2020. The size of the domestic agro-industrial market is estimated at USD 180 million.
Local production is still small (less than USD 45 million), and moreover, it is primarily focused on exports to neighboring countries (Peru, Ecuador, Venezuela, Panama – USD 29 million). Specifically, Czech suppliers are offered the possibility of supplying agricultural machinery, dairy technologies, equipment and machinery for bakeries, for the production of confectionery and chocolate, for the production of sugar, as well as for breweries, for the processing of meat and poultry, fruit and vegetables.
With the notorious lack of capital in Colombia, however, it is advisable to count on securing financing, or even development aid. The Ministry of Agriculture, together with Banco Agrario, prepared preferential loans for farmers as part of the “Colombia Agro Produce” program, aimed at reactivating agriculture after the pandemic.