Colombian Update June 13 : Whats New (s) : MOODYs, Tourism, OMC.

MOODYS

The ratings agency have been talking and it would be fair to say their comments were relatively non-committal perhaps best demonstrated by the fact that they don't expect to give any updates in terms of outlook for at least another 10 months. Other comments were much as we have seen recently - overall they see a lack of scope for the Government to do very much in terms of public investment due to the current fiscal restraints as the authorities try to get the finances back on track following on from the oil price shock. For that reason there is a need to look for overseas financing be it from private funds or PPPs - this is especially important when it comes to the 4G projects with the agency again highlighting the importance of moving ahead with the infrastructure roll out, the good news of course is that 14 of the 30 projects awarded now have financing in place. This lack of wiggle room is a sizeable shot across the bow of the two Presidential candidates who have been vying for the populism title - there is little cash to spend and like a small time football (soccer) team they will have to raise money before they can spend, cutting taxes seems unlikely and the only loose change that might be lying around will be if Ecopetrol produce a stonking dividend. Interestingly the agency said they expect to see a continuation of economic expansion and the same monetary policies regardless of who wins on Sunday. They are looking at mid-market GDP expansion of 2.6% (2018) & 3% (2019), again nothing noteworthy in terms of headlines - they did though make mention of the importance of the peace process, alongside commodity prices, for the mid-term outlook and this is what we can expect to see from all the overseas agents who have already committed to the Government's agreement with the FARC. They also made mention of the limited size of the domestic capital markets and this is a relevant comment because there needs to be an expansion which is arguably the biggest challenge due to the vigorous regulation that has got tighter and tighter ever since the collapse of Interbolsa - the agency clearly realize that to some extent the hand-brake needs to be eased somewhat, and that is a very good thing.

TOURISM A while back (see "The Secret Is Out") we looked in depth at the huge rally in tourism which came with the peace agreement and we had yet more evidence in May with a 32.1% overall increase in the number of foreigners arriving to Colombia - a total of 608,051 versus the 460,344 a year ago. Whilst all areas of arrival were in positive territory the most marked were those arriving on cruise ships - almost exclusively to Cartagena,which rose 51.3% YoY to 11,759 in May. Whilst the YTD total is now up 38.1% to 3.38mn (wildly above official estimates) the other effect is on the forex market - we only have data for Q1 but until that date a total of US$1.68bn had arrived in Colombia which represents a 23.4% increase YoY. If we turn the clock back just a couple of years we see the dramatic effect of the peace accord, no doubt some would claim it was a coincidence but it isn't - and this is likely only the start.

OMC The World Commerce Organization in their fourth report on Colombia told us in large part what we already knew and have done so for the past decade - there is a lack of industrial diversification in the country and that is holding the country back. Whilst they concede that fiscal and taxation incentives have been put in place to accompany improved tariffs still more needs to be done to move the country away from its commodity dependence and indeed the expansion of non-traditional exports is praised but whilst Colombia may now export over 4,800 different products in 2017 40% of exports were still accounted for by oil and on top of that came coal - another product that is isn't going to be in demand for ever.

They do recognize that economically things are moving in the right direction in terms of growth and inflation certain structural problems need to be addressed, including diversification as well as poverty - to be fair a lot of good work has been done over the past 8 years in this area. Another nerve that the OMC tramples upon is bureaucracy - they dress it up nicely but in short when they talk about the implementation of new regulation they are criticizing one of the cornerstones of Colombia, when lawyers get involved in this country things take forever. (ONLY IN) COLOMBIA CORNER As we sadly know this is a country with some world class criminals but the Mexican gentleman who entered El Dorado with US$700,000 in his luggage is not one of them - having claimed to be a taxi driver and presumably feeling a little nervous he decided to declare US$500,000, as if that would lower suspicion...did they not think they would check the rest of his bags at that point ?