Colombian Update : What's New (s) : Infrastructure - Financial Sector. August 1st 2018

INFRASTRUCTURE

The IMF speaking recently in their latest country update are still estimating a 2.7% growth rate for 2017 and stated that if the economy is to expand beyond that going forward then infrastructure will need to be the driver. This is of course will happen on two separate fronts. Firstly on a primary basis as the new 4G roads, airports, river navigation projects and the Bogotá metro are built there will be a direct effect in terms of jobs and use of materials as they are built but also secondly as those projects in turn benefit the broader economy once they are completed. On the primary side of course the benefactors will be those companies related to the construction sector and on the secondary side their are multiple beneficiaries but to mention just one is the fact that the new roads have a maximum 6 degree incline and are far more ‘as the crow flies’ in design, this will increase competitively as transport costs drop and the time to market reduces, manufacturers who are currently marooned in the middle of the country will in some cases be able to export goods for the first time. The IMF made mention of corruption but here Odebrecht needs to be seen as an outlier as since the present administration created the ANI there have been few problems and whilst it is absolutely key to keep that particular wolf at the door and not be complacent it is equally important to point out the improvements and it is vital that the incoming Government maintain the new found confidence. Many talk about the peace process being the legacy of President Santos and rightly so but equally the 4G projects and his capacity to look beyond his own time in office should not be understated. PATIENCE The question for those of you reading with your pockets full of construction related stocks is WHEN will all of this start to drive both the economy and stock prices as demand soars. This has turned into a now multi year million dollar question that has frustrated many however in my own eyes the program is in fact AHEAD OF SCHEDULE, at least by Colombian or even Latam standards. No-one ever thought these projects would roll out on time, Colombia is a red-tape jungle which is venturing into new territory but much of the financing is now in place, ground is being broken all over the country and the countdown clock to when concrete starts to pour is ticking along. Granted the most recent data may not support the theory with Grey Cement production and deliveries down YoY in June by 2.2% & 4.1% respectively but better times are just around the corner. I know this is starting to feel like sitting in the theatre watching Waiting for Godo but just a touch more patience is required, in fact about the same amount of patience I now need to get to the country retreat due to the fact that Pacific 1 is making such progress that the road is now jammed with trucks and traffic lights. HOUSING Sticking with broadly the same sector there was some disappointing if somewhat predictable news regarding new home sales for 1H18 with a drop of 4.9% to 83,224 - this as reported by Camacol. Primarily due to the elections the calls by the heads of the banks for consumers to take advantage of low mortgage rates whilst they can appear to have fallen on deaf ears. According to the same body the lower sales have now put something of a squeeze on new projects with a YoY drop of 20.7% which will help prices rise - that said anecdotally in Medellin there appear to be masses of projects underway that perhaps people simply don’t see the need to hurry - presumably as the year continues, and in line with the pick up in consumer confidence, that situation will change. FINANCIAL SECTOR Checking through the press I noticed that the latest Financial inclusion report had been published and being as I have time on my hands I tracked it down - whilst I would like to say I read all 212 pages in the interests of transparency it should be stated that there were a lot of very useful diagrams. These reports are often missed and that is a shame because great, if yet incomplete, work is being done - a country where in 2011 financial inclusion was measured at 35.5% having dropped as low as 20% in 2003 after the end of century financial crisis, now has a 80.1% inclusion reading with 75.6% of adults owing a financial product, a total of 27.1 mn people. If we look at 2016-17 alone we find 1.1 mn new people have joined the system, up 11% YoY from the 2015-16 gain, most (25.2 mn) have savings accounts but nonetheless they are participants - 85.6% of the 27.1 mn within the system are categorized as active users. If we glance over at the corporate sector the numbers are close to staggering, there are now 935,880 companies registered with at least one product - that is an increase of 24.5% YoY, one might ask what they have been doing before but it is very welcome progress - the more companies on the books the better. GOING MOBILE Colombian banks when it comes to efficiency have struggled to get clients out of the branches which are clearly very costly however there is some good news to be found in terms of mobile devices. When it comes to cellphones there was a 67.6% YoY increase in the number of banking transactions to 331 million whilst in terms of the money involved there was a 71% increase to COP11bn (USD3.79bn) - again it will take time before the branches are dethroned but considering the 94 page report of 2011 made no mention of this area this is sizeable progress. Of course before we break out the champagne things are not perfect, there is a lack of access in rural areas with a 54.7% reading in extreme rural areas versus the 87.2% in the cities - again mobile devices will be absolutely key when it comes to the countryside. For many when surveyed they still simply didn’t have the resource to justify an account and when further questioned they still have issues with the costs involved as well documentation and access to facilities. The message overall though is positive - things have come a long way in a short period of time and whilst the low hanging fruit may now have been accounted for there is momentum that must be built upon.