Colombian Update August 15th : What's New (S) : Survey, Real Sector, Markets, Tragedy.....

LAZY DAYS

It has been a while since were in contact, or at least it seems that way but much of that has been down to the lack of relevant news over recent days - there was a time when the dog days of summer in the northern hemisphere didn’t really affect the local activity levels but even though the kids went back to school yesterday morning there is still a lethargy hanging over the country, there are though a few bits and pieces to comment on. POLL The first opinion poll of the Duque Presidency has taken place - for God’s sake give the man a chance he only started a week ago - there was no big surprise given the split in the country with a 53% approval level. It is hard to draw any conclusion from a poll of just 700 people which once again believes the opinion of the countryside doesn’t count but if this was the actual number much further down the road it would be fair to say there is no honeymoon period occurring. One of the topics of conversations for the past couple of weeks which will be very pertinent to the Duque Presidency has been the impact of any tax reform on employment - it looks as if a reform will be attempted in time for implementation at the beginning of 2019 with more income tax as well as potentially more VAT on products that have lower rates. The question is how much room this will allow on corporate taxes, there has been chatter of a 5% reduction but that may be too optimistic - even so how long will that take to wash through the corporate system and create more jobs ? This is already tricky to gauge and whilst it seems economics 101 the reality is there have been plenty of examples where it simply hasn't gone strictly to plan and the companies have simply pocketed the difference so any reduction in taxes has to be linked to job creation incentives. REAL SECTOR The latest Real Sector information for June told us what we knew already and have done for some time, Colombians love to consume and if you put 64 football games in front of them they will follow their heart. Retail Sales growth of 6.3% may have been more or less in line with expectations but they were nonetheless robust and exactly in line with what is expected with an upwardly mobile Consumer Confidence number. Top picks within the number were not surprisingly Electronics (+30.6%) and Alcohol/Tobacco (+25.1%) - clearly sitting in front of the new TV swilling alcohol and puffing on cheap cigarettes is no plan for a healthy lifestyle so perhaps its a good thing that Qatar is still over 4 years away. On the flip side if you were expecting your man to get off the sofa and do some DIY (-2%) or do some work on the car (spares parts -6.9%) you were badly misguided. Switching to Industrial Production it is sluggish and narrow progress with a 1.6% increase for the same month, well below expectations and still over reliant on refining which rose 3.7% and represented almost 1/3 of the increase, electricity generation and distribution added almost another 1/3 whilst the rest comes from across the 26 sectors of which 20 were in positive territory. Both Retail Sales (+5.7%) & Industrial Production (+1.7%) are in a sweet spot YTD when compared with recent years and we still haven't moved into the post election relief rally so there should be hope for more given continued benign inflation readings and low rates but the country in general is waiting to see what extra stimulus Ivan Duque can provide. MARKETS Sluggish is an adjective that could easily be applied to the markets since the arrival of Ivan Duque, or rather his election victory - there had been high hopes for a snap back once he had defeated the red under the bed back on June 17th but literally nothing has occurred thus far - the COLCAP has lost 1.14%, the Peso 2.7% and the TES bond market has seen the bench market 2024 rise 6bps to 6.23% over that period. In terms of the COLCAP just 5 names have risen over that period and foreigners have not been enthused by the markets over all with the local AFPs left to do the lifting. Several names have struggled in particular : Cemex reported continued sluggish sales and still cannot get out from under the Maceo rock - analysts have for some time dismissed them getting the project approved and they themselves continue to extend the time line - and one wonder if it will ever occur. Conconcreto is suffering as the justices examine one of their bidding processes - headlines that won't help them although they do have my sympathy, whilst the 4G tender processes have been built rigorously one feels there may be some overkill occurring - the case of ex ANI head Luis Andrade is another such case, listening to his recent statement after many months under house arrest it is hard not to believe things have gone astray. Avianca is the other name struggling near the back of the peleton - they may be looking at projects with COPA and United but these are just studies and they have never recovered from the strike and whilst recent passenger load factor data was at an all time high the simple fact is that they are transporting less passengers both in Colombia and overseas, routes have been curtailed and the recent computer issues with pilots are causing chaos for travellers, it is such a high profile company that the media pick up on everything. The results season is underway and reading across various research houses there is very little to get excited about - it is the most mixed of mixed bags. As you may well remember I had called for a significant leap in the COLCAP over the balance of the year and whilst that cannot be ruled out my fear was external events and the name Donald Trump and for sure he has been a major protagonist over that period. The trade disputes and his erratic behaviour were a big enough problem but he has put the boot into Turkey and that has Emerging Markets on edge as all watcher will know. There have been local concerns as well but the macro data including those regarding construction materials and licences have ticked better however Civil Works disbursements (-5.5%) fell during Q2 and there is an air of pessimism hanging over the country. Whether it be US rates, corruption or simply an election hangover due to the acid nature of the debate whenever I sit down with people they seem to struggle with the optics of the country and with what needs to be done. Tax reform, pension reform, job creation, justice reform - one could continue but Colombia has come far but arguably on the low hanging fruit - Ivan Duque and the current Congress have their hands full in order to take Colombia to the next level where the OECD have set the benchmarks, they may have many years to comply but the country will need those years. A WARNING

Finally an absolute tragedy in Genoa yesterday that that has left dozens dead in one of those disasters that simply could have been avoided. Colombia has not been a stranger when it comes to bridge collapses after events at Chirajara last year which also needlessly saw the loss of 10 lives - fortunately it was only in the construction phrase. Oddly enough the two tragedies occured in two countries that have something in common when it comes to investment in highway construction - a lack of investment. Pull up any graphic and Italy is the lowest spender amongst the main countries of Europe and it appears this is a root cause of the tragedy - Colombia has a history of either not investing at all or cutting corners when it does, hopefully Genoa will serve as a very painful lesson to everyone involved in 4G as well as the rest of the infrastructure build out that there is only one way to build - the proper way.