Colombian Update : GDP : 2018 Going To Beat Estimates

ON THE MOVE

For those who have been reading my notes for any period of time you will know that since before 2018 began I though the consensus GDP readings for this year of 2.5-2.6% were too low, for the past several months I have also stated that the FinMin and Central Bank estimates of 2.7% were also likely to prove too low, yesterday’s 2.8% reading for Q2 surely confirms that. If we take a look at both the growth numbers and the participation numbers perhaps the best news is that Construction was so weak and that the Industrial sector did relatively well - I haven’t lost my mind it is simply that looking forward Construction is a comparatively quick fix whilst the Industrial sector, which is however too narrow, is a much tougher proposition when it comes to turning around. THE MOVERS It is hard not to find encouragement in the numbers even though this year the authorities have decided to play round with the numbers and make the comparables a tad more difficult to extract (an exercise which the full blown economists will no doubt relish) - there will be concerns of course but in terms of Construction we are on the very cusp of an infrastructure boom which is unprecedented in Colombian history and in terms of mining well we are now well accustomed to disappointment but we will get to that shortly. Here we take a brief look at the main sectors.

AGRICULTURE As we will see below represented a touch over 6% of the countries GDP over the past 3 months, it rose healthily but it could be so much more - it is no exaggeration to say that there is no better growing climate in the world - everything grows here that doesn't need a harsh winter, Jack's beanstalk one suspects would be twice as high if planted here, perhaps NASA could have saved all the money and simply bought some beans. It requires reform of the countryside, the return of lands stolen from those intimidated by a 50 year conflict and investment, not huge but education and training. Even those currently working the land have little idea of the potential - cattle farming which is the favourite of the wealthy is badly managed in terms of intensity and put quite simply there is so much wastage of land even amongst those who have it. MINING As a fan of Arsenal football club for the past few years I have known what mediocrity looks like and yet another quarter of decline is a disappointment - away from coal Antioquia is or at least should be a booming region when it comes to precious metals but since the days of surging optimism a decade ago there has been a flight of foreigners who have gone elsewhere to seek their fortune owing to the lack of transparency in Colombia. We have been waiting years for a new Mining Act in order to give us some direction but it has simply gathered dust - I met with the Secretary of Mining for Antioquia recently and there is great hope that a Duque Presidency will bring change and the subsequent benefits - sadly we have heard that before and the paperwork has simply gathered dust, the 4G projects could have been paid off in advance if there had been a little more fore-thought in this area. CONSTRUCTION Any one looking at public works data, updates from the cement sector or results from the construction companies will not have been surprised by what they found yesterday when GDP was released - put simply the area that along with Agriculture should be the motor for Colombia over the next 10-20 years has fallen to 6.2% of the GDP basket and has left both those directly involved in the sector and those investors looking in immensely frustrated. There is though very good news - Colombia is in its infrastructure adolescence - as per my 15 year old you see the potential hiding below a stubborn refusal to do anything but you know that in short order things will look better and that the potential will be realized, there have been hold-ups and again yesterday we had unfortunate headlines over Odebrecht however the elections are now done and he 4G projects are underway. If we look at the Real Estate number we also see a modest number of 2.1% growth and that is directly affected by confidence which has started to improve quickly - by Q4 the cement will be flowing at a much faster rate. COMMERCE I have said it 100 times or more over the past decade or so - Colombians consume, it is a talent they have. What do they consume ? They consume whatever their picket will allow this month. Fortunately we have seen banking penetration gap upwards over recent years and saving has also increased but make no mistake in a country where shopping malls are seen as a great option for a Sunday day out with the family culturally this is a consumer economy. We saw growth of 3.6% but it is the 16.53% weighting in the economy that jumps out - it is worth noting that recreation and entertainment is measured separately. INDUSTRY As we saw from the June data industrial production is still sluggish and over-dependent on refining but it is at least expanding and at 12% of the basket is a key component. The situation should be helped markedly as the 4G projects, including ports and airports, get completed - transportation costs and times and prohibitive to many businesses and things can only improve. THE REST There are no real areas of concern - the Public Sector as well as Utilities are what they are and the Financial Sector should recover well in line with the rest of the economy and with improved formalization in the job market. I would though like to carve out a few words for Science and Technology where slowly but surely Colombia is making a name for itself - we are not Taiwan but it is an up and coming sector for the country, the millennials are doing fine work in this area. Whilst it is a new component of the GDP basket it still represents more than Construction at this juncture - no great surprise either at the speed of its growth. I invite any investors who happen to be in Medellin to come along to Ruta N for a visit - I was there just last week with an MP from the UK and as ever completely taken aback by what he found, it is a cluster of technology companies both foreign and domestic under one roof - cities in both Colombia and elsewhere in the Andean region are looking to potentially replicate the concept. It is already big but has enormous expansion plans which will potentially dwarf the current operations.