Colombian Update Sept 28th : What's New (S) : Duque, Confidence, EPM.

DUQUE

President Duque on Wednesday made his keynote address to the UN and whilst the appointment of Eduardo Stein by the UN as Eduardo Stein as special council to oversea the Venezuelan crisis was more than welcome there were a couple of facets of the speech which were in consistent. The headline phrase was that the region was living the most indignant migration crisis of recent times due to President Maduro - unfortunately whilst 1.5 million fleeing a country is a tragedy it pales into insignificance next to the decades of internal migration that continues to this day as people continue to flee the country due to armed gangs and the lack of Government presence - until Syria came along Colombia was a case apart due to the FARC, ELN & AUC, today the arguably even less discriminate armed gangs roaming the countryside are the root cause and as of yet no Government has come up with a decent solution. Another issue addressed by Duque was corruption which he campaigned upon and where he has swung his weight behind the recent anti-corruption which narrowly failed - unfortunately for Duque events in Bogota overtook him and again called into question the unity of his own ruling party. Whilst the cat was away in New York the mice from within his CD party were presenting their own proposals for justice reform and amongst them the abolition of the Supreme and Constitutional Courts, which Duque already debunked, as well as creation of a State Council chosen by the President and the effective bullet-proofing of Congress members from prosecution which is 100% contrary to what the referendum proposed. - all issues that the President will need to pronounce on in the name of clarity. The party head ex President Uribe yesterday said he would continue to support the President's view however he described the replacing of the Constitutional and Supreme courts as a 'magnificent idea' - despite this clarification from Uribe this is all very unedifying for the President. As of yet (and it has been less than two months) we have heard little in terms of policy however the time is coming, we need to know how the tax reform and which other projects he aims to put in front of Congress - in short we need direction and he needs to get a handle on the CD party as he is going to need a coalition of the willing to achieve what is necessary of the next four years.

CONFIDENCE In their latest Fedesarrollo survey for August the confidence readings amongst both Retailers and Industrialists is in a good place - perhaps not the highest readings on record but still a good base when you are looking for economic expansion. In terms of the Retail space the reading stands at 26.6% which whilst lower than July (29.5%) was still considerably higher than the 17.5% a year ago when the sector was floundering somewhat - to put that in context two years ago the number was 30.1%. The number is impacted by both 'Current Situation' and '6 Month Expectations' which both fell MoM although the 'Level of Stocks' which has a lower weighting was at least rose MoM. Moving to the Industrial Sector we find a total reading of 5.3% which was the highest reading since September 2016 and a year ago we were looking at a -1.9% number so we have come a long way over the past 12 months. As opposed to the Retail sector there was a MoM increase from the previous 3.6% reading. In terms of components the biggest increase YoY has come in '3 Month Outlook'which back in 2017 stood at 28.3% is now at 43%. In another finding of the survey the quarterly result for the 'Economic and Social Conditions' there has been a considerable uptick from the Industrial sector QoQ and whilst -5.5% is still below water it is a vast improvement on the May 2018 number of -13.4%. In terms of utilization within the industrial sector there has been a QoQ increase of 2.6% to 72.3% the highest reading since November 2016. Moving on to the quarterly Construction survey the view of the current economic situation is still negative (-2.9%) but nonetheless was higher than the -6.5% from May. In terms of the 'Pace of Construction' which stood at -9.8%, whilst there was a decline from the -8.2% from May it is considerably higher than the -34% registered for the equivalent quarter in 2017 - oddly the 'buildings sub-sector saw a serious decline in this area with a -17% reading versus a +5.5% number for May. Overall the situation is edging in the right direction, work to do clearly but baby steps we are seeing.

EPM The beleaguered utility company was back in the news as the CEO announced what the repairs will need around COP2bn (USD650mn) and beyond that another COP3-4bn in funding whilst we wait for the operation to come into service in 2021, the main work will be the machine room which has to be flooded to help avoid a humanitarian disaster and as it took three year initially to complete the logic being applied is that a similar time frame will once again be required. In order to raise funds the company is having to sell off quality assets that took years to accumulate and whilst the company may point to improved YoY EBITDA numbers that feels a lot like a red herring - the Mayor of Medellin speaking stated that the company (which is part of his administration) has been mistreated in terms of criticism since the crisis began - perhaps he should try chatting to the 107,000 souls the company placed in harms way ?