Sunrise Over El Dorado : Alianza : December 17th 2018

DAILY THOUGHT : It appears that at some expense the Government locally were bugging my meetings in New York and Boston last week. As I told several people last week the Duque administration just months after coming to power are floundering and struggling to get legislation passed due to the lack of a working consensus in the Congress. To paraphrase myself "As opposed to telling students there is no money he should go all out to put the public education sector on its feet, cut unnecessary budget to defence and pour billions into education for the needy - that could yet be his legacy" At 11pm on Thursday I left JFK And slept until Bogota and on arriving (post a couple of large coffees) I find headiness proclaiming that Duque and the students had come to an agreement after a month of protests - of course let's see what the details are but this should be the first step towards the true democratization of education in Colombia. MARKETS

The COLCAP dropped a further 0.44% closing @ 1359.31pts if it wasn't for buy programs in the auction it would have been a decline of 0.93% - today's total volume of USD23mn was again very disappointing with 22% of that in the auction. In terms of performance PROMIGAS (+6%) & BOGOTA (+5.10%) fared well whilst AVH (-5.53%) ,CLH (-5%) and PFDAVVNDA (-1.80%) all struggled. The Peso is edging once again towards 3200 as the year comes to a close - on Friday the currency lost a further 0.48% and closed at 3195 - YTD the currency has now lost 7.37%

The bond market fared well again on Friday with valuations along the curve ranging from the short terms 2020 which dropped 2.5bps to 5.09% whilst at the other end the 2024 (6.22%) & 2032 (7.28%) both lost a few bps.

TAX REFORM

Apart from the continued indignation in the press about the whole process there were no new developments - this week the vote will take place, it is now or never and adjustments are still possible although we are getting very 11th hour at this point.

MACRO

Last week in New York and Boston speaking to investors I made the point pretty clearly that going into 2019 the least of my concerns was the economy per se, things are on a pretty good track, the oil shock has been negotiated, rates are at good levels and inflation in under control, the malls are full and the consumer feels comfortable enough to do some shopping. Utopian it is not and likely never will be but with good management we should be just fine for the time being. We had a raft of numbers out of October on Friday, they largely support my case :

• RETAIL SALES : Rose a very healthy 6.5%, even stripping out vehicles it was at +5.4%, 14/16 categories were in the black, employment was up 1.2% YoY and overall it feels solid. Breaking it down a little vehicles rose 14.3% and were the largest contributor, followed by food (5.8%) and electronics (+15.3%) - having been on this merry-go-round for as long as most that last number is a key one as well as the fact that grossly over-priced vehicles are again rolling off the forecourt.

• INDUSTRIAL PRODUCTION : There are several aspects to like about the 5.8% increase not the least of which is the fact that refining (+2.8%) contributed just 10% of the increase, drinks added the same whilst pharmaceuticals (+18.2%) contributed more. Also easy on the eye was the fact that 35/39 sectors were in positive territory and sales in the sector rose 7.1%, the one black spot was the 1.1% decline in those employed in the sector, hit by non metallic mining.

• READY MIXED CONCRETE : Non utopian but production was up 4.1% YoY to 608,500 m3, we appear to have bottomed in 2017 however whilst the Civil Works (+41.6%) number reflects infrastructure projects gathering momentum there was a worrying decline in both Housing (-5.7%) & Other Buildings (-3.1%) which don’t appear to jive with the data in mortgages etc. To context these numbers whilst we are up on 2017’s 584,400 we are still way off the peak of 2015 of 759,900.

• HOTELS : One of the great hopes for Colombia is tourism and hotels are being built at a tremendous rate but still the occupancy levels rise. For October income as up 10.7% in real terms and employment rose 2.2%, in terms of occupancy the reading was 58.4% v’s 58.4% - the YTD average is 56.3% which is up 56.3%.

*I noted that 46.1% of guests are there for business and 41.1% for tourism, what is curious is the 7.6% who are attending Conferences - surely we are not suggesting that all those heading to Cartagena every two months are there for anything except business ?*

MINING

If there is a sector that has failed to deliver in Colombia more than gold mining I am struggling to name it - a decade ago it was the great hope, the reserves were big enough to put it on a par with Peru which has used the shiny stuff to finance an enormous amount of its development - but we have gone next to nowhere. The authorities at national and district level have simply not got to grips with a sector little understood and awash with both informal and illegal projects, both of which were & are reticent to allow the multi-nationals in to clean up the sector, frustrated by the licencing situation and lack of transparency there has been an outflow of companies who have simply shifted resources to countries with less red-tape, fewer guerrillas and with a genuine desire to formalize the sector. Now battle has been joined again - this time a Bogota court has ordered the Ministries of Mining & Environment as well ANLA the environmental agency to suspend the award of all licences. The battle-lines and protagonists are the same - on the one side the left and the local communities claiming irregularities in the whole licencing process, exploitation etc and the mining companies and the right saying that they are simply trying to modernize the sector for the benefit of those same communities as well as the nation as a whole. There is truth on both sides but such radical stances and rulings help nobody - this needs to be a watershed moment at which the Government steps in and clarifies the rules of the game, there has been some poor behaviour by the miners but also tremendous examples of multi-nationals working alongside the communities making social advances and literally saving lives due to modern processes - this is a sector that Colombia needs to function properly - and yesterday.