Colombia: Macroeconomic Strengths and Investment Opportunitiesn... · Foreign direct investment maintains dynamism and shows resilience during the early stage of the pandemic Capital

Colombia: Macroeconomic

Strengths and Investment

Opportunities

June 2020

César Arias

General Director of Public Credit and National Treasury

Ministry of Finance

Agenda

2

A. Three anchors of macroeconomic stability

1. Dynamic and resilient growth

2. Prudent fiscal response to the emergency

3. Political stability and strong institutions

B. Investment opportunities Post-Covid

1. Internationalization on fixed income markets

2. Diversified foreign direct investment

3. Development of multimodal infrastructure

Agenda

3





4

Colombia consolidates as the fastest and most resilient economy

among investment grade sovereigns in Latin America.

Growth outperforms regional peers

pre and post pandemic

High shock absorption capacity

only 1 recession in 40 years(1980-2019)

17

14

12

8

8

7

7

7

5

5

5

4

4

3

3

3

3

1

Venezuela

Argentina

Nicaragua

Uruguay

Paraguay

Mexico

Peru

Brazil

Ecuador

Honduras

Bolivia

El Salvador

Chile

Panama

Guatemala

Dominican Republic

Costa Rica

Colombia

Source :IMF-WEO, Calculations Ministry of Finance.Source: Calculations Ministry of Finance.

3,3

1,1

2,2

-3,4

1,1

0,4

1,1

-0,3

0,2

-3,0

-0,1

-2,4

-4,0

-2,0

0,0

2,0

4,0

2019

1Q

20

2019

1Q

20

2019

1Q

20

2019

1Q

20

2019

1Q

20

2019

1Q

20

Colombia Peru Chile Brazil Uruguay Mexico

BBB BBB+ A BB- BBB- BBB

%

5

Most Economic Activities Grew

Positively In 1Q20

The pandemic slowed down

the investment-led recovery

6,15,3

3,9

5,14,5

3,02,1

1,4

2,53,3

1,1

-5

0

5

10

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

1Q

20

%

Total Consumption Investment

Net Exports GDP ( Average)

Source: DANE. Calculations Ministry of Finance. Source: DANE. Calculations Ministry of Finance.

Investment-related sectors took the first hit during the pandemic,

but robust private consumption and government programs

cushioned the shock

Share 2020 2017 2018 2019 2020Q1

GDP 100% 1,4 2,5 3,3 1,1

Retail & transportation 17% 1,9 2,7 4,9 0,9

Public administration 14% 3,5 4,6 4,9 3,4

Manufacturing 12% -1,8 1,8 1,6 -0,6

Real estate services 10% 3,1 2,7 3,0 2,6

Taxes 9% 1,1 2,9 4,6 1,2

Agriculture 7% 5,6 2,4 2,0 6,8

Professional & business services 7% 1,5 3,8 3,7 2,7

Construction 5% -2,0 -0,4 -1,3 -9,2

Mining 5% -5,8 -1,9 2,1 -3,0

Finance & insurance 5% 5,4 3,6 5,7 2,1

Utilities 3% 2,9 2,5 2,8 3,4

Information & communications 3% -0,2 2,9 1,7 1,4

Arts, entertainment & recreation 3% 2,1 2,3 3,4 -3,2

8,0

7,0

6,0

5,0

4,0

3,0

2,0

1,0

0,0

-1,0

-2,0

-3,0

-4,0

-5,0

-6,0

-7,0

-8,0

6

Leading indicators are improving as lockdowns ease and more

economic sectors reopen

Production gradually returns to full capacity Energy demand recovers to pre-covid levels(Monthly change %)

69%71%

77%

89%91%

March 23th -April 13th

April 13th -April 27th

Arpil 27th -May 11th

May 11th -May 31st

June 1th -June 31st

0,0

-34,3

6,2

-40

-30

-20

-10

0

10

20

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1

Febrero Marzo Abril Mayo Junio

March 11: WHO

declares

outbreak of

global pandemic

March 17:

First declaration

of State of

Emergency

April 6:

Extension of

confinement

until April 27

April 20:

Extension

of

confinement

until May 11

May 6:

Second

declaration of

State of

Emergency

May 28:

Extension of

confinement

until July 1

Source: Calculations Ministry of Finance – GDMP, considering government decree. Source: Estimations by Ministry of Finance and Public Credit based on data from XM.

February March April May Jun

-3.451

-2.712

-92 -277 278

830

CAD 4Q19 Services Transfers TradeDeficit

PrimaryIncome

CAD 1Q20

Annual growth

Imports = -6,8%

Exports = -9,2%

Tourism receipts= -16,5%

Profit repatriation = -32,8%

Remittances = 14,4%

CAD 4Q19 = 4,1% of GDP

CAD 1Q20= 3,7% of GDP

7

Orderly adjustment in the current account deficit V-shaped or U-shaped recovery

Source: DANE.Source: Central Bank.

-8

-6

-4

-2

0

2

4

6

T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4

Y/Y

(%

)

1999 2002 2009 2017

A flexible exchange rate facilitates an orderly adjustment and smooths

the impact of economic cycles

Agenda

8





9

Emergency response package nears

11% of GDPBudget deficit widens reflecting revenue and

expenditure shocks (% of GDP)

-2,50

-0,1

-1,4 -0,0

-1,5

-0,5

-6,1

To

tal

Bala

nc

e F

ina

ncia

lP

lan

Oil T

ax

In

co

me

No

n-O

il T

ax R

eve

nu

e

Inte

res

t E

xp

en

dit

ure

Em

erg

en

cy E

xp

en

dit

ure

Ad

dit

ion

al

fisc

al s

pa

ce

Cu

rre

nt

Fis

ca

l B

ala

nce

Source: Calculations Ministry of Finance – GDMP.

Emergency response package combines budget transfers, liquidity

provision and credit guarantees to maximize

assistance and mitigate fiscal impact

10

Deficit is covered through a diverse

funding mix

External bonds meet record demand

and low rates

Domestic Bonds

36%

International Bonds

16%

Multilaterals20%

Public Sector

Savings16%

Solidarity Bonds

12%

3,30%

2,32%

7,45%

6,16%

5,65%

5,06% 5,22%

4,20%

0%

2%

4%

6%

8%

0%

2%

4%

6%

8%

2037 2041 2044 2045 2049 2051

USD 1,000 USD 1,000 USD 2,000 USD 1,500 USD 1,500 USD 1,500

Sep-06 Oct-09 Jan-14 Jan-15 Jan-19 Jun-20

T Spread Avr yld 3.29Avr T+ 2.19 Yield

CO

VID

-19

Pa

nd

em

ic

30yr+ New Benchmark | Yield & Spread

| Since 2006

Source: Ministry of Finance. Source: Ministry of Finance.

The National Treasury has proactively diversified funding sources to

cover the increase in borrowing requirements at favorable market terms

Treasury

11

COP recovers amidst high volatility

Exchange rate depreciation (%)

Base 100 = Jan 1, 2020

COLTES appreciate to pre-pandemic levels

Yield Curve Colombia (COLTES)

90

100

110

120

130

140

150

en

e-2

0

en

e-2

0

ma

r-20

ma

r-20

ab

r-2

0

ma

y-2

0

Colombia Brazil Mexico

Chile Peru Uruguay

3,85

4,98

5,335,68 5,82

5,90

6,38 6,51 6,61

4,00

6,30

7,20

7,687,95

8,25 8,208,30 8,30 8,32

3,50

4,30

5,02

5,25

5,85

5,87

6,50 6,616,83

3,0

4,0

5,0

6,0

7,0

8,0

9,0

10,0

202

0

202

2

202

4

202

5

202

6

202

7

202

8

203

0

203

2

203

4

%

01-Jan-20 17-Mar-20 12-Jun-20

Ju

l 2020

Source: Bloomberg Source: Bloomberg

Local currency and fixed income assets are recovering and gradually

returning to pre-pandemic levels

12

-0,1

-2,4

-3,8

-0,5

1,8

0,6

-2,2 -2,1

2,4

3,2

4,7

1,0 0,8

3,0

0,9

15,4

-5,2

42,840,4

36,636,1

37,9

38,5

36,334,2

36,739,9

44,645,6

46,4 49,450,3

65,760,5

0

10

20

30

40

50

60

70

-12

-8

-4

0

4

8

12

16

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0f

202

1f

% o

f G

DP

Decomposition of Central Government Debt Dynamics

Real interest rate Primary Balance

Real GDP Growth Exchange rate

Residual Inflation (UVR)

CG gross debt net change CG gross debt/GDP (right axe)

8,1

2,8

-6,9

7,6

1,22,3

15,2

-10

-5

0

5

10

15

20

25Cumulative changes

2012-2021

f. forecast

Source: Ministry of Finance.

The government is committed to reduce the debt burden after

surpassing the parametric limit of 60% of GDP due to the pandemic

Agenda

13





14

Six economic laws passed in two years Stronger ruling coalition after cabinet reshuffle

86%79%

66%

82%

94% 93% 94%100%

82% 86%

69%

89%

14%21%

34%

18%

6% 7% 6%

18% 14%

31%

11%

Hou

se

of

Rep

resen

tatives

Se

na

te o

f th

e R

ep

ub

lic

Hou

se

of

Rep

resen

tatives

Se

na

te o

f th

e R

ep

ub

lic

Hou

se

of

Rep

resen

tatives

Se

na

te o

f th

e R

ep

ub

lic

Hou

se

of

Rep

resen

tatives

Se

na

te o

f th

e R

ep

ub

lic

Hou

se

of

Rep

resen

tatives

Se

na

te o

f th

e R

ep

ub

lic

Hou

se

of

Rep

resen

tatives

Se

na

te o

f th

e R

ep

ub

lic

NationalGeneral

Budget 2019

TheFinancing

Law

NationalDevelopmentPlan 2018-

2022

Royalty NationalGeneral

Budget 2020

LawEconomic

Growth

Yes No

19

15

143 16

14

10

5

5

4

Policymaking benefits from a proven track record and broad

consensus on incremental economic reforms

Government Independent Opposition

Agenda

15





9,9%

17,1% 18,1%

29,7%31,8% 31,6% 31,4%

50,8%55,7%

80,1%

BBB BB- BBB BBB- BBB- BBB+ BBB- BBB BB BB-

BBB- B+ BBB BBB- BBB BBB+ BBB- BBB BB BB-

Baa3 B1 Baa2 Baa2 Baa1 Baa1 Baa2 Baa3 Ba1 Ba2

Russia Turkey Indonesia Colombia Mexico Thailand India Hungary SouthAfrica

Brazil

16

Optimal size of fixed rate and linkers curves

Source: Bloomberg,IMF, WB.

Government bond markets are among the deepest and most liquid

across regional and rating peers

2,9%

2,4%

2,6%

3,0%

3,3% 3,4%3,5% 3,5%

3,7%

0%

1%

2%

3%

4%

0

5

10

15

20

25

30

Ma

r-21

Fe

b-2

3

Ma

y-2

5

Ma

r-27

Ap

r-2

029

Ma

r-33

Ap

r-2

035

Fe

b-3

7

Jun-4

9

Yie

ld

CO

P B

illio

n

Outstanding 12-jun-20

17

COP curve to be extended to 30 years Linkers curve to be more liquid

and standardized

Source: Infovalmer, Central Bank, Ministry of finance. Source: Infovalmer, Central Bank, Ministry of finance.

Nominals and linkers yield curves have liquid benchmarks across

short, middle, and long duration

3,5%

4,3%

5,0% 5,3%

5,9% 5,9%

6,5% 6,6%6,8%

0%

2%

4%

6%

8%

0

5

10

15

20

25

30

35

Ma

y-2

2

Jul-

24

No

v-2

5

Au

g-2

02

6

No

v-2

7

Ap

r-2

028

Se

p-3

0

Jun

-32

Oct-

34

Yie

ld

CO

P B

illio

n

Outstanding 12-jun-20

18

A competitive market,

with no dominant holders

High diversification by geography

and type of investor

24

33

46

55

75

98

Rest of the PrivateSector

Rest of the FinancialSector

Public Sector

Banks

Foreign Funds

Pension Funds

Total Outstanding TES May 31/2020

30%

23%

17%

14%

10%

7%


4,1%

15,0%45,9%

2,0%

4,7%

2020

2018

29,8%

37,2%

0,9%

0,4%

39,8%

1,7%

16,2%

1,6%

0,6%

COP$74,5 TrillionTotal to may-20


A diversified domestic and international investor base favors

competition and price discovery

(Cop Bn)

19

Decomposition of returns years

to date-TES COP

Increased number of

non-government issuers

Source: Ministry of Finance

Effective rates up to 12 of June of 2020

-1,6%-3,0%

-0,5% -1,1%0,1% -0,7% -0,2%

-0,3%

5,0% 5,6% 5,9%4,7%

2,5%

-1,9% -2,9%

-5,4%

0,4%

1,9%0,6%

0,9%

0,0%

-0,2%

-0,2%

-0,3%

6,6%

8,4%

6,2% 6,9%

5,9%

7,1% 6,6% 6,9%

10,7%13,2% 12,6% 11,7%

8,7%

4,2% 3,2%0,8%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

-10%

-5%

0%

5%

10%

15%

20%

TE

S C

OP

22

TE

S C

OP

24

TE

S C

OP

25

TE

S C

OP

26

TE

S C

OP

28

TE

S C

OP

30

TE

S C

OP

32

TE

S C

OP

34

Pull to Par Yield Income Roll Down

Coupon Return Efective Return

Source: BVC. Thousands of millions- COP

71.8

300.0

495.0

700.0

150.0

250.0

470.0

500.0

150.0

200.0

61.3

600.0

161.5

339.6

1.109.2

1.472.2

563.3

473.7

996.4

1.096.2

365.0

544.2

101.393

1.200.0

Titularizadora de Colombia

Carvajal

Banco Popular

Banco Davivienda

Banco Mundo Mujer

Banco Serfinanza

Organización Terpel

Banco Itau

UNE EPM

Celsia

Credifamilia

Distrito Capital

Amount Placed Demand

3 y

7

15

10 y

20

Issuer Years

5

5 y

10

3,5

y 7

5, 7

y 12

3

5 y

7

5,15

y 25

5 y

10

10

Government bonds have yielded positive returns and there is

increasing issuance activity among corporates,

banks and subnationals

Agenda

20





21% 19% 15% 12% 11% 9% 5%

Financial and Business Services Oil Retail, Restaurants and HotelsMines and Quarries (includes coal) Manufacture Transportation, Storage and CommunicationsConstrution Community Services Agricultute Hunting ,Forsttry and FishingElectricity,Gas and Water

Oil Retail, Restaurants

and Hotels

Finance & Business Mines and

QuarriesManufacture Trans. Constr.

21

FDI volumes surge and diversify in 2019(USD $ Millions)

Colombia remains a top investment destination in

emerging markets (% GDP 2019)

Source: Central Bank.

FDI composition by sector (2019)

Source: Central Bank. S&P

11.535

3.941

7.594

14.493

4.621

9.873

Total Oil & Mining Other Sectors

2018 2019

17.2%

25,6%

30,0%

Dynamism of capital inflows point to investment

opportunities across economic sectors

1,2%

3,2%

1,3%

0,0%

4,5%

1,4%

2,6%

Thailand Peru Hungary Philippines Colombia India Mexico

BBB+ BBB BBB-

22

Source: Central Bank. Source: Central Bank.

Gross FDI

(USD $ Millions- 1Q 2020)

Gross FDI in Other sectors

(USD $ Millions- 1Q 2020)

174150

668

339

Electricity, gas & water Community, Social &Personal Services

Q1-2019 Q1-2020

125%

283%

3.385

1.359

2.026

3.589

1.103

2.486

Total Oil & Mining Other Sectors

1Q 2019 1Q20206,0%

22,7%

-18,8%

Foreign direct investment maintains dynamism and shows

resilience during the early stage of the pandemic

Capital inflows to new sectors offset fall in mining FDI

23

Landmark investment transactions in 2019-2020

Source: Ministry of Industry and Commerce

Foreign direct investment maintains dynamism and shows

resilience during the early stage of the pandemic

247

247

250

260

272

342,5

800

1000

0 500 1000

Financial

Telecommunications

Retail

Infraestructure

Oil & Gas

Health Care

Utilities

Tech 2.500

270

n.a

n.a

350

1.950

9.675

500

Undisclosed

Undisclosed Undisclosed

Metro Bogotá

Investors Receiver Sector EmployeesUS$mm

24

Electricity, gas & water Sector Gross FDI vs sector GDP growth

AgricultureSector Gross FDI vs sector GDP growth


*Seasonally adjusted annual rate

-1%

0%

1%

2%

3%

4%

5%

0

1.000

2.000

3.000

4.000

20

15

20

16

20

17

20

18

20

19

20

20-Q

1

Ele

ctr

icity,

gas &

wáte

rG

DP

gro

wth

*

US

D m

illio

ns

Gross FDI (Left axis) GDP growth (Right axis)

0%

2%

4%

6%

8%

10%

0

100

200

300

400

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20-Q

1

Agriculture

GD

P g

row

th*

US

D m

illio

ns

Gross FDI (Left axis) GDP growth (Right Axis)


*Seasonally adjusted annual rate

Foreign direct investment usually

serves as a catalyst for economic growth

Agenda

25





26

General

Average

Per year

2009 2010 2012 2014 2017 2019

Legal Framework 6 6 5 4 1 1

Financing 7 7 5 6 4 2

Maturity 6 5 4 4 1 3

Institutions 4 5 5 5 4 5

Investment Framework 10 3 3 4 10 17

0

1

2

3

4

5

6

7

8

0

3

6

9

12

15

2009 2010 2012 2014 2017 2019

Rankin

g S

core

Legal Framework

Financing

Maturity

Institutions

Colombia stands out in the development of the infrastructure rules,

institutions and markets in Latin America

Commissioned by:Infrascope Raking – Latin America

6 39 5 53 5 59 5 61 174 277

27

1 PPP Law 1508 of 2012 (including

20th article)

Standardized contract

Contingency Law (448 of 1998)

2

3

Debt/ equity

Funds

Senior Debt

Fund for

Infrastructure in

Colombia (CAF

– Ashmore)

Debt Fund for

Infrastructure in

Colombia

Debt Private Capital

Fund for

Infrastructure in

Colombia.

Co-

investmen

t platform

Mini - Perm

Term: Between 5-8 years

(construction + start

operation)

Amount: US$ 666 m

Debt in dollars + hedge

strategies

Lender: FDN

Issues BondsFunding Local

Currency COP

Loan in local

currency and long

term for

international

financing entities

and multilateral

Banks.

Public Private Partnerships Strengths

280,00%

0,00%

0,00%

0,00%

2,86%

5,20%

5,66%

12,09%

13,22%

15,12%

16,95%

31,20%

40,32%

42,36%

43,00%

47,20%

49,34%

52,72%

53,25%

55,44%

61,24%

62,55%

63,49%

66,71%

70,92%

73,23%

84,24%

97,40%

99,84%

Loboguerrero - Mulaló

Santander de Quilichao -…

Malla Vial del Meta

Cambao-Manizales

Tercer Carril Bogotá-Girardot

Santana - Mocoa - Neiva

Bucaramanga Pamplona

Magdalena II

Villavicencio - Yopal

Pamplona - Cúcuta

Autopistas al Mar 2

Accesos Norte a Bogotá Fase I

Autopista Conexión Pacifico 1

Perimetral de Oriente de…

Girardot - Ibagué - Cajamarca

Neiva-Girardot

Rumichaca - Pasto

Antioquia-Bolivar

Bucaramanga - Barranca -…

Autopistas Conexión Norte

Vias del Nus

Transversal del Sisga

Autopistas al Mar 1

Puerta de Hierro - Cruz del Viso

Chirajara Villavicencio



Cartagena - Barranquilla

Girardot - Honda - Puerto…

Investmen

t = US$ 15

billion /

4,5% of

GDP

Construction progress in

4G infrastructure projects

Financing projects with bond Issuance

Diversified Financial

Sources2016

8 Financial closings

47%

22%

16%

9%6%

USD

4.2 bn

26%

35%

14%

10%

9%

6%

USD 7.8

bn

2020

21 cumulative financial

closings

8 financial

closings

were made

during this

government

USD$ 3.1 bn

Colombia 4G Infrastructure Program

New Opportunities in Multimodal Infrastructure

5G – Multimodal Infrastructure

RoadsAlo Sur USD$ 188 mill.

Accesos Norte II USD$ 363 mill.

Accesos Cali - Palmira USD$ 331 mill.

Buga – Buenaventura USD$ 700 mill.

Pto Salgar - Barrancabermeja USD$ 560 mill.

Barrancabermeja – San Roque USD$ 466 mill.

USD$ 2.6

bill.

Airports

USD$ 1.4

bill.

Suroccidente USD$ 337 mill.

Cartagena USD$ 134 mill.

El Dorado I USD$ 157 mill.

Cartagena II USD$ 834 mill.

FluvialUSD$

0,79 bill.

Magdalena River USD$ 166 mill.

Dique Channel USD$ 557 mill.

Buenaventura channel USD$ 68 mill.

RailUSD$

0,51 bill.

Freight Rail – Dorada

Chiriguana

USD$ 514 mill.

4G – Secondary Market

52,72%

53,25%

55,44%

61,24%

62,55%

63,49%

66,71%

70,92%

73,23%

84,24%

97,40%

99,84%

Antioquia-Bolivar

Bucaramanga - Barranca- Yondó

Autopistas ConexiónNorte

Vias del Nus

Transversal del Sisga

Autopistas al Mar 1

Puerta de Hierro - Cruzdel Viso

Chirajara Villavicencio

Autopista ConexiónPacifico 3

Autopista ConexiónPacifico 2

Cartagena - Barranquilla

Girardot - Honda - PuertoSalgar

$ 313 mill

$ 351 mill

$ 321 mill

$ 460 mill

$ 683 mill

$ 161 mill

$ 533 mill

$ 190 mill

$ 345 mill

$ 348 mill

$ 604 mill

$ 404 mill

Total: USD$ 4,7 Bill. / %PIB 1,49%Total: USD$ 5,3 Bill. / %PIB 1,67%

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