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Curious about Colombia? A lucrative platform in Latin America www.londonchamber.co.uk Our Business is Your Business Colombia’s Economic Prospects in 2009 & Beyond This can be your title page Overview • Colombia faces a difficult 2009 • Harsh external headwinds could force the local economy into recession this year • Once the global dust settles, the country should regain momentum quickly • Despite structural challenges, the medium-outlook remains favourable A Regional Outperformer Real GDP Growth, % • 10 Between 1999-2008, Colombia enjoyed a sustained period of robust economic growth Colombia Latin America US 8 6 • Consistently outperforming the region, Colombia became an EM favourite for global investors 4 2 Sound economic policy and a business-friendly government allowed the country to capitalise on a favourable external environment 0 -2 -4 Source: BMI, Regional Central Banks 2010f 2008e 2006 2004 2002 2000 -6 1998 • Real GDP Growth, % Contribution 12 Net Exports GFCF Public Consumption Private Consumption Real GDP Growth 8 4 0 Source: BMI, BanRep 2008e 2007 2006 2005 2004 2003 2002 2001 -4 • The main engine of growth in recent years has been thriving domestic demand • Buoyant consumption, commodity price strength and record investment levels have combined to galvanise economic expansion Times Are Changing 60 20 50 40 15 30 10 20 5 10 0 0 Real Retail Sales Industrial Production Real Auto Sales (RHS) -5 -10 Source: BMI, DANE Jan-09 Jan-08 Jan-07 Jan-06 -20 Jan-05 -10 Jan-04 Rising unemployment, pyramid scheme losses and falling remittances will keep consumer confidence subdued 25 Jan-03 • This year, tighter lending conditions will put a dampener on demand for ‘big-ticket’ items Retail Sales & IP, % chg y-o-y Jan-02 • Since H108, however, Colombian households have started to tighten the purse strings Jan-01 • Feeling The Global Chill • Foreign investment levels to take a hit from risk aversion, tighter capital markets, and US & eurozone recessions • FDI flows could seize up on scarcer capital resources and rise of protectionism • Given the importance of FDI in boom years, rapid slowdown will severely hamper economic growth potential Net Exports: Limited Relief • Net exports less of a drag on overall growth due to fall in import penetration • But exports to suffer also from demand destruction in key markets • Commodity exports (10% of GDP) to falter on weaker prices for key goods, such as petrol, coal, nickel and coffee The Venezuela Effect • Venezuela – 2nd Largest Recipient of Colombian exports (80% of autos in 2007) Colombian Exports To Venezuela, % of Total 20 16 8 4 Source: BMI, DANE 2008e 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 0 1996 Possible bolivar devaluation in 2009 will hamper demand for Colombian exports 12 1995 • BMI sees acute recessionary risks in Venezuela in 2009/10 1994 • Reasons For Cheer, Medium-Term • We are forecasting a Colombian economic contraction of 1.5% in 2009 • However, as the global economy recovers, Colombian will be well-placed to bounce back • Over a 10-year time horizon, we are optimistic that real GDP growth can average an annual clip of around 5% Consumer Will Be King Colombian households will lead the recovery, propelled by lower interest rates, rising incomes & return of consumer confidence Colombia – Policy Interest Rate & Inflation 12 Policy Rate, % Inflation, % chg y-o-y BMI End-09 Policy Rate Forecast Of 6.50% 10 8 6 4 2 Source: BMI, BanRep 0 Jan-10 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05 Jan-04 BMI End-09 Inflation Forecast Of 3.5% Increased Security = More Investment Security Stats & Foreign Investment 4,000 • President Uribe’s hardline security policies have laid the foundations for long-term investment Inward FDI, US$bn (RHS) Terrorist Attacks Kidnappings 3,000 14 12 10 8 6 4 1,000 2 2007 2006 2008e Source: BMI, Ministry Of Defence, BanRep 2005 2004 2003 2002 0 2001 0 2000 We do not see significant change in economic policy after 2010 elections 1999 • 2,000 Banking On Progress Government Domestic Debt Curve Deepening Financial Sector • More opportunities in financial markets • Rise in mortgages, banking products, corporate debt 1,000 980 960 940 bps • 920 900 880 860 0 5 10 15 Year 20 25 Investment Grade In 2010? 5-Year Credit Default Swaps, bps • • 700 A question of ‘when’ not ‘if’ Colombia Brazil Chile 600 500 IG status would generate medium-term financial investment 400 300 Transition From Frontier Market To Major EM Player 200 100 Jan-09 Oct-08 Jul-08 Apr-08 Jan-08 Oct-07 Jul-07 Apr-07 0 Jan-07 • Challenge 1: The US Exports By Destination 2008, % Of Total • The US remains Colombia’s largest commercial and financial partner • The ratification of the US free trade deal would help ensure positive flows of inward investment over the long term • Much depends on willingness on Washington to implement FTA Venezuela, 14.7 US, 38.4 Source: BMI, DOTS Ecuador, 3.8 Peru, 2.2 Rest Of World, 40.9 Challenge 2: Oil • Colombia’s proven oil reserves are dwindling Colombia – Oil Output, Consumption & Exports 1000 600 oil production, 000 b/d oil consumption, 000 b/d oil exports, 000 b/d (RHS) 900 • The country could become a net oil importer within a decade unless a major new source is discovered 800 500 700 400 600 500 400 200 300 200 100 100 2018f 2016f Source: BP Statistical Review of World Energy, June 2008 2014f 2012f 2010f 2008f 2006 0 2004 0 2002 The drive to attract IOCs will be crucial going forward 2000 • 300 Conclusion • 2009/2010: Economic Growth To Suffer • Quick Recovery On Solid Fundamentals • Medium-Term Outlook Sanguine This can beThank your Youtitle page