2021 has come to an end – a year that saw many challenges for Colombian citizens. On one hand, steps were taken (especially in the beginning of the year) to control the spread of the virus and minimize the negative effects of the pandemic. Like many cities across the world, lockdowns were a major part of daily life during Q1 2021. On the other hand, public officials sought to recover tens of thousands of jobs lost in 2020.
But it wasn’t just Covid that made 2021 an extraordinary year in Colombia – beginning in late April, nationwide protests rocked the country after an unpopular President Duque introduced a tax reform bill. In spite of the foregoing, and as this article will illustrate, the country is showing surprising levels of economic growth – with numbers often even stronger than the most optimistic of analyst projections.
Recently the government announced that the country will grow more in 2021 than it has in any year in almost a century. How can such incredible results be explained in such an uncertain time? This article will evaluate this South American nation – where it in January 2022 and the prospects for the near future.
In general, Colombia’s economic growth projections are highly positive and pleasantly surprising. According to the Office for Economic Cooperation and Development (OECD), at the end of 2021 the country is expected to close with a growth rate of 9.5% – exceeding the predictions of the beginning of the year. At the outset of 2021, forecasted growth was just 5.1%. The same report also indicates that Colombia will grow at least 5.5% in 2022. Analysts argue that housing and oil will be the sectors that will drive GDP growth in 2022.
A Resilient Economy Against All Odds
For comparison, due primarily to the strict confinement measures adopted in 2020, the Colombia economy experienced a 6.8% GDP drop during 2020.
With the relaxation of these containment measures, and the implementation of an ambitious vaccination program, there have been marked improvements between the years. Jobs have been created and there’s been sizeable increases in household spending.
Failed Tax Reform As a Catalyst for Protests
Subsequently, the country had intense days of protests that kept the country on edge for several months. These began in April in response to a controversial tax reform proposal promoted by President Iván Duque. The proposal sought to raise some taxes and thus reduce the country’s fiscal deficit equivalent to 6.95% of the Gross Domestic Product (GDP).
The proposed tax reform was wildly unpopular. Citizens from all across the political spectrum banded together to make their voices heard. Unfortunately these protests, which started out peaceful, often took a violent turn.
The toll was significant: At least 50 deaths and more than 2,100 injured throughout the country (not to mention incalculable economic losses due to vandalism and looting of businesses).
It seemed that the country would soon catch fire and get out of control. However, in May, the government decided to withdraw the controversial law from Congress. It then presented another bill that did not have as many tax implications for common people.
The uncertainty of these months generated a devaluation of the Colombian Peso during 2021. Additionally, the country was downgraded by ratings firms Standard & Poors and Fitch Ratings.
The news wasn’t all gloomy, however, as Moody’s maintained its investment grade. It raised the outlook from “negative” to “stable”, given the Colombian government’s track record of prudent macroeconomic management.
In this regard, the International Monetary Fund, the World Bank, and the bank J.P Morgan have agreed with the positive predictions for Colombia. For its part, the Center for Economic Studies Fedesarrollo recently indicated that, at the end of 2021, the growth of the Colombian Economy will exceed 9.5%. That is, two percentage points above the previous year, when it stood at 7.3%. This means that the colombian economy has surpassed its pre-pandemic size.
Colombia is one of the Latin American Countries with Best Economic Performance
Statistics for the entire year of 2021 across Latin America in terms of economy are not yet readily available – but the chart below shows datat through the first half of 2021 – which gives us a good idea of how different economies are bouncing back after the lockdowns of 2020 and early 2021. We can see that in general most of them have managed to recover the path of economic growth during the latter stages of the COVID-19 pandemic. In the top 3, Chile stands out with a spectacular growth to date of 19.1%. In second place is Colombia with 13.2% growth, followed closely by Costa Rica with 13.1%.
The diversity of the Colombian economy has allowed the country to reinvent itself throughout various stages of its history. In colonial times, being part of the Virreinato de Nueva Granada. it was an important gold and emerald mining center. Later, it focused on the export of raw materials such as coffee and tobacco, among others things. After that, the textile industry positioned the country as one of the most important textile producers in the world. Thus, the country has never stopped growing, even in times of internal wars and world recessions. In fact, in the last 50 years, the Colombian economy has been the fastest growing in the region. Today oil exploitation is significant for the country, as well as the trade and tourism and services sector. It is no coincidence that Colombia has been in the sights of foreign investors for several years.
Sectors Contributing to Colombia's Economic Development
According to the report of the Departamento Administrativo Nacional de Estadistica (DANE), the sectors that have most driven the country’s economic growth are the following: Wholesale and retail trade; Repair of motor vehicles and motorcycles; Transportation and storage; Accommodation and food services grew 33.8% (contributing 5.7 percentage points to the annual variation). – Manufacturing industries grew 18.8% (contributed 2.4 percentage points to the annual change). – Public administration and defense; compulsory social security schemes; Education; Health and social work activities grew by 8.0% (contributing 1.4 percentage points to the annual variation).
The dynamism of the Colombian economy is evidenced in the general growth of all sectors. Particularly noteworthy are: commercial 40%, manufacturing industry 32%, construction 17%, public services 9%, among others.
Optimism has been maintained. Not even the emergence of new strains of COVID-19 or the collapse of Chinese giant Evergrande have caused nervousness. Confidence in Colombia seems to be at an all-time high right now.
The following is a brief summary of the areas in which we see a clear rebound in the Colombian economy in 2021:
1). Retail and wholesale trade: At the beginning of the COVID19 pandemic, as expected there was a drastic change in the purchasing habits of the Colombian consumer. In the face of a sudden and significant reduction in income of the general population, the sector contracted. Subsequently, commercial activity has shown a great capacity for recovery. Thus, large store chains and medium and small businesses have implemented strategies to lower the prices of their products. Additionally, the government launched “Black Friday” style programs with 3 days without the value-added tax IVA (Impuesto al Valor Agregado). These dates were October 28, November 19 and December 3 and the policy was designed to encourage domestic consumption. An important fact is that, as a result of the quarantine, companies have been systematically implementing e-commerce processes. First, to survive and now permanently as a central axis of the business.
In Medellín, tax incentives for economic reactivation were approved, such as exemptions from the Industry and Commerce Tax (ICA) for companies that develop industrial, commercial or service activities for the years 2022 and 2023. These exemptions include micro-enterprises and entrepreneurs of the city, areas that the Mayor’s Office of Medellín seeks to empower for their creation, development and consolidation in order to foster development.
2). Transportation has returned to almost normal levels: As a consequence of the closure of companies during the quarantine imposed by the authorities in the most critical phase of contagion in 2020, the air, maritime, and land transport sectors were at minimum levels for most of the year.
When the risk levels in the country dropped, the government began to reactivate domestic and international flights. Tourism has returned to pre-pandemic levels and visitors are once again flocking to Medellin.
3). Financial activity is reactivated: After a period marked by severe credit restrictions and the moratorium of thousands of financially affected customers, job losses and forced business closures during the worst part of the pandemic in 2020. The Congress promoted a Law 2157 of October 29, 2021, called “Ley de Borrón y Cuenta Nueva”. This benefits clients who had negative reports in the credit bureaus. Most banks and credit institutions have reached agreements with their debtors, with the strategy of the Programa de Acompañamiento a Deudores (PAD) to reduce installments and lower interest rates on their financial products.
The new loan portfolio has grown, particularly in the small and medium-size enterprise and mortgage segments. This is justified by an aggressive policy of subsidies and preferential interest rates adopted by the National Government to encourage the acquisition of low-income housing (VIS). For their part, automobile, cargo and all-risk insurance were strongly impacted by the COVID19 crisis. Generally, they have recovered their rhythm with the digital sale of the Seguro de Accidentes de Tránsito (SOAT), which guarantees the protection of drivers and users in case of traffic accidents.
4). The real estate sector is growing more than ever: Housing sales and rentals are at their best moment ever. According to figures from the Ministry of Housing, in the first eleven months of 2021 in Colombia, 209,600 new homes were sold. This is more than 30,000 more than in the same period in 2020. The Government has granted more than 93,000 subsidies to the population to buy properties. As a result, the price per square meter of construction has increased in high-demand cities such as Barranquilla, Bogota, and Medellin. As for rental housing, despite the wide supply, there is a 22% growth compared to 2020.
According to a report by the Camara Colombiana de la Construcción (CAMACOL), the building activity has had a formidable recovery in 2021. In the second quarter of the year, the sector’s GDP had an accumulated annual increase of 16%, which allowed it to close the first half of the year with a solid 6%. Housing sales reached 154,230 units in the January-August period. This represents an increase of 34.2% compared to the same period a year ago. This is a historical record for the sector.
There is also an inflationary dynamic in the construction sector that drives prices per square meter. These increases have been experienced across the world. For example, steel has increased in price by over 40%. Many other materials have gone up in price as well. This drives up prices for new construction which subsequently drives up prices in the real estate sector generally.
Medellín is Home to The Best Companies in The Country
It is impossible to talk about Colombia’s economy without mentioning Medellín. This city, being the capital of the prosperous department of Antioquia, is the second most important in the country. The textile industry is an icon that has generated thousands of jobs for more than a century. In addition, the coffee sector continues to be important and more recently the cultivation of flowers, software development, tourism, among others.
Medellín is also the headquarters of a powerful industrial and financial services emporium, present in ten Latin American countries. Therefore, to speak of Medellín is synonymous with the Grupo Empresarial Antioqueño (GEA). This is a complex business structure that since 1978 has united the best Colombian companies such as Grupo Sura, Grupo Nutresa and Grupo Argos. These companies are listed on the Colombian Stock Exchange and their assets represent a value of more than $5 billion USD.
Colombia is a country that always surprises. Let’s remember that for more than 50 years it had a complex situation of civil war and fought against the worst criminals of drug trafficking and crime. Peace finally came in 2016. More recently, the country has been affected by the humanitarian crisis in neighboring Venezuela. To date, it is estimated that more than 1.7 million refugees from that country live in Colombia. Some view them as a heavy burden on the country’s economy and services. However the government has granted special protection to migrants, in a humanitarian gesture unprecedented in recent world history.
However, despite the most fatalistic forecasts at the beginning of the year, the country is rising steadily. There is confidence and optimism everywhere and the economy is a living reflection of reality. This can be seen in the streets just a few days before the Christmas holidays. The economy is growing at a pace that astounded the best economic and financial analysts around the world. Therefore, Colombia’s time is now, so much so, that even Disney has launched a children’s production this year called: “Encanto” which is inspired by this wonderful South American country.
This article has looked at a variety of data points to paint a picture of an economy on the mend after a devastating pandemic. It has surpassed even the rosiest of predictions from the beginning of the year – exceeding all expectations. The positive news keeps coming in – since writing this article, I came across this article in which Colombia is ranked #1 out of 100 countries by The Economist in terms of countries which have reactivated their economy most. The outlook for 2022 and beyond looks good for those invested in Medellin or Colombia. Contact me today to talk about living or investing in the City of Eternal Spring.