Colombia: investors take note

Colombia, which is the third largest exporter of oil to the US, is a key target for foreign investment. Its pro-business government has been reinvesting oil revenues into infrastructure development. Cement is one of the country’s main industries. John Mulholland, in a recent article in The Observer, writes that Colombia’s GDP has doubled in the last 10 years.

Urgent: infrastructure development

The President, Juan Manuel Santos, is looking for private partners to help realise a 10-year, US$55 billion investment plan to upgrade Colombia’s infrastructure. This would double the length of Colombia’s dual-carriageway roads, continue upgrading Bogotá’s airport, revive railways and expand shipping by boat.

A journalist from Melgar, writing in The Economist, succinctly sums up Colombia’s transport problems: “The country’s wrinkled topography has always made transport difficult. Most of the population is concentrated in three mountain chains, and much of the flatter area is clothed in jungle. But politics – corruption, the guerrilla war and governments with other priorities – have been just as much of a problem.”

A top priority is to link Medellin, Colombia’s second city, to Pacific and Caribbean ports. The current design of four connector highways envisages 900 km of new roads, 600 bridges and 131 tunnels. The article also mentions a major project that involves making the Magdalena River fully navigable by quintupling its shipping capacity. At one stage the river was Colombia’s main economic artery, easily accessible from Bogotá and Medellin. Experts say that some 900 km will have to be dredged, and the government is consulting on the project with the Chinese state-owned company, HydroChina. Other projects include a series of access channels for ports and the building of a railway that will transport coal from Central Colombia to the Caribbean harbour of Santa Marta.

SinoColombian relations

Many articles and reports indicate that, as exports to the traditional trader partners of the US and the EC have been declining due to the economic crisis on both sides of the Atlantic, “Colombia is looking for new partners in Asia. As one would expect, China is top of the list. It consumes more coal than anybody else, so why not increase business with Colombia, the world’s fourth largest exporter of coal?” It is inevitable that trade between the two countries will escalate. Emma O’Leary, who works for a London-based international research and intelligence company, says: “Of major significance is the proposed plan to build a 220 km railway linking Colombia’s coal-rich northeastern region with ports on its west coast. The US$7.6 billion railway, which will be funded by the Chinese Development Bank and operated by the China Railway Group, could transport 40 million tpa of coal from the country’s heartland to the Pacific coast, ready for shipping direct to Asia.” The project, known as the ‘Dry Canal’, is seen as fulfilling the long-held Colombian dream of establishing its own inter-oceanic trade route. While it is unlikely that the ‘Dry Canal’ project will usurp the current favoured path for trade through the Panama Canal, the volume of Colombian coal heading east will surely rise.

Problems still exist

Obstacles to the successful development of Colombia’s infrastructure include corruption and inefficiency. It is said that winning construction contracts through public auction has long been plagued by bribery. While the country has moved forward in overcoming some of the serious problems as a result of the guerrilla war, there are still areas where the drug gangs are extremely active.

Strength to strength

Colombia’s largest cement group, Cementos Argos, with over 50% of the market, strengthened its presence in the US in May 2011 when it acquired from Lafarge a range of cement and ready-mix concrete plants in the southeast of the country. Colombia’s second largest cement producer is Cemex. It has a significant share of the cement and ready-mix concrete markets in what is known as the ‘Urban Triangle’ of Bogotá, Medellin and Cali. It operates six cement plants, which produce 4.8 million tpa of cement, and 26 ready-mix plants. Cementos San Marcos is a relatively recent addition to the Colombian cement industry. It was established through a consortium of the Family Otoya Dominguez, The Siderurgia de Occidente SIDOC S.A. and CSS Construcciones. Its plant is located near its own limestone quarry in Cobo Lloreda, north of Yumbo. Holcim Colombia operates its Nobsa plant some 230 km north of the capital Bogotá in the city of Nobsa in the province of Boyacá. The plant is approximately 2500 m above sea level and is located in an area where there is substantial industrial activity.

In 2011, work began on an urban and infrastructure project known as the ‘Usme City of the Future’ in the south of the capital, Bogotá. Usme is an urbanisation project involving the construction of 55 000 houses over the next 20 years in an area of 70 acres that will benefit 200 000 people. The first stage will involve housing solutions for 10 500 families. Cemex, under a turnkey scheme, is paving some 28 000 m² of concrete ways for this project.

Conclusion

Colombia, as one of the CIVETS nations (the others being Indonesia, Vietnam, Egypt, Turkey and South Africa), is in our view, apart from Brazil, the Latin American country to watch. Much needed investment in the country’s infrastructure and transport network will help to boost trade, not necessarily to its traditional outlets in the US and the EC, but increasingly to China and Asia. There are still obstacles to overcome, such as the terrorist threats from the northern drug gangs as well as corruption, which of course is not peculiar to Colombia but can be found throughout Latin America. Much progress has been made; still more needs to be achieved.

Sources

Company reports.
BBC News, Latin American-Caribbean service.
The Observer.
The Economist.
The Guardian.
BNamericas (online).
Latin American Bureau (Emma O’Leary).

This article is an abridged version of the full article by Paul Maxwell-Cook, which appeared in the February 2012 issue of World Cement.

Read the article online at: https://www.worldcement.com/the-americas/03022012/colombia_investors_take_note/