Thursday, Dec 14, 2017
Infrastructure | Government | South America | Colombia

Unprecedented Infrastructure & Housing Opportunities

‘Uncommonly advantageous conditions’ draw foreign investments and commitments


2 years ago

Germán Vargas Lleras, Vice-President of Colombia
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Germán Vargas Lleras

Vice-President of Colombia

Vice-President of Colombia Germán Vargas Lleras highlights the country’s regional advantages, such as its transparency, lack of corruption and equal opportunities, that are sparking a “wonderful” reaction from the private sector and seeing billions in FDI and long-term commitments pouring into the infrastructure sector in particular, as Colombia targets a top three position in Latin America for its infrastructure. 

We are currently in a delicate global situation. Some studies are predicting a huge drop in Colombia’s FDI, although President Santos has stated that this is only a cloudy moment. Bloomberg named the Colombian economy as one of the 15 most miserable in the world, while The Daily Telegraph has mentioned that is one of the strongest in the region. Apparently it all depends on the eye of the beholder. How do you assess the Colombian economy for 2015 and for the future?

I think Colombia has an outstanding economy; it is without question the country with the highest growth rate in the region, with extremely different indicators from the rest of the countries.

In 2015 we will grow more than 3%. I can talk specifically about the infrastructure sector. We are making great improvements in undertaking the most ambitious investment program in the history of Colombia, I am talking about over $30 billion, the equivalent of four times the expansion of the Panama Canal.

A project that includes roads, ports, airports, river navigability and railways. Next month we will start working on the projects with licenses and contracts from a year ago, which are already in the protocol stage of their financing.

Additionally, we are noticing that all the international companies that have invested in Colombia are increasingly confident about the country, because here they find transparency, no corruption whatsoever, and equal opportunities when it comes to competition.

In the infrastructure sector, foreign investment has grown, unlike other segments of the economy.

Mr Andrade from the ANI (National Infrastructure Agency) has told us that the key to carrying forward these infrastructure development projects has been the innovative financing mechanisms, and not necessarily in terms of engineering, and Mr Yepes from Bancolombia mentioned that this will change the way of doing banking in the country. How is the private sector, either domestic or foreign, reacting?

The reaction has been wonderful, regarding the participation and the amount of companies interested in tendering. Not all countries have such an ambitious plan for infrastructure investment.

But we have also worked in other fronts, like authorizing the domestic and foreign pension funds to be a part of this process, because they are always an interesting way for financing.

The government itself, through the Financiera de Desarrollo Nacional – FDN (National Development Financer) – has authorized a very important figure for subordinate debt and assumes its responsibility in matters of risk.

The domestic banking sector has responded extremely well. We must not forget that each of these projects have a certain quota of indebtedness in dollars, up to 50% in foreign currency, with the currency rate risk being assumed by the Colombian state.

I think these uncommonly advantageous conditions have motivated all those international companies to come to the country and assume these long-term commitments.

At the Asobancaria Convention, you mentioned that in the past the problems were low quality infrastructure, low investment, and insufficient project structuring. What are you doing to avoid making those same mistakes again? What impact will these projects have in the rest of the economy?

We are working to correct the mistakes made in previous years. The first thing we did was about institutional quality.

We created a very solid national infrastructure agency, with the best professionals in the market, and no politics involved – a technical organization that will act as a valid interlocutor for foreign players and national companies.

Additionally, we strengthened the infrastructure sector inside the Presidential office itself – my responsibilities revolve around that area – which really helps to solve multidisciplinary issues and increase reliability.

We also modified the contracting systems, which were not very trustworthy in the past.

All this gave us more legitimacy and trust. In a recent survey by the World Bank, Colombia ranked 18th in the region; only Guiana, Haiti, Cuba and Bolivia had worse infrastructure quality than ours.

After we carry out this investment plan in the next four years, we will be in third place in all Latin America, right after Brazil and Mexico.

That is why this is the most ambitious plan in every aspect, both in investment as in the complexity of the projects.

Colombia has the goal of being a world-class destination for cruise ship tourism, to double its exports, to turn Cartagena into the most important port in Latin America, and to regain the navigability of the Magdalena River.

The largest investments will be in the road system. But we must not forget about the ports; Colombia already has 87 port concessions, with an investment in the sector of some $1 billion annually.

That obviously improves the optimization of the ports and the reduction of the delays, an improvement we can already see for ourselves.

The civil aviation sector is also very important; you are expecting to go from 27 to 40 million passengers in 2017 only in Bogota. According to IATA, Colombia has grown 2.3% above the global average of 5.7%.

Actually, we are the country with the highest growth rate in the sector. In previous years, our average growth was 14% annually. This has forced us to make new plans for the expansion of the country’s airports.

Today we have 51 with the work plan in progress, both the ones working with concessions and the secondary ones. The investment in this area will reach 2.8 billion pesos and will allow us to modernize our entire airport infrastructure both in land and air.

The figures you mentioned are only in the Bogota Airport, where we expect to go from 27 to 40 million annual passengers in the next five years.

When you were elected vice-president last year, you said that in the second Santos administration there would be 600,000 new houses, provide 99% of the urban population and 75% of the rural population with drinking water, and raise the sewage system coverage up to 80% in urban areas. Minister Henao told us, “We have proved to the country and the world that we can build on a large scale”.

All this investment is already being made in two very important sectors that turn into countercyclical policies, creating jobs and reaching all regions in the country.

The second front is public housing. We have set ourselves the goal of reducing the housing shortage by 50% in the next three years, which is today around 1.1 million homes.

We will achieve this by implementing public policies for the coverage of different segments of the population. For those in extreme poverty situations, we will move forward with the plan for a free second house.

We have already carried out the first part with some 100,000 homes, and now in this second phase we will focus on the smallest towns in the country.

But we also have another program called “Mi Casa Ahorro”. In this segment houses are not free of charge, but it allows for any family with an income equivalent to one or two minimum wages, to buy a house paying only a monthly installment equivalent to one third of the minimum wage.

The third program is aimed at a slightly higher income segment, between two and four minimum wages.

The value of the house is higher in this range, so the state supports it with 12 million pesos for the first installment, which is the usual obstacle that people in this segment usually encounter when trying to buy their first home.

We provide them with 50% of the first installment and four percentage points of the interest on the loan requested to pay for the rest of the house.

That way we cover every segment, from those who could never be in the banking system, to the middle class.

Our goal is to build 450,000 houses through these three programs. In Colombia this is revolutionary; in China maybe this is not an impressive figure, but in Latin America it is enormous.

The housing sector has already created 1.5 million direct jobs and has an impact on 28 subsectors of the economy.

This is why, in the middle of this crisis due to the drop in commodity prices, these two investment plans will have a huge impact socially, on the country’s competitiveness and of course on the general economy.

The United States is not only Colombia’s main trading partner, but there is also a strong geopolitical bond between the two countries. Minister Natalia Abello told us “it is important that the United States really takes a chance and participates... We invite them to walk with us, to look at the opportunities for investment and progress that we offer, and to stay here”.

We have told this to the authorities: it is likely that for the large US companies, the projects in Colombia are not big enough, but the opportunities are enormous.

Many companies from Italy, Spain, Austria, and also from Mexico and Brazil, have participated in our licenses.

I think two strategic countries for us, the United States and Canada, should be more motivated to participate in any of the stages of this process, either in construction or financing, where they will definitely find good opportunities in terms of profitability and security.

The restructuring of the Port of Miami is one of the fundamental reforms prepared for the Panama Canal’s expansion. What opportunities does Miami and its new port create for Colombia?

We are also in the middle of a restructuring process of our ports in the main cities, both on the Pacific and the Caribbean.

This implies the expansion of the ports, deepening the canals of access, and investing in improving the connection of the ports with the main production hubs in the country, which includes roads, navigation, and airports.

We already have 87 port concessions investing at the moment.

President Santos announced in 2014 his interest in being a member of the OECD. The organization has extended the invitation to join, and Colombia is expected to become a full member by 2016. What could the country learn from this organization, and what could it contribute to the rest of the member countries?

President Santos has set this goal for us, and it has not been an easy task. We had to examine all of our practices and procedures in order to adapt to the OECD standards.

In the latest visit of the OECD, the transparency of the licensing procedures of these new projects was mentioned as an example of best commercial practices.

These contracting processes include standard bidding procedures, public hearings, objectively assessed offerings, so it is very satisfactory that there was not a single complaint from the companies who did the different tenders.

The OECD has forced us to improve all of our standards and practices in every public sector.

Minister Abello Vives has said that Colombia is “a country of regions”, and that her wish is to make Colombia “a competitive country, a country in constant development and progress, always in touch with its different regions”. What kind of country would you like to leave once you finish your term as vice-president?

My responsibilities are in these same sectors. The President has appointed me as coordinator of the areas of infrastructure, housing and water.

So the effort of all the ministers, all those in charge of the organizations, and the Vice-President himself, are focused on achieving this goal, which is not easy, considering that we are talking about only a four year period of time.

We are focused on that, the big issues, and also the everyday micro problems. We are partners with the engineering companies, so we are by their side working on everyday problems regarding the environment, land, interaction with the communities; we are their link between them and the regions.

To guarantee the success of this program we need to work on both the macro and micro levels, that is our commitment.

If I come back here in 2018, could you describe in three words what kind of Colombia would you like me to find?

Well, just the country we all want. In the infrastructure sector, we in Colombia didn’t want to resign ourselves to see how the rest of the world, including Latin America, was moving forward and we were not.

The time is now, thanks to the decision made by President Santos to commit himself to achieving this ambitious plan that has been worked on for four years.

Now is the time to do it, to be attuned to the rest of the world. We have to be more competitive, so all the people of Colombia can benefit from these truly unprecedented projects.



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