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Higher quality infrastructure to add 1.5% to GDP

Interview - August 25, 2015

Incentives such as the new Public-Private Partnerships Law, which means the state can only pay for projects actually in progress and penalizes poor workmanship, are raising the quality of infrastructure in Colombia. Luis Fernando Andrade Moreno, President of the National Infrastructure Agency (ANI), discusses how removing obstacles to investment and encouraging higher productivity are reshaping the sector. 


According to the IMF, Colombia was the third fastest growing economy in Latin America last year, and both the president of the Central Bank and the Minister of Transport told us that this year it might be the fastest growing in the region. What do you think about the current moment that Colombia is living?

The last 15 years have been very good for the Colombian economy.

This happened thanks to a series of political reforms in the economy that have been carried out from the ‘80s and the ‘90s, like the economy opening up, the independence of the Central Bank, the changes made to the regulations concerning infrastructure concessions which open the door for private and foreign investors, and the changes in pensions and public health systems.

All the trouble caused by the guerrillas and the general insecurity didn’t allow these reforms to actually bear fruit.

This situation has greatly improved since the security issues got better, especially concerning the possibility to do business at an institutional level.

We are the Latin American country with the highest rate of investment compared to its GDP.

What makes Colombia special is that the country made the right changes at the right time, which increased the capital in the country and fueled a sustained growth.

That is why the World Bank’s Doing Business Index states that we are indeed a very friendly country for foreign investment.

Colombia is expected to enter the OECD in 2016. In what ways do you think this will benefit the country, and what could Colombia contribute to this organization?

When the OECD was created, its main goal was to promote the best governance practices. It was created in Europe after World War II, along with the Marshall Plan carried out by the United States.

The idea was to help the countries to make the best decisions. Currently the organization is accepting developing countries, but it still insists on its commitment to those best practices as the best way to move forward and achieve actual development.

Colombia has a policy of openness; it is committed to the global economic system and its own good management.

Entering the OECD will let us materialize those commitments, to be in constant evaluation and receive feedback that will help us improve even more.

We want to absorb the experiences that the rest of the member countries have successfully applied. Colombia is a country that has drastically reduced its poverty rate, which went from 50% to 28% in 15 years.

Some countries need to have a poor population in order to have rich people. Here we have made enormous progress about that problem, even though there is still work to do.

President Santos is getting support from very important international figures in the peace process that is being carried out in La Havana, such as Pope Francis, President Obama, and former President of Spain, Felipe González. What impact will the achievement of peace have on the socioeconomic development of Colombia?

The domestic conflicts and civil wars have made our GPD to grow at a smaller rate than the rest of the countries in the region in the last 100 years.

An example of the problems brought by this situation is agriculture. Our country has very good weather and topographic conditions for this activity.

Although we are currently a big exporter of agricultural products, we still don’t have enough investment to fulfill our potential.

No one will invest in building an industrial farming complex if they have to operate in an unsafe context. Another example is mining.

We have noticed that other countries that are also by the Andes, like Chile and Peru, owe most of their growth to the mining industry.

We have the same potential here, but the conflict made it difficult for many territories to receive those investments.

The moment there is better sustainability regarding public practices, the country will improve from the elimination of those obstacles for investment.

In its search to increase competitiveness, the government has focused on the improvement of infrastructure, under the leadership of Vice-President Vargas Lleras and his motto “Work, work, and work”. At the Asobancaria Convention, he mentioned that in the past, the problems used to be the low quality of infrastructure, of investment, and of project structuring. What are you doing in order to avoid making the same mistakes than in the past?

We have changed the legal framework in order to give more incentives to the private sector players and remove some obstacles, to help them build fast and to high standards.

The most important of those incentives is the new Public-Private Partnerships Law.

On one hand, this law established that the state can only pay for projects that are already functioning, which makes the contractors work fast in order to get paid as soon as possible.

And secondly, the amount of money paid goes accordingly to the quality of the work done. So if the contractors finish a project fast but with problems in it, the payment is reduced.

In order to be fair, we worked on removing all the obstacles that made the companies work slowly. First, we worked with the judges in order to make the lands available earlier after the expropriations.

Second, the responsibility for the public services was made clear, defining who is in charge of, for example, modifying the pipes or the electrical network when needed.

Third, there were also changes made to the environmental regulations and procedures, and right now, no ANI projects have been delayed because of this.

And finally, a presidential decree established a new procedure for consulting the communities that have a special kind of recognition, like Native American or of African descent.

According to this new regulation, if a certain process doesn’t reach an agreement in six months, as usually happens, then the national authority that regulates the environmental licenses will decide which compensation is given to that community, and the project will be carried on.

We have made significant investments in preparing and structuring the projects.

In our latest ones, we have invested in doing preliminary research for the projects to be well defined and ensure there are no unpleasant surprises when the time comes to start working on them.

We believe these are all very good incentives.

In the closing ceremony of the National Infrastructure Congress, President Santos highlighted that this is a historical moment for the infrastructure sector in Colombia. The country is carrying out the most ambitious infrastructure projects in its entire history. As Carlos Raúl Yepes from Bancolombia said, this will affect and transform the economy and the financial sector of Colombia. What are the main challenges concerning the financial aspects of these projects?

Our current financial needs are too big compared to the size of our domestic banking sector. Our banks give loans to businesses for around 200 billion pesos, and will need 40 billion only for roads.

We understand that they can’t hold such large exposure and they need to diversify their portfolios.

Because of this we included different mechanisms for investment, such as pension funds, loans from the IDB, and also foreign capital.

We have developed this way of working in the last few years, and it is giving us the guarantee that we will be able to finance all of our projects.

Actually some projects already had their financial closure and we are really satisfied about the final conditions.

How will this enormous infrastructure project affect the domestic economy and the companies involved in it?

We believe that the Colombian economy will grow an extra 1.5% as a result exclusively of these projects.

Recently there was research about the impact this will have in the Antioquía region, where the roads are already being built.

The research shows that the impact could actually be even more positive than what we thought it would be.

We started this program four years ago when everything was going very well; it was not planned as a countercyclical measure.

Now it really fits like a glove in this global context of general downturn, so I think the impact will be extremely positive in every way.

What is your main priority as the President of ANI?

My priority number one is to bring wellbeing to the people of my country. We are working hard in order to improve the standard of living of the entire population, so they can have more jobs and opportunities.

When we think about which projects to carry out and how to do it, we always think about whether they will have a positive impact on the community and bring further benefits to our people.

Before this, we started working alongside the National Service of Learning (SENA), the institution in charge of technical education, in order to offer construction courses so the population would have more job opportunities when these projects start.

We invited licensed companies to support social responsibility programs and try to have a positive impact on the communities where they operate.

We also worked on achieving a good productive linkage. A couple of years ago we started working with local industries such as producers of cement, asphalt, and explosives, letting them know about our plans so they could be prepared.

That way we can also improve and reduce the transportation costs in a way that benefits the general population of the country on a daily basis.

What measures are you taking to ensure the transparency of the procedures and avoid corruption?

The most important part in all this is to have simple and objective criteria.

We have developed a series of prerequisites that are very simple for the companies to demonstrate, but difficult to comply with, because we only want companies of the highest quality working with us.

For example, they must show us their capital, or their previous financing of similar projects. Another issue has to do with the selection standards.

Eligibility is ultimately determined by a very simple variable, which is price. We have to be very careful about predatory pricing.

To avoid that, we established a very simple formula, according to which any offer that is 10% below the average price is automatically eliminated.

This is a guarantee against the possibility of having artificial offers. On the other hand, the tender projects are opened in public and we broadcast them through online streaming, so that everyone can see what is happening.

All the competitors must sign agreements of transparency and good conduct in the entire process. This is the key to our success, and we’ve had no complaints so far.

Colombia has the objective of becoming a world-class destination for international cruise ship tourism, to double its exports, and to make Cartagena the number one port in Latin America. What is the ANI doing in order to improve the competitiveness in the ports sector?

In Colombia we have a fairly developed structure for building container terminals, established in the 90s as what we now call public-private partnerships by private initiative.

Any company interested in building their own port can bring their investment offer to the government, and just as long it complies with our standards, it will be approved.

This has been very successful so far. We have highly competitive ports. The government must guarantee that the channels are deep enough for the vessels to enter the terminals.

We are also building a new facility for cruise ships right beside the Cartagena Nautical Society, where we seek to increase the number of tourists that enter the country in those ships.

Another important project has to do with recovering the navigability of the Magdalena River, an infrastructure project that requires a significant investment. What are the main challenges of this project, and what will be its impact once it is finished?

That project is not being carried out under the supervision of the ANI; there is a specific entity regarding the Magdalena River, called Cormagdalena.

This will definitely be a historic project for our country. We are one of the few lucky countries in the world to have a 1,000-kilometer navigable river in its territory.

Since the times of Spanish rule, the country has developed thanks to that river, but with time we started using roads instead.

All the infrastructure work and the deep-dredging will revive and position this river as the most important communication channel in the country.

The transportation costs will be reduced by 50% in those areas. It is already having an impact in all the companies building their terminals on the riverside and bringing their large vessels.

Considering that we are publishing in the United States and that this country is Colombia’s main economic partner, what is your assessment of your official visits to the United States? In what areas of the country would you like to see more cooperation and investment?

We have a very fluid relationship with the United States. In terms of the infrastructure, the main focus has been regarding the financial aspects.

We have mostly visited New York, where we have been very well received and supported by the big banks. The first financial closures of this project are being carried out by Goldman Sachs.

We are very happy with the continuing presence of the United States in this process.

In the construction sector, there is also presence of companies from several countries such as Spain, Portugal, Austria, Israel, but not the United States.

We would definitely like too see more US companies involved in this area.

In Ancient Rome, the position of Pontifex Maximus was given to the high priest of the College of Pontiffs, the bridge-builders. This had to do with their role in the infrastructure for public health, defense, and communications. That is how they created an empire. What is the mega project you feel most enthusiastic about?

There is not just one, and the reason for that is that the transportation systems are networks, and for a network to function, all its components must be in perfect shape.

What we have to do is to develop each and every one of the projects the population need, and to make this country more competitive.

Pablo Picasso used to say that “the quality of a painter depends on the amount of past he carries with him”. Considering your impressive resume, what kind of added value do you think you brought to the ANI?

I’ve only had one job before the ANI; I worked for 25 years at Mackenzie.

There I did basically two things: solve business problems, and free the practice of financial institutions, banks, and insurance companies in Latin America.

The key to make this infrastructure project work has been the innovative financial mechanisms, and not necessarily the engineering aspects.

The challenge has always been about how to set in motion the massive amount of resources needed in a relatively small economy such as this.

That has been my most important contribution. My experience has allowed me to develop the ability to solve the challenges presented by this opportunity.