SANTOS II: Economic Priorities – August 2014
Published 1 September 2014
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0.1 Detail
Economic Progress
Summing up the economic achievements of his first government on 3 August President Santos told Colombians that they were seeing ‘probably the best economic period in our history’. Certainly the headline figures are impressive - unemployment is at an historic low, inflation is under control and the government is set to revise its prediction of 4.7% growth in 2014 upwards, after the best first quarter growth in the region.
Challenges
Yet there are long term challenges- the entry into force of a number of FTAs in the last four years, including with the EU and the US, has brought into sharp relief the competiveness problems facing domestic industry and agriculture, which are hampered by high transport and energy costs amongst other things. Colombia had its largest ever first quarter trade deficit this year and may now be heading for its first annual deficit in the balance of trade since 2007.
Presidential priorities
In his inauguration speech President Santos set out a clear vision for the future. Peace will be the number one priority and that, along with inequality and education, will replace the previous ‘engines for growth’ as the focus for the National Development Plan.
Resources will also be directed towards this goal. Education topped the list as the biggest department in the 2015 budget proposal with resources of about £9 billion, closely followed by defence with £8.7 billion, but there was also a large increase to the budgets for social programmes linked to addressing inequality and promoting a sustainable peace.
Spending to address inequality will include investment in Colombian roads and other infrastructure, worth $25 billion by 2018. Agricultural development, integral to the peace process and to address inequality between rural and urban Colombia, received a budget of about £1.75 billion, nearly double the level of two years ago. And Santos set the targets of creating 2.5 million jobs in his second term, and of building 400,000 new houses.
Funding
The budget has increased in total by 6.5% and Finance Minister Cardenas has said that this year the government needs to raise an additional £4 billion to fund its spending plans. He has confirmed that the government will introduce a law to finance this deficit through the extension of certain taxes, but he has given no concrete detail on whether this will be part of a broader tax reform or involve increased borrowing. With a projected budget deficit of 2.3% GDP for 2014 Colombia has scope to do this, but an extraordinary ‘peace clause’ may be required to increase borrowing over and above the limits set out in the 2011 Fiscal Rule (a law aiming to gradually reduce Colombia’s deficit by imposing limits on the annual budget deficit).
Government Investment and Peace Dividend
The government is confident the investment plans will address Colombia’s long-term challenges. Infrastructure investment is designed to help industrial and agricultural producers, and Cardenas has estimated that this investment alone will add 0.7% to Colombia’s potential GDP growth. The President has said a successfully implemented peace process could add as much as 1% to potential growth, due to lower internal costs and better allocation of government resources.
UK Opportunities
Santos’ priority areas tie in well with UK commercial and prosperity expertise and offer significant opportunities for UK companies. Several British infrastructure companies are already present in Colombia and we will continue to promote the opportunities in the sector, including bringing a delegation to the National Infrastructure Congress in November.
We are part of a regional HVO on education, and the new Colombia investment announced offers opportunities for the UK on bilingualism, education infrastructure and vocational education.
On agriculture, there are opportunities in livestock and seed improvement - though challenging political and administrative barriers remain.
0.2 Disclaimer
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