Colombia Business Forecast Report Q1 2008

Publication Date	December 2007
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	1745-0519
Product Code	BMI01214

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Summary

Decelerating But Resilient Demand The economy is displaying an unexpected resilience, which could set the tone for Colombia's economic and political fortunes over the next five years. We expect expansion to moderate to a more sustainable level over the forecast period, as an eventual deceleration in domestic demand begins to cool down the economy. The central bank is likely to keep a watchful eye on inflation and will be prepared to hike interest rates further, if necessary. The key to sustainable growth lies at the feet of the government, whose success in implementing key fiscal reform and privatising state-owned assets has been encouraging. Ongoing political troubles, however, could pose a risk to these goals. Colombia's investment arena and business environment has made exceptional gains since the onset of President lvaro Uribe's administration in 2002. However, an ongoing scandal involving the Autodefensas Unidas de Colombia (AUC), as well as long, drawn-out negotiations with the US over a permanent trade deal, represent the major risks to the economy.

Despite the legacy of over four decades of civil conflict, Colombia's democratic political system is still intact. Uribe's landslide re-election in 2006 and his unwavering level of public support since will ensure relative policy continuity. His alliance does, however, remain vulnerable to sporadic outbreaks of terrorist activity and the emergence of a scandal in which senior politicians have been linked to the right-wing paramilitary group AUC. We believe that the president's credibility must stay intact in order to secure the renewal of the 'Plan Colombia' aid initiative and a valuable free trade deal with the US.

Colombia's economic prospects are relatively bright, and we expect long-term growth to level out to around 3.7% by 2012. Inflation - a cause for concern in 2007 - has already shown signs of moderation, and we expect it to fall to 3.5% over the next five years. We expect the exchange rate to strengthen in the medium term, although we hold slight concerns about the negative effects of a weakening external picture, controls on capital inflows and US financial sector woes. Both the fiscal accounts and balance of payments will suffer from a decline in the energy sector. Indeed, we are concerned that the country could become a net importer of oil by 2010.

The weak security situation remains the biggest hurdle to an admittedly improving business environment.

A break in peace talks with the Fuerzas Armadas Revolucionarias de Colombia (FARC) has not been ideal and our main concern is a potential flare-up in insurgent activity. A further drawback is the high level of corporate taxation, although the government's reform package could partially allay these business concerns if eventually signed by the legislature. We are encouraged by the ongoing governmental efforts to open up public enterprises to private investors, the latest of which will the 20% partial sale of state energy monopoly Ecopetrol.

Content

Executive Summary
Decelerating But Resilient Demand
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Uribe Still Weathering Storm
The deepening 'parapolitics' scandal may have affected President lvaro Uribe's standing abroad, with the
Democrat-led US Congress troubled by his alleged connections with rightwing paramilitary group Autodefensas
Unidas de Colombia (AUC), but - so far, at least - it has had a limited impact on the domestic his position.
Foreign Politics
Domestic Pressures On International Field
President lvaro Uribe has achieved notable success on the domestic front, perhaps most significantly
achieving the disarmament of the right-wing paramilitary group Autodefensas Unidas de Colombia (AUC).
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Credit To The Consumer
Driven by private consumption - which we estimate will account for an expected 62% of GDP in 2007 -
Colombia's economy has grown impressively in recent years.
Monetary Policy
Hold On Tight In 2008
Although the current account deficit is set to continue widening going forward in excess of the 5.5% of GDP
expected for 2007, we are confident that the strong growth in FDI will continue to be more than sufficient to
finance it.
Balance Of Payments
Current Account Deficit To Widen Further
Exchange Rate Policy
COP: Watch Capital Flows
The Banco de la Repblica de Colombia unexpected decision to hike the benchmark interest rate by 25 basis
points (bps) to 9.50% in November has helped stabilise the peso.
Investment Outlook
Ecopetrol: Going Public
The success of the partial sell-off of oil company Ecopetrol is encouraging. We are encouraged by government
endeavours to open up local investment opportunities, which bodes well for the country's business environment
going forward.
Chapter 3: Special Report
Negative Oil Price Shock Scenario
Business Monitor International Ltd
colombia Q1 2008
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Legal Framework
Labour Force
Foreign Investment Policy
Foreign Trade Regime
Tax Regime
Chapter 5: Key Sectors
Pharmaceuticals & Healthcare Forecast
Executive Summary
Despite the revision to our forecasts, the risks to our 2007 and 2008 growth projections appear weighted
to the upside.
Telecommunications Forecast
Executive Summary
We are maintaining forecasts of growth of around 18% in Colombia's mobile market in 2007 as the
marked slowdown continues despite relatively low penetration of around 65% in mid 2007.
List of Tables
- Table: Cabinet, Republic of Colombia
- Table: Economic Activity
- Table: Monetary Policy
- Table: Balance Of Payments
- Table: Exchange Rate Policy
- Table: Top 10 Energy Producers, Consumers And Importers
- Table: % Point Changes To Base Forecasts From A Downward Oil Price Adjustment Scenario
- Table: Colombia Annual FDI Inflows
- Table: Latin America Annual FDI Inflows
- Table: Top Export Destinations
- Table: Drug Market Indicators
- Table: Health Expenditure Trends

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Product features / use

Scope	Expert Insight/Opinion
Level	General Industry Strategies
Data	Detailed Market Forecasts
Profiles	Profiles of Key Companies
Features	Contains SWOT Analysis
Extra Info	Consumer Trends Highlighted