Overview Colombia & Infrastructure Opportunities 2020 - 2021 home.kpmg/co 1 Overview - Colombia & Infrastructure Opportunities Presentation Colombia continues to implement and further develop its aggressive program to strengthen its infrastructure. Investment needs in After having successfully awarded – during only the past four years – an unprecedented road concession plan that included infrastructure up to 2035 almost 3,000 Km and requires about USD 9.3 billion in CAPEX for public initiatives and approximately 2,200 Km and USD 7.8 billion in CAPEX for unsolicited proposals, the country is now focused on developing transport logistics solutions, clean energy capabilities, mass transit and more social infrastructure, such USD 136 as hospitals, schools, government buildings and prisons, among others. Finally, the government has also created regulation and billion market conditions for facilitating unsolicited proposals. The figure at the side shows the investment needs in infrastructure up to 2035. The sheer size of the works to be implemented and the required USD 61 billion investment has demonstrated that international investors, debt providers, constructors and developers will be required Road network intervention to actively participate in order to make the program viable. Fortunately, the Colombian government has had a sustained policy of attracting private investment and has actively worked on improving the risk allocation for these projects and USD 5.3 billion strengthening the institutional framework. 31 Airport projects All of the above presents an unprecedented opportunity for private companies. The opportunities highlighted in this document reflect a great variety of products and services that can be provided from the private companies, such as equipment, USD 3.6 billion technology, financing, insurance as well as construction and Railway rehabilitation operational capabilities. We’re confident that Colombia represents a solid and interesting opportunity for private companies to diversify its export base and USD 17 billion international footprint. We expect this opportunities document Investment in healthcare to become a tool for understanding the Colombian infrastructure market and for identifying profitable opportunities to leverage private companies’ international growth. USD 32 billion Investment in education, The figures in this document are expressed with an exchange rate of 3,277, which corresponds to the average of the exchange rate for the year 2019. justice and housing USD 20 billion Investment in other sectors (water, waste teatment, energy, fluvial) 2 Contents Pág 1. Introduction to Colombia 4 1.1 Colombia as an investment destination 6 2. Background 14 3. Infrastructure sectors 35 3.1. Transport 36 a. Roads 38 b. Airports 48 c. Railways 52 d. Public transportation 58 e. Ports 64 3.2. Fluvial Infrastructure 66 3.3.Water Infrastructure 69 3.4. Social 71 Healthcare 72 Education 74 Public buildings 76 Tourism 78 3.5. Energy 80 3.6. Oil and gas 87 3.7. Mining 89 4. KPMG 92 3 Overview - Colombia & Infrastructure Opportunities Introduction 1. to Colombia 4 10 Reasons to invest in Colombia 1 2 3 4 Attractive Business Trustworthy Associate Economy Linked Interconnected Environment to the World Market to the World Colombia is part of the countries Is a country with investment grade given by Standard & Colombia have 10 Free Trade Colombia possess a technological with better economic stability Agreements (FTA) and 3 Partial infrastructure supported by nine of the region. In the last five Poor´s, Moody´s and Fitch. In Agreement with Doing Business reach agreements, having submarine cables that enable years, have been presenting access to approximately 45 country´s integration. Also, an increment of 4.8%. 2019, Colombia is the third best country in the region for doing countries and its consumers. its geographical location gives business as the 67th in the it an advantage. world, for the same purpose. 5 6 7 8 Ongoing Work Competitive Government Commitment Qualified Workforce for Innovation Legal Framework for Country's Development Colombia, according to the IMD Innovation is one of the priority Government commitment Colombia has a National ranking in 2019, is one of the components for the product for investment incentives Development Plan (NDP) that countries in the region with the and services transformation and stability for investors. involves primary necessities of best qualified workforce above of the country. Since 2005, the country has the country and executes an action Brazil, Peru, and Argentina, implemented 29 reforms. plan for increasing competiveness among others. Colombia won 6 and growth. Also, the Productive positions in the global ranking, Transformation plan (PTP) centers compared to 2018. in increasing effectiveness and competiveness in 22 economical sectors, through a combination of public and private sector. 9 10 Among the Most Competitive OECD member Countries in PPP´s Colombia was linked to the intergovernmental Organization for Economic Co-operation and Colombia is the third most competitive Development (OECD) that stimulate world country in the world in terms of trade and economic growth. Colombia has regulation to finance infrastructure been subject to in-depth reviews by 23 OECD works through the Public-Private Committees and has introduced major reforms Partnerships (PPP) scheme, according for the following: legislation, policies and to the World Bank. practices with OECD standards, labor issues, justice system, corporate governance of state-owned enterprises, anti-bribery and waste management. Source: Procolombia, Portafolio, IMD 2019, BID, El Pais, OECD 5 Overview - Colombia & Infrastructure Opportunities 1.1. Colombia as an investment destination Overview • Over the past few years, Colombia has significantly • In 2011, Colombia was awarded investment grade rating improved its macroeconomic performance, internal from all the main rating agencies in the world. security and stability, and as a result social indicators have also improved. • Colombia is aggressively negotiating free trade and investment agreements in order to expand its markets. • Colombia has achieved a solid structural growth given an increase in the investment rate, which, in turn, generates • The government is fully committed to reassuring favorable higher productivity levels. conditions so as to improve domestic and foreign investment. This is reflected in the establishment of free trade zones • The Colombian economy maintains a moderate inflation and legal stability contacts. and has never driven hyperinflation as other countries in the region. • Colombia has easy access to global markets like Europe, Asia and America. London Toronto 11h Beijing 6h New 3h York Madrid Miami 5h 6h 10h 21h Mexico City 3h 6h Lima Sao Paulo 6h 6h Santiago Buenos Aires 6 Business Environment Over the last twenty years, Colombia has had a balanced trend The average exchange rate (representative market rate) for the in GDP growth. year 2019 was of 3,281 COP/USD. In 2008, the year of the international economic crunch, End of year official exchange rate Colombia had relatively strong economic growth in spite 3,500 3,149 3,294 of external conditions. The latter was evident in the figures 3,001 3,000 3,277 released by the International Monetary Fund (IMF) for the 2,984 2,390 2,392 year 2009, revealing an economic growth of 1.5% for the year. 2,500 2,239 2,244 2,000 2,284 1,914 1,768 Mostly, the GDP has presented a decrease in 2016 and 2017 D 2,015 2,044 1,943 1,927 due to the falling in mining and construction sectors. However, 1,500 the GDP growth increased again for the next two years, arriving 1,000 COP/US to 3.36% in 2019. 500 - GDP Growth 5 7 4 2004 200 2006 200 2008 2009 2010 2011 2012 2013 201 2015 2016 2017 2018 2019 8% 7% Source: Central Bank of Colombia Source: Central Bank of Colombia 6% Increased confidence in Colombia is reflected on the growing 5% FDI inflows. FDI is currently almost 2 times higher than it was 4% 3.36% at the beginning of the 2010 decade. 3% Percentage 2% Most foreign investment is concentrated in transportation 1% services and in the oil sector. Investment in financial services, 0% as well as in the manufacturing and mining sectors, has a great potential for growth in coming years. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Central Bank of Colombia FDI inflows to Colombia were around USD 14.65 million in 2011, Source: Central Bank of Colombia higher than the 2010 figure of USD 6.43 billion However, 2013 had the highest FDI of the period analyzed, reaching USD 16.21 billion. However, investment Entries decreased in 2015, reaching Colombia’s Central Bank, fulfilling its constitutional role, has USD 11.73 million. enforced strict monetary policies in order to reduce inflation and control price variations. After this, the entries have presented an increase in the year 2016, reaching USD 13,850 million. Finally, FDI has shown a decrease for Inflation has been under strict control for over a decade, 2017 and 2018, a level of USD 11.53 million and recovered for the reflecting a one digit, sustainable rate: last year amounting to USD 14.49 million in 2019. Inflation 9% 8% 7.67% 6.77% 7% Total Annual FDI 5.75% 6% 5% 3.73% 3.66% 4.09% 3.80% 18.00 4% 3.17% 3.18% 16.00 16.21 16.16 3% 2.44% 14.66 13.83 14.49 14.00 13.85 2.00% 1.94% 15.04 11.53 2% n 12.00 10.56 10.24 1% 10.00 11.73 8.00 8.04 0% 6.75 8.89 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 6.00 6.43 USD Billio 4.00 Source: Central Bank of Colombia 2.00 0.00 Source: Central Bank of Colombia 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Following a strong devaluation in the 90s, the Colombian Peso Source: Central Bank of Colombia appreciated against the USD, mainly due to the country’s economic recovery.