Colombia is in the middle of a national curfew as part of the country’s effort to contain the spread of the Coronavirus COVID-19 Pandemic. With certain exceptions, no one is to leave their homes until April 13, the day after Easter. As is the case around the world, the economic effects of this pandemic are expected to be severe, and the human cost, even beyond medical consequences, are certain to be devastating. To better understand what the societal, political and security ramifications may be, Finance Colombia executive editor Loren Moss spoke with expert analyst Sergio Guzmán, co-founder of Colombia Risk Analysis.
Finance Colombia: Sergio, here in Colombia we are up to 31 deaths and 906 verified cases of COVID-19 (as of 4:12pm, 31 March 2020). So far, government measures seem to be followed by the general population, though we have seen some isolated cases of looting, and we are seeing a lot of potentially dangerous misinformation circulating through social media. How do you see the situation evolving as we go into April? Will the government be able to maintain calm and compliance?
Sergio Guzmán: Thanks Loren. I think the most important thing here is to recognize that nobody was prepared for the crisis we now find ourselves in. To a certain extent all the dynamics – good and bad – that we Colombians encounter on a daily basis have transferred to the virtual world. We see that fundamentally this is a public health crisis that will have serious economic repercussions, as it evolves, we will see that the economic malaise will drive political discontent due to the dire circumstances some people find themselves in. Depending on how the government manages this—and so far they have done what best they can—this can evolve into more widespread unrest as people begin to exhaust the meager savings they have and begin facing food shortages. The government has rolled out a subsidy program, which will be well received by those who already receive government subsidies, but will not necessarily reach those informal workers who need it most, this will be even more difficult for migrants and those living in rural areas.
Finance Colombia: We are coming up on Semana Santa, the week before Easter, which traditionally is the most important travel week of the year. It looks like this year it will be a complete write-off, and devastating for the domestic tourism sector, as well as for the dollars that the Colombian diaspora usually brings home at this time. Do you expect ripple effects from a security standpoint?
Sergio Guzmán: I think it is too early to tell from a security standpoint what exactly will happen and the ways in which this virus will change us as a society. First, I think it is important to highlight that the ELN just declared a unilateral ceasefire in response to the COVID-19 pandemic. Second, I think the dynamics of organized crime vary significantly from one region to another with some groups taking advantage of the virus to extend their territorial control in some parts such as Cauca, Catatumbo, Chocó and northeastern Antioquia. Third, cocaine trafficking will likely continue undeterred by the measures enacted by the government to face the pandemic. From the point of view of urban security, our forecast is that security risks will increase especially with regards to common and petty crime, particularly coming to the end of the quarantine period and its possible extensions.
Finance Colombia: The Duque administration was unpopular going into this. Politically speaking, will this pandemic strengthen or weaken his administration, with two years to go until election time?
Sergio Guzmán: At the beginning of the crisis, the central government and local governments showed a lack of coordination and embarked in political pettiness. I think it is important to highlight that local governments were inaugurated on January 1st, which means that we’re now at that 100-day mark when many local officials have to show their constituents who they are and how they intend to govern. However, as the crisis progresses, President Duque has seen his legitimacy increase as a result of the crisis. Going forward, we are likely to see more coordination and President Duque’s legacy will be judged by how the public interprets he managed this moment. That doesn’t mean that the opposition will allow the government to steamroll legislation any time soon – especially nothing that has to do with the implementation of the peace agreement – but that the government has earned itself some goodwill that if well-managed, can mean a great deal for Duque’s future.
Finance Colombia: Almost simultaneous with the COVID-19 Pandemic, a petroleum price war broke out between Saudi Arabia and Russia. In December President Duque pulled a billion dollars out of Ecopetrol, the state-controlled petroleum company. The plunge in petroleum prices, the correlated plunge in the Colombian Peso, this has to be devastating to the country’s fiscal condition and budget. Does this materially limit the room the government has to maneuver to face these crises?
Sergio Guzmán: Absolutely. Oil revenues account for 26% of government income, more than 60% of exports, and an important source of employment both in urban and rural areas. The government has usually relied on Ecopetrol as its main source of income and an important source of investment in rural areas, this will now be cut dry as Ecopetrol has been forced to cut its budget in a major way for 2020. Fiscally, the government started the year in a weak position, which has been now further weakened by the economic crisis worldwide. The passage of the Economic Growth Law, though heralded as positive for business, meant that the government would collect less taxes in 2020, and critically in 2021. The government expected to curb this shortfall with economic growth and welcoming environment for international investment that would attract money to the country. The crisis has turned that idea on its head. Further the government is constrained by the Fiscal Rule, which limits the amount of debt the government can take on.
Finance Colombia: Colombia still has an economy very dependent on things like retail, textiles, manufacturing. These aren’t things that can be done “work from home.” How long can the business sector—and the employees, afford to stay shut down? Avianca was already teetering on a precipice before this crisis. Tecnoglass is in much better shape but still, completely shut down and gave everyone a vacation through Easter. I can only imagine how this is affecting tourism-dependent cities like Cartagena and Santa Marta.
Sergio Guzmán: Every single sector will be affected by the crisis. No doubt about it. The forecast for growth for Colombia has already fallen from 3% to -3%. I don’t think the business sector can hold on to current conditions for more than another quarter. In the current circumstances, cash is king, and the businesses who have cash in the bank will be able to weather the crisis better than those who do not. Public pressure is taking hold of employers who engage in layoffs or decree pay cuts to their employees, but there is growing pressure for people and businesses not to pay their debts. I don’t think this is likely to happen, but we do live in an age of moral hazard.
Finance Colombia: Tell us a little bit more about your consultancy, Colombia Risk Analysis. What does your firm do, and who are typical clients? When is it best for potential clients to reach out to you, and how can they get in contact with you?
Sergio Guzmán: Colombia Risk Analysis is a local political risk consultancy where we help companies and organizations understand the evolving circumstances and how it affects them allowing them to make better business decisions. Our ability to produce research, reports and intelligence in both English and Spanish makes us an asset for both local and international clients who need actionable information and no-bullshit analysis. We work with companies in all types of sectors including mining, oil and gas, finance and insurance, transportation and manufacturing. Right now clients are figuring out the direction in which the virus is headed and how the government decisions will impact their bottom line, soon their concern will grow over issues such as security and social unrest. Potential clients can reach out through our website (www.colombiariskanalysis.com) or over email ([email protected]). We have a great and active following on Twitter (@ColombiaRisk) and we are also present on LinkedIn.