What Jumps Out: Chain Reaction

Another quiet weekend in terms of news. I chose to set aside the politicians who are as ever busily trying to embarrass themselves regardless of party allegiances – if you were looking for respectable ones to play sports, you might find five for a basketball team, but eleven for football would be a stretch. They are all in it for themselves, and care little about the population, and those who haven’t been jailed or banned from office – are likely just better at covering their tracks.

No one is pretending it’s an easy country to run. On Friday, the Departamento Administrativo Nacional de Estadística – DANE Colombia revealed the latest real sector data for January, and it was positive. Manufacturing production rose 1.9%, that’s two glorious months in positive territory, however, retail sales grabbed the headlines. They rose 10.1% versus 4% expected. Electronic goods rose 50% and vehicles 23% – the Colombian economy has long since been based on commerce and locals due to lower inflation and overnight rates are back to doing what they are best at.

But as BBVA reported last week, the flip side is that they are poor at saving, and that has a downside for the economy as there is less easy money to lend and invest.

Also, that same rush to the shops as domestic demand is driving imports upwards, with manufacturing goods in high demand. Exports can’t keep pace and that leads us to the biggest economic issue the country is facing – fiscal imbalance. Huge deficits each month and despite remittances now regularly hitting $1 billion USD per month, it’s not enough.

Colombia needs to spend to lift more people out of poverty, to provide education and the opportunity for dignified lives, but there is a constant struggle to balance the books. For several years Colombia has struggled, due to external events, to get inflation under control, but the second spending gets easier we see the above cycle.

For all the chatter about commodities, they are not a long or even medium-term solution. It’s been around a decade since Colombia last produced 1 million BPD of oil – those days are gone and the country needs to seek new solutions to balance the books. Tourism is certainly one and agriculture is the next, however, that will require land reform and the repatriation of lands stolen by the ruling elite, especially in the years following the turn of the century, it’s hard to see that happening soon.

Here endeth the lesson.

Have a great week.

Roops.

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Headline photo: One of the displays from Colombiatex in 2016. (Photo credit: Loren Moss)