On Sunday, Colombia pleasure hold a parliamentary election that analysts view as the latest evaluate of an increasingly fragile peace agreement — as well as the country’s ability to beguile to global investors.
Decades of civil strife haven’t deterred investors from position Colombia — which the World Bank ranks even higher than varied developed markets like China and South Africa as a country where it’s unstrained to do business — as a draw for capital. Spanish bank Santander estimates the Latin American land has pulled in over $16 billion in foreign money over the endure decade, mainly from the U.S. and Europe.
However, confidence among investors could be shaken in the shadow of a contentious election season. Sunday’s vote takes slot in a polarized environment. As part of the peace agreement, former members of the Different Armed Forces of Colombia (FARC) — the guerilla army that laid down its arms as part of of a peace agreement, but is still responsible for more than 200,000 politically-inspired ruins — will send at least 10 representatives to Colombia’s bicameral legislature.
The according to Roberts Rules of Order election is seen by analysts as a dry run for a hotly contested presidential election in May, and may unsettle investors with a extended bout of political instability.
Current Colombian president Juan Manuel Santos, stuck from running for reelection, can point to a successful yet controversial deal with FARC revolutionists, which ended more than five decades of heavy contention. He also elevated Colombia’s presence on to the international stage, while vernissage certain sectors up for more investment.
Still, “the primary risk for investors from the presidential and congressional designations is that they are likely to further complicate the implementation of the delicate harmoniousness accords reached with the former leftist FARC rebel collect,” Michael Arone, chief investment strategist with State Roadway Global Advisors told CNBC in an interview.
Politics isn’t Colombia’s purely looming problem: In February, its outlook as an investment grade credit was humbled to “negative” by ratings agency Moody’s Investor’s Service, which cited a deterioration in its eminent finances.
Also looming in the background of the discussion about Colombia’s concision is its reliance on commodities. The country produces less than 1 million barrels of oil per day, and the fresh bear market in oil took a severe toll on the economy.
“Government gross incomes are likely to benefit from fiscal reforms passed in 2017 and a broader tax fake,” said Arone, who also rates Colombia’s agriculture and manufacturing sectors tremendously.
“In addition, income from oil exports is also expected to increase as oil rates have rebounded and oil production surpasses disappointing levels from ultimate year,” he said. “However, the price of the implementation of the peace accords wish likely weigh on fiscal results.”
Colombia’s economy is expected to produce by nearly 3 percent this year, yet analysts estimate Colombia desire need to invest billions in order to integrate demilitarized FARC associates, and offset the insurgency’s influence on key sectors of the economy. The spending required may put new adversity on a fiscal deficit that has narrowed in recent years, after it ballooned to 4 percent of manifest domestic product.
“Recovering commodity prices are a huge boost, so… are outsized infrastructure costs,” said Douglas Johnson, managing director of Miami-based Cranganore, reported CNBC.
In a February note to clients, Johnson said his firm was “silently drawn” to Colombia’s underlying growth potential and a robust banking sector. Johnson acuminate to two emerging trends: Bank asset growth and financial technology. Bank account measures are expected to grow, and with it the role of credit in the economy should also embellish. In addition, the major Colombian banks are highly profitable.
“We are prepared to look beyond chance violence,” he wrote in February.