The construction sector grew 3.6% in 2012 compared to the rapid rate of 10% in 2011, in year-on-year terms. Civil construction work and building grew by 20.9% and 16.2%, respectively, displaying the importance of housing and infrastructure projects in the overall activity of the sector. Meanwhile, the Civil Work Investment Indicator (IIOC) measured growth of 23.2% in 2012, reflecting the launch of projects in mining, central electricity generation, and long- and short-distance transportation corridors. According to market analyses, the value of the Colombian construction industry is expected to register a CAGR of 7.33% over the period between 2012 and 2016.
Informality in the sector continues to be another issue going forward, as an estimated 50%-60% of buildings in the country exist without proper permits or licenses. The Santos administration has also made a commitment to rebuild 300,000 houses that have been deemed susceptible to climate issues such as flooding. Over the next four years, the government plans to construct approximately 1 million new homes at a total cost of over $40 billion.
Although infrastructure projects accounted for over 50% of the value of the construction sector in 2012, the segment still presents significant challenges for the country. The Colombian government continues its efforts to improve the condition of its road network, with deterioration, lack of maintenance, and insufficient geographic coverage some of the key challenges to overcome. To this end, the Minister of Transportation has requested $7 billion of investment that could be used to overhaul the country's roads, bridges and railways. In addition, the government has made plans to sell 9.9% of its stake in the state-owned oil company Ecopetrol to finance infrastructure development.
In total, infrastructure investments in the country are expected to reach $10 billion by 2014, compared to the $3 billion made in 2012. Reflecting this growth trend, the construction of highways, streets, bridges and tunnels is expected to register growth of 9.6% in 2013. Furthermore, the rapid development of the country's mining industry has brought about the construction of ports and railways for the transportation of resources such as coal.
The presence of foreign companies operating in Colombia has jumpstarted infrastructure projects that lead from economic hubs to ocean ports. When completed, these projects could lead to stronger ties with trading partners in addition to free trade agreements (FTAs). According to Francisco Isaza Quintero, General Manager of FIZA, the company “has seen many foreign companies in the construction sector arriving in Colombia, and their investment and expertise will be needed to carry forward such a large number of projects," such as the Ruta del Sol and Transversal de las Americas infrastructure initiatives. Odebrecht, Condor, and FIZA are all actively seeking foreign companies as partners as they strive to complete these road projects that will drastically change Colombia's landscape and contribute heavily to the evolution of the construction sector. “If you have to select a sector in which to invest, it should be housing and infrastructure," Carlos Jacks, President of CEMEX, explained to TBY. “Colombia has huge infrastructure needs."
In order to catch up to other countries in Latin America and fill the infrastructure gap, activity in the cement segment is bound to increase in the short term. Currently, cement consumption has reached a figure of 225 kilograms per capita per annum, while the average in Latin America is 330 kilograms. As it strives to match the regional consumption levels, the country could see cement production grow by 50%. Record breaking growth of 14% overall in the cement sector in 2011 evidenced Colombia's race to become a significant consumer and producer of the building material.
Growth in cement and concrete sales has helped Colombia's largest cement firm, Cementos Argos, to increase its 2012 profits by 5.9% to $218 million, the company has announced in a financial statement. Overall, the company's revenue increased by 23% to $2.44 billion in year-on-year terms. Meanwhile, the company also increased its cement sales by 6% to 10.8 million tons in 2012. Domestic sales rose by 2% to 5.1 million tons, while exports to the US rose by 13% to 1.6 million tons. In the Caribbean division of the company, cement sales rose by 21% to 2.8 million tons, demonstrating growth across the American continent.
At the same time, Swiss building materials company Holcim announced plans to double its cement production capacity in Colombia in 2013. The company expects to invest $600 million in a new 2 million tons per year cement plant. Holcim currently produces around 2.1 million tons per year of cement at the Nobsa plant and is carrying out a feasibility study for the new facility. The construction phase of the new plant is expected to create 1,000 jobs.
From an international perspective Mexico-based Cemex also sees huge potential in the cement industry. To boost the efficiency of Colombia's local market, Cemex offers five different types of cement, five different types of mortar, and more than 3,000 formulas in its concrete system. “We are trying to tell the market to use whatever is specific for their needs, and we will charge according to that because it has an added value," CEMEX Colombia's President, Carlos Jacks, commented in an interview with TBY. “I see the industry growing in double digits over the medium term." As the company's second largest market after Mexico, Colombia will benefit from CEMEX's 62 plants, 200 new trucks for the ready-mix business, and 20% increase in capacity over a 12-month period from 2011-2012.
GREEN IS THE WORD
Along with the goal of the Colombia Chamber of Construction (CAMACOL) to create a sustainable and strong urban plan, the government is focused on introducing a green agenda to the construction industry in coming years. Although a Green Building Council already exists in the country, the government has turned to the IFC for advice about the establishment of a Green Building Code (GBC). According to the agreement made between the two entities, the IFC will provide advisory services to the central government of Colombia for the development and enforcement of the code, once it is installed. According to a publication released by the IFC, “The objective of the GBCs in Colombia is to design and implement a national regulatory framework that promotes energy efficiency and water conservation during the use of the buildings, establishing standards to be applied by municipalities nationwide." The codes are also expected to set an example for the rest of Latin America, especially in countries that are also experiencing rapid growth in the construction sector. The GBC being designed could allow for energy savings of up to 40% per household in Bogotá, and 55% in Barranquilla, largely due to the maximized use of solar energy and insulation.
Under the same plan, the government is seeking to simplify the process of obtaining construction permits. In terms of making it easier to do business in the country, Colombia has consistently ranked as the number one reformer in Latin America according to the IFC. Paving the way for new transportation links and focusing on sustainable infrastructure and building projects, Colombia is settling into its role as a leader in the region and an attractive place for investors seeking to make an impact on the construction sector and wider economy of the country.