MAKE IT HAPPEN

Colombia 2014 | INDUSTRY | REVIEW: INDUSTRY

Colombia is determined to capitalize on the accumulated expertise of its industrial matrix, be it textiles, automotive, or coffee. Free trade agreements will assist in the process.

According to official data, Colombia's industrial production print declined to 2.20% in April of 2014 over the same month of the previous year. The figure averaged at 2.32% from 1981 to 2014, peaking at 17.70% in March of 1998 and troughing on a 22.70% decline in March of 1999. Manufacturing has suffered both in 2012 and 2013 amid sluggish external demand, rising wages, and a strong peso. Colombia's Global Manufacturing Competitiveness Index (GMCI) print, based on factors such as access to quality employees, and materials is at 3.85.

Colombia's industrial matrix comprises textiles, food processing, oil, clothing and footwear, beverages, chemicals, cement, gold, coal, and emeralds. GDP by sector sees a breakdown of agriculture 6.5%, industry 37.5%, and services at a significant 56% as of 2012.

The country boasts the most diversified industrial matrix among the Andean nations largely based in the five key industrial centers of Bogotá, Medellín, Cali, Barranquilla, and Bucaramanga. Its industries range from mining (coal, gold, and emeralds) and oil, to textiles agribusiness (cut flowers, bananas, sugar-cane, and coffee), cement, construction products, and processed food.

The industrial sector has braved a strong peso and continues to adjust to new free trade agreements (FTAs). Steel imports from Mexico, for example, incur no import duties, which has led to protests from local business. In Colombia's second largest city, Medellín, six companies have joined in an alliance called the Assembly Network in order to remain competitive in the face of FTA regulations, according to Colombian newspaper El Tiempo. While the government has targeted increased exports to the US, Colombia's main trading partner, exports shed 15.5% in 2013, due to the 2012 US-Colombia FTA. Yet, the LatinFocus Consensus Forecast predicts 3.7% growth in 2014, while a weaker peso should support exports in the coming months.

AUTOMOTIVE

The automotive sector contributes 6.2% of GDP and employs about 2.5% of the country's workforce in around 25,000 jobs. The industry represents 4% of domestic industrial output and its nine active car assembly businesses produce commercial, passenger, and cargo vehicles. Regarding the big-three brands, Colmotores assembles General Motors' Chevrolet vehicles, and Renault models are made by firm Sofasa, while Mazda models are assembled by the Colombian Automotive Company. With a high installed capacity, the sector may see substantial growth assuming the government's goal of transitioning the assembly-based sector into one of manufacturing. To this end, Colombia is pursuing a project to establish a research center to propel its automotive industry with benefits reaching beyond that sector. To be located in the Cali district, with a $60 million investment over a decade, the facility is foreseen transforming Colombia into one of Latin America's largest auto parts exporters, with a 60,000-unit annual production capacity and targeted revenues in excess of $3 billion by 2032. United in the project are state bodies, the academic community, and private enterprises, among them the Colombian National Business Association of Colombia (ANDI) and the Department of Science (ACOLFA). Moreover, Reuters indicates that Colombia is pondering a reduction or elimination of tariffs on imported automobile parts to support local car assemblers. While competition would rise as a result, the government argues that the cost of assembly overall would drop, making local firms more competitive against imported cars. Colombians drive around 300,000 cars out of showrooms annually, around two-thirds being imported models. The Colombian peso has appreciation over the past five years, and this has impacted the local completely knocked down (CKD) kit vehicle assembly industry, which is less completive against importers of complete built unit (CBU) models. Over the past decade, the assemblers' market share has dropped to around 30% from close to 50%.

Official figures from the National Administrative Department of Statistics (DANE) show that Colombian car sales fell to 29,405 units in 1Q2014 from 34,512 in 4Q2013. The figure averaged at 25,407 cars from 1997 until 2014, peaking at a historic high of 48,220 units in 4Q2007, with a record low of 7,935 cars in 1Q1999. DANE reveals that the automotive sector contracted by 5.7% in February of 2014, on concerns that free trade policies regarding industrialized countries would spell sector weakness.

According to Colombia Reports, the country is in the running to open a new plant for US-based tire producer Goodyear, in what would become a $500 million investment with construction to commence in 2017. Goodyear opened its first plant in Colombia in 1965 in Yumbo, and the proposed facility would have an initial annual production capacity of around 6 million tires.

The Colombian new car market declined 7% YoY in 2013 to 293,846 registrations. For the 28th consecutive year, Chevrolet emerged as the most popular brand with 75,689 in unit sales and a 26% market share. Renault followed on 44,358 units and a 15% share, up 2% on 2012, while Kia on 28,422 unit sales claimed a 10% stake. A single Chinese car-maker (Cherry at 10th place, 1.5% market share) was among the top-10 brands for the year. With annual production of over $1 billion, 47% of automotive output is exported.

VROOM FOR GROWTH

Motorcycle production is also well established in Colombia. Production growth has been brisk in recent years, as annual sales of 626,000 units are two fold that of cars, according to Colombia Reports. International motorcycle giant, Hero MotoCorp, is poised to open its first major manufacturing plant beyond its home base of India in southeast Colombia in a $70 million investment promising over 300 jobs. The plant is scheduled to come online operational in 2015 with an annual capacity of 78,000 units that can reported be ramped to 150,000 units within four years, rendering Colombia a motorcycle production hub.

DRESSED FOR BUSINESS

Textile manufacturing in Colombia spans the entire supply chain from cotton growing through to man-made fiber production, textiles processing, and finished apparel. The FTA with the US marked a stepping stone for the sector. In light of this, the state provides training to sector players and workers alike through the National Training Service (SENA), an affiliate of the Ministry of Labor. According to the Swiss-Colombian Chamber of Commerce, attention in this mature business has turned over the years to specialization, particularly in high-quality apparel and quality certifications.

The sector as of 2012 featured 450 textile and 10,000 apparel producers, employing 20% of the national workforce, and accounting for 5% of total exports. Colombia exports just 15% of its textile output—suggesting investment potential—thereby being a net importer in this area. Yet it is a net exporter of ready apparel, where 57% of output reaches foreign markets. Among key finished products of recent years have been male jeans-wear and female underwear. This said, exports to principle export destination the US have slumped by as much as 50% since 2005 on fierce competition from Asian manufacturers. The EU might also become an alternative destination due to an FTA between Colombia and the bloc.

FOOD PROCESSING

The Colombian Processed Food and Beverage Equipment market caters to an industry that produces approximately $22 billion in revenue per year. Core sectors in the food processing equipment industry in Colombia are: the sugar mills, rice mill, cereal mill industry, the oil and fats sector, dairy products, chocolate and candy industries, and the meat and beverage sectors. Implementation of the FTA between Colombia and the US will increase the opportunities for US exporters.

Colombia is the third largest dairy products producer in Latin America, after Brazil and Mexico. The dairy sub-sector, along with services and equipment, offer the best market potential for US exporters: dairy production equipment, and bottling services (alcoholic and non-alcoholic).

The food and beverage processing and packaging industry accounts for one-fifth of both overall manufacturing production and employment, and has outperformed the agriculture sector, the contribution to GDP of which has slipped to around to 6% mark. Dairy and milling are the dominant sub-sectors, with dairy accounting for 15% of food processing production.

Food exports are a significant earner for Colombia's food processors and beverage producers, with the export of food, beverages, and tobacco (excluding coffee) valued at $2.2 billion between January and September 2012, at 5% of Colombia's total exports.

Foreign players in the food processing and beverages sector include household names such as Cadbury, Frito Lay, and PepsiCo. The tobacco sector is dominated by Phillip Morris, which, through acquisitions, holds an 80% market share, with British American Tobacco the only other major participant.

BEAN COUNTING

As the world's fourth largest coffee producer, output rose 30% in the 12 months between June 2013 and May 2014 to 11.5 million 60-kg bags, according to the national coffee growers' federation (FNC). Exports climbed 31% to 10.5 million bags from 8.1 million YoY. In the January to May 2014 period output stood at 4.6 million bags, up 600,000 bags YoY. Shipments reached 4.5 million bags up 23% on year. Yet exports shed 3% YoY. FNC foresees FY2004 output of 11.4 million bags from 10.9 million in 2013.