A MOST VIRTUOUS CYCLE

Colombia 2017 | FINANCE | INTERVIEW

TBY talks to Juan Pablo Córdoba, President of Bolsa de Valores de Colombia (BVC), on the need to lower the cost of investment and growing the country's capital markets.

 Juan Pablo Córdoba
BIOGRAPHY
Juan Pablo Córdoba holds a master’s and PhD in economics from the University of Pennsylvania. He has worked for the Inter-American Development Bank, the Ministry of Finance and Public Credit of the Republic of Colombia, the IMF, and the Deposit Insurance Corporation of Colombia (FOGAFIN). He is currently the President of BVC.

BVC saw a 25% increase in trade volumes in YoY terms to January 2017. What was behind this?

2016 was a transitional year for the financial market. In a positive way, a few of the uncertainties regarding financial investments in Colombia were resolved last year. This has led to more liquidity and better asset prices through the end of 2016 and the beginning of 2017. Even though the economic growth of the country was not particularly stellar last year from an investor point of view, it was still a turnaround year, which makes 2017 positive in terms of investment prospects. Things like the tax reform and the peace process have been resolved, which puts an end to many of the uncertainties and apprehension for investors. We are on the right track and looking positive for 2017.

What is your outlook on how the tax reform will impact the economy this year?

The private sector would always like to see more reductions, of course, but the tax reform will make substantial progress in creating a path for reductions in the tax rate for corporations. An important point has been the elimination of the net worth tax for corporations, which was a considerable burden on corporations. This is the last year of that tax at a subdued rate. That is a positive signal for companies and will positively impact investment decisions. In 2018, the tax rate will come down overall, reaching 33%, which is reasonably competitive for a country like Colombia. A deduction in the VAT on the purchase of capital goods has been introduced as well, which is also a positive, lowering the cost of investment.

How attractive is Colombia to foreign investors compared to other regional markets?

Colombia has been doing an excellent job of differentiating itself and coming back from a relatively hidden position, so to speak. Today, foreign investors represent 25% of the volume traded on the exchange, whereas they were nonexistent eight years ago. Similarly, in the fixed-income market, and especially in government bonds, more than 30% of the stock is today in the hands of foreign investors, which was not the case five years ago, when it was merely 2%.

What contribution can capital markets have on financing the 4G infrastructure plan?

This is another positive development resulting from the more secure and stable environment in the country. The 4G projects will also make peace more sustainable by creating better roads and transport infrastructure throughout the country, integrating regions that have been marginalized for years, and decreasing the cost of accessing markets. As for the role of capital markets thus far, it has been rather small, and there is clearly room for more involvement. There will be a learning process, and that takes time; however, with global regulations that are bringing about more stringent rules and greater capital requirements for banks, we will see a greater need and involvement from the capital markets to make up for that. Once the first phase of investment is finalized, it will allow for a refinancing process that can easily be done in the capital markets. It has a long process, but for the coming five to 10 years the potential is there. In any case, we need to attract international investors.

How protected will Colombia be from external shocks in the coming years?

A small economy like ours will always be affected by international events and movements. With the decline in the price of oil, it has become apparent that Colombia cannot be that dependent on commodities. In that sense, Colombia must be the master of its own destiny. With the right processes and strategies in place, we can become a high middle-income country. Former president Uribe's greatest contribution to the country has been to create nation-wide security, which means that we can once again make long-term goals for the country. The economic effects are embedded in the improvement of security, and the political aspect is also important, which is why the peace process has been crucial. The task now is to make the country more efficient and competitive, to draw in foreign investors, to improve the transport and logistics infrastructure, reduce the costs of transportation in the country, and integrate economic areas, among others.