Category: Economy

Building Billion-Dollar Businesses in Latin America

Posted on Posted in Business, Colombia, Economy, Latin AmericaTagged Leave a comment

wenyi.cai

OZY

Wenyi Cai goes to plop down in a chair in a cramped, bare-bones office with white walls, sticky notes and black scuff marks. I pin her at about 29, but to be polite, I pass over the question. Plus, she’s just jumped off a call with an investor that she admits was stressful. “Do you want this one?” I ask, hastily pushing the more comfy chair toward her. “No, it’s fine, whatever,” she shoots back. “Let’s do this. So, I’ve got like … what? Fifteen minutes.”

Cai, who is actually 30, is in a rush because she and her four other partners are out to build businesses through venture capital, but not Silicon Valley Cool. Her Colombia firm, Polymath Ventures, is all at the unglamorous end of the business, searching for ways to build scalable companies and services in underserved markets for Latin America’s emerging middle class. Continue reading on OZY…

photo credit: Juan Felipe Rubio

Financial sector resists adopting central bank rates

Posted on Posted in Colombia, EconomyLeave a comment

April 5th, BOGOTÁ (Colombia Reports) – Colombia’s financial sector has resisted lowering mortgage rates in accordance with the central bank interest rate cut to 3.25%, the bank’s most recent cut in March.

“The central bank has developed an expansionary monetary policy since July 2012, but the interest rate cuts have not yet been transferred to the rates of financial institutions,” said international market analyst Cristian Lancheros of Acciones y Valores, a Bogota-based brokerage firm.

“This scenario requires a greater commitment of financial institutions with reduced rates to encourage consumption … it will not deteriorate significantly household demand,” Lancheros added.

Worries of rising new real estate prices, which increased by 2.4% in the latter trimester of 2012, have fueled a fiery debate over the severity of the housing sector’s impact on the Colombian economy.

Finance Minister Mauricio Cardenas recently called on banks to be more responsive with the central bank in order to decrease interest rates in accordance with the cut, and in turn decrease the cost of mortgage lending for buyers.

“We are planting our concern with the financial sector regarding this situation … it doesn’t seem that the financial sector, let’s say, is helping in proportion to the central bank’s interest rate cut,” said Cardenas.

Cardenas, however, has kept the focus of Colombia’s growing pains toward the peso, naming it “the mother of all problems”. A strong peso, he has said, is the culprit behind a sluggish manufacturing sector and struggles in the agriculture business, which in turn is flaying the country’s exports.

Yet some experts disagree about where the problem is, saying that the most important risk to the Colombian economy right now is soaring housing prices.

Economist at the University of the Andes Marc Hofstetter told Colombia Reports that “the most important risk is that the central bank is lowering rates, but housing prices are still high.”

“By lowering rates, the central bank intends to stimulate the economy. Most of the economy needs a stimulus, but the housing sector does not need a boost in the middle of rising prices,” Hofstetter added.

Although lower interest rates intend to kick start the economy the central bank says it is growing below its potential, lower mortgage rates could further drive up prices in the housing sector. That could be dangerous for consumption.

And that potential danger is the same concern that was recently investigated by a handful of central bank researchers. Earlier this month, a report published by researchers at Colombia’s central bank warned of a housing bubble in Colombia’s market that could mirror the same conditions which led up to the United States mortgage crisis in 2008.

“We find evidence of a bubble (defined as explosive behavior in a sub-sample of the series) during the second semester of 2012,” Jair Ojeda-Joya, co-author of the central bank’s research said to Colombia Reports.

MORE: Colombia’s central bank warns of possible housing bubble

Rich Holman, a real estate broker and founder of First American Realty Medellin, is not convinced though. He says that the worry over Colombia’s housing market “is uniformed diatribe” and declares the idea of a bubble is nothing more than a “myth”.

“Is Colombia being overbuilt, is there too much inventory, is the property market overvalued and is Colombia having a real estate bubble?” asks Holman. “The answer is no, not yet.”

Sources

Foreign investment could hurt Colombia peso, economy: Analysts

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January 14th, MEDELLÍN (Colombia Reports) – Analysts worry over the consequences of a strengthening peso after Colombia recorded a jump in Foreign Direct Investment in 2012.

Colombia, the third largest economy in Latin America, reportedly received $16.7 billion in foreign direct investment in 2012, far exceeding the Ministry of Commerce’s goal of $10.8 billion. This marked a 25% increase from 2011.

Roughly 59% of capital inflows, however, poured in to Colombia’s booming energy and mining sectors, provoking concern amongst some analysts over the severity of a potential “Dutch disease,” which occurs when currency appreciation, in response to a steep rise in commodity demand, erodes the price competitiveness of other export products.

David Reese, an emerging markets economist and Colombia analyst with Capital Economics in London told the Financial Times that “on the one hand, it is good that Colombia is being seen as a favorable destination for FDI. It shows how far the economy has come in building investor confidence.”

But Reese expressed concern over the negative consequences that come with a sharp increase in foreign investment inflows.

“We’ve seen industry struggle for a long time now,” said Reese. “We have seen consumer spending slow and we have reached the point of low growth and rate cuts.”

The Colombian economy experienced an extreme slowdown in the third quarter of 2012 when GDP grew just 2.1% — a five percent drop from the same period in 2011.

As Reese explained, pressure on the peso warps sectors other than energy and mining.

Economist Ed Dolan explained that the behavior of the peso has in turn produced a loss of competition for Colombia’s manufacturing and agriculture sectors.

The peso’s gain in 2012 prompted the Central Bank to shore up its dollar-buying policy in order to cool down the peso and prevent a more dangerous onset of Dutch disease. Jose Dario Uribe, Manager of the Central Bank, told local media that in 2013 the bank plans to buy at least $4.6 billion in US currency.