Colombia’s legislative and presidential elections will likely see new political movements perform better than traditional parties, as voters become frustrated with corruption scandals and economic weaknesses. The peace agreement signed with the Fuerzas Armadas Revolucionarias de Colombia (FARC) is not likely to be fully implemented as a result of upcoming elections.
It is increasingly unlikely that the peace agreement signed by the current government and the Fuerzas Armadas Revolucionarias de Colombia (FARC) in November 2016 will be fully implemented. A fast-track mechanism for passing associated legislation expired on 30 November 2017, making it unlikely that remaining reforms will be implemented before elections in H1 2018.
Last minute legislation was approved by the Senate on 30 November 2017 to establish transitional justice courts. However, political and rural reform, key tenets of the peace agreement are outstanding. The inability of Juan Manuel Santos’ government to fully implement the deal will generate uncertainty over future legislative and executive support, given that Santos is constitutionally prevented from seeking a further term in office. Whilst the agreement is protected by a court ruling which stipulates that the next 3 governments must abide by its terms, a number of parties running in the 2018 election season would likely stall implementation, by delaying votes or limiting funding. Such parties include former president Álvaro Uribe’s Centro Democrático or Germán Vargas Lleras’s Cambio Radical coalition.
Uncertainty over full implementation of the peace deal is fuelling dissidence among FARC fighters. As many as 1,700 members have reportedly abandoned the peace process, up from around 600 when the agreement was signed. A return to open conflict is unlikely; however, dissident FARC members will pose extortion risks, particularly in Guaviare and Cauca departments. Possible targets
for extortion include oil exploration sites,agribusinesses or construction sites. In November 2017, armed FARC dissidents seized 3 buses in Cauca in an attempt to extort the bus company.
The economy will remain a key concern for voters in Colombia in 2018, as it faces a number of headwinds. Suppressed oil prices have limited investment in the sector, contributing to a forecasted contraction in crude production of 1.7% in 2018. The growth outlook is also constrained by delays to major infrastructure projects. Both the USD 1.8 billion Ruta del Sol 2 highway project and USD 1.3 billion Magdalena River Navigability project were cancelled in 2017, in the wake of the Odebrecht corruption scandal.
Moreover, only 8 of 32 projects under the 4G highway concession programme had secured funding by August 2017. As a result, real GDP growth is forecasted at 2.6% y-o-y in 2018. Vargas Lleras is likely to be the favoured presidential candidate for foreign investors, due to his proposed economic policies. The former vice-president is promising to reduce taxes on company profits and eliminate sales tax on capital goods, in an effort to spur investment and growth. Whilst such measures will be risk positive for investors, his proposal to make Colombia’s 2012 fiscal rule more flexible could threaten Colombia’s sovereign credit rating, if it means that debt levels escalate. In its current form the rule promotes fiscal sustainability by requiring that the structural fiscal deficit falls to 1.0% by 2022.
Whilst Vargas Lleras will capitalise on his economic credentials in 2018, the centre-left Coalición Colombia will push its anti-corruption agenda. Colombia’s judiciary has been under scrutiny throughout 2017, following accusations that politicians bribed judges to secure lenient sentences for corruption charges. In September 2017, Supreme Court judge Francisco Ricaurte was arrested on suspicion of corruption. Similarly, in June 2017, the former director of Colombia’s anticorruption unit was arrested for bribing judges.
Corruption scandals will drive support for new political movements in the 2018 elections, such as Coalición Colombia, as opposed to Colombia’s traditional parties. Despite high-level corruption scandals, foreign investors should be able to have contracts enforced fairly, although the process can be lengthy. As a result, many companies will include recourse to international arbitration in contracts.
In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Brazil, Cuba, Mexico and Venezuela all of which have been the subject of recent enquiries from JLT's client base.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.
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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email email@example.com
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