In Colombia, when the financial system is mentioned, the first direct association is with banks. However, these are only one of the many actors that make up the financial system. The capital market, responsible for managing and channeling investment, has historically played a secondary role, missing out on its strategic potential for the country and households. The depth of this market is limited: between 2019 and 2024, the number of securities issuers decreased from 367 to 332. Comparatively, Colombia has the lowest number of listed companies in the region, with only 63 issuers, while Brazil has 353, Chile with 297, Peru with 195 and Mexico with 136.
The first is the low level of savings in the economy, the basic input for investment. An adequate level of domestic savings provides stability to the cost of financing and investment decisions. Contrary to what is desired, in Colombia savings have declined since the end of 2016. Although there was a slight improvement in 2022, this was neutralized by falls recorded during 2023. Thus, gross domestic savings went from representing 17% of GDP in 2016 to only 11% in 2023, which implies fewer resources available for investment. The analysis by sector shows that, following the pandemic, household savings temporarily increased, but were allocated to consumption in the upswing phase. Subsequently, with the increase in interest rates, savings returned to levels similar to those observed prior to the pandemic.
This recovery process could be threatened with the recent pension reform, given that approximately one third of domestic savings comes from mandatory pension contributions. With the expansion of the pay-as-you-go regime, the depletion of the public savings fund could further weaken the domestic savings position. On the corporate side, after a brief rebound in savings driven by the post-pandemic recovery, savings declined rapidly with the contraction in production and consumption dynamics, directly affecting profits. Despite recent gains in economic growth, major sectors continue to lag and recovery does not appear to be coming anytime soon. Thus, the outlook for savings and investment in the country seems to indicate a further contraction of resources, further limiting the capital available to drive development.
Another disincentive to investment comes from domestic tax conditions. Prior to the pandemic, Colombia was positioned as an attractive destination for foreign investment, thanks to its responsible fiscal management. However, the pandemic brought difficulties in returning to a sustainable fiscal path, a situation aggravated by increased spending pressures and the inability to generate structural revenues.
In addition, the tax burden on companies in Colombia is excessive: while the OECD average is around 22%, the effective tax rate in Colombia is 35%, excluding surtaxes in certain sectors. This imbalance has discouraged the entry of foreign capital and weakened the country’s attractiveness as an investment destination. Recent reforms and the energy transition, together with their effects on public finances and political uncertainty, have increased the perception of risk among investors. This has contributed to a significant reduction in the investment rate, which in 2023 fell to levels comparable to those observed during the pandemic, reaching 17% of GDP. This situation is worrying if we consider that today’s investments are those that will define growth in the medium and long term. In short, it is urgent to establish conditions conducive to investment. Although an increase in physical investment is essential to develop the country’s productivity, establishing clear rules of the game and promoting new players in the capital market will favor the flow of resources to precisely those strategic sectors of the real sector that require new sources of leverage.
Source:
- Comentario Económico ANIF, Septiembre 26 de 2024
