Colombia’s fiscal issues drag economy down, Almatia seeking expansion abroad – CFO

SAO PAULO (ICIS)–Grupo Almatia continues seeking expansions outside its Colombian domestic market as the medium-term economic prospects and the government’s fiscal policy cast a shadow, according to the CFO at the chemicals distributor, formerly known as Quimico Plasticos.

Jose Andres Toro added his voice to the many which, in the past week, have showed great concern about Colombia’s government decision to exercise an “escape” clause which allows for the so-called fiscal rule to be lifted in extraordinary circumstances.

In a pre-election year and with the public finances offering little margin for the left-leaning government of Gustavo Petro to fulfill its promises to expand the welfare state, the cabinet has now decided to exercise a rule which is meant to be used in public emergencies or calamities.

Chemicals sources and industrial groups have said companies’ borrowing costs could rise sharply if those costs for Colombia’s sovereign also rise, as expected, while the trade group representing plastics, Acoplastics, said in an interview with ICIS the fiscal issues were coming to add issues to an industry already under pressure due to China’s competition.

But Almatia’s CFO described frustration with government spending increases because, in theory, they should have improved public services but, he said, that the spending programs have been unable to deliver tangible benefits to citizens.

“It’s already proven it’s not making social investments. It’s not doing anything with that money; instead, what it’s doing is creating bureaucracy, creating jobs in the public sector,” said Toro.

“In the province where we are based, Antioquia, the situation has become particularly acute. National projects with state funding have been abandoned by the government and we Antioquians reached into our pockets and are financing the projects ourselves, with our own resources, through the provincial government.”

Beyond fiscal concerns, the company faces challenges from inflation and dramatically rising transportation costs affecting grassroots workers, said Toro, highlighting how gasoline subsidy removals have pushed fuel prices up by approximately 50%, far outpacing general inflation rates of 5-7%.

“Transportation costs have risen much more than the average inflation rate because the government began to remove a subsidy that gasoline used to have. For someone who travels every day on the subway or the bus, those costs are multiplied,” he said.

“With domestic growth stagnating at 2-3% annually, while inflation runs at around 5%, real economic performance is declining. In real terms, we’re not growing. We’re stagnant,” he said.

Toro said a good example of Colombia’s issues would be the construction sector, where the downturn has proved especially acute, casting a shadow to the rest of the economy given that real estate is a sector of sectors, with many associated industries depending on it, not least the many plastics which Almatia sells to be used in multiple applications going into construction.

Facing domestic market challenges, Grupo Almatia is slowly but decisively pursuing expansions across Latin American countries, said Toro.

For now, the company has set up operations in markets close to Colombia because the majority of its facilities are there, and from them it delivers to other markets such as Ecuador, Peru, Guatemala and the Dominican Republic.

CHINA COMPETITION: GOOD OR BAD?
The executive detailed how Chinese suppliers have become increasingly competitive across chemical markets, though not to the exclusion of other international competitors, and conceded many of Almatia’s materials come from that country.

China has been under fire for some time due to its “dumping” – selling industrial products at below production costs in overseas markets, just to dump excess products China does not need, which has hit producers hard in other, non-state-controlled economies which cannot compete with China’s heavily subsidized companies.

“We’ve been working with several suppliers for several years, and they compete here like any other, like the Koreans, the Americans, the Arabs. For instance, in TiO2 [titanium dioxide], Chinese pricing remains competitive against Western suppliers without creating insurmountable advantages [for the Chinese],” said Toro.

“Chinese prices are competitive compared to those coming from outside the West, but they’re not so markedly different that those from the West can’t compete. We import from 20 countries, and obviously prioritize the most competitive supply sources.”

All in all, Toro conceded there are concerning price dynamics taking place currently in the petrochemicals industry, dynamics which could end up hitting all sides of the market if not corrected.

“In PP [polypropylene] markets, for instance, monomer prices around $750-770/tonne should theoretically support resin prices near $980-990/tonne in regional markets,” said Toro.

“However, freight and production costs don’t support these economics, suggesting either advantageous raw material sourcing or unsustainable pricing. And this pricing pressure affects non-integrated PP producers globally.”

This interview took place on 16 June.

Front page picture: A warehouse operated by Grupo Almatia in Antioquia, Colombia 
Picture source: Grupo Almatia 

Interview article by Jonathan Lopez