Nearshore Americas

Is Bogota’s Mayoral “Telenovela” Influencing Foreign Investment?

A real-life political telenovela (soap opera) has been playing out in Colombia’s capital, Bogota, over the last six months. Controversial leftist Mayor Gustavo Petro found himself fighting to keep his office in December 2013, when he was ousted at the order of ultra-rightist Inspector General Alejandro Ordoñez who made the decision based on Petro’s mishandling of a change in trash collection contracts and procedures.

The ruling was ratified in a vote of 14 – 11 by the country’s Consejo de Estado (National Tribunal) and upheld by President Juan Manual Santos – a decision that has been roundly criticized as unconstitutional, anti-democratic and politically motivated, but one which Ordoñez levied under the powers afforded his office.

A Polarizing Figure

Petro, a former leader of the M-19 leftist guerilla group, has long been a controversial and polarizing figure for his outspoken and vociferous attacks against the conservative parties. This, he alleges, is what led to the ruling. During his time as Bogota’s mayor – the second most powerful office in the nation – Petro earned a reputation as an ineffective and arrogant leader who alienated even his closest advisors and supporters, and the majority of Bogotanos. Petro’s ineffectiveness and failure to fulfill even the most basic promises of his administration led to an effort to recall his mandate helmed by Representative Miguel Gómez Martínez with the support of Bogota’s citizenry. The movement gathered 630,623 signatures which were presented to the National Civil Registry. Of these, 357,250 were determined to be valid – far more than the minimum legal requirement to start the recall process. However, the effort was made irrelevant when Petro was removed from office in March.

Investor Confidence Steady But Shaken

In a statement issued at the time, declaring support for President Santos’ decision to “abide the decision of the Inspector General and to appoint the Minister of Labor, Rafael Pardo as acting mayor of Bogota,” Bruce Mac Master, the president of the country’s national business association, ANDI, expressed his belief that the biggest challenges facing Bogota included boosting its economy and creating a sound management structure. However, Mac Master said the first task that faced then interim Mayor Pardo was the reconstruction of institutional trust and putting an end to the months of uncertainty amongst citizens and businessmen in the capital.

That uncertainty returned when Petro was reinstated by a court order executed by the president at the end of last month. It might be assumed that this political wrangling would have undermined the financial stability of Bogota, which contributes approximately 25% of Colombia’s GDP, but Fitch Ratings determined Bogota would maintain its financial strength and would not falter during the recall process. “We incorporated the political risk associated with this event into Bogota’s rating (long-term foreign Issuer Default Rating BBB),” the rating agency said in a prepared statement. “We believe Bogota’s credit strengths are sound financial performance, manageable debt metrics, a strong socioeconomic profile, and its significant GDP contribution to the country’s economy.”

“The nightmare situation is that a lot of the investor-friendly policies implemented by [former president] Uribe and Santos would be reversed.. ” Michael Puscar, an international investor.

These findings were supported by Toby de Lys, CEO of Colombia Investing, who also believes that Petro will eventually be ousted again whether by popular referendum or another court order. “The Colombian business sector has been pretty unanimous in desiring the removal of Gustavo Petro from office,” de Lys said, “and has been working for a long time under the assumption that it would happen given his inefficiency and unpopularity. At no point has it, or should it, impact investor confidence.” De Lys also pointed out that Colombia is the world’s oldest constitutional democracy, after the US, and has always protected foreign investors and has never nationalized foreign entities.

“The biggest fear among the investment community is that Colombia can move to the left,” according to Michael Puscar, founder and principal of the angel investment firm Grupo Internacional de Tecnología de Punta S.A. based in Medellin. “The nightmare situation is that a lot of the investor-friendly policies implemented by [former president] Uribe and Santos would be reversed. When Petro was elected it shocked people. When he was removed there was some relief but the instability that ensued scared some people. But, at this point it hasn’t been anything that will affect investment, in my opinion.” Puscar believes that Petro’s election in and of itself was a “step in the wrong direction” and explained that investors are looking at the instability very closely. “If this were to become protracted and get into a legal battle and affect the investor positions then it could be an issue. A long period of instability can’t be good for anybody.”

Bogota Ranks High

In the 2014 Global Cities Index, published by analyst firm A.T. Kearney, Bogota’s ranking improved three points over the 2012 index and moved from 55 to 52. This is especially significant since 18 other cities were added to the mix this year bringing the total to 84, observed Andres Mendoza, principal at A.T. Kearney and co-author of the Index. The index, Mendoza explained, is compiled by looking at how the different criteria developed over the last five years, and projects the city’s progress over the next ten years with the assumption that the city will continue along the same trajectory. “We don’t do a deep dive into changes in the nature of the city or political changes or population perceptions,” clarified Mendoza, “We are more focused on outcomes. If there is any turmoil within the country or city that will naturally affect the outcome.”

This, naturally, would be reflected in the 2016 index. “It is interesting to contrast the index with the Emerging Cities Outlook (a complimentary report),” Mendoza advised, “We track elements that are more about potential and identify the leading indicators that are correlated with the Index. Bogota is in the 7th position in the Outlook. Bogota is doing well – of course there are opportunities for improvement – but Bogota is doing very well with stability – it is noticeable. That’s an area of strength. Overall, Bogota is well positioned looking into the future.”

Patrick Haller

4 comments

  • It is indeed an amusing soap opera. But Bogota is a nice, business friendly city with a big pool of talent. So, no, i do not think that the soap opera will affect investment. Colombia is run by serious people that know what they are doing. Colombians are smart and hard working. A swing to the extreme left is unlikely.

  • Patrick, very informative article. Some comments:

    One looming fear among Colombian business elite is the “Venezuela-ization” of Colombia. While Colombia has never nationalized foreign assets, past performance is never a reliable future indicator. The present political instability are a reminder that the entrance of a dictatorial regime that causes foreign investment to pack up and go home is always possible.

    However the unprecedented growth of legal industries in Colombia (among others, petroleum has contributed to a fourfold increase in Colombian GDP in the last ten years) has provided channels for capital investment to flow into the country, further enriching the wealthiest and politically active Colombian families. It is unlikely that this political class will allow the country to fall into the hands of extreme left leadership. There is too much at stake, and the same families’ respective powers have increased in step with GDP.

    That a former M19 guerilla took the reigns of Bogota – Colombia’s most economically powerful city – is a sign that the political machinery (democracy, if you will), is working. That he was kicked out, perhaps unfairly, and then was able to reclaim his office – another positive sign, whether Colombians agree or disagree with his actual politics, his business judgment or mayoral acumen.

    Lastly, several rank-and-file Colombian officials expressed astonishment last year, when the US nearly fell off the fiscal cliff. The effect that this had on the bond markets in Colombia was immediate and nearly devastating, since much of the local COP market depends on USD stability. If the U.S. Congress seems like a circus to the Latin American observer, it should come as no surprise that a younger democratic country in such a challenging region should have organizational problems of similar quality or proportion. Nor should those telenovelas be taken, at-face, as good indicators of the underlying fundamentals. Even if it does make for good daytime drama.

    -Alejandro Rodriguez
    arodlaw.com

  • Hello Enrique,

    Thank you for your comment. As of this moment it looks like President Santos is poised to win another term in office and, indeed, Bogota is a business friendly city open to foreigners investors.

  • Hello Alejandro,

    Thank you for your extensive and thoughtful commentary. Colombia is actually the second oldest constitutional democracy in the world after the United States and – as is indicated by the current roster of presidential candidates – enjoys a pluralistic system of government. While maintaining solid relations and business dealings with the US, Colombia has been branching out and is moving away from its dependency. As with anything, it is important to look beyond the surface to understand a truer picture.