According to Fitch Solutions Country Risk & Industry Research, the impact of COVID-19 outbreak on construction materials sector in Colombia will have a moderate exposure to risk, providing opportunities for investment in the country. The main reasons for this classification are the suspension in the execution of some constructions given social distancing measures and high proportion of fixed costs faced by construction companies, which could cause profitability to deteriorate if there is a reduction in the use of their production capacity.
In the short-term and medium-term, the impact of COVID-19 on the sector will depend on whether construction works in Colombia can continue to be carried out and manufacturing industries can reopen their production gradually, as well as a greater fiscal stimulus to the economy which could provide economic relief to companies.
In order to mitigate the impact of COVID-19 outbreak, the National Government has taken measures and announcements that show how the construction sector could be resilient in the current situation:
1. The reactivation of civil construction works in Colombia from April 13th will allow the demand for construction materials to recover.
2. The credit lines that the National Government has opened will allow companies to respond with liquidity to their obligations and preserve their operations.
3. The extension of the validity of the recognition of Permanent Customs Users and Highly Exporting Users will help to mitigate the impact on foreign trade operations.
Given the conjuncture of COVID-19 in the medium-term, there may be a shortage of construction materials in the region that Colombian companies could take advantage of to export to regional markets. This situation provides a unique opportunity to foreign companies to invest in Colombia in this sector.
The National Government will announce a decree that allows MSMEs to issue debt securities to be acquired by the financial system as a solution to one of the most urgent needs that various unions have expressed: the payment of wages to their workers. Taking into account that manufacturing activity in Colombia is characterized by being made up of factories in which MSMEs predominate, this initiative represents a relief for the sector and is another example of the government's intention to provide guarantees for entrepreneurs and their employees. While these bonds are supported by the Nation, they allow legal security to be transferred to foreign companies already established in the country and to others who are interested in investing.
The sectors that will benefit by these measures are fashion industry, automotive industry, construction materials, wood production and manufacturing transformation process, among others which have reported a shortage of cash flow as a result of lower demand and limitations in the production of new goods during the lockdown in Colombia.
An additional support for the manufacturing industry is an extension of the deadlines for compliance with formal obligations related to income tax. Likewise, the dates for filing the declaration of assets abroad were modified. Although this is not a specific decree for manufacturing industry, the decree impact on it because they are experiencing from a shortage of cash flow. These sorts of measures provide for manufacturing sectors a relief to continue their operations and an opportunity to investor to invest in Colombia. The main reason is related to the transformation of the sector to produce the material that first chains require in the provision of goods and services such as facilities to deliver production, transportation means, production of equipment to the health system, among others.