Photo Source: Luisa Gonzalez / Reuters via Al Jazeera
2021 was an unorthodox year for Colombia. Both the catastrophic economic contraction of 2020 and the emergence of vaccines suggested that economic recovery in 2021 was predictable. The new COVID-19 variants have meant setbacks for economic recovery. Despite this, the year is set to close with a record GDP growth between nine and ten percent.
Of course, we cannot ignore the National Strike in April, May, and June after the government introduced a failed tax reform and ruthlessly dealt with the protesters. The strike reopened pending debates hailing back to the government’s “National Conversation” to address the claims of the protests in 2019 and, also, protests over police violence which happened in 2020. Despite this, many political, criminal, and insurgent actors sought to use the strike and social unrest to their advantage. The protests’ political outcome remains uncertain. Recent independent investigations suggest that the police violence against the protesters was disproportionate, dealing a severe blow to the legitimacy of the civil and police institutions that responded to the strike.
The electoral campaign of 2022 will play out under this scenario. It is expected that there will be renewal both in the legislature and in the executive, given the notorious pessimism among Colombians. According to the latest Invamer survey, 79.6 percent of Colombians believe that the country is on the wrong track, President Duque has an approval rate of only 25.1 percent, political parties have a disapproval rate of 76.1 percent, and Congress has disapproval of 72.3 percent. Only the FARC and the ELN guerrillas have worse disapproval rates among those surveyed (83.9 percent and 87.9 percent respectively). Uncertainty and fear appear to be the dominant emotions among decision-makers ahead of elections. Despite this, as we have said repeatedly, is too early to anticipate the election’s results.
Undoubtedly the challenges that 2022 will bring will be decisive for the country’s business environment as well as its political stability. Our first Colombia Risk Monthly newsletter of the year covers the six main challenges for Colombia in 2022, which are:
Economic Outlook: Although Colombia is on track to improve its economic situation and is likely to grow its GDP between nine and ten percent in 2021, the country continues to be vulnerable to external shocks, due to the structural fiscal deficit and the current account deficit. This makes a tax reform imminent before 2024. Inflationary pressure, the depreciation of the peso, and the increase in the minimum wage will force companies to rethink all budgets for the next year. Moreover, the sovereign credit rating downgrade and the lack of unanimity from rating agencies suggest that credit risk management will likely make sovereign debt more expensive. In addition, political risk is likely to pause investment into Colombia during the first quarter of 2022. Finally, the fiscal rule back in play will likely force the next government to make significant adjustments. Will lean times return? It will depend, sadly, on the electoral result and the emotions that the winner provokes.
Presidential Elections: A few months before the presidential elections, there is growing uncertainty about the outcome considering the changes a new president may introduce. For now, left-wing leader Gustavo Petro leads the polls, which is credited to him being the candidate who has campaigned the longest (eight years), the government’s low approval ratings, and the calls for change coming from public opinion. This suggests that right-wing candidates start the race with a marked disadvantage compared to their opponents from the center and left. Petro is the candidate to beat and political agreements will not start to be negotiated until after the inter-party primaries and the congressional elections (March 2022) and the first round of presidential elections. Anticipating the electoral result is premature. Our forecast remains that Petro will not win the election. However, even in the event that Petro wins the presidency, it is unlikely that he will have sufficient governance to carry out the radical reforms that he raises.
Congressional Elections: The legislative elections will be arguably more significant than presidential elections, as they will determine the ability of the next administration to transform campaign rhetoric into concrete action. The current atmosphere of social discontent, the widespread calls for change, and the high disapproval of the current Congress and the political parties suggest a strong shakeup. However, the candidates presented by the different parties show how parties are using public figures, celebrities, and social media influencers to court public opinion and avert the wave of outrage without making real changes. It is unlikely, however, that the next administration, whoever it may be, will have majorities in Congress, which will obstruct any reform effort and impede governance.
Rural and Urban Security Challenges: Security will continue to be one of the main challenges for the National Government and local governments during 2022. The increase in homicide rates, drug trafficking, and common crime have caused fear and despair among the public opinion. According to surveys, there is a growing perception of insecurity since 2020 in both rural and urban areas. Furthermore, the murders of social leaders and environmental leaders herald legislative elections with high rates of political violence that can disproportionately affect people belonging to minority and opposition political groups. Finally, trust in security institutions and authorities is decreasing. While the police internally process a reform proposal, independent reports suggest that fundamental changes are necessary to improve the relationship between citizens and authorities.
Social Unrest: The social outbreak that occurred within the framework of the National Strike still has unresolved issues that will likely surface in 2022. Colombia continues to be a tremendously unequal country and no government has addressed growing inequality, either through a more equitable tax regime or social spending that compensates for structural obstacles for upward mobility. Iván Duque’s government has tried to use its communication tools to attribute the protests to external factors such as Venezuela or Russia, politically motivated interests of Gustavo Petro and other leftist forces, or criminal elements such as FARC dissidents or drug traffickers. Ignoring the country’s deep inequalities as a legitimate source of social unrest will only postpone a new outbreak for a later time preceded by a trigger (a violent or political act) that will spark new demonstrations.
Environment: It is clear that humanity’s most important challenge is climate change. All countries, to a greater or lesser extent, are working (or pretending to work) on decarbonization, the energy transition, and green growth. Colombia has made ambitious commitments on its CO2 emissions following COP26. Although the energy transition is likely to become a critical component for economic growth and emission reductions, deforestation in the Amazon remains a pending issue. There is skepticism among environmentalists, communities, and international partners about the current government’s ability to translate its ambitious announcements into concrete measures. It is likely there will be greater pressure on the next president to lead on the ratification of the Escazú Agreement, fight against illegal mining, and confront the legal actors behind Amazon deforestation such as the livestock industry.