Thinking Big

10 July 2017 Colombia’s FDN is proving to be a crucial resource in bringing international investment into the country’s infrastructure. Marina Formoso talks to its director, Clemente del Valle
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When it comes to infrastructure investment, just 10 years ago Colombia wasn’t even on the map. Rather, it was Brazil, Chile and Mexico that were seen to be the Latin American economies with the most potential in the market.

Over the past decade, however, there has been a clear consensus at the top of the Colombian government on the need to develop infrastructure – although there has also been a big question mark over how any new program of investment would be financed.

Once the first projects were presented, there were doubts over the strength of the local financial entities to support them, while pension funds, which were keen to finance infrastructure, did not have the necessary tools to invest directly.

In an effort to tackle these issues, the Colombian Ministry of Economy created Financiera del Desarollo Nacional (FDN) in 2011, a semi-publicly owned financial entity whose essential goals are to promote participation of the international private sector into local infrastructure, as well as provide technical and financial advice.

The director of this critical entity is Clemente del Valle, an economist who worked at the World Bank for over a decade from 1997, and who took over the role at the FDN in 2013.

Before the World Bank, del Valle held a number of positions in Colombia’s public and private sectors, having been general director of public credit at the Ministry of Finance, managing director of capital markets at local investment bank Corporación Financiera del Valle, and general director of foreign trade and deputy vice minister at the Ministry of Industry and Trade.

Since taking over at the FDN in 2013, however, del Valle has been busy building up the organization to help it meet the growing demand for new investment in Colombian infrastructure – particularly in its road building program.

Over the last year, the FDN has closed a $1.7bn debt fund with international players such as Ashmore, Credicorp Capital and Blackrock to mainly finance P3 projects, in particular the hugely successful 4G road program.

And as Colombia progresses its pipeline and diversifies away from just roads, the FDN is keeping pace, structuring a number of projects including metro lines in Bogota and Medellin, plus schools, housing, and renewable energy projects.

On top of this, it is also studying financial models for many other schemes. “The FDN is the third leg of [Colombia’s] infrastructure plan,” explains del Valle. “Public authority ANI is in charge of structuring the projects, the government offers financial resources for P3s and the FDN helps long-term financing when the banks cannot give credit to 20 or 30 years.”

There is plenty more to come, too, with international investors apparently keen to put their money into the FDN vehicle.

“Now we are planning to close a $1bn equity fund with an international firm by the end of the year,” he continues, “which is a big change for a country where local banks just used to raise $3m years ago.”

This difference between what local banks could provide and what the international community is capable of is where the FDN has been so successful, shifting the infrastructure investment capability of Colombia up a number of gears so that there is now money available for the country’s ambitious infrastructure program.

“We are very interested in keeping the participation of international investors in the infrastructure programs and I hope we can use them as well for future programs we are preparing.”

With the 4G program now well advanced, authorities are already planning new infrastructure projects, which will involve plans at both a national and regional level. If 4G was mainly about connecting the big commercial centers of the country, such as ports and the big cities, the next generation of projects will be focused on better supporting the needs of citizens.

“There are three issues that we need to address: education; improvement of roads and transportation within the cities; and improvement of connectivity with isolated areas,” says del Valle. “Huge traffic levels and the deficiency of urban transportation systems are a big problem for Colombian cities, which leads to low productivity.”

Plans for the construction of schools, hospitals and new transportation are scheduled to start at the end of 2018. The Bogota Metro will be one of the largest projects to improve mass transport within cities, however it has yet to be decided whether the new metro project will be procured as a P3, a direct public works scheme, or a combination of both.

The biggest challenge in the pipeline for Colombia will be to connect rural areas after years of isolation, largely due to the political conflict with the guerrilla movement Farc. Only at the end of June did the rebels finally certify that more than 7,000 guerrillas had turned over their weapons, in a ceremony watched over by the UN in which Farc’s leader Rodrigo Londoño announced: “Farewell to arms, farewell to war, welcome to peace.”

Colombia now hopes that the deal can provide the lasting peace that the region needs so that it can start to build the kind of infrastructure that has long been needed. From the Colombian government’s point of view, the goal will be to provide the necessary infrastructure to turn the areas into economic hubs.

“The peace will enable [the government] to reconnect rural areas and provide new service systems, energy, irrigation systems and the basic infrastructure that is required to generate agricultural poles in areas that traditionally were a little marginalized”, says del Valle. “This development will improve productivity.”

Across Colombia, there will also be a focus on renewable energy. Previously, Colombia has relied on hydropower across the country.

However, periods of severe drought that have afflicted the country over the past two years have put that energy supply in danger in some communities. As a result, the country is now looking for alternatives to hydroelectric power.

“We are trying to put together an auction system to be able to bid at least 3,000MW of additional energy to our current 17,000MW system,” explains del Valle. “We are working on this to be able to launch a more ambitious program of renewable energy because perhaps Colombia is one of the largest regions in Latin America that hasn’t invested yet in renewable energy.”

Although Colombia still has a long way to go in its infrastructure development, the route is well written and mapped out. Private sector participation is a crucial pillar for Colombia’s program and del Valle believes the country now has all the ingredients in place to deliver a strong and attractive offering to international investors.

“I think now we need to continue with the stability plan and gain macroeconomic credibility,” he says. “If we manage to put these elements into practice – this macroeconomic stability, investment, infrastructure and connectivity, education, and peace – we will achieve stable long-term growth.”

And years of structuring projects and exchanging experiences with the private sector have resulted in some good lessons learned. In particular, for the private sector to flourish in the investment business, a more open economy, simplification of processes, and building a more effective state are all still required.

“We used to think small but now we are starting to think big,” explains del Valle. “In the future we need to write specific plans because in the next 20 years all the infrastructure built will have an impact on growth and productivity.”

This page was last updated on:
10 July 2017.

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Thinking Big

Colombia’s FDN is proving to be a crucial resource in bringing international investment into the country’s infrastructure. Marina Formoso talks to its director, Clemente del Valle

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