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Walter Molano | Conquering Columbia’s tortuous geography

Published:Friday | April 8, 2016 | 4:00 AM
A man holds a rose and signs that read in Spanish; "I march for peace for my country, No more Santos" during an anti-government protest against President Juan Manuel Santos' government, and to denounce concessions the government has made in peace talks with the Revolutionary Armed Forces of Colombia, or FARC, in Bogota, Colombia, Saturday, April 2, 2016. (AP Photo/Fernando Vergara)

Conquering Colombia's

torturous geography

Colombia's market visibility increased significantly this year.

Government ministers made the rounds in New York and London.

The peace process expanded to include the ELN.

Prominent investment banks took the country on extensive roadshows, and several bond deals were launched.

This has been part of an initiative to rebuild the country following a century of civil war. Much of the focus is on the so-called 4G programme. This is a set of highways that will slash transportation costs across Colombia's torturous geography. The massive Andes Mountains splits into three separate branches once it crosses into Colombian territory, which slows transportation time and increases costs.

Colombia's major urban centres are ensconced deep within these mountain chains, fuelling an insular and conservative culture. Although the major cities were interconnected at the start of the 20th century, most of the roads were dual lane - with a single lane going in either direction.

Bereft of railroads and navigable rivers, freight was shipped exclusively by heavily laden trucks. These lumbering vehicles are slow in navigating the treacherous roads, thus making for heavy congestion, horrible accidents and long transit times.

Something's not right

The 4G networks will double the number of lanes, with two in either direction. This will facilitate the passing of slow vehicles. It will also include new bridges and tunnels, which will reduce the need to move up and down the steep mountain passes.

The price tag for the 4G highway network is estimated at almost US$20 billion, with a good chance of overruns - given Colombia's nefarious tradition with infrastructure construction. At first glance, the project appears to be a good use of funds, with a sound investment thesis. Who doesn't want to help improve the infrastructure of a developing country so it can boost its overall level of efficiency and productivity? Yet, something does not seem to be right with 4G.

Why now? Colombia's rugged terrain is nothing new. The travel time between Bogota and the coast was measured in months only a century ago.

Although the country has been able to make great strides in modernising all sorts of infrastructure, from ports to airports to telecommunications, why has it been unable to modernise the transportation system? Why make it part of the ongoing peace process, especially at a moment when the fiscal deficit is exploding?

The answer may be elsewhere. Most nations have some form of schism. They tend to be geographical, religious or ethnic. In the case of Colombia, it is based on class. Colombia's conservative nature precludes class mobility.

As a result, a small oligarchy has always maintained an iron grip over the country's political-economic institutions. The poor transportation grid allowed the large political-economic groups to extract monopoly rents from a wide range of products and services. The Colombian civil war was an armed struggle between the classes to make the nation a more level playing field. Hence, the peace process is nothing more than the liberation of the country's political and economic framework.

Most difficult point

The most difficult element of the negotiations has been the ability of the far left to join the political system. The agreement will allow them to field candidates at the national and local levels. Along with a generous amnesty programme, it was the reason why the ELN was so quick to join the peace process and it is why the paramilitary groups, such as the Usaga Group, are looking to do the same.

Moreover, the new transportation network will facilitate trade and commerce, thus breaking the hegemonic, and self-propagating, grip of the political right. However, the construction groups that will lead the new concessions will be from these very same groups. With Colombia having some of the highest tolls in the world, the new concessions will be nothing more than a transfer of wealth to the existing oligarchy.

Therefore, the 4G programme is the price tag that the political right is demanding for its willingness to cooperate with the peace process, even though international investors and Colombian consumers are the ones footing the bill.

If the deal is so good, why don't the large economic groups finance the programme? They are the main beneficiaries, and they have the resources to meet the costs.

In a way, 4G replaces one form of monopoly with another. By allowing cheaper transportation, the political right is releasing its monopoly grip over the large urban centres, but it will be replaced with monopoly rents from the trunk lines that will interconnect the cities.

Perhaps this was the only way to bring an end to the class conflict. A look at recent events suggests that the conflict is about to explode again. But the question remains, for whom is the 4G programme?

Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC.

wmolano@bcpsecurities.com