Colombia’s Petro May Pursue Asset Disposal to Procure More Financial Resources

The strategy of reducing the state’s participation in a number of companies could prove to be the ace up the new president’s sleeve

Gustavo Petro, Colombia's new president, could look to asset divestment to free up funds
August 08, 2022 | 01:20 PM
Reading time: 2 min.

Bogotá — Following Gustavo Petro’s victory in the Colombian presidential elections, part of his economic team was well aware of the reality: while they were happy at having won the elections, they knew that the hard part would be when it came time to govern.

The govermnent of Petro, who was sworn-in on Sunday, will need to strike up alliances in order to be able to pass bills in Congress, and procuring resources to fulfill the new president’s campaign promises will also be crucial, and which is one of the reasons behind Petro’s proposed tax reform.

But although such reform would provide structural revenues in the coming years, Petro also has the option of asset disposal as a way of procuring more resources.

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Which assets could be disposed of?

Every year, Colombia’s Ministry of Finance publishes a report showing which are the companies in which thestate has participation and how they have fared. At the end of 2021, the government had a majority shareholding in 33 companies and a minority shareholding in 66, giving a total number in which it is a stakeholder of 99 companies.

“The adjusted equity value of the nation’s companies is 90.5 trillion pesos ($20.9 billion), which increased by 17.29% in 2021 compared to 2020, and corresponds to approximately 7.7% of GDP,” the most recent report states.

However, the majority of that value is concentrated in just a few companies, with 10 accounting for 85.4 trillion pesos, equivalent to 94.3% of the total equity.

Colombia’s most-valued companies in which the government has a stake are:

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  • Ecopetrol
  • Grupo Bicentenario
  • ICETEX
  • Fondo Nacional de Ahorro
  • Coltel
  • Gecelca
  • Empresa Multipropósito Urra
  • Positiva
  • Gensa

According to the report, the nation’s largest stake in its portfolio is in the oil and gas sector, with a share of 70.11%, followed by the financial and energy sectors, with a share of 21.24% and 4.8%, respectively.

The remaining 3.86% of the equity value is held in the telecommunications, health, agriculture and transportation sectors.

In mid 2021, the government of former president Iván Duque expressed an interest in divesting some of its interest in the electricity sector, but it will be the new government that will need to review the list of companies in which the state has a stake and define which ones it would be strategic to exit.

Although the medium-term fiscal framework for 2022 does not contemplate income from asset disposals in the coming years, in 2021, 1.2% of GDP was obtained through the sale of 51.4% of the government’s shares in Interconexión Eléctrica SA to Ecopetrol, and for which the government pocketed 14.23 trillion pesos ($3.2 billion).

For the time being, the government of Gustavo Petro has not publicly referred to the issue of the disposal of assets, but it could be an ace up the government’s sleeve for obtaining temporary resources to shore up the country’s accounts.

However, in order to solve the structural problems of high levels of debt and fiscal deficit that the country has, such temporary resources could help, although the government’s focus will need to be on procuring permanent revenues.

According to Germán Machado, a professor of economics at the Universidad de los Andes, “to optimize the portfolio of the nation’s shareholdings, it is necessary to evaluate which assets contribute to the public policy objectives of the state, which ones are strategic positions, and which ones work better than in private hands. Most of the companies in which the nation has a share do not comply with these principles”.

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