Investments on the back-burner?

At the beginning of the year, in his country farm called El Ubérrimo, President Alvaro Uribe met Jeff Immelt, CEO of General Electric. Immelt announced new expansion plans in Colombia and posed with a typical Colombian hat next to the President. That was the most important expression of investment confidence.

During this same period, Roger Agnelli, CEO of Brazilian mining giant Vale do Rio, visited the Casa de Nariño, Colombia’s presidential palace. After the meeting, president Uribe declared that the Brazilian company was very interested in coming to Colombia and investing USD 5,900 million over the next few years in mining and energy generation projects.

A few weeks ago, Votorantim, another Brazilian mining giant, announced it would build a USD 1,500 million plant in Barranquilla, in northern Colombia, and more recently, Mitsubishi CEO Yorihiko Kojima expressed an interest, during his visit, in expanding investments in Colombia, specifically in the bio fuels sector.

It is excellent news that these multinational companies have decided to increase investments in the country or bring new ones to it, because it shows that there is confidence in Colombia’s economic future. Nevertheless, many of these companies’ plans could get delayed because of the financial crisis, which has already affected all other economic sectors.

Times have changed. The crisis has hit the biggest multinational companies around the globe. The United States is worried about GE’s future. The first cover story in November of Fortune magazine asked if the American company is doing well at the moment. In fact, it is not. Multibillionaire Waren Buffett has had to invest USD 3,000 million to help it out. GE plans to separate its industrial division from the consumption one, and two months ago it said that it was planning to sell its electrical appliances unit. It is not a good time for GE’s expansion plans, neither in Colombia nor in the rest of the world.

As far as the big Brazilian mining companies are concerned, they have started to report losses, and have announced cutbacks and that they will be selling assets. Prices of raw materials like steel have fallen as a result of a drop in worldwide demand, due to the recession in the big economies. With a change in economic perspectives, some companies have started to review their investments, and Colombia will feel the impact.

The Government is worried about major projects like those of Vale do Rio and Alcoa. The reason for this is that metal prices have fallen and these companies have started to feel the consequences. Before starting expansion projects, they will surely take their time to evaluate how delicate the global recession is.

Hernán Martínez, Colombia’s Minister of Mines and Energy, thinks the current outlook is not so critical, as far as mining, oil and energy are concerned, because most of the projects are going ahead, and commitments were made beforehand. “There will be a couple of cases where there will be financing problems, but it is not a trend”, he said.

In spite of the official optimism, it is obvious that no one will get credit easily under the current circumstances. And the companies that didn’t achieve their financial closure on time will struggle to find money now.

If multinationals decide to postpone some of their plans in Colombia, foreign investment will inevitably slow down. This is a shame, because the Government has taken the risk to stimulate foreign investment, and confidence in the country has changed favorably.