COLOMBIA - Real Estate & Construction
Carlos Jacks graduated in Mechanical Engineering and Administration from Monterrey Technological Institute and later obtained his MBA in Finance. He worked at Metalsa between 1989 and 1992 as an Account Executive and Financial and Planning Assistant, before joining CEMEX. He has worked with CEMEX around Latin America, including Mexico, Colombia, Costa Rica, Puerto Rico, and the Dominican Republic. He is currently President of CEMEX in Colombia.
If you have to select a sector in which to invest, it should be housing and infrastructure, followed by the oil and mining sector. Colombia has huge infrastructure needs. It is ranked 108th out of 140 in the World Economic Forum Index in highway infrastructure, 109th in port infrastructure, and 99th in railroad infrastructure. When it comes to housing, this is a country that has about a 1.5 million-unit quantitative housing deficit plus another 1 million-unit qualitative deficit. Probably half of the population is also under 25 years of age. Cement consumption is at 225 kilograms per capita per annum, while the average in Latin America is 330 kilograms. This means that in order for Colombia to catch up with Latin America, it needs to grow by 50%. The sector will lead economic growth in the near future, and the government is taking some steps in order to close the gap. At this particular moment, there is probably more of a focus on housing, and that’s why the authorities have just launched an initiative to build 100,000 houses per year. There are also a lot of regulations that need to change in Colombia in order for that number to grow much faster. For example, in Colombia there is no program for people not formally employed. The government needs to deliver regulations to provide housing, or facilitate housing, for that population group. In infrastructure, I think it has been taking the right steps in recent years. It has faced some problems with corruption, which has created a slowdown in the development of new infrastructure projects, but I think the country is quite clear about what it needs. Officials are trying to position Colombia as a country for safe investment. FDI has been growing tremendously over the last couple of years. Several free trade agreements (FTAs) have been signed and more are planned. That, however, will require more infrastructure. In this respect, housing and infrastructure will lead to economic growth in the country. In the cement industry, in particular, growth over 2011 was tremendous, at some 14% overall. That has not happened in decades. Over 2012 it is still expanding, though not quite at the same rate. However, I see the industry growing in double digits over the medium term.
We have entered into a transformation process. Our previous vision was quite arrogant in my view, and very pragmatic in the sense that we wanted to be the best ready mix and aggregates producer. We changed our vision to one that is probably more philosophical. And that is to contribute to the development of the country with solutions that provide for the people’s welfare. We believe that if we are able to provide a solution in lower-income housing, for example, we are not only creating jobs, but also welfare for the population. We are also able to provide solutions for highway infrastructure. Then, we decided to change our vision from products to solutions. CEMEX began to offer four different kinds of solutions, including for housing, infrastructure, distribution channels, and contractors. As a company, we launched six different initiatives to develop new products and services. In housing, for example, CEMEX participates across the whole chain. If you have land, we help with the permits and develop technical and construction solutions, as well as financial solutions. We started the project in early 2012, and now have a commitment to build 16,000 houses.
We are trying to make things happen, and that is why we get involved in the whole process. While we want houses to be built, we do not want to create a housing construction company. We want the projects to happen independently. If we were to build projects, we would ask one of our clients to do the work. On the infrastructure side, we have signed several agreements with consulting and contracting companies that possess knowledge that we at CEMEX do not have. For example, we do not design bridges or highways. We signed an agreement with Esteyco, which is a very prestigious firm from Barcelona that provides us with engineering services. In that particular solution division, the idea is to approach mayors, governors, or the central government and ask what they want to do. We then get together and decide how to develop ideas.
You may perceive cement as a commodity, but it is not. It has different formulas that provide different performance levels. Therefore, we have created a portfolio of products based on what consumer products do. Our products have different functions depending on what you want. For example, we produce a product for coastal structures. You may have seen a port where the concrete has fallen away and revealed the steel. That happened because it is an environment full of sulfur, so you need specific cement that can withstand the elements. At CEMEX, we produce such a product. CEMEX offers five different types of cement, five different types of mortars, and more than 3,000 formulas in our concrete system. We are trying to tell the market to use whatever is specific for their needs, and we will charge according to that because it has an added value.
Colombia is number two after Mexico in CEMEX’s estimations, and we believe that the country will continue to grow at double-digit pace. In order to catch up with that vision, we have to invest. For example, in our aggregate business we have doubled our capacity. In our ready mix business, a year ago we had just 16 plants, and now we expect to finish 2012 with 38 fixed plants and 24 mini plants, which we did not have in the past. If you add it up, it totals 62 plants. We are also bringing in 200 new trucks for the ready-mix business. For the cement business, we brought in 350 trucks and increased our cement capacity by 20% over 12 months. Equally, we are also planning to invest in two new plants; one in Antioquia and one on the north coast of Colombia. This will allow us to increase our production by 50%.
Right now it is coming from housing. Approximately 70% of cement is sold in bag form. This is sold in small quantities and used in the construction of informal housing. However, after 2013 I believe the main driver will be infrastructure. I see Colombia growing over the next 10-12 years in order to catch up with the big gap that it has in infrastructure.
We believe in this country, as it is the second most significant country in CEMEX’s portfolio. We are planning to create a holding in Colombia called CEMEX Latin American Holding, where most of our Central and South American operations will be based. We are then planning to sell a minority stake in that new holding in the very short term. It will be a huge transaction for the Colombian market. It is very important for the country as it is the first time a foreign company has done something like this. It is also important for CEMEX because it is the first time in our history we have decided to do a listing like this.
© The Business Year – September 2012
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