Colombia’s business landscape is facing a critical challenge as company bankruptcies are set to reach a decade-high this year. This trend is pressuring President Gustavo Petro to revive the stagnant economy.
The surge in financially troubled businesses stems from a sharp downturn in the construction industry, partly due to Petro’s government reforming housing subsidies.
By late September, 1,230 companies had filed for insolvency proceedings, likely to exceed last year’s 1,551 petitions, the highest since 2015.
Housing construction declined after April 2023, when policymakers modified subsidies to prioritize poor and rural regions over large cities. This change led builders to shelve plans for new projects, affecting hiring and orders for construction materials.
Luis Guillermo Vélez, former head of the corporate regulator, highlighted the enormous social impact. He explained that when cash flow dries up, the weakest companies fail first, but they won’t be the last.
In 2023, around 50,000 subsidies were granted under the “Mi Casa Ya” program, a drop of over 20% from the previous year. Builders, already grappling with high interest rates, faced undermined demand due to these changes.
Colombia’s Housing Market Crisis
The impact on the housing market has been significant. In the 12 months to June, about 67 subsidized housing projects were canceled nationwide.
Total sales last year fell by nearly 50% to the lowest level since at least 2009. The ripple effect is evident in job losses, with 127,000 jobs lost in the construction and manufacturing sectors over the past year.
Petro’s government aims to cut spending, which includes reducing subsidies for Mi Casa Ya. This reduction may further exacerbate existing challenges.
Despite these challenges, some investors see opportunities. Several acquisition companies have shown interest in distressed assets in the construction, infrastructure, and health sectors.
For Vélez, now advising troubled companies, stagnant economic growth, and falling private investment are driving the rise in insolvencies. He emphasizes that without confidence, investment stalls, leading to further job losses.
As Colombia grapples with these economic challenges, the government and private sector must collaborate to revitalize the construction industry and stimulate broader economic growth.