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Perception of Legal Certainty in Construction

Felipe Pinilla
February 17, 2022

Economists agree that for the good performance of GDP, investment growth, the healthy dynamics of employment, the behavior of inflation, the boost in exports and the other cardinal variables, the unique perceptions that the actors of the economy have are fundamental. Thus, for example, expectations about the economic conditions themselves and those of the country in general measured by the consumer confidence index (CCI), determine their willingness to make expenses and support predictions about the behavior of the demand for goods and services, consequently marking investment and entrepreneurship decisions.Economists agree that forthe good performance of GDP, investment growth, the healthy dynamics ofemployment, the behavior of inflation, the boost in exports and the othercardinal variables, the unique perceptions that the actors of the economy haveare fundamental. Thus, for example, expectations about the economic conditionsthemselves and those of the country in general measured by the consumerconfidence index (CCI), determine their willingness to make expenses andsupport predictions about the behavior of the demand for goods and services,consequently marking investment and entrepreneurship decisions.Within this line, legal certainty is basicallyunderstood as the confidence and tranquility generated by the fact that therules issued by the State and the practical application thereof by thelegitimate authorities in particular and specific cases, follow parameters ofequity, equality, uniformity, coherence and stability. From the perspective of the construction sector,legal certainty is part of the variables and circumstances that investorsusually take into account when making decisions on project promotion,construction of appreciable volumes of buildings, creation of companies,expansions, etc.An indicator that, as a result of objectiveobservation and measurement, reflects numerically the confidence that eachcountry can reasonably have on the effective respect of the rules of the game,the maintenance of its general stability and real equity, coherence anduniformity when resolving the legitimate authorities individual and concretecases, would be the so-called Legal Certainty Index (LCI), which would provide a valuable tool foreconomic analysis.According to the Forum for Studies on theAdministration of Justice (FORES)[1] there is no LCI as such,in the sense of a value that technically reflects the aforementioned elements,considering the obvious difficulty that flows from its own nature; but we caninfer the level of legal certainty of a State, taking into account political,economic and institutional factors.Amongthe latter, the Rule of Law Index of the World Justice Project (2021) is ofparticular relevance. On a scale from zero (minimum adherence to the rule oflaw) to one (maximum adherence), it ranks countries[2] comparatively as a result of eight variables: (i) constraintson government powers, (ii) absence of corruption, (iii) civil justice, (iv) opengovernment, (v) fundamental rights, (vi) order and security, (vii) criminaljustice, and (viii) regulatory enforcement. Withinthis last variable, which analyzes the impact of (i) improper influences, (ii)unreasonable delays, (iii) effective enforcement, (iv) respect for due processand (iv) compensation in expropriations, Colombia presents an index of 0.52,ranking 12th out of 32 in the region and 62nd out of 139 globally. Althoughthe correlation between adherence to the rule of law and the volume of privateinvestment has not been quantified, the rules of experience allow us toconclude that the greater the confidence in the former, the greater the volumeof the latter, as seems to be confirmed by the fact that nations such as Japan,France, Canada or Chile - with indexes closer to 1 - have proportionally thehighest levels of private investment, and that countries such as Nicaragua orBolivia - below 0.5 - suffer from significant deficits in this respect.Theclassification prepared by IESE Insight[3] provides another tool for analysis, which accordingto the degree of investment attractiveness, places Japan and France as “highlyattractive”, Bolivia in the range of those to be avoided, and Colombia as acountry of “declining interest - under observation”. In the same sense the 2017ANDI report, “Importance of Legal Certainty for Growth and Investment,”explains how the impact of legal uncertainty on decisions to invest in acompany was rated at an average of 3.38 out of 5 and refers that the Center forFinancial Stability (CFS) of the United States, in its 2012-2013 LegalCertainty Index, studied the regulation and application of law in 144 countriesfor purposes of determining the institutional and regulatory environment forinvestment promotion ranking Colombia as 75 out of 144.All these elements constitute a clear indicationthat a high LCI, would favorably and directly impact the volume of privateinvestment in the construction industry, and that our country ranks inpositions that have a wide spectrum for improvement. Regarding the housing construction industry, ourPolitical Constitution assigns to the municipalities, “within the limitsestablished by law, to supervise and control the activities related to theconstruction and sale of real estate destined for housing”. This is a veryimportant factor of the variable “regulatory enforcement” alreadymentioned, which will promote the LCI to the extent that -as it should be- thelocal regulations are harmonized in their hermeneutics and practicalapplication with the laws and jurisprudence of national scope, making thecorresponding positions in the legal pyramid prevail.In the case of Bogotá, D.C., whose economycontributes more than a quarter of the nation's GDP, decisions of a punitivenature for damages to buildings occurring after the warranty terms providedin the national rules of the Consumer Statute and the Civil Code, which donot follow the jurisprudential line of the Supreme Court or that contradictenforceable rulings of the jurisdictional authorities, seriously andunfavorably impact the LCI and consequently, the decision making of privateinvestment in the construction of housing, commerce and office spaces.With historical records of foreign direct investmentin the construction industry in Colombia of US$881 million in 2019 and US$212million so far in 2021, there is still a long way to go. However, decisions suchas the ones referred to herein do not exactly contribute to shortening it. [1] https://foresjusticia.org/wp-content/uploads/2016/02/pedro-isern-seguridad-juricc81dica.pdf[2] https://worldjusticeproject.org/sites/default/files/documents/WJP-INDEX-21.pdf[3] https://blog.iese.edu/vcpeindex/files/2021/06/report2021.pdf‍

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