Doing Business in Colombia by Vimarsh Bajpai

Doing Business in

Colombia

OCTOBER 2009

DARE.CO.IN

strategy/going global

The last decade has seen Colombia improving extensively on its business environment. It now offers great opportunities in diverse sectors /Vimarsh Bajpai

hen United Phosphorus (UPL), a major player in the agro-chemicals market, acquired a Colombian company Evofarms, last year, a marketing major in fa the same domain, it reflected UPL’s strategy to look at opportunities in the Latin American market. Taking the Colom Colombian route was not a coincidence, cidence because the country has indeed worked extens extensively over the past decade to improve the th business environment. IT major Tata Consultancy Services (TCS) began operations in egan n o Colombia olombia in 2006 006 and now caters to the banki banking, telecom and transport g,, tele lec sector as well we as a the government. The coming he e com omin year could see some more Indian companies entering Comore e Ind ndi lombia. lom mbia Representatives of nine Indian companies from diverse sectors such com om as a biofuels, IT, mining, and others visited Colombia in June last year to explore opportunities for investments.

Why Colombia? The World Bank Doing Business Report has ranked Colombia as the best country to do business in Latin America. Over the last five years, its economy has grown by four percent per year. The government is making huge

DARE/opportunity areas • IT & BPO • Biofuels • Pharmaceuticals • Petrochemicals • Mining • Coal • Hospitality OCTOBER 2009 43

DARE.CO.IN What makes Colombia a hot destination for investors? Firstly, the Colombian government’s commitment to help investors and secondly, the rich human resource. Colombia is also very cost-effective for investors. The country’s location in the heart of America is important. We are six hours away from New York, Toronto, Buenos Aires, and Santiago. According to World Bank’s Doing Business Report, Colombia is now the best country to do business in Latin America. The government has brought in several reforms in the tax regime and other areas of doing business. We are the first country in Latin America that now has laws relating to investor protection. We want to build the best business climate in the region. Colombia is a very stable country, both politically and economically. Hyperinflation never touched us. Since 1999, we have had one-digit inflation. Between 2002 and 2007, our GDP has grown at over five percent. This year we are expecting very modest growth. The manpower in Colombia is very well trained. The number of professionals is nearly 82,000 every year. That number is the third largest after Brazil and Mexico. We are most cost-competitive in terms of labor cost. Do you see the possibility of Colombia becoming a hub to reach out to other destinations in the region? Absolutely. Colombia is an open economy. It promotes free trade agreements (FTAs). TAs). It has FTAs with Canada, Chile, Andean ean countries, and Central American countries. ntries. An FTA with the US is being negotiated.. We are waiting for Congress approval. We have ave a commercial agreement, that allows tax rebates on goods exported from Colombia to the US. We have three w world-class ports in the he Atlantic. We have one pport in the Pacific. Colombia is rich in cert certain commodities. mmodities. We are self-sufficient in petroleum. oleum. Last year, we exported nearly $9 billion worth of petroleum. The second is coal energy. nickel. y. Others are coffee and nickel Manufacturing goods form 50 percent oof our exports. Last year, nearly ear, we exported ne $37 billion worth of exports. were the xports. We w fifth largest exporter after Brazi Brazil, Mexico, Chile and Venezuela. Our export basket is more diversified than many other countries’ 44

OCTOBER 2009

strategy/going global is energy coal. The opportunity is in the coking coal segment. We have reserves in emerald and gold and finally, the hospitality sector. The government of Colombia has developed very attractive incentives for investment. One is the Single Enterprise Free Trade Zone.

Alejandro Pelaez First Secretary retary (Commercial) (Commerci ssy of Colombia C Embassy in the region. n. We export wheat, coal, pharmaceuticals, textiles, xtiles, garment, processed food, etc. What are those sectors rs where IIndian businesses can invest in Colombia Colombia? busine There are six ssectors. IT and BPO PO is one ne sector or where India is a leader worldwide. ldwi e Biofuels is a sector that cou could bbee luc lucrative crat for Indian businesses, as India ndia ia is llooking alternative energy sources. for alterna ources es. TThe third is pharmaceuticals. Right pharm ighht now ow we are importnearly $200 million ing nea lion worth of pharmaceutical eutical products from India. Some of the large Indian pharmaceutical companies ge Ind are in Colombia but mainly into distribution. We think that an Indian company can have a greenfield investment or an M&A. Colombia has a number of good pharmaceutical companies that are looking for new markets. The other sectors are petrochemicals, mining and there is opportunity in oil refineries sector as well. Even though we are the fifth largest coal exporter but that

Could you throw some light on Colombia’s journey in the last decade? Ten years ago, Colombia was facing tough days in terms of security, recession, etc. After 2002, the government put security on top of the agenda. Now we have three pillars to safeguard investors. One is democratic security, which works very hard against the anti-social elements. Its efforts are showing results. The number of kidnappings and murders reduced drastically. pin It is now a much safer country to live in. The otherr pill pillar is investor trust and social distribution bution of wealth. We used to receive less ss than $$2 billion worth of investments. $10 billion worth Last year we received $1 of foreign investments, not only in natural retail, hotels, etc. resources but also in re ail, hot investors in Sp Spain and Chile We now have invest coming Colombia. ng into Colo mbbia. IIndian and Chinese investors are alsoo look llooking at opportunities in Colombia. a your country Is yo urr cou unt pitching itself as a majorr to tourist jo ouristt destination in Latin America? Before Befor ore 2002, we received nearly five hundredd thousand visitors. Last year, we redre ceived 1.4 million people. The rise in tourist inflows shows that we need more rooms in order to accommodate those tourists. Colombia is becoming a big center for holding conventions and events. We think there is an opportunity in that. In the health sector, there is an opportunity too. Patients from Latin America and the US could come into Colombia for treatment. How easy is it to start a company in Colombia? According to the World Bank’s Doing Business Report, it takes 20 days to start a business and nine procedures. A foreign company does not require a local partner to start a business in Colombia. We have a skilled team in Colombia that can help Indian entrepreneurs to set up shop here.

DARE.CO.IN

strategy/going global We also have a legal team that helps investors and also gives advice on labor resource, etc. What opportunities exist for Indian importers and exporters? In terms of exports, opportunities exist in auto components. In terms of imports from Colombia, there are opportunities in refined sugar, coking coal, emeralds, even though India has a very high import duty. The others are coffee, natural cosmetics, etc. In the next six months to one year, can we hear of some announcements of Indian companies investing into Colombia? We are expecting it in the next one year. We could see around four announcements, although we cannot disclose names. We are working on the details. What are the language-related issuess that the investors face? Language is not a barrier. English is taught in schools as the second language. The first language is Spanish. The third lanng popular is Por guage that is becoming Portuot of Brazilian compani guese because a lot companies are coming into Colom Colombia.

DARE/doing business Ease of….

2010 Rank

2009 Rank

Change in Rank

India

Doing Business

133

Starting a Business

169

Dealing in Construction Permits

175

Employing Workers

-4

104

Registering Property

551

Getting Credit

-2

Protecting Investors

Paying Taxes

115

143

169

Trading Across Borders

-1

Enforcing Contracts

152

1149 49

-3

182

Closingg a Business

332

138

Source: World Bankk Doing Business 2009 Report

investments in n infrastructure to ma make ake e it world-class. Besides esides that, th the young you oung ng population now speaks popul eaks both bo Spanish S ani Spa the needs of and English to cater to th e nee n the multinational companies pa anies operating out of Colombia. Colombia The country has of freeha as a number nu trade zones that att make mak ma it lucrative to do in Colombia. Its permao business bus Co nent zones offer tax rent free-trade fr

bates and other benefits. “Colombia b is an open economy. It promotes free trade agreements (FTAs). It has FTAs with Canada, Chile, Andean countries, and Central American countries. An FTA with the US is being negotiated. We are waiting for Congress approval.” informs Alejandro Pelaez, First Secretary (Commercial) Embassy DAR E of Colombia.

Imports from Colombia

INDIACOLOMBIA TRADE Exports to Colombia

NOTE: Values in US$ Million, Source: Ministry of Commerce, Government of India OCTOBER 2009 45