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Colombia Gets a Business Makeover

Colombia Gets a Business Makeover

Colombia has arrived. After decades of institutional corruption, civil unrest and poor infrastructure, Latin America’s fourth largest economy has gained greater stability and become far more hospitable to global partnerships. Though its oil and gas segment is lagging along with the rest of the world’s, its vast mineral deposits remain largely untapped and hold great potential. Additionally, government initiatives and incentives are carving out unique opportunities for investors—especially in the construction industry. Here’s a look at five “then and now” scenarios that tell the story of Colombia’s modern makeover.

CORRUPTION CRACKDOWN

anti-corruption summit
President Juan Manuel Santos (left), is greeted by British Minister of State for the Foreign and Commonwealth Office Hugo Swire as he arrives to attend the Anti-Corruption Summit London 2016 in May.

THEN: Like other Latin American nations, Colombia has suffered from the ill effects of corruption for decades. A combination of economic and political inequality, drug-trafficking and weak governmental control in remote areas left various sectors vulnerable to profiteering, bribery and graft.

NOW: It’s no secret that Colombia is still combatting the causal factors of corruption, but recent government initiatives provide a positive platform for change—and optimism. In 2013, officials signed the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention, an international Act that defines the legal framework and criminal activities related to bribery and corruption. Earlier this year, President Juan Manuel Santos enacted the Transnational Corruption Act (TCA), which focuses on domestic abuses. It covers corporate and individual liability.

REBELS COME IN FROM THE COLD

FARC
Humberto de la Calle (left), the head of Colombia's delegation for the peace talks with the FARC, shakes hands with a former guerilla during peace negotiations in Havana, Cuba.

THEN: Colombia’s struggle to suppress the Marxist rebel group Revolutionary Armed Forces of Colombia (FARC) is Latin America’s longest running war. For more than 50 years, attempts to eliminate the FARC resulted in the deaths of an estimated 220,000 people and displaced millions.

NOW: A $10 billion investment of military and diplomatic aid by the United States since 2000 has paid off. Called Plan Colombia, the financing empowered then President Álvaro Uribe (2002-2010) to effectively pacify the FARC. Colombia has “transformed itself,” says Mark Feierstein, a senior director at the White House’s National Security Council, into a “more secure, more prosperous and more peaceful democracy with a vibrant free-market economy.” The FARC and Colombian officials signed a peace agreement in June that will permit the group to enter into civil society and operate as a political party.

PUBLIC-PRIVATE PARTNERSHIPS HEAT UP

road-PPP
The public-private 4G plan to build new roads and upgrade others in Colombia involves multiple projects covering  almost 5,000 miles of roadway and about 2,000 miles of four-lane highways. 

THEN: As recently as 2013, only 20 percent of roads in Colombia were paved. That’s been a huge roadblock, so to speak, for greater investment considering that more than 80 percent of internal transport within Colombia takes place on the country’s road network. Three previous government plans intended to overhaul Colombia’s infrastructure met with delays stemming from corruption and financing shortfalls.

NOW: A new, fourth generation (4G) infrastructure masterplan—the largest in Latin America—will target roads, bridges and tunnels, wtih the goal of improving productivity and global trade. Due to be completed within about ten years, 4G is expected to improve infrastrucutre in three waves via public-private partnerships with an investment value of $10.7 billion. Private groups have also proposed an additional $3.32 billion in funding.

BIG BUSINESS GETS A BIG BREAK

Construction in Colombia
According to Procolombia, Foreign Direct Investment in Colombia's "trade, restaurants and hotels has shown an average growth of 185.1% over the past five years."

THEN: Though it has consistently ranked third in Foreign Direct Investment (FDI) in Latin America (behind Brazil and Mexico), many big companies avoided Colombia for years, leading to improvised best practices.

NOW: The World Bank ranked Colombia as fourth most-business friendly country in Latin America (behind Mexico, Chile and Peru). Growing global partnerships are helping to set benchmarks and standards for doing business. Colombia’s government is also offering substantial tax incentives to spur business. One example: a 30-year exemption from income tax for hotels that start new construction before December 31, 2017. Another: A deduction from income tax equivalent to 50 percent of investments into renewal energy projects for a period of five years. There’s more: Colombia’s Free Trade Zone is offering a slew of benefits for projects.

¡VISITA COLOMBIA!

Colombia Tourism Courtesy of SEMANA Magazine
Colombia's annual growth of foreign tourism averaged 12.7% between 2005 and 2014, according to Procolombia. That's about three times higher than the world's average of 3.9%. (Photo courtesy of SEMANA Magazine)

THEN: Corruption. Civil unrest. Drug-trafficking. Poor infrastructure. Put them all together and they don’t exactly scream, "Come and visit Colombia!" The tourism industry in Colombia is ripe for upgrade.

NOW: Colombia is shattering stereotypes: A hotel building boom (175 new since 2010; 46 more expected by 2020), peace at last and a more receptive climate for international business speaks to the growing confidence of this spectacular and sophisticated country filled with beaches, mountains and cafes. President Santos announced plans last year to boost tourism with the modernization of airports and more international flights scheduled. No less than The New York Times ranked Medellín number 11 in its “52 Places to Go in 2015” article. With those assets, it’s no wonder the government has adopted the bold tourism slogan, “Colombia: The Only Risk is Wanting to Stay.”

 

Published June 2016

© Copyright 2016. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.

About The Author


Carlos Ortega
carlos.ortega@fticonsulting.com
Senior Director
Construction Solutions Latin America
FTI Consulting

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