Republic of Colombia Business Guide 

Introduction

Colombia officially the Republic of Colombia (Spanish: República de Colombia), is a country located in the northwestern region of South America.  Colombia is bordered to the east by Venezuela and Brazil; to the south by Ecuador and Peru; to the North by the Atlantic Ocean, through the Caribbean Sea; and to the west by Panama and the Pacific Ocean.  Colombia is the only country in South America that borders both the Atlantic Ocean and the Pacific Ocean.

Colombia is the 26th largest nation in the world and the fourth-largest country in South America (after Brazil, Argentina, and Peru), with an area seven times greater than that of New England and more than twice that of France.  Its vast territory is made up of diverse physical contrasts ranging from the towering snowcapped peaks of the Andes to the hot and humid plains of the Amazon River Basin, to a vast tropical coastal plain in the north.  It is the second most populated nation in South America (after Brazil), and the largest Spanish speaking nation on the continent in terms of population. Despite its large territory, Colombia's population is not evenly distributed with most Colombians living in the mountainous western portion of the country as well as the northern coastline, most living in or near the capital city of Bogotá.  The southern and eastern portions of the country are mostly sparsely inhabited tropical rainforest and inland tropical plains containing small farming communities and indigenous tribes.

Colombia currently suffers from a low-intensity conflict involving rebel guerrilla groups, paramilitary militias, drug trafficking and corruption. The conflict originated around 1964-1966, when the Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN) were founded and began their guerrilla insurgency campaigns against successive Colombian government administrations.

Economy

Colombia's economy has experienced positive growth over the past three years despite a serious armed conflict. The economy continues to improve in part because of austere government budgets, focused efforts to reduce public debt levels, an export-oriented growth strategy, an improved security situation in the country, and high commodity prices. Ongoing economic problems facing President URIBE range from reforming the pension system to reducing high unemployment, and to achieving congressional passage of a fiscal transfers reform; furthermore, new exploration is needed to offset declining oil production. However, the government's economic policy, democratic security strategy, and the signing of a free trade agreement with the US have engendered a growing sense of confidence in the economy, particularly within the business sector.

Market Overview

Colombia ranks solidly with the group of progressive, industrializing countries worldwide that have well-diversified agriculture, resources, and productive capacities. It currently is the fourth largest U.S. market in the region, after Mexico, Brazil and Venezuela. Since
the election of President Uribe in May 2002, Colombia has become one of the most optimistic, stable and recovering economies in the region. Good government policies, steady growth, low inflation and plenty of opportunities make it more than worthwhile for investors to take a serious look at Colombia.

• Economic growth for 2004 fell to 3.7 percent from a target of 4 percent in 2004. Economists blamed this contraction on transitory events, and highlighted a 22-day trucker strike as causing supply shocks to the market. Colombia’s Ministry of Finance projects an economic growth rate of 4 percent for 2005, based on the projected performance of the construction, petroleum and mining sectors, as well as a continued increase in exports. GDP per capita has increased to over USD 2,000, aided by the appreciation of the Colombian peso in the last year.
• The peso rose 15 percent against the U.S. dollar in 2004 due to an increase in investor confidence in Colombia, higher Colombian exports and an increase in remittances from Colombian workers abroad. For 2004, the exchange rate closed at COP 2,352 per $1.
• Foreign direct investment is expected to reach USD 2.2 billion for 2004, an annual increase of 43 percent, and analysts expect FDI to at least maintain this level through 2006. Major contributors to the increase in 2004 are the mining and oil and gas sectors.
• The United States, the Virgin Islands, and Spain rank as Colombia’s top investors. Over the last few years, they represented 43 percent of total investments in Colombia.
• Consumer price inflation fell from 6.48 percent in 2003 to 5.5 percent in 2004, the lowest in 40 years.
• Urban unemployment has decreased from around 17 percent in January, 2004 to 12 percent at the end of 2004. Union representation in the Colombian workforce is less than 8 percent.
• Although security concerns continue to stem from the 40-year-old guerrilla war, the Uribe Administration’s policies have dramatically reduced terrorist attacks, kidnappings and crime.
• In May 2004, the United States began free trade negotiations with Colombia, Peru and Ecuador (Bolivia is participating only as an observer). After seven rounds, negotiations continue to move forward with the hope of signing a free trade agreement in mid-2005.
• The United States continues to be Colombia's major trading partner, receiving 44% of all Colombian exports. Exports to the U.S. have increased over USD 2.0 billion since the inception of ATPDEA benefits. Colombia is currently the 31st largest trading partner for U.S. goods. The EU, Japan, and the Andean Pact countries also are important trading partners.

Market Challenges

• Capital Controls: in December 2004, the Colombian Council on Economic and Social Policy (CONPES) approved a modification to the foreign investment regime to include an obligation for foreign portfolio investments to maintain investments in Colombian for at least one year in order to avoid speculative capital flows. The GOC will fine companies who seek to expatriate their  nvestments in less than 12 months.
• The provision of legal services is limited to law firms licensed under Colombian law. Foreign law firms can operate in Colombia only by forming a joint venture with a Colombian law firm and operating under the licenses of the Colombian lawyers in the firm.
• Economic need tests are required when foreign providers of professional services operate temporarily; and residency requirements restrict trans-border trade of certain professional services, such as accounting, bookkeeping, auditing, architecture, engineering, urban planning, and medical and dental services.
• A commercial presence is required to provide information processing services.
• Telecommunications: significant barriers to entry include high license fees ($150 million for a long distance license fee), cross subsidies, commercial presence in Colombia and economic needs tests.
• For firms with more than ten employees, no more than ten percent of the general workforce and 20 percent of specialists may be foreign nationals.
• International banking institutions are required to maintain commercial presence in Colombia through subsidiary offices.
• Colombia has been on the Special 301 “Watch List” every year since 1991.
• Customs duties have been consolidated into four tariff levels: zero to five percent on capital goods, industrial goods and raw materials not produced in Colombia, ten percent on manufactured goods with some exemptions, and fifteen to twenty percent on consumer and “sensitive” goods. A group of agricultural products is protected by a price band mechanism that offers variable duties as high as 100 percent.

Market Opportunities

• Review U.S. Commercial Service quarterly reports of major projects in Colombia.
• Colombia's upcoming infrastructure projects are extensive and will require a local agent or legal representative for all government contracts. Areas of interest are project financing, public works subcontracting, logistics, equipment procurement, construction of public roads, ports, and airports, rehabilitation of river navigation, water treatment, water supply, electric power generation, oil and gas exploration, air navigational aids, railways, machinery leasing, transportation equipment and parts, security and defense items and services, and mass transit systems.
• U.S. export opportunities include: telecommunications equipment and services, industrial chemicals, air cargo services, financial services, automotive parts and accessories, computer hardware and software services, oil and gas machinery and services, petrochemicals, plastics materials and resins, electrical power systems, safety and security technologies and equipment, food and beverage processing and packaging equipment, medical equipment, construction and mining equipment and pollution control equipment.