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The Report: Colombia 2017

Despite continuing external headwinds, in particular the significant drop in the price of oil since mid-2014, the Colombian economy remained resilient in 2015, expanding by an estimated 3.2%.

Country Profile

While 2016 marked an important turning point for Colombia, the pace at which the economy accelerates and living standards improve over the coming years will be dictated to a large extent by the government’s success in implementing the peace agreement, swiftly establishing the rule of law across the entire territory and executing its ambitious infrastructure programme. When he leaves office in August 2018, President Juan Manuel Santos is likely to leave to his successor a positive legacy, having secured the FARC peace agreement and significantly reduced poverty on his watch. This chapter contains interviews with President Juan Manuel Santos; Mauricio Macri, President of Argentina; and María Ángela Holguín, Minister of Foreign Affairs; as well as a viewpoint with Luis Alberto Moreno, President, Inter-American Development Bank.

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Economy

Following congressional approval of a landmark peace agreement and a late-2016 tax reform package, 2017 looks to be a year of significant promise for the Colombian economy. Investment and infrastructure development are expected to be the key drivers of domestic demand, and the trade balance should continue to improve. Although growth has slowed as a result of the oil price shock, the Colombian economy has been resilient. With major developments in the pipeline, a historical peace agreement renewing optimism, as well as the recovery of non-oil exports and oil prices, the economy is expected to pick up in 2017 and accelerate in the years to come. This chapter includes interviews with Juan José Echavarría, Governer of the Banco de la República; Mauricio Cárdenas, Minister of Finance and Public Credit; Rosario Córdoba Garcés, President, Private Council for Competitiveness; Bruce Mac Master, President, National Business Association of Colombia; and Gerardo Corrochano, Colombia Country Director, World Bank.

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Banking

Although the Colombian economy has been affected by a slowdown in recent years, the country’s banking sector has remained resilient. The majority of the impact has been felt in the external sector, particularly due to changes in the foreign exchange rate. Meanwhile, lending growth remained relatively strong until mid-2016, when the combined effects of weak investment and higher interest rates had a noticeable negative impact on commercial lending. Nonetheless, even as GDP growth slowed during 2016, the share of the financial intermediation sub-sector grew from 6% to 6.5%. Lending is expected to pick up as the economy accelerates through 2017, while other indicators – such as non-performing loans (NPLs), profitability and capitalisation – remain relatively robust. This chapter features an interview with Luis Carlos Sarmiento Gutiérrez, CEO, Grupo Aval.

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Capital Markets

Developments in Colombia’s capital markets in recent years reflect those in the wider economy. The well-established sovereign fixed-income market has seen increased issuance as the government seeks to finance its widening budget deficit while rolling over its existing stock of debt. Increased global economic uncertainty, with bouts of extreme market volatility that particularly impact emerging markets, would suggest that the immediate future for the development of the Colombian derivatives market is bright. While traded volumes are likely to continue to ebb and flow, the overarching trend is likely to continue upwards as the country’s capital markets become increasingly sophisticated and a wider range of derivative products are available. This chapter includes an interview with Juan Pablo Córdoba, President, Colombian Stock Exchange.

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Insurance

Colombia is the fifth-largest insurance market in Latin America by premiums collected. However, it features weak penetration and density – measures of premiums compared to the size of the economy and the population, respectively – compared to other large markets in the region. Nonetheless, the fact that the country has been able to weather the recent economic storms better than many in the region, by avoiding an outright recession, for example, leave it well placed to start narrowing the gap over the coming years. Over the longer term, a bigger growth opportunity lies in increasing the penetration rate – currently a little over half the level of that in leading Latin American countries such as Chile – while the eventual ageing of the country’s still relatively young population bodes well for demand for the whole range of insurance products, particularly life and pensions. This chapter contains interviews with John Nelson, Chairman, Lloyd’s; and Gonzalo Pérez, CEO, Suramericana.

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Energy & Utilities

The Colombian energy sector can look forward to increased investment in 2017 and 2018. With a crisis in the electricity sector narrowly avoided, the government is reassessing its strategy to improve energy security. In the hydrocarbons segment, 2017 will see major investments in offshore exploration, which represents the best possibility for the country to maintain energy self-sufficiency, especially with an additional 1500 km of barely explored Pacific coastline. A restructured Ecopetrol operating on a more cost-conscious basis will also provide revenues for the Colombian state as it looks to implement its post-conflict energy policies. This chapter includes interviews with Francisco José Lloreda, President, Colombian Petroleum Association; and Bernardo Vargas Gibsone, President, Interconexión Eléctrica (ISA).

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Mining

For a country with three Andean mountain chains and a history of gold and silver production, mining has remained a relatively small contributor to the modern Colombian economy. Between 2012 and 2015 the sector contributed around 2% to GDP and 20% of exports, with the vast majority coming from two giant coal projects: the Cerrejón mine in La Guajira department and La Loma mine in César department. Between 2013 and 2016 the sector experienced a slump as low commodity prices and bureaucratic obstacles saw exploration and development dry up. However, in 2017 stronger global coal and gold prices, the successful construction of a new gold mine and the licensing of three others signal that the country could be on the cusp of a new phase in the industry’s development.

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Atlántico

Located in northern Colombia, the Atlántico department is one of 32 departments in the country. It is part of the Colombian Caribbean region, with the port city of Barranquilla as its capital. According to the National Administrative Department of Statistics, the population is estimated at 2.5m. In recent years, Atlántico has stood out for its positive economic performance in both absolute and relative terms, as reflected by growth and employment data. The employment rate has been rising steadily since 2008, reaching 58.4% in 2015, whereas unemployment has been hovering between 7.5% and 8% since 2012, posting a rate of 8% in 2015. This compares favourably with the country as a whole, where unemployment reached 8.9% in 2015. Ensuring high levels of service will be vital for Atlántico to remain competitive going forward, as will investing in key economic areas like innovation and entrepreneurship. This chapter features an interview with Eduardo Verano, Governor, Department of Atlántico.

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Transport

The transport sector is the third-largest sector as a source of new employment and employs 8.5% of the workforce. The sector is poised to continue to grow over the coming years, which makes the issue of infrastructure expansion critical. High logistical costs make Colombian businesses less competitive internationally, but infrastructure investment programmes, such as the 4G programme and the PMTI, are likely to reduce operational costs with benefits trickling down to consumers and through the economy overall. Furthermore, the establishment of a long-term perspective for the advancement of multi-modal transport ensures that the development of the infrastructure will remain a priority for the country’s economic development agenda. This chapter includes interviews with René Puché, President, Port of Barranquilla; and Juan Camilo Samacá, President, Almaviva.

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Construction & Real Estate

With plans set to modernise transport networks and government-led housing programmes expanding the availability of homes, Colombia’s construction sector remains an essential part of the economy. The government estimated that the construction sector will grow by 3.9% in 2017, largely driven by the execution of large-scale projects, which is set to accelerate growth of the infrastructure segment from 2.4% in 2016 to as much as 8% by 2017, as the various 4G projects take shape. Residential, commercial and office projects, as well as large-scale infrastructure development, will continue to drive the sector in coming years. The focus on pre construction sales by the real estate market has allowed the sector to avoid significant risk, while expanding to support the housing needs of the population. This has galvanised social housing programmes and property acquisition by middle-income Colombians. Although real estate remains profitable due to genuine demand, companies will have to manage a number of variables that remain out of their control, such as construction licences and access to water and electricity connections. This chapter features an interview with Alfredo Rizo, CEO, Terranum Corporate.

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Industry & Retail

Industry is set to remain an important part of Colombia’s economy, not only for its capacity to create employment, but also for its significant impact on regional development. However, manufacturers face a challenging domestic environment due to fiscal reforms, which are likely to reduce consumer expenditure in 2017. Still, the devaluation of the peso has made the country’s exports more attractive abroad – an opportunity that local manufacturers are looking to capitalise on to solidify their position in foreign markets. Given the number of FTAs the country has signed, Colombian industrialists also face greater competition, the impact of which will vary between segments. Improving competitiveness and productivity is crucial for industrial activities to compete internationally. As for retail, a plethora of new shopping malls bode well for the expansion of sales. However, much will depend on disposable income, with tax hikes set to affect consumer confidence. With the country’s GDP forecast to expand, the sector is likely to continue its rapid growth. This chapter contains an interview with Daniella Souza, President, Dow Chemical, Andean Region.

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Agriculture

Poised to grow at an exponential rate, Colombia’s agriculture sector will be the first to see the benefits of the signing of a historic peace agreement between the government and FARC. Vast untouched areas that have been inaccessible and unproductive for decades could well become the motor of growth the sector needs. Well-targeted investment could increase agricultural production by 8-10%. Many in the country believe the development of agro-industry will have the potential to promote rapid growth and a much needed restructuring of the agriculture industry. These and other ingredients make Colombia one of the most attractive countries for investment, and agri-business opportunities abound as the country’s role as a global food supplier continues to grow. This chapter features interviews with Roberto Vélez Vallejo, CEO, Colombian Coffee Growers Federation; and Rafael Mejía López, President, Colombia Commodities Exchange.

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Research & Innovation

Despite the difficulties in securing long-term financing for research, Colombia’s innovation environment is starting to benefit from structural measures. Efforts to raise IT usage in companies and households is supporting innovation efforts and galvanising domestic entrepreneurs. Modernisation schemes targeting industrial clusters are helping to develop a culture of innovation within established firms. However, plans to boost expenditure on research and development (R&D) activities are falling behind stated objectives. As the support for entrepreneurship activities becomes more robust, linking it to national research activities remains a challenge. This chapter contains an interview with Marta Losada, President, Antonio Nariño University.

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ICT

The telecoms sector is adapting to the move from voice to data. Although this is set to affect operators’ financial results in the near term, rapid expansion of smartphones and 4G accessibility is set to enlarge the potential for new offers. Furthermore, the merger of different entities into a single regulatory body would simplify the rules for operators, ease procedures and remove the need to interact with a number of different watchdogs. In terms of IT, usage across Colombia, along with the deployment of the necessary infrastructure over several years, have created an environment in which the permeation of IT across business and society is well established, and is set to continue. As such, domestic conditions bode well for the continued expansion of the IT industry in the country over the medium term. This chapter includes an interview with David Luna, Minister of Information and Communication Technologies.

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Tourism

Despite Colombia’s extensive natural beauty and bustling cities, its tourism industry has traditionally underperformed relative to its actual potential; however, international visitor arrivals rose by 70% between 2010 and 2015, contributing to the 17% increase in employment during those years. Overall, the coming years are expected to be marked by double-digit growth in tourism indicators. The devaluation of the peso, ongoing promotional efforts and the country’s enhanced profile provide a window of opportunity for Colombia to attract more tourists. To solidify the sector’s contribution to GDP, continued investment in infrastructure and the development of varied segments will be necessary. This chapter features an interview with María Claudia Lacouture, Minister of Commerce, Industry and Tourism.

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Education

Despite fiscal restraints, the government’s budget for education has stayed at consistent levels. However, with coverage expansion at all levels of education remaining a high priority, expenditure efficiency will be of the utmost importance. By strengthening financing mechanisms and access to early education, with a focus on rural areas and those most affected by the country’s civil conflict, the authorities aim to improve the chances of lower-income Colombians not only making it through primary school and high school, but also reaching tertiary education. Support for low-income Colombians to enrol and complete higher-education programmes has been a key aspect of government policy, and is especially important in reducing income disparities and social inequality.

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Health

The Ministry of Health and Social Protection is responsible for overseeing the Colombian health care system, dictating policy and promoting health care in the country. MinSalud has become one of the most progressive ministries in the government, and its policies on topics such as price control and biosimilars are pioneering for the region. The Statutory Health Law promises an expansion of services that opens up high-level treatment to 48m Colombians, and therefore opportunities to health care and pharmaceutical companies. This chapter contains an interview with Emilio Sardi Aparicio, Executive Vice-President, Tecnoquímicas.

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Tax

This chapter provides an overview of Colombia’s tax regime, covering areas of particular interest to investors such as individual and corporate income tax, income tax exemptions, VAT and rates, investment incentives, and other investor considerations. This chapter contains a viewpoint from Jaime Vargas, Tax Managing Partner and International Tax Services Leader, EY Colombia.

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Legal Framework

This chapter provides an overview of Colombia’s legal framework, covering a range of topics from the employment regime and traditional corporations to merger regulation and arbitration. In addition, it features a viewpoint by Jaime E Trujillo Caicedo, Partner and Chair of Latin America Mergers and Acquisitions Practice Group, Baker McKenzie Colombia.

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The Guide

This chapter contains information on hotels, government agencies and other listings, as well as useful tips for visitors on a range of topics such as visa requirements, currency and transportation throughout Colombia.

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Table of Contents

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