Doing Business in Colombia

A Hot Tip about Business Environment in Colombia

Last updated: 10 Mar 2011

Market Overview

The Republic of Colombia is the fifth largest country and the fourth largest economy in Latin America with approximately 44 million inhabitants. It is the only country in South America with two sea coasts. Colombia’s industrialized economy benefits from diverse agricultural and natural resources and a growing middle class. Conservative lending practices by Colombia’s financial institutions lessened the impact of the global economic downturn. The GDP growth rate for 2009 is estimated to be around zero percent. Ranked 26th as a market for U.S. exports, the United States is Colombia’s largest trading partner. Colombia is the fourth largest market for U.S. exports in Latin America. China could overtake Venezuela in 2010 as Colombia's second largest commercial partner.

 

Although the ongoing guerrilla conflict raises security concerns, Colombian government policies have dramatically reduced terrorist attacks, kidnappings and crime. The increased security combined with sound fiscal practices has allowed Colombia to become one of the more stable economies in the region. Moderate inflation of 7.6 percent in 2009 and a relatively stable political environment compared to neighboring Andean countries makes Colombia attractive to U.S. companies.

 

Colombia’s 2009 GDP is estimated to be USD 141 billion and GDP per capita, USD 5,195. Dependent on exports, Colombia’s economy was affected by fluctuating exchange rates and declining trade with its two leading trading partners (U.S. and Venezuela). The 2009 nominal exchange rate of 2,154 Colombian pesos per 1 USD reflected a nine percent decline from 2008. Unemployment reached 12 percent. The government’s stimulus package included raising minimum wages by 3.64 percent, promoting large infrastructure projects and attempting to diversify its portfolio of trade agreements.

 

The challenging business climate in neighboring countries has contributed to the increase of the net Foreign Direct Investment (FDI) in Colombia. From a record USD10.6 billion in 2008, FDI decreased to USD 9 billion1 in 2009 reflecting the general curtailment of investment projects worldwide. The hydrocarbons and coal mining industries are principal U.S. investment interests. Major U.S. companies include: Drummond, Chicago Bridge and Iron, General Electric, General Motors, Occidental Petroleum, ChevronTexaco, ExxonMobil, Microsoft, Kimberly Clark, Johnson and Johnson, Continental Airlines, Delta Airlines, and American Airlines among others. New FDI will begin to reflect major hotel (Marriott, Hilton and Hyatt) and highway projects (Ruta del Sol).

 

In 2008, the Colombian National TV Commission (CNTV) selected the DVB Digital TV standard; the process of converting to digital transmission services is underway. In 2009, the Colombian Ministry of Communications implemented the new telecommunications law creating opportunities in WIMAX, broadband and mobile telephony. The procurement of a rural telecommunications satellite and award of the third TV broadcast channel will be key drivers of growth in 2010 and beyond.

 

On November 22, 2006, the United States and Colombia signed a bilateral trade agreement, the Colombia Trade Promotion Agreement (CTPA). While President Obama has stated his support for the agreement, it has not been approved by the U.S. Congress. Under the CTPA, over 80 percent of U.S. exports of consumer and industrial products to Colombia will be duty-free immediately upon entry into force of the Agreement, with remaining tariffs phased out over ten years. Other provisions include strong protection for U.S. investors (legal stability), expanded access to service markets, greater intellectual property rights protection, market access for remanufactured goods, increased transparency and improved dispute settlement mechanisms.

 

Market Challenges

There are numerous challenges to doing business in Colombia:

• Only firms licensed under Colombian law may provide legal services. Foreign law firms can operate in Colombia by forming a joint venture with a Colombian law firm and operating under the licenses of the Colombian lawyers in the firm.

• Economic needs 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 or to bid on Colombian government contracts.

• Telecommunications barriers to entry include cross subsidies, the requirement for a commercial presence in Colombia, and an economic needs tests.

• For firms with more than ten employees, no more than 10 percent of the general workforce and 20 percent of specialists may be foreign nationals.

• International banking institutions are required to maintain a commercial presence in Colombia through subsidiary offices.

• Colombia has been on the Special 301 “Watch List” every year since 1991, reflecting ongoing challenges in the enforcement of intellectual property rights.

• Customs duties have been consolidated into four tariff levels: 0 to 5 percent on capital goods, industrial goods and raw materials not produced in Colombia, 10 percent on manufactured goods with some exemptions, and 15 to 20 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.

• Colombia has struggled with the requirements of the existing government procurement framework, which calls for open bidding in public tenders. Transparency, fairness, and truly competitive bidding conditions in most tenders are lacking.

 

Market Opportunities

Despite these market challenges, Colombia provides significant opportunities for U.S. exporters:

• Colombia's extensive, planned infrastructure projects will require: project financing, public works subcontracting, logistics, construction equipment for public roads and airports; water treatment, water supply, electric power generation, oil and gas exploration and pollution control equipment, air navigational and port security aids, railway construction, transportation equipment, security and defense items and services, mass transit systems.

• Awarded to OPAIN in 2006, Bogotá’s El Dorado International Airport still requires massive upgrades. The Medellin/Rio Negro airport upgrade is underway. Both concessionaires are seeking U.S. equipment providers.

• The United States Trade and Development Agency (USTDA) and EXIM Bank support U.S. companies as they craft solutions to development challenges and make inroads in key sectors such as oil and gas, petrochemicals, renewable energy, telecommunications, and ports. USTDA grants have resulted in big U.S. company wins at the country’s two refineries. EXIM’s preliminary commitment of USD 1 billion to Ecopetrol will provide a myriad of export opportunities for U.S. companies. USTDA grants for customs security and operational enhancements at the ports in Cartagena, Buenaventura, and Puerto Salgar should also increase prospects for U.S. exporters.

• Significant U.S. export opportunities not already mentioned include: cotton, wheat, corn soy products, automotive parts and accessories, tourism, computer hardware and software services, IT equipment and services, plastics materials and resins, electrical power systems, safety and security equipment, food and beverage processing and packaging equipment and medical equipment.

 

Market Entry Strategy

Market entry strategies are as follows:

• Secure an agent, representative, or distributor in Colombia, which requires a contract that meets the provisions of the Colombian Commercial Code.

• Focus on formality, personal relationships, and trust when negotiating agreements and contracts.

• Communicate with the U.S. Commercial Service and the Economic sections of the U.S. Embassy in Bogotá regarding specific concerns.

• Offer excellent after-sales service arrangements and maintain the sales relationship. Warranties or guarantees on imports are critical for supporting after sales service in Colombia.

• Provide high quality products and/or services, affordable financing and competitive pricing.

• Support your local partner’s marketing efforts with advertising campaigns or by participating in trade shows. Do not be hands off; visit often.

• A strong knowledge of Spanish is essential. Spanish-language sales collateral and service manuals are also helpful, and may be required in certain sectors, like medical products.

 

 

Read the full market research report


Posted: 03 May 2010, last updated 10 March 2011

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