THE WILL TO GROW

Colombia 2013 | DIPLOMACY | VIP INTERVIEW

TBY talks to Juan Manuel Santos, President of Colombia, on the significance of FTAs, the country's attractiveness to investors, and the role of Latin America in the global economy.

Colombia recently signed a free trade agreement (FTA) with the US and is planning to do the same with the EU. What are the advantages for Colombia of these FTAs, and what are the prospects for FTAs with other nations?

Colombia's trade agreements have several goals. First, the idea is to leverage the advantages of international trade as a means toward economic growth. This includes providing clear rules for domestic and foreign entrepreneurs seeking to increase investment in our country. Additionally, trade agreements give Colombia a level playing field in target markets, where competitors already enjoy the advantages that come with trade agreements. Finally, these agreements facilitate the integration of Colombian companies into global value chains. Within this framework, the trade agreements that provide the greatest impacts are those we have with our key partners: the US and the EU. These partners buy a significant portion of our exports (38% and 18%, respectively), but they are also markets where we face competition. The US and the EU are also major importers of products for which Colombia already has or can develop competitive advantages. This, of course, applies to mining and energy products. However, in order to leverage the impact of these exports, we must also strengthen our higher value-added products. On this front, we should begin with processed foods, apparel, the metalworking industry, auto parts, chemicals, and business process outsourcing, among others. We have an ambitious agenda for our trade negotiations. Currently, we have nine agreements in force. And we are aiming for 16 trade agreements with over the 50 countries that account for roughly 60% of the world's imports. In addition to the US and the EU, this group includes all the Latin American countries, as well as Canada, the EFTA countries (Iceland, Norway, Lichtenstein, and Switzerland), South Korea, Japan, and Israel.

You recently entered the Pacific Alliance with Mexico, Chile, and Peru. What are the strategic advantages of this trade bloc and how will it impact the region's competitiveness?

The Pacific Alliance is one of the most innovative integration strategies pursued by Colombia as part of its internationalization process. It is an open and flexible arrangement, with clear goals and pragmatic efforts to strengthen the existing bilateral trade agreements among member countries. The aim is to develop a joint policy on trade and economic integration, so as to advance internationalization as an economic bloc. Essentially, the goal of the Pacific Alliance is to establish an area of deep integration driving higher growth, development, and competitiveness in the participating economies. This is to be realized through streamlining the free movement of goods, services, capital, and people. While it is true that in the field of trade in goods integration is well underway, we must continue deepening and strengthening the existing relationships and agreements dealing with services and investment among the member countries. Likewise, the four Alliance members must work on maximizing the benefits of foreign investment and international trade in services in the region, so as to achieve higher growth and economic development.

“Attracting foreign investment is very important for Colombia because it will allow us to grow at an even higher pace."

Improving the country's infrastructure is one of the government's priorities. How is the current administration channeling investment in order to address Colombia's infrastructure needs?

As a matter of fact, this is one of our priorities, and we have been taking bold steps toward tackling this challenge with efficiency, transparency, and accountability. So far, we have doubled investment in infrastructure from $1.6 billion in 2010 to $3.3 billion by the end of 2012. This is a huge step forward; however, it's not enough. We surely need more investment, but without jeopardizing the country's finances. This is why we have invited the private sector to join us, as partners, in building the infrastructure Colombia requires to live up to its highly promising potential. And in order to foster the conditions for this partnership, we have focused our efforts around two tiers. First, we set the legal framework—through the Public–Private Associations Law—to promote the birth of the strong partnerships necessary to make a real breakthrough in our country's infrastructure, which will result in building new and upgrading existing roads, ports, highways, and airports. These rules encourage companies and investors to become our allies in the design and execution of multiple ventures. And the results are forthcoming. Our National Infrastructure Agency has already received over 15 proposals from private investors to develop projects worth $7.2 billion. Furthermore, we have also launched the most ambitious infrastructure plan in our country's history: the Fourth Generation of Concessions. It comprises 30 projects valued at more than $22 billion. The first six will be opened by December 2012 and their cost amounts to approximately $4.4 billion. This means that investment in infrastructure during the next two years—as a result of solid public-private partnerships—will exceed the aggregate amount invested in Colombia in the past 20 years.

According to the World Bank's Doing Business report, Colombia ranks first in Latin America for investor protection. What other aspects make Colombia attractive for investors, and what is the government doing to boost confidence in the country?

Attracting foreign investment is very important for Colombia because it will allow us to grow at an even higher pace. When investment only amounted to 13%-14% of our GDP, we could hardly expect growth rates above 3%-3.5%. Today, investment represents 27% of our GDP, giving us the opportunity to grow at about 5%. And we are aiming for the 30% milestone, which would allow us to grow in excess of 6%. The message we want to convey is that Colombia is an investment-friendly country. To this end, we are improving the business climate and providing clear and stable rules for investors. Through our FTAs and bilateral investment treaties, we can ensure a reliable and stable investment framework. Moreover, given Colombia's FTA network, together with its advantageous geographical position, we offer a golden opportunity for foreign investors to improve their access to very interesting and promising markets. For example, Asian entrepreneurs can dramatically cut costs by accessing the US, Canada, and the EU by way of Colombia. Furthermore, we also offer incentives such as free trade zones, which feature lower income tax rates as well as duty and value-added tax exemptions on the import of raw materials and capital goods. And in order to attract even more investors, all these factors are integrated into our worldwide marketing efforts.

What have been the biggest successes in your campaign against guerrilla groups in Colombia, and what are your expectations and strategies for a peaceful resolution?

Guerrilla groups in Colombia, which sadly persist in waging a long, painful, and outdated struggle that has cost thousands of lives and resulted in thousands of victims and displaced communities, have been harshly hit, particularly over the last six years, to the point that their ranks, previously estimated at over 20,000, today are not even half that number. Since the administration of President Álvaro Uribe, under which I served as Defense Minister during its second term, our armed forces have been permanently on the offensive against the guerrillas based on joint and coordinated efforts among different components, on equipment upgrades, and—something of utmost importance—on strengthening our intelligence capabilities. Thanks to these efforts, members of the FARC's Secretariat, its highest ranking body, started falling in 2008. And during my administration it has lost not only its number one and two leaders, but also more than 20 of its regional ringleaders. While meeting our obligation to fight the guerrillas, we have not set aside the possibility of finding a peaceful solution. For this reason we conducted exploratory contacts with the FARC over nearly two years, which concluded in the signature of a General Agreement for Ending the Conflict, whereby a procedure was established for engaging in discrete conversations to be held abroad, addressing a limited thematic agenda, which should conclude in the guerrillas laying down their weapons and seizing the opportunity to champion their ideas on the political arena instead of seeking to impose them by force. Formal conversations were begun on October 18, 2012 in Oslo and will be held thereafter in Havana, Cuba, starting in mid-November 2012. Norway and Cuba act as guarantors, and we're also accompanied by Venezuela and Chile. We are moderately optimistic in Colombia as to the results of these dialogues, and, on behalf of the government, I can affirm that we'll strive toward achieving the goals. The Colombian people yearn to finally live in peace, and we all want to devote all our efforts toward building a more prosperous and equitable country.

What is your outlook for Latin America's economic future, and what role will Colombia play in shaping this trajectory?

The world economic context has changed drastically during the past four years. The 2008 financial crisis that began in the US and later weakened the fiscal solvency of the euro zone resulted in a profound change in the main drivers of world economic activity: about three-quarters of the growth in world output is now attributable to emerging economies. Riding on this wave of growth, Latin America, which now has a GDP of about $6 trillion, will triple its size by 2050 to about $18 trillion. Colombia will play the role of regional leader along this path, consolidating its position as the third largest economy in the region, a milestone achieved during 2012. In 2050, Colombia's GDP is forecasted at $1.1 trillion, more than three times its current size of $362 billion. This will be the byproduct of sound fiscal and macroeconomic policies targeted at increasing competitiveness, protecting investors' rights, and reducing inequality. Colombia, along with whole region, will be a highly integrated and dynamic economy with a diverse export sector and access to billions of consumers around the world as a result of our continued efforts in signing FTAs. Colombia's current economic strength, along with the structural fiscal reforms that have been approved during recent years, will enable the country to maintain stable growth rates in the future. High investment rates will continue to improve the country's infrastructure, making it more competitive with respect to its peers. In addition, Colombia's institutions are well prepared to cope with future external crises, as evidenced by the fact that Colombia was among just a handful of economies that managed to grow during the recent financial crisis. All these factors guarantee that Colombia will remain a leader within the region in the coming decades.

© The Business Year - October 2012