ZONES OF PROSPERITY

Colombia 2014 | ECONOMY | FOCUS: FREE TRADE ZONES

Creating employment and boosting trade figures, Colombia's free trade zones (FTZs) are a key engine driving Colombia's vigorous return to economic prosperity.

THE FT(A) TO FT(Z) OF COLOMBIA

The US-Colombia FTA took effect on May 15, 2012, eliminating trade barriers and allowing billions of dollars worth of US exports to flow into Colombia. Meanwhile, Colombian exports experienced overall growth of 3.3% from 2010 to 2013, which demonstrates the country's current economic momentum, with the US as its leading trade partner. In 2012, Colombia was the 4th highest ranked US trading partner in Latin America in terms of total trade (exports plus imports), ranking only behind Mexico, Brazil, and Venezuela. Total trade in 2012 between Colombia and the US rose 9.6% relative to 2011, reaching $41 billion. And the trend is only set to continue.

The dominant US import product from Colombia is crude oil, followed by coal, other petroleum products, precious and semi-precious stones, coffee, tea, and flowers. According to Proexport Colombia—the official government body for export promotion, tourism and foreign investment—two years into the US-Colombia Free Trade Agreement (FTA), 1,689 Colombian companies have exported to the US for the first time during this period running between May 2012 and February 2014, helping to bring 362 new non-mining and non-coffee products to the market. The industries that have seen the most new exports include manufacturing, agribusiness, textiles and apparel. Colombia's many free trade zones (FTZs) are an essential driver for this overall growth in trade. FTZs are a means to attract new investment and create local jobs, and also function as centers to develop competitive and productive industrial processes that are technologically innovative. Companies of all sizes have flocked to them. Luz Elena González, General Manager of the Zona Franca Palmaseca said, “We have over 50 clients operating in Zona Franca Palmaseca. Most companies in our FTZ are SMEs, because we lease, rather than sell, infrastructure. In terms of sectors, we have businesses operating in areas such as logistics, automotive imports, graphic design, and industrial activities, including plastic packaging and the assembly of equipment for the disabled. There are also foreign companies from Brazil and Canada."

The 110 (up to 150 by 2015) FTZs in operation in Colombia offer excellent investor benefits such as a low 15% income tax, a VAT exemption, and the possibility for producers and traders to sell or participate in the domestic market. Additionally, imports do not incur customs tax or duties, and any exports made from companies operating in FTZs benefit from Colombia's many FTAs with other countries, particularly the US.

FTZs essentially intend to be instruments for job creation and attracting new capital investments. The FTZs serve as development centers that promote competitiveness in the regions where they are created and specialize in developing highly productive and competitive industrial processes. They are also built around the central values of security, transparency, technology, clean production and sound corporate practices. FTZs also help the businesses that are based there to promote economies of scale and simplify their procedures for the selling of goods and services. Edgar Orlando Martínez Mendoza, Executive Director at ANDI, Cámara de Usuarios de Zonas Francas explains it this way, “The central government has understood the importance of establishing a framework that respects the rules of the game for investors. Investors have appreciated this policy and have invested millions."

Under the broad title of FTZ, there are two main variants: Permanent Free Trade Zones (PFTZ) or Multi-company FTZs, are based in an area within national territory, managed by an operator user, in which multiple new companies can establish their projects, and are subject to a special tax and customs advantages. The second variant is the Single Company FTZ, a regime that enables the development of an FTZ for a specific new company, in any location within the country, for the development of an investment project deemed to have high economic and social impact.

FTZs of both types are located in up to 20 regions of the country, which also contributes to the development of these areas of Colombia. A significant number of the zones are operating along the coast, where sea transport offers the advantage of cost reductions in the transportation of exports. The three main departments of the Colombian Caribbean region—Magdalena, Atlántico, and Bolivar—are equipped with 1.3 million sqm, 570,000 sqm, and 560,000 sqm of FTZ space, respectively. Colombian ports offer approximately 3,710 possible maritime routes to the rest of the world, giving investors in these coastal FTZs a prime geographic location for their operations and trade.

CREATING EMPLOYMENT, PROVIDING ECONOMIC OPPORTUNITIES

Colombia needs FTZs to be able to compete for foreign investment at a global level. The FTZ sector is thus critically important for Colombia, and serves as a key driver of employment. In Colombia, foreign and domestic investors have access to a large labor pool eager to work and rebuild the country after decades of violent conflict and economic disarray. In the words of Julián Andrés Quiceno Carmona, CEO of the CELPA Permanent Free Trade Zone, “We were established in 2012, and we implemented an employment strategy along with the national government that included large investments and the generation of qualified human resources that, in turn, made investment in our FTZ more attractive. In this context, we started implementing training courses in 2013 to teach a broader section of the local population about the technical and operational aspects of FTZs." Colombian FTZs are a rapidly expanding sector with ripple effects through the economy. Juan Pablo Rivera Cabal, President and CEO of the Bogotá Free Trade Zone (BFTZ), points out that, “To date, 65,000 jobs have been created by the FTZs in Colombia. Today, approximately 38 million sqm have been approved as FTZs, with over two-thirds of that space available for use. We expect that by 2018 or 2020, between 300,000 and 400,000 people will be working at these FTZs. In five or six years' time, we expect the 1% of the Colombian population working at Colombia's FTZs to have risen to around 40%, due to the number of companies resident at the FTZs and taking advantage of the trade agreements that Colombia has already signed. FTZs are the sixth engine of the national economy of Colombia, and the sector is still gaining in importance, as there are further FTZs awaiting government approval."

After many decades of conflict and economic uncertainty, Colombia is using its FTZs to put itself back onto the path to economic prosperity and social development.