SUSTAINING THE BOOM
Colombia has prioritized the development of free trade zones to boost exports, FDI, and employment, but stakeholders must ensure this growth is sustainable, making sure the boom does not become a bust.
From 11 active free trade zones (FTZs) in 2004, Colombia's industry exploded to 108 FTZs today, indicating the government's keen interest in the zones as a tool to revitalize the economy. FTZs offer advantages to enterprises, such as an income tax rate of 20% (compared to 34% in non-free trade zone areas), exemption from payroll taxes and VAT in certain cases, and dispensation from custom duties on productive imports. Governmental policies have been focusing on FTZ development in the last decade, easing bureaucratic processes and setting up a special tax framework. The goal of FTZs is to foster development in and around the region of establishment, generating employment and attracting investments in order for Colombia to be internationally competitive in both production and FDI attraction. So far, the strategy is working: in the last 10 years, FTZs received more than USD50 billion in investment.
Additionally, FTZs are vital to the Colombian economy as they are a strong driver of employment. Colombia has a large and well-educated labor pool with an unemployment rate sitting at 9.4%. In the last 10 years, FTZs generated 250,000 direct jobs; 65,000 of those jobs were created in 2016 alone. Exports from FTZs also went up by 35% between October 2015 and October 2016, reaching USD244.1 million. By every measure—job creation, FDI generation, and exports—the impact of FTZs on the Colombian economy is accelerating, promoting further investment in infrastructure. More generally, FTZs are creating a shift toward economic and financial stabilization at a moment where newfound stability in the country is fragile and needs to be strengthened.
On the other hand, some argue that FTZs are creating economic distortion rather than economic stabilization. FTZs favor enterprises created after 2012 and create unfair competition for local SMEs that don't meet the standards for being granted FTZ status. The special border tax regime creates smuggling, and tax avoidance has become more common through manipulation of transfer prices. The FTZ regime is also a difficult one to monitor for the tax administration. FTZs are both limited by and contribute to Colombia's transportation infrastructure imbalance. Transportation infrastructure near the coast is more developed and more reliable. While this makes utilization of these FTZs more expensive, investing in the inner parts of the country can create risks of delay due to the underdevelopment of the road network.
In the last decade, FTZs have become more common throughout Latin America, with Colombia setting the pace for growth and hosting 25% of FTZs in Latin America. However, FTZs in smaller countries with smaller economies, which are more highly dependent on FTZs, are sometimes more attractive to companies and investors as they offer better financial incentives. Colombia must use other means to attract investors, such as more reliable energy supply, larger and more highly skilled workforce, and capability to support bigger projects, to provide more added value. The Bogotá free trade zone, or Zona Franca Bogotá (ZFB), is one of the most prominent FTZs and the most competitive service and industrial park. ZFB hosts companies across several sectors including industry, logistics, trade, services, and technology.
With this added value, expectations for the future are high. The government is expected to continue investing in FTZs and to create new ones across the country. Employment in FTZs could double in the next three years and grow exponentially from there. The government predicts USD20 billion of foreign investments in FTZs in the next three years. As Colombia continues signing free trade agreements, developing its infrastructure, and increasing its production destined for export, the future shines bright for FTZs.
SUSTAINING THE BOOM
TABLE OF CONTENTS
Focus: Nobel Prize
Eyes on the Prize
Juan Manuel Santos' Nobel Prize demonstrated the international community's recognition of his efforts toward forging permanent peace with the FARC, but the process of ratifying the treaty reveals that the issue remains as complicated as ever for Colombians.
read articleGuest Speaker
Luís Guillermo Solís Rivera, President, Costa Rica
TBY talks to Luís Guillermo Solís Rivera, President of Costa Rica, on respecting the sovereign power of the Colombian people, the critical areas of Caribbean security where both countries can work together, and the importance of burgeoning industrial ties between Colombia and Costa Rica.
read articleInterview
Ernesto Samper Pizano, Secretary-General, Union of South American Nations (UNASUR)
TBY talks to Ernesto Samper Pizano, Secretary General of the Union of South American Nations (UNASUR), on working with regional powers to bolster the peace process, boosting citizen participation at home and in the region, and forging a new concept of hemispheric security.
read articleInterview
María Claudia Lacouture, Minister, Commerce, Industry, and Tourism
TBY talks to María Claudia Lacouture, Minister of Commerce, Industry, and Tourism, on integrating Colombia's markets with natural regional partners, boosting underserved areas, and making sure that areas like bird-watching flourish.
read articleInterview
Patricia Tovar, Executive Director, Colombian British Chamber of Commerce (BRITCHAM)
TBY talks to Patricia Tovar, Executive Director of Colombian British Chamber of Commerce (BRITCHAM), on standing behind the UK despite Brexit, the opportunities offered by 4G, and why Colombia is one of the UK's best long-term bets in Latin America.
read articleInterview
Ricardo Ávila, Editor-in-Chief, Portafolio
TBY talks to Ricardo Ávila, Editor-in-Chief of Portafolio, on the biggest social, political, and structural changes Colombia must make to reap a full peace dividend, maximizing its huge agricultural potential, and the cornucopia of sustainable energy possibilities.
read articleInterview
Juan José Echavarría, Governor, Banco de la República (Central Bank of Colombia),
TBY talks to Juan José Echavarría, Governor of Banco de la República (Central Bank of Colombia), on the bank's cultural role in securing a broader peace, the importance of saving, and why the economy must still open up even more.
read articleInterview
Marcela Vaca Torres, Colombia General Director , GeoPark
TBY talks to Marcela Vaca Torres, Colombia General Director of GeoPark, on GeoPark's assertive moves in exploration investments, regulatory opportunities to encourage exploration, and new opportunities in shale gas and offshore resources.
read articleInterview
Francisco José Lloreda, Executive President, The Colombian Oil & Gas Association (ACP)
TBY talks to Francisco José Lloreda, Executive President of The Colombian Oil & Gas Association (ACP), on expectations for the year, increasing the feasibility of hydrocarbon projects, and the state of the offshore sector.
read articleFocus: Gold
The Road to El Dorado
2016 has been a mixed and sometimes challenging year for the mining industry in Colombia, especially for gold, due to legal issues, competitiveness, and high volatility in international markets. While gold exports rose 40.5% in 2016 to USD1.5 billion, the Colombian Mining Association estimates that up to 80% of gold production is done illegally.
read articleInterview
Guilherme Franklin, Managing Director , Tetra Pak Andina
TBY talks to Guilherme Franklin, Managing Director of Tetra Pak Andina, on the decision to locate the regional headquarters in Bogotá, the plan for double-digit growth, and its efforts on digital innovations and sustainable operations.<span></span>
read articleInterview
Ricardo Bribiesca, President & Director General of the Andean Region , PPG Industries
TBY talks to Ricardo Bribiesca, President & Director General of the Andean Region of PPG Industries, on strategic areas of growth, product segmentation, and raising the bar for industry sophistication.
read articleInterview
Zully Salazar Fuentes, President, The Cartagena Tourism Corporation (Corpoturismo)
TBY talks to Zully Salazar Fuentes, President of The Cartagena Tourism Corporation (Corpoturismo), on the successes of the past year, becoming a model for other regions, and focusing on sustainability.
read articleFocus: Buenaventura Port
Good Fortune
Colombia is blessed with being the only country in South America with direct access to the Pacific Ocean, the Caribbean Sea, and the Atlantic Ocean, but its Pacific ports have long been overshadowed by their flashier Caribbean counterparts. With an ambitious investment initiative from the public and private sector, that is about to change.
read articleReview: DOING BUSINESS
Doing Business in Colombia
The first year of Colombia's extensive fiscal reform has made doing business slightly more difficult in the immediate short term. Yet, if the state achieves even half of its goals in doing so, it will significantly improve the long-term corporate outlook for the country.
read articleInterview
Michelantonio Bosso, Regional Manager & Director of Operations of Latin America, Grupo Menarini
TBY talks to Michelantonio Bosso, Regional Manager & Director of Operations of Latin America of Grupo Menarini, on the importance of Colombia to the company and its goals for the local office.
read articleFocus: Zika VIrus
Ending the Epidemic
The Zika virus posed a special threat to the 26 million Colombians living in 900 municipalities below 2,200m. Nevertheless, due to proper surveillance, international cooperation, and an immediate government response, Colombia was the first country in the Americas to announce the end of the Zika epidemic.
read articleInterview
Alfonso Prada Gil, Director General, The National Service of Learning (SENA)
TBY talks to Alfonso Prada Gil, Director General of The National Service of Learning (SENA), on its key role post conflict, upcoming development projects, and its focus on technical and technological training.
read articleInterview
Cecilia María Vélez White, Rector, Universidad de Bogotá Jorge Tadeo Lozano
TBY talks to Cecilia María Vélez White, Rector of Universidad de Bogotá Jorge Tadeo Lozano, on the impact of its new university building, developing agricultural management programs, and becoming an innovative university.
read articleInterview
Fr. Juan Ubaldo López Salamanca, O.P., General Rector, Universidad Santo Tomas Colombia (USTA)
TBY talks to Fr. Juan Ubaldo López Salamanca, O.P., General Rector of Universidad Santo Tomas Colombia (USTA), on its growth plans across the country and its contributions to society.
read articleFocus: EDUCATION INVESTMENT
Striking A Deal
Teachers went on strike for the second time in two years in May 2017, fighting for increased wages, improved infrastructure, and more teacher development programs. Will the government's offer be more broken promises or will Colombia write a new chapter for the textbooks?
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