THE FUTURE IS ORANGE

Colombia 2019 | DIPLOMACY | VIP INTERVIEW

TBY talks to Iván Duque, a passionately probusiness politician, who assumed the presidency in 2018 and seeks to boost growth through investment, technology, and innovation.

The government has presented an ambitious tax reform that aims to reactivate the Colombian economy. How does it work to improve Colombia's attractiveness for FDI?

When our government took power, we inherited a difficult situation and low expectations of economic growth in the medium and long term, reinforced by the low rate of economic activity that was evident at that time. These situations put Colombia in the sights of ratings agencies, to the extent that Standard & Poor's reduced the country's credit rating at the end of 2017, and Moody's changed the rating outlook from stable to negative at the beginning of 2018. Faced with this situation, we had to present a clear plan for economic reactivation during the next four years to businessmen, local and international investors, and even ratings agencies, and the reception was very positive. This was fundamental in order to quickly give assurances that this government has a well-defined structural economic reactivation strategy based on the promotion of private enterprise, support for the free market and innovation, fiscal austerity, formalization, and firm commitment to seek equity as a central objective. What was the immediate effect? That two of the main ratings agencies ratified the credit rating of the country at investment grade. These were the first steps we considered necessary to improve confidence and accelerate the recovery of the Colombian economy, which had been growing discretely. And we were right. The growth of the economy accelerated significantly from 1.4% in 2017 to 2.6% in 2018. Furthermore, after growing at an average of 2.3% in the previous four quarters, the economy grew 2.8% in the last quarter of last year, the second highest figure in three years. Domestic demand was the main protagonist, growing 4.5% in the same period, the highest figure in four years. In that sense, the figures showed a strong rebound of investment, which is lagrely dependent on the confidence of entrepreneurs, with a growth of 6.7% in the fourth quarter, the highest rate in more than four years. This behavior was partially supported by the dynamics of imports of capital and intermediate goods, which are intimately linked to the behavior of investment beyond construction, and grew at their highest rate in almost seven years. Moreover, in the first quarter of 2019, FDI, according to figures from the central bank, grew by 68%. Investment in construction also rebounded to its highest level in two years, growing 4.2% in the fourth quarter, mainly boosted by the civil works component, which showed its first positive growth in that year. The measures we have adopted to unblock the construction of Fourth Generation (4G) projects, led by the Ministry of Transport, as well as other types of infrastructure works, are also showing their first positive results. In effect, road construction, which is the most important component of civil works, displayed its highest growth since the beginning of 2017 after six consecutive quarters of contraction and practically zero growth in the third quarter of 2018. Investment in housing construction grew 2% in the fourth quarter, the second quarter of positive growth after a year of contractions. To this, we must add the new energy surrounding the housing programs that we launched after just 10 months in government. It is worth noting that the residential building area recorded its highest growth in three years and the first positive growth in seven quarters, indicating a positive trend for housing construction in the coming quarters. All these figures have filled us with optimism and we predict GDP growth of 3.6% for 2019. We have always been aware that the confidence that our economic revitalization plan began to generate required concrete and immediate action. We believe it will begin to bear more fruit as of this year. This is where our Financing Law, which was approved by Congress last December, plays a fundamental role. The Financing Law not only constitutes a fundamental step to improve the fiscal prospects of the country, but also includes several measures that stimulate entrepreneurship, investment, productivity, and the formalization of labor and enterprise in the country through the reduction of the corporate tax burden—the effective tax rate, including mandatory contributions, will fall from around 70 to 50% in 2022. With this, we expect an even greater boost to GDP growth, not only in 2019, but also in the medium and long term. That is, we anticipate that one of the effects will be to raise the potential growth of the economy from current estimated levels of 3.5% to levels above 4%. The Financing Law also points to a more progressive personal taxation regime and incorporates a series of measures to strengthen the Colombian Tax and Customs Organization (DIAN), in addition to fighting against tax evasion, which will also con¬tribute to increased levels of tax collection in the upcoming years. In addition to that, we must take into account that, through the “Simple State, Agile Colombia” program, we have simplified 615 administrative procedures (374 procedures, 33 barriers, and 208 standards) and our goal is to reach more than 900 by the end of the year. The interventions we have made have generated savings in the country of more than USD20 billion. That sums up the effort that has been made. To all the above, we must add that in the framework of state visits to different countries, I have participated in forums, held meetings with potential investors, and come together with entrepreneurs from all sectors, whereby I have highlighted the benefits that exist in the country because Colombia is a country that is open, in a decisive way, to investment and business development.

What is the government's plan to accelerate the techno¬logical progress of the Colombian economy?

Technology is about how we improve quality of life by bringing knowledge, goods, and services closer to the hands of citizens. And here you have to be realistic. The country, for years, had been demanding regulatory improvement and we eliminated much red tape, because today's world needs intelligent regulation, deregulation associated with the provision of services, and deregulation that allows us to understand the growing competences between new technologies and not continuing with patterns from the past, when we seemed to want legislation to hinder the arrival of new technological tools. That is why we decided to present to Congress a new Law on Information and Communications Technologies—a law that would allow for regulatory convergence, but that at the same time encourages long-term investment so that we can truly reap the benefits of the digital transformation. Finally, we obtained the necessary support in Congress to make this law a reality. Today, we have a law that provides transparency to those who want to invest in the long term. We have a law that is also clear on the independent development of content and one that wants Colombia to become a country that achieves 5G, starting in 2022, because it is from that arrival of 5G that the maximum potential of the IoT and AI really materializes, along with many other technologies of the Fourth Industrial Revolution. Today, we have law that allows citizens to guarantee that we will close the great technological gaps, and that 70% of the country, by 2022, will receive broadband coverage. We will be reaching the most remote places of the country with fixed installations, practically closing that gap of about 500,000 homes and giving the municipalities that are part of the Territorial Approach Development Plan 100% coverage, which also means a great social transformation. We must also refer to elements complementary to the Law on Information and Communications Technologies. This law does not come alone; it is accompanied by measures that are also generating enthusiasm in the investment community, through benefits that exist in tax matters for the creative industries and the instruments of promotion of the orange economy, i.e. the creative and innovative sectors. In terms of fintech, we are ready to move forward. We launched in Medellín, at the World Economic Forum, the first center for the Fourth Industrial Revolution in a Spanish-speaking country because we want to discuss topics such as the IoT and AT, and also security technologies and blockchain encryption. Here the role of the Financial Superintendency is essential because we are already realizing that the decision that was adopted to create a regulatory sandbox is increasing the appetite for new operators and new competitors to arrive in the country. It brings us challenges but can also lead us to expand the coverage of financial services through digital platforms and, through this, we can provide room for financial inclusion. Cybersecurity will also be one of the most important tools we will adopt to strengthen financial inclusion in our country and generate confidence on the part of citizens. Likewise, we will hold an auction for the 700Mhz spectrum so that we can also have a presence in the high bands and low bands, and that allows us to guarantee an excellent provision of service. That must also be accompanied by other measures. And the measures have to do with the stimuli that digital entrepreneurship in the country can evolve. And a large part of the stimulus is in regulatory quality. However, our wish is that, by understanding the needs of the labor market and the application of technology in the sector, we will have more programmers and more integrated data analysts. We are short about 150,000 professionals according to big players in the sector. With all the above, I can say today that Colombia has taken a historic step in technological issues. In that sense, technology has to be ready to close gaps. And we are seeing that if we take the technology and training to the most remote parts of the country, we also begin to make great transformations. So, for us, coverage, quality, and closing gaps is a priority.

You have repeatedly emphasized the potential of the or¬ange economy. How is the government working to devel¬op the full potential of Colombia's knowledge economy?

This government wants Colombia to be a country of entrepreneurs. That is why, in terms of entrepreneurship, we are making a bold and radical commitment to the orange economy; that is, the creative economy, innovation, and the trans¬formation of ideas into goods and services with high added value. We aspire to make creativity and culture the engines of entrepreneurship, economic development, and the generation of new wealth and, therefore, equity and social progress. Globally, the orange economy contributes between 2 and 11% of GDP, depending on the level of development of an economy. For Colombia, according to the methodology of the World Intellectual Property Organization (WIPO), it represents 3.4% of GDP (one and a half times that of mining) and 4.5% of employment (greater than that of coffee), and has huge potential to diversify exports and create quality jobs. Therefore, at the beginning of our administration, we launched a series of measures to support creative entrepreneurs as we realized that they face, in their early years, difficulties such as lack of resources and access to credit. Additionally, through legislation, we granted zero income tax for seven years to those entrepreneurs in creative industries with a minimum amount of investment and a minimum number of jobs. We are helping small businesses through the “Simple Regime” program, whereby, with a single tax ranging from 1.1% of the Industry and Commerce Tax (ICA), to a maximum of 11%, this differentiation is recognized so that there is stronger business formalization throughout the country. We also created a financial instrument called orange bonds, which works like any ordinary bond but its resources are used to finance or refinance, via credit, the activities and projects of companies linked to the orange economy, which belong to any of these three categories: conventional cultural industries, functional creations, new media and software, and arts and heritage. Thanks to these measures, Colombia has roused the interest of large global companies such as Amazon, Google, Microsoft, and Apple. Additionally, the Colombian legislature approved a bill to modernize the ICT sector, which seeks to close the digital and connectivity gaps that exist in the country. With all that, we can say that the orange economy has already started and what we want is to multiply its effects in the country.

What is your approach to boosting Colombian exports?

The commercial policy of Colombia is focused on the use of trade agreements and diversifying exports. In order to identify the agroindustry, manufacturing, and services products that have the greatest potential in international markets, a procedure was designed to identify and prioritize them according to the productive capacities of the regions of the country, as well as the degree of potentiality from international demand, and to subsequently identify, analyze, and lower barriers, especially non-tariff barriers, which have impeded exports. In addition, current export promotion instruments that have shown their effectiveness will be strengthened, among them repowering free trade zones and promoting the use of special import-export systems. Elsewhere, International Distributors (CI) are the right instrument to boost small-scale exports from MSMEs. CIs can gather small producers working in specialized niches and lower export logistics costs. Trade facilitation is another axis for diversification. On August 21, 2018, the Trade Facilitation Thematic Committee was installed, a component of the National Competitiveness, Science, Technology and Innovation System, composed of representatives of the public and private sectors. Within the framework of this committee, regional and sectoral working groups are tasked with identifying the difficulties faced by the private sector in its import and export processes and to generate measures to solve them.