Market research article that analyzes the opportunities for Foreign Direct Investment in Colombia. This article was written by Prospecta, a consultancy firm specialized in strategy, corporate governance and market entry based in Bogotá, Colombia

1. KEY DESTINATION
FOR NEW BUSINESSES
COLOMBIA

2. The most negative perspectives
argue that 2015 will remain a me-
diocre year with a slow recovery.
According to Oliver Blanchard,
Economic Counselor and Director of
the International Monetary Fund
(IMF) Research Department, this situ-
ation can be explained mostly by the
consequences of the economic crisis
and the subsequent recession of the
largest economies. However, some glim-
mers of hope have emerged recently.
According to the World Bank, the world’s
GDP will grow 3.4% in 2015. It is expected
that advanced economies such as the U.S.
will strengthen its performance; while the
Euro zone will remain in a gradual but weak
recovery and emerging markets will continue
to adapt to a slower growth, representing the
majority of global growth. Although the eco-
nomic assessment is nowadays more differen-
tiated by region, depending more and more on
the specific conditions of each country, we would
like to provide an in-depth look at Latin America,
with special emphasis on Colombia, a country
that seems to stand as one of the regional leaders.
2014 was a volatile year for the world
economy given the weakness of
financial markets, the plunge in oil
prices and the war in Ukraine.
These factors resulted in a
moderate growth and created
a disturbing picture for the
world economy. Thus, there are
several experts and macro-
economic analysis that suggest
a pessimistic outlook.
COLOMBIA,
KEY DESTINATION
FOR NEW BUSINESSES
1

3. FOREIGN DIRECT INVESTMENT
Without question, the Foreign Direct Investment (FDI) flow is a good indicator of the economic
potential of a country. After the global financial crisis of 2009, Latin America positioned itself
as an attractive destination due to the macroeconomic performance of the majority of coun-
tries and the abundance of natural resources. The crisis modified the traditional dynamic of
the FDI flows, promoting the transfer of productive processes and activities to countries with
more competitive operational costs and benefits for outsourcing manufacturing activities and
services. Thus, Latin America grew in average 18% annually for the past 5 years, surpassing
the growth of different geographies including the United States.
2
2009 2010 2011 2012 2013
324
409
431
415
426
CAGR 7%
144
198
224
161
188
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
CAGR 7%
CAGR -9%
363
384
490
216
246
151
190
244
256
292
CAGR 18%
U. S European Union Latin America Asia
2009 2010 2011 2012 2013
| Figure 1 |
Foreign Direct Investment (FDI) Flows
USD Thousands of millions
Source: United Nations Conference on Trade and Development (UNCTAD)
Economic Commission for Latin America and the Caribbean (CEPAL)

4. At a regional level, the main FDI receptors for the last five years have been Brazil, Chile,
Colombia and Peru. Nonetheless, FDI inflows as a percentage of the Gross Domestic Product
(GDP) are larger in smaller economies, confirming the impact FDI has in developing
economies (See figure 2). Colombia, Peru and Chile register an outstanding behavior in terms
of investment and growth between 2009 and 2013.
3
| Figure 2 |
Latin America: Flow Relations FDI (2013) and CAGR (2009-2013)
Source: Prospecta based on CEPAL Information.
*Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama.
Bolivia
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42
25.000
35.000
0
10.000
5.000
40.000
30.000
65.000
15.000
20.000
ParaguayEcuador
Investmentflows(2013)USDMillions
Brazil
Colombia
Venezuela
Chile
Uruguay
Mexico
Argentina
Central America*
Peru
CAGR (2009-2013)
The FDI/GDP ratio presented by
Colombia (4.4%) is remarkable, exceeding Brazil (3.0%)
and Mexico (3.0%). Between 2009 and 2013 FDI inflows
to Colombia registered a CAGR of 24% per year.

5. | Figure 3 |
FDI in Colombia (2009-2014)
Numbers in USD Millions
Source: Banco de la República
4
Even though Colombia shows good results and is today within the Latin American countries
with greater FDI inflows, it is not indifferent to the world crisis. Decreasing commodity prices
and the poor economic performance in the United States and the European Union could affect
the current positive macroeconomic situation of the country. During the first semester of 2014,
FDI inflows recorded an annual decrease of 7%, mainly explained by the slowdown of the
mining and oil industries (Figure 3). This situation could remain during 2015 due mainly to
lower inflows towards the mining sector. However, a series of measures and factors have
boosted the arrival of foreign investment to Colombia, positioning the country as one of the
major receptors of FDI in the region.
8.885
6.430
14.648
15.119
16.354
3.651 3.408
2009 2010 2011 2012 2013 2013-I 2014-I
CAGR 16%
-7%

6. The first relevant parameter is the market.
Forecasts reveal that Colombia will grow 4.5% in
2015, exceeding the 2.2% growth projection of the
region (CEPAL)1
. Furthermore, Colombia has a
very attractive and increasing market size with a
population of 47 million inhabitants, surpassing
Chile (17.4 million) and Peru (30.4 million). The
country’s GDP per capita (USD 8,098) is one of
the greatest in the region, exceeded only by
Chile (USD 15,776), Brazil (USD 11,311) and
Mexico (USD 10,630)2
. Colombia’s market
size continues to be a key driver when
observing the region’s middle class
dynamics. According to the World Bank,
Colombia is one of the countries in which
the middle class presented one of the
highest growths, registering a 50%
increase during the last decade3
.
However, given the current global
economic climate, a slowdown is
expected to affect the growth of the
Latin American middle class.
Nevertheless, experts argue that
Colombia and Mexico will be the
least affected compared with their
peer countries4
.
5
FACTORS PROMOTING
FDI IN COLOMBIA
1 CEPAL (2013). “Foreign Direct Investment in Latin America and the
Caribbean”. Available in http://www.cepal.org/es/publicaciones
2 FMI (2014). “Data and Statistics”. Available in http://www.imf.org/external/-
data.htm#global
3 BANCO MUNDIAL (2012). “Nuevo informe del Banco Mundial revela aumento
del 50% de la clase media en América Latina y el Caribe en la última década”
Available in http://www.bancomundial.org/es/news/press-relea-
se/2012/11/13/-
new-world-bank-report-finds-fifty-percent-increase-middle-class-latin-ame
rica-over-last-decade
4 EL TIEMPO (2014). “Desaceleración de clase media afectará a América Latina
en el 2015” Available in http://www.eltiempo.com/economia/sectores/proyec-
cion-de-moodys-sobre-crecimiento-de-america-latina-en-el-2015-/14580921
Colombia stands for being the middle
point between Central and South
America, a reason why important multi-
nationals chose it as their strategic loca-
tion for expanding their operations. This
is the case of Unilever, which in 2012 built
the highest technological powder laundry
detergent plant in the world.

7. | Figure 4 |
Ease of Doing Business
Doing Business 2015*
6
Additionally, the second key factor is given by macroeconomic measures. Colombia is well
known for attracting technocrat leaders within their government teams that have successfully
implemented orthodox policies by promoting economic growth through the application of
appropriate legal and regulatory frameworks. According to the Global Competitiveness
Report, when compared to other countries in the region, Colombia presents great effective-
ness in the implementation of government decisions. These decisions have positively influ-
enced the business environment as reflected in the Doing Business 2015 report, recognizing
Colombia as one of the best destinations in Latin America to do business. Within the region,
Colombia ranks in the first place, outdoing Mexico, Chile and Brazil (Figure 4).
Source: World Bank, Doing Business 2015
*Lower scores indicate greater ease for doing business.
One of the main bottlenecks for the Colombian economic growth has been the lack of infra-
structure. However, the government of President Santos has consolidated a Plan known as
the Fourth Generation (4G) Plan that contemplates investments in roads and highways worth
USD 23 billion for the next 4 years. In addition, it includes the construction of Bogota´s Com-
plimentary Airport and the railroad connection under a public–private partnership.
182
157
124
120
115
92
82
52
41
39
35
34
Venezuela
Bolivia
Argentina
Brazil
Ecuador
Paraguay
Uruguay
Panama
Chile
Mexico
Peru
Colombia

8. 7
The significant presence of FDI in Colombia is also due
to the government’s effort to reformulate the norma-
tive framework in order to ensure a favorable envi-
ronment for attracting investment. The Colombian
framework has changed in three stages5
, showing
an evolution of almost 45 years. The first stage was
characterized by legislation that responds to the
close nature of the Latin American economies in
the 70’s. In the early 90’s, the economic open-
ness generated a dramatic change, even in FDI
attraction conditions with the negotiation of
agreements to protect it. Finally, the third
stage focused on deepening those agree-
ments and reforms, leading Colombia to
have 13 Free Trade Agreements (FTA) and 16
Investment Agreements signed and active.
On January the 1st
, 2015, the new tax
reform (Law 1739 of 2014) took effect.
This Law has the objective of collecting
more than COP $50 billion (USD $25
billion) during the following 4 years. It
includes the creation of new taxes,
such as the Wealth Tax for individuals
and companies with assets over
COP 1,000 million by the 1st
ofJanuary
of the present year. It establishes as
well a surcharge on the Income Tax
(in Spanish, Impuesto Sobre la
Renta para la Equidad - CREE),
which will increase progressively
from 2015 until 2018 (5%, 6%, 8%
y 9%) for companies with profits
above COP $800 million. It also
keeps the Financial Tax (4x1000)
until 2018, and creates incentives
for investment such as IVA
return for imported capital
assets. The collected funds
will be used mainly to finance
spending on infrastructure,
social investment (health and
education), and to the construc-
tion of a new country without an
armed conflict, once the peace
treaty is signed.
Colombia’s strategy to attract FDI
was accompanied by the use of other
policies such as the implementation of
free trade zones. The promotion of
these zones increased in 2005 under
the figure of Special Trading Zones (In
Spanish, Zonas Francas Especiales). As a
result of this policy, the country went from
having 10 Free Trade Zones in 2001 to 36
(permanent) in 20146
. This increase rep-
resents more than USD 24,000 million sales,
40,000 direct employees and about 90,000
indirect employees7
.
5 FEDESARROLLO (2007). “Informe final-Impacto de la inversión extranjera en
Colombia: Situación actual y perspectivas”. Available in
http://www.fedesarrollo.org.co/wp-content/uploads/2011/08/Impacto-de-la-in
versi%C3%B3n-extranjera-en-Colombia-Informe-Final-Proexport-Dic-de-200
7-_Impreso_.pdf
6 ANDI. Cámara de Zonas Francas. From this total, 22 are currently under
operation, 7 under construction and 3 with the permission to build
7 PORTAFOLIO (2014). “Un régimen francamente eficiente para Colombia”
Available in http://www.portafolio.co/negocios/regimen-zonas-francas-colombia

9. 8
| Figure 5 |
FDI non-traditional sectors in Colombia (2009-2014)
Numbers in USD Millions
Source: Banco de la República
2009 2010 2011 2012 2013 2013-I 2014-I
CAGR 42%
24%
PRODUCT OF SUCCESSFUL POLICIES
The continuous effort of the country to improve the investment climate seems to bear fruits
with the rising FDI inflows towards non-traditional sectors such as manufacturing, construc-
tion and energy, which present a CAGR of 42% since 2009. In the first half of 2014, non-tradi-
tional sectors had a 24% growth compared to the same period of the previous year (Figure 5),
confirming that the outlook remains positive.
1,673
595
6,308 6,097
6,863
1,514
1,879
Within the Latin American Private Equity & Venture Capital Association (LAVCA), Colombia
remains in fourth place among 12 countries of Latin America and the Caribbean. This shows
the favorable conditions for the development of private equity funds and reflects the invest-
ment of Swiss, American and Canadian funds in Hotel infrastructure, among others.

10. 9
For all these reasons, Colombia is considered an
attractive destination for FDI in diverse sectors, either
through greenfield or brownfield projects. In the first
trimester of 2014, the Peruvian group Gloria acquired
for USD 86 million five Colombian firms dedicated to
the production and distribution of dairy products. In
the retail industry, Chilean companies such as
Cencosud, Ripley, la Polar and Winpack have
identified the potential of the Colombian economy
to undertake major investments.
Intensive labor sectors such as Business Pro-
cess Outsourcing (BPO), Information Technol-
ogy (IT), custom software development,
audiovisual and telecommunications are
also highlighted. In 2013, international
firms of these sectors settled up in Medel-
lin, Pereira, Bogotá, Barranquilla and
Manizales. Some of the examples in this
segment are: Globant, Sykes, AIG,
Contax Group, MSH group, among
others. In the same year, Prebuild built
an industrial complex with 11 plants
for different construction material
lines with the purpose of supplying
the local market.
Many indicators show the stable and
solid performance of the Colombi-
an economy in the last decade.
Despite the armed conflict that
has afflicted the country for more
than 50 years and the economic
crisis faced by Venezuela,
Colombia has built strong
foundations enabling the
country to navigate in rough
waters. All the elements are
given so that the country will
achieve a favorable growth in
2015 and take a big step towards
sustainable development by the
time the peace agreement with
the revolutionary groups is signed.
It seems that the moment to har-
vest the benefits of the persistent
efforts made by the political and eco-
nomic leaders to position Colombia
within the outstanding countries in the
region has arrived.
Prospecta gives advice to companies and
organizations in their international expan-
sion processes as well as in the design and
implementation of their market entry strategies
www.prospecta.com.co
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