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An Overview of Colombia’s Investment Promotion Policies

December 5, 2009

The Government of Colombia, seeking to rebuild the country as decades of violence now recede into the past, has adopted a number of pro-investment strategies. This post describes the elements of the overall scheme.

The most prominent feature of the pro-investment policies appear to be the attitude of the government that can be perceived in interacting with them directly and in viewing the threads that connect the policies. 

Recently, for example, I inquired directly of the Trade Minister, Luis Guillermo Plata, if someone in the Ministry was involved in a certain industry sector in which a potential client was interested. Specifically, we sought information about manufacturing an essential green energy component in Colombia for both export and local markets. Within less than a handful of days we received a booklet on the specific sector, actual and planned participants in the sector, availability locally and by import of the raw material, data on the relevant labor supply and costs, and general information on pro-investment policies such as tax breaks, free trade zones, and legal regime stabilization contracts.

These policies are subject to the criticism that they are a sop to business in a country with trenchant poverty problems – although something like one-sixth of the population has moved into the middle class and out of poverty in less than the last decade.  Can favorable treatment for free trade zones – such as a15% income tax rate instead of 31%, and no tariffs or duties – be sustained? Should generally applicable legislation not apply to any investor (foreign or domestic) that pays a 1% premium to the government? (Discussion of the overall criticisms is not the purpose of this introductory post, but comments and suggestions are welcomed for future discussions.)

The pro-investment policies are chiefly these:

  • Tax advantages for preferred activities, such as tourism/eco-tourism, renewable energy, new medicinal products, software, late yield crops, forestry, and editorial. See the webpage of ProExport, the Trade Ministry here, and this presentation by ProExport at slides 35-36). Also, there is no capital gains tax on transactions in listed securities.
  • Free Trade Zones – (See this presentation by ProExport, at slides 27-32), both for multiple users (see ProExport’s website description here and the discussion about costs of installing them here) and single enterprises (see ProExport’s website description here)
  • Legal Stability Contracts (see previous posts here describing and analyzing these contracts, and see ProExport’s website description here)
  • Special export provision for service-exporting enterprises, including unions (see ProExport website description here)
  • Free Trade Agreements provide preferential access terms to an increasing number of countries worldwide (see overview in ProExport’s presentation here at slides 19-22)

Two additional policies with pro-investor motivation and presumed effects should also be recognized:

  • Liberalized Private Equity regulatory regimes (see related discussions here)
  • Streamlined laws on antitrust/competition (see our previous discussions here)

One could also discuss in this context the restructuring of the export bank, Bancoldex, including its incubator programs, and the modernization of the consolidated stock/bond exchanges, known simply as the BVC or Bolsa de Valores de Colombia, whose main index is the IGBC.

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