Building back better

Attracting multinational companies

Boasting the fourth-largest economy and the third-largest population in Latin America, Colombia is gaining prominence as a key partner for multinationals interested in near-shoring more of their operations.

Thanks to significant efforts on the part of Colombian officials and policy makers, multinational firms across a number of industries and sectors are bringing more of their operations to Colombia and discussing ways to expand further. As the lingering effects of the COVID-19 pandemic continue to fade, Colombia is taking significant steps to ensure that it can build back better.
In an effort to shore up foreign investment—which contracted by more than 20% to almost USD4.7 billion in the first half of 2020 during the darkest days of the pandemic, according to Bloomberg—and attract more multinational firms, Colombia has unveiled a new effort aimed at significantly expanding its non-energy related FDI base. Combining tax incentives with bureaucratic rationalization, the scheme is intended to create an investment environment that can viably compete with traditional manufacturing powerhouses in Asia. Regulatory changes include lower tax rates for investments: income tax deductions for firms that employ vulnerable or disabled populations or youth; strong incentives for investment in research and development; a strong focus on public-private-partnerships focused on megaprojects; and a 0% tariff levy on imported products not produced in the national registry. ProColombia, the government agency in charge of promoting non-traditional exports, international tourism and foreign investment, has identified more than 500 businesses whose operational needs align well with Colombian offerings. By 2022, Colombia hopes to attract USD11.5 billion in non-oil and gas related investment a year, which represents a significant step up from a current average of around USD9 billion.

Jose Manuel Restrepo, Colombia’s Minister of Finance and Public Credit, was confident that the new plan will be complemented by Colombia’s many free trade agreements with regional global partners. The US, for example, has recently announced an initiative designed to funnel USD5 billion of private investment into rural parts of Colombia. Part of a broader American initiative aimed at moving supply chains out of China and into the Americas, the plan will focus on rule of law, security, infrastructure, and rural development, according to US officials. By focusing on rural areas, policy makers hope to generate development in parts of the country hit hard by drug trafficking and violence. In designing policy that takes advantage of key policy ambitions of the major economic force in the America’s, Colombian policymakers have harmonized national ambitions with those of a key global and regional stakeholder. By shortening supply lines, American investors and officials hope to improve the resiliency of their own economy, and major strides in this direction could have positive and significant spillover effects for Colombia.

Major multinationals have taken notice of the developments in Colombia, and numerous global players have either introduced operations into the country or recently chosen to greatly expand their presence. According to a recent report from the international consultancy Auxadi, the appetite for Latin American investment amongst private equity houses and VC funds approaches 90%. Key attractors include the proximity of the country to other major South and North American markets and an expanding and deepening talent pool. The COVID-19 pandemic has brought home for many American and Canadian officials the value of having near-shore manufacturing operations, and Colombia’s pre-pandemic status as a partner of choice has only improved in the last 18 months.

Boasting ports on both the Atlantic and Pacific coasts, Colombia can serve as both a manufacturing hub and a landing site and export platform for regional trade. Only five days from major American ports and seven days from any port in Latin America, Colombia’s five seaports offer excellent access to trade partners. Further, the country’s stable financial system, regulatory and political landscapes only add to the national appeal. With one in four American firms with Asian operations currently considering bringing their manufacturing capabilities back to the Americas—according to McKinsey—Colombia is attracting significant attention. Areas of the Colombian economy particularly well-situated to take advantage of this growth include agribusiness, creative industries, infrastructure, logistics, manufacturing, and non-conventional energy.

Multinationals such as ExxonMobil, Goodyear, GE, Kraft, Microsoft, and General Motors already recognized the value Colombia offers and have introduced operations into the country. In an exclusive interview with TBY, Gustavo Salas, General Manager of PepsiCo Alimentos Colombia, lauded the value of having manufacturing capabilities in Colombia, noting that Colombia’s size and location allows it serve as a hub for the regional export of Pepsi products. “In Colombia,” said Salas, “we have three of our largest factories across Latin America. We export products to Ecuador, Peru and some countries in the Caribbean and Central America, and this is because of the scale of Colombia.” As more firms unlock the value Colombia can offer, observers anticipate exciting growth throughout the country.