Policies Towards Foreign Direct Investment

The Colombian government actively encourages foreign direct investment (FDI).  In the early 1990s, the country began economic liberalization reforms, which provided for national treatment of foreign investors, lifted controls on remittance of profits and capital, and allowed foreign investment in most sectors.  Colombia imposes the same investment restrictions on foreign investors that it does on national investors.  Generally, foreign investors may participate in the privatization of state-owned enterprises without restrictions.  All FDI involving the establishment of a commercial presence in Colombia requires registration with the Superintendence of Corporations (Superintendencia de Sociedades) and the local chamber of commerce.  All conditions being equal during tender processes, national offers are preferred over foreign offers.  Assuming equal conditions among foreign bidders, those with major Colombian national workforce resources, significant national capital, and/or better conditions to facilitate technology transfers are preferred.

ProColombia is the Colombian government entity that promotes international tourism, foreign investment, and non-traditional exports.  ProColombia assists foreign companies that wish to enter the Colombian market by addressing specific needs, such as identifying contacts in the public and private sectors, organizing visit agendas, and accompanying companies during visits to Colombia.  All services are free of charge and confidential.  Business process outsourcing, software and IT services, cosmetics, health services, automotive manufacturing, textiles, graphic communications, and electric energy are priority sectors.  ProColombia’s “Invest in Colombia” web portal offers detailed information about opportunities in agribusiness, manufacturing, and services in Colombia (www.investincolombia.com.co/sectors).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investment in the financial, hydrocarbon, and mining sectors is subject to special regimes, such as investment registration and concession agreements with the Colombian government, but is not restricted in the amount of foreign capital.  The following sectors require that foreign investors have a legal local representative and/or commercial presence in Colombia:  travel and tourism agency services; money order operators; customs brokerage; postal and courier services; merchandise warehousing; merchandise transportation under customs control; international cargo agents; public service companies, including sewage and water works, waste disposal, electricity, gas and fuel distribution, and public telephone services; insurance firms; legal services; and special air services, including aerial fire-fighting, sightseeing, and surveying.

According to the World Bank’s Investing Across Sectors indicators, among the 15 countries in Latin America and the Caribbean covered, Colombia is one of the economies most open to foreign equity ownership.  With the exception of TV broadcasting, all other sectors covered by the indicators are fully open to foreign capital participation.  Foreign ownership in TV broadcasting companies is limited to 40 percent.  Companies publishing newspapers can have up to 100 percent foreign capital investment; however, there is a requirement for the director or general manager to be a Colombian national.

According to the Colombian constitution and foreign investment regulations, foreign investment in Colombia receives the same treatment as an investment made by Colombian nationals.  Any investment made by a person who does not qualify as a resident of Colombia for foreign exchange purposes will qualify as foreign investment.  Foreign investment is permitted in all sectors, except in activities related to defense, national security, and toxic waste handling and disposal.  There are no performance requirements explicitly applicable to the entry and establishment of foreign investment in Colombia.

Foreign investors face specific exceptions and restrictions in the following sectors:

Media:  Only Colombian nationals or legally constituted entities may provide radio or subscription-based television services.  For National Open Television and Nationwide Private Television Operators, only Colombian nationals or legal entities may be granted concessions to provide television services.  Colombia’s national, regional, and municipal open-television channels must be provided at no extra cost to subscribers.  Foreign investment in national television is limited to a maximum of 40 percent ownership of the relevant operator.  Satellite television service providers are obliged to include within their basic programming the broadcast of government-designated public interest channels.  Newspapers published in Colombia covering domestic politics must be directed and managed by Colombian nationals.

Accounting, Auditing, and Data Processing:  To practice in Colombia, providers of accounting services must register with the Central Accountants Board; have uninterrupted domicile in Colombia for at least three years prior to registry; and provide proof of at least one year of accounting experience in Colombia.  No restrictions apply to services offered by consulting firms or individuals.  A legal commercial presence is required to provide data processing and information services in Colombia.

Banking:  Foreign investors may own 100 percent of financial institutions in Colombia, but are required to obtain approval from the Financial Superintendent before making a direct investment of ten percent or more in any one entity.  Portfolio investments used to acquire more than five percent of an entity also require authorization.  Foreign banks must establish a local commercial presence and comply with the same capital and other requirements as local financial institutions.  Foreign banks may establish a subsidiary or office in Colombia, but not a branch.  Every investment of foreign capital in portfolios must be through a Colombian administrator company, including brokerage firms, trust companies, and investment management companies.  All foreign investments must be registered with the central bank.

Fishing:  A foreign vessel may engage in fishing and related activities in Colombian territorial waters only through association with a Colombian company holding a valid fishing permit.  If a ship’s flag corresponds to a country with which Colombia has a complementary bilateral agreement, this agreement shall determine whether the association requirement applies for the process required to obtain a fishing license.  The costs of fishing permits are greater for foreign flag vessels.

Private Security and Surveillance Companies:  Companies constituted with foreign capital prior to February 11, 1994 cannot increase the share of foreign capital.  Those constituted after that date can only have Colombian nationals as shareholders.

Telecommunications:  Barriers to entry in telecommunications services include high license fees (USD 150 million for a long-distance license), commercial presence requirements, and economic needs tests.  While Colombia allows 100 percent foreign ownership of telecommunication providers, it prohibits “callback” services.

Transportation:  Foreign companies can only provide multimodal freight services within or from Colombian territory if they have a domiciled agent or representative legally responsible for its activities in Colombia.  International cabotage companies can provide cabotage services (i.e. between two points within Colombia) “only when there is no national capacity to provide the service,” according to Colombian law.  Colombia prohibits foreign ownership of commercial ships licensed in Colombia and restricts foreign ownership in national airlines or shipping companies to 40 percent.  FDI in the maritime sector is limited to 30 percent ownership of companies operating in the sector.  The owners of a concession providing port services must be legally constituted in Colombia and only Colombian ships may provide port services within Colombian maritime jurisdiction; however, vessels with foreign flags may provide those services if there are no capable Colombian-flag vessels.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.

Business Facilitation

New businesses must register with the chamber of commerce of the city in which the company will reside.  Applicants also register using the Colombian tax authority’s portal at www.dian.gov.co to obtain a taxpayer ID (RUT).  Business founders must visit DIAN offices to obtain an electronic signature for company legal representatives. Also obtained through DIAN – in person or online – is an authorization for company invoices.  In 2019, Colombia made starting a business a step easier by lifting a requirement of opening a local bank account to obtain invoice authorization.  Companies must submit a unified electronic form to self-assess and pay social security and payroll contributions to the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), the Colombian Family Welfare Institute (Instituto Colombiano de Bienestar Familiar, or ICBF), and the Family Compensation Fund (Caja de Compensación Familiar).  After that, companies must register employees for public health coverage, affiliate the company to a public or private pension fund, affiliate the company and employees to an administrator of professional risks, and affiliate employees with a severance fund.

According to the World Bank 2020 “Doing Business” report, recent reforms made easier starting a business, trading across borders, and resolving insolvency.  While improving in the indexes, Colombia’s ranking to other countries still fell two positions to 67 due to greater improvements in some other countries.  According to the report, starting a company in Colombia requires seven procedures and takes an average of 10 days.  Information on starting a company can be found at http://www.ccb.org.co/en/Creating-a-company/Company-start-up/Step-by-step-company-creation ; https://investincolombia.com.co/how-to-invest.html ; and http://www.dian.gov.co .

Outward Investment

Colombia does not incentivize outward investment nor does it restrict domestic investors from investing abroad.

Since 2015, the Government of Colombia has concentrated its industrial and commercial enterprises under the supervision of the Ministry of Finance.  According to the latest annual report issued in 2019, the number of state-owned companies is 105, with a combined value of USD 20 billion.  The government is the majority shareholder of 39 companies and a minority shareholder in the remaining 66.  Among the most notable companies with a government stake are Ecopetrol (Colombia’s majority state-owned and privately-run oil company), ISA (electricity distribution), Banco Agrario de Colombia, Bancoldex, and Satena (regional airline).  SOEs competing in the Colombian market do not receive non-market-based advantages from the government.  The Ministry of Finance updates their annual report on SOEs every June.

Privatization Program

Colombia has privatized state-owned enterprises under article 60 of the Constitution and Law Number 226 of 1995.  This law stipulates that the sale of government holdings in an enterprise should be offered to two groups:  first to cooperatives and workers’ associations of the enterprise, then to the general public.  During the first phase, special terms and credits have to be granted, and in the second phase, foreign investors may participate along with the general public.  The government views stimulating private-sector investment in roads, ports, electricity, and gas infrastructure as a high priority.  The government is increasingly turning to concessions and utilizing public-private partnerships (PPPs) as a means for securing and incentivizing infrastructure development.

In order to attract investment and promote PPPs, Colombian modified infrastructure regulations to clarify provisions for frequently-cited obstacles to participate in PPPs, including environmental licensing, land acquisition, and the displacement of public utilities.  The law puts in place a civil procedure that facilitates land expropriation during court cases, allows for expedited environmental licensing, and clarifies that the cost to move or replace public utilities affected by infrastructure projects falls to private companies.  However, infrastructure development companies considering bidding on tenders have raised concerns about unacceptable levels of risk that result from a law establishing a framework for public works projects.  Interpretations of the law (Ley 80) do not establish a liability cap on potential judgments and views company officials equal to those with fiscal oversight authority when it comes to criminally liability for misfeasance.

Municipal enterprises operate many public utilities and infrastructure services.  These municipal enterprises have engaged private sector investment through concessions.  There are several successful concessions involving roads.  These kinds of partnerships have helped promote reforms and create a more attractive environment for private, national, and foreign investment.

In 2015, the Colombian government released its National Action Plan on Business and Human Rights, which responds to the UN Guiding Principles on Business and Human Rights and the OECD’s Guidelines for Multinational Enterprises. Colombia also adheres to the corporate social responsibility (CSR) principles outlined in the OECD Guidelines for Multinational Enterprises. CSR cuts across many industries and Colombia encourages public and private enterprises to follow OECD CSR guidelines. Beneficiaries of CSR programs include students, children, populations vulnerable to Colombia’s armed conflict, victims of violence, and the environment. Larger companies structure their CSR programs in accordance with accepted international CSR principles. Companies in Colombia have been recognized on an international level for their CSR initiatives, including by the State Department.

Overall, Colombia has adequate environmental laws, is proactive at the federal level in enacting environmental protections, and does not waive labor or environmental regulations to attract investors. However, the Colombian government struggles with enforcement, particularly in more remote areas. Geography, lack of infrastructure, and lack of state presence all play a role, as does a general shortage of resources in national and regional institutions. The Environmental Chapter of the CTPA requires Colombia to maintain and enforce environmental laws, protect biodiversity, and promote opportunities for public participation.
In parallel with its OECD accession, the Colombian government worked with the Organization in a series of assessments in order to develop the implementation the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, especially related to gold mining. The Colombian government faces challenges in formalizing illegal gold mining operations throughout the country. Colombia ratified the Minamata Convention on Mercury in 2018 and banned the use of mercury in mining. It will phase out mercury use from all other industries by 2023.

Buyers, sellers, traders, and refiners of gold may wish to conduct additional due diligence as part of their risk management regimes to account for the influx of illegally-mined Colombian gold into existing supply chains. Throughout the country, Colombian authorities have taken steps to dismantle illegal gold mining operations that are responsible for negative environmental, criminal, and human health impacts. The Colombian government has focused its efforts on transnational criminal elements involved in the production, laundering, and sale of illegally- mined gold, and the fraudulent documentation that is used to obscure the origin of illegally- mined gold.

Corruption, and the perception of it, is a serious obstacle for companies operating or planning to invest in Colombia.  Analyses of the business environment, such as the WEF Global Competitiveness Index, consistently cite corruption as a problematic factor, along with high tax rates, inadequate infrastructure, and inefficient government bureaucracy.  Transparency International’s latest “Corruption Perceptions Index” ranked Colombia 96th out of 180 countries assessed, assigned it a score of 37/100, unchanged from four years earlier.  Among OECD member states, only Mexico ranked lower.  Customs, taxation, and public works contracts are commonly-cited areas where corruption exists.

Colombia has adopted the OECD Convention on Combating Bribery of Foreign Public Officials and is a member of the OECD Anti-Bribery Committee.  It also passed a domestic anti-bribery law in 2016.  It has signed and ratified the UN Anticorruption Convention.  Additionally, it has adopted the OAS Convention against Corruption.  The CTPA protects the integrity of procurement practices and criminalizes both offering and soliciting bribes to/from public officials.  It requires both countries to make all laws, regulations, and procedures regarding any matter under the CTPA publicly available.  Both countries must also establish procedures for reviews and appeals by any entities affected by actions, rulings, measures, or procedures under the CTPA.

Resources to Report Corruption

Useful resources and contact information for those concerned about combating corruption in Colombia include the following:

• The Transparency and Anti-Corruption Observatory is an interactive tool of the Colombian government aimed at promoting transparency and combating corruption available at http://www.anticorrupcion.gov.co/.
• The National Civil Commission for Fighting Corruption, or Comisión Nacional Ciudadana para la Lucha Contra la Corrupción (CNCLCC), was established by Law 1474 of 2011 to give civil society a forum to discuss and propose policies and actions to fight corruption in the country. Transparencia por Colombia is the technical secretariat of the commission. http://ciudadanoscontralacorrupcion.org/es/inicio
• The national chapter of Transparency International, Transparencia por Colombia: http://transparenciacolombia.org.co/
• The Presidential Secretariat of Transparency advises and assists the president to formulate and design public policy about transparency and anti-corruption. This office also coordinates the implementation of anti-corruption policies. http://wsp.presidencia.gov.co/secretaria-transparencia/Paginas/default.aspx/.

Security in Colombia has improved significantly over recent years.  Colombia experienced a significant decrease in terrorist activity, due in large part to a bilateral ceasefire between government forces and Colombia’s largest terrorist organization, the FARC.  On November 26, 2016, President Santos signed a peace agreement with the FARC to end half a century of confrontation.  Congressional approval of a peace accord between the government and the FARC on November 30, 2016 put in motion a six-month disarmament, demobilization, and reintegration process, which granted the FARC status as a legal political organization.  Security forces estimate 1,200 combatants (FARC dissidents) have chosen not to participate in the process.  Currently the peace negotiations with the National Liberation Army (ELN), which began in 2017, are suspended.  This terrorist group continues a low-cost, high-impact asymmetric insurgency.  ELN attacks, alongside powerful narco-criminal group operations, are posing a threat to commercial activity and investment, especially in some rural zones where government control is weak.  The ELN often focuses attacks on oil pipelines, mines, roads, and electricity towers to disrupt economic activity and pressure the government.  The ELN also extorts businesses in their areas of operation, kidnaps personnel, and destroys property of entities that refuse to pay for protection.

An OECD economic survey of Colombia was published in October 2019.  The report mentions progress on labor market reforms, but cites a weakening of the labor market given decelerating economic growth, stalled progress on labor force participation, and high income inequality.  In 2019, the unemployment rate according to government figures was 10.5 percent, an increase over the 2018 rate of 9.7 percent, and one of the highest in Latin America.  According to DANE,  47.7 percent of the urban workforce was working in the informal economy at the end of 2019.  A new National Development Plan, signed into law in May 2019, aims to reduce informality by formalizing hourly work, reform the pension system, and expand social protection.  Colombia has made strong efforts to incorporate Venezuelan migrants into the formal economy.  Colombia has a wide range of skills in its workforce, including managerial-level employees who are often bilingual, but faces large skills gaps.

Labor rights in Colombia are set forth in its Constitution, the Labor Code, the Procedural Code of Labor and Social Security, sector-specific legislation, and ratified international conventions, which are incorporated into national legislation.  Colombia’s Constitution guarantees freedom of association and provides for collective bargaining and the right to strike (with some exceptions).  It also addresses forced labor, child labor, trafficking, discrimination, protections for women and children in the workplace, minimum wages, working hours, skills training, and social security.  Colombia has ratified all eight of the International Labor Organization’s (ILO’s) fundamental labor conventions, and all are in force.  Colombia has also ratified conventions related to hours of work, occupational health and safety, and minimum wage.

The 1991 Constitution protects the right to constitute labor unions.  Pursuant to Colombia’s labor law, any group of 25 or more workers, regardless of whether they are employees of the same company or not, may form a labor union.  Employees of companies with fewer than 25 employees may affiliate themselves with other labor unions.  Colombia has a low trade union density (9.5 percent).  Where unions are present, multiple affiliation sometimes poses challenges for collective bargaining.  The largest and most influential unions are composed mostly of public-sector employees, particularly of the majority state-owned oil company and the state-run education sector.  Only 6.2 percent of all salaried workers are covered by collective bargaining agreements (CBAs), according to the OECD.  The Ministry of Labor has expressed commitment to working on decrees to incentivize sectoral collective bargaining, and to strengthen union representation within companies and regulate strikes in the essential public services sector (i.e. hospitals).

Strikes, when held in accordance with the law, are recognized as legal instruments to obtain better working conditions and employers are prohibited from using strike-breakers at any time during the course of a strike.  After 60 days of strike action, the parties are subject to compulsory arbitration.  Strikes are prohibited in certain “essential public services,” as defined by law, although Colombia has been criticized for having an overly-broad interpretation of “essential.”

Foreign companies operating in Colombia must follow the same hiring rules as national companies, regardless of the origin of the employer and the place of execution of the contract.  No labor laws are waived in order to attract or retain investment.  In 2010, Law 1429 eliminated the mandatory proportion requirement for foreign and national personnel; 100 percent of the workforce, including the board of directors, can be foreign nationals.  Labor permits are not required in Colombia, except for minors of the minimum working age.  Foreign employees have the same rights as Colombian employees.  Employers may use temporary service agencies to subcontract additional workers for peaks of production.  Employers must receive advance permission from the Ministry of Labor before undertaking permanent layoffs.  The Ministry of Labor typically does not grant permission to lay off workers who have enhanced legal protections (those with work-related injuries or union leaders, for example).  The Ministry of Labor has been cracking down on using temporary or contract workers for jobs that are not temporary in nature.

Reputational risks to investors come with a lack of effective and systematic enforcement of labor law, especially in rural sectors.  Homicides of unionists (social leaders) remain a concern.  In January 2017, the U.S. Department of Labor issued a public report of review in response to a submission filed under Chapter 17 (the Labor Chapter) of the CTPA by the American Federation of Labor and Congress of Industrial Organizations and five Colombian workers’ organizations that alleged failures on the part of the government to protect labor rights in line with CTPA commitments.  In January 2018, the Department of Labor published the first periodic review of progress to address issues identified in the submission report.  For additional information on labor law enforcement see:

• Section 7 of Colombia’s Human Rights Report

https://www.state.gov/j/drl/rls/hrrpt

• Department of Labor Findings on the Worst Forms of Child Labor (

https://www.dol.gov/agencies/ilab/resources/reports/child-labor/colombia 

• Lists of Goods Produced with Child or Forced Labor

https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods 

OPIC, the Overseas Private Investment Corporation and the predecessor to the Development Finance Corporation (DFC), made its first investment in Colombia in 1985.  DFC has 10 active projects and is exploring more, with its new charter allowing investment in non-U.S. companies and to make loans in local currency.  Priority segments for DFC are infrastructure, renewable energy, technology, and agriculture.  DFC’s largest project in Colombia is a USD 350 million Puerta de Hierro toll road connecting the port cities of Barranquilla and Cartagena with the country’s interior.  As of end 2019, DFC’s active investments in Colombia totaled nearly USD 1.1 billion.  Additional information can be found at www.dfc.gov .

* Data from the Colombian Statistics Departments, DANE, (https://www.dane.gov.co/ )  and the Colombian central bank (http://www.banrep.gov.co ).  Note: U.S. FDI reported by Banco de la Republica is not historically adjusted.