With markedly improved security conditions, a market of 50 million people, an abundance of natural resources, and an educated and growing middle-class, Colombia continues to be an attractive destination for foreign investment in Latin America. In the World Bank’s 2020 Doing Business Report, Colombia ranked 67 out of 190 countries in the “Ease of Doing Business” index.
In 2020, the Colombian economy will likely experience its first recession since 1999 after suffering the dual shocks of a long national quarantine to control the spread of the coronavirus and a related collapse of oil prices. (Note: A summary of macroeconomic statistical updates due to the COVID-19 crisis is included at the end of this summary. End Note.) However, due to strong macroeconomic institutions and relatively robust pre-coronavirus economy, Colombia is better positioned than many countries in the region to return to growth in 2021.
Colombia’s legal and regulatory systems are generally transparent and consistent with international norms. The country has a comprehensive legal framework for business and foreign direct investment (FDI). The U.S.-Colombia Trade Promotion Agreement (CTPA), which took effect on May 15, 2012, has strengthened bilateral trade and investment. Through the CTPA and several international conventions and treaties, Colombia’s dispute settlement mechanisms have improved. Weaknesses include protection of intellectual property rights (IPR), as Colombia has yet to implement certain IPR-related provisions of the CTPA. Colombia was on the U.S. Trade Representative’s Special 301 Watch List in 2020. The Organization for Economic Cooperation and Development (OECD) invited Colombia to join its ranks in 2018, and in April, 2020 the country became its 37th member. With this comes the expectation Colombia will adhere to OECD norms and standards in economic operations.
The Colombian government has made a concerted effort to develop efficient capital markets, attract investment, and create jobs. President Ivan Duque took office on August 7, 2018. The administration made tax reform a priority, succeeding in lowering the tax obligation of some companies while extending income tax to a broader group of individuals, but has struggled to secure approval of other changes from the national congress. Restrictions on foreign ownership in specific sectors still exist. FDI increased 7.1 percent from 2017 to 2018, with a third of the 2018 inflow dedicated to the extractives sector. Roughly half of the Colombian workforce in metropolitan areas is in the informal economy, a share that increases to four fifths in rural areas. Unemployment registered at 12.6 percent in March, 2020 before rising sharply due to the COVID19 crisis.
Security in Colombia has improved significantly in recent years, with kidnappings down from 10 cases daily in 2000 to 88 cases for all of 2019. Since the 2016 peace agreement between the government and the country’s largest terrorist organization, the Revolutionary Armed Forces of Colombia (FARC), Colombia has experienced a significant decrease in terrorist activity. Negotiations between the National Liberation Army (ELN), another terrorist organization, and the government have stalled, and the ELN continues its attacks on energy infrastructure and security forces. The ELN is one of several powerful narco-criminal operations that poses a threat to commercial activity and investment, especially in rural zones outside of government control. Despite improved security conditions, coca production was at a record high in 2019.
Corruption remains a significant challenge in Colombia. The World Economic Forum’s Global Competitiveness Index (2019) ranked Colombia 57 out of 141 countries. The Colombian government continues to work on improving its business climate, but U.S. and other foreign investors have voiced complaints about non-tariff and bureaucratic barriers to trade and investment at the national, regional, and municipal levels. Also of concern for investors has been ridged judicial interpretations of the right of indigenous communities to prior consultation (consulta previas) on projects within their territories, as well as a heavy reliance by the national competition and regulatory authority (SIC) on decrees to remedy perceived problems.
|TI Corruption Perceptions Index||2019||96 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2020||67 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||67 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||$7,737||http://apps.bea.gov/international/
|World Bank GNI per capita||2018||$6,180||http://data.worldbank.org/indicator/
|Measure||Prior to COVID-19||With COVID-19|
|GDP Growth, World Bank Estimate, 2020||3.6%||-2.0%|
|Fiscal Deficit as Percent of GDP, 2020||2.2%||4.9%|
|Unemployment, Fedesarrollo Estimate||10.5%
|16.3% – 20.5%
|Colombian Peso Valuation to U.S. Dollar||Jan. 1, 2020
$1 = 3,287 peso
|Apr. 23, 2020
$1 = 4,065 peso
* As of April, 2020
1. Openness To, and Restrictions Upon, Foreign Investment
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.
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 .
Colombia does not incentivize outward investment nor does it restrict domestic investors from investing abroad.
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/.