ISSN X. Tourism. A hospitality. investment opportunity. Volume I No. 2 February 2010 Bogotá D.C.

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1 ISSN X Tourism A hospitality investment opportunity Volume I No. 2 February 2010 Bogotá D.C.

2 SANTA MARTA OFFERS THE CONTRAST OF ONE OF THE MOST BEAUTIFUL BAYS IN AMERICA WITH INCREDIBLE AND MAJESTIC SNOW-CAPPED MOUNTAINS No matter which way you look at it, Colombia is your investment destination because we create everything with our best natural gift the Passion of Colombians. Santa Marta. Tayrona Park This document is constantly updated on its online version: ẇww.investincolombia.com.co

3 San Andres, Providencia y Santa Catalina. Puente de los Enamorados

4 Table of Contents: Preface 1. Tourism Sector in Colombia 2. Why is Colombia an opportunity for tourism investment? 3. Related Entities 4. Proexport Services Publishing Company: Fiducoldex Fideicomiso Proexport Colombia Foreign Investment Office Publisher: Schalma Diazgranados Abadía Foreign Investment Advisor Phone Number: +57 (1) Fax: +57 (1) Cover Design: Sancho BBDO Printed in: Offset Gráfico Bogotá D.C., Colombia February 2010 The digital version of this document can be found on:

5 Preface This is the time for Tourism Investment in Colombia! We are in a historical period of growth and development. The richness of our destinations and the warmth of our people have drawn the attention of locals and foreigners, and through working in conjunction with all the organizations involved in the industry, we are on a path of consolidating a world class destination in our country. Colombia offers an unparalleled framework of advantages for your investment, and a specially designed package of benefits that will improve your business options, including the total exemption of income tax for a 30-year period. In this document, you will discover our competitive advantages, the excellent tourism destinations we provide, the testimonials of those who already know us, the benefits that privilege your investment, and the support Proexport can provide in order to successfully make your investment in Colombia, and to help you achieve a better project. Some of the reasons for investing that you will find in this document are: International Tourism to Colombia grows faster than world average. (10.4% vs. 2.9%) 52% growth in cruise ships arrivals in Attractive incentives for investment include total exemption of income taxes for a 30-year period. Colombia has human talent at the level of the United Kingdom or Italy. (IMD 2009) Gastronomy rewarded by UNESCO. Average RevPAR close to USD100 per night. There are millions of reasons! Here we will present just a few that will inspire you to find in Colombia the best opportunity for your Hospitality Investment.

6 1. Tourism Sector in Colombia INTERNATIONAL TOURISM TO COLOMBIA GROWS FASTER THAN WORLD AVERAGE Foreign travelers visits to Colombia rised from 0.6 million in 2000 to almost 1.4 million in 2009, reflecting an average annual composite growth rate of 10.4%, almost 4 times the world s average and one of the highest in the region as well as in the world. In 2009 Colombia demonstrated outstanding performance in a year of crisis with 16% growth in foreign arrivals while the world contracted by -4% and the Americas by -5%. International Tourism to the World and to Colombia 1 ( ) 1,400 1,300 1,200 1,100 1, COLOMBIA Average Growth Rate % WORLD Average World Rate % World (million) Colombia (thousand) Source: DAS, WTO 52% GROWTH OF CRUISE SHIP FOREIGN PASSENGER ARRIVALS IN 2009 Preliminary data shows a total of 218 cruise ships arrived to Colombia during 2009 with a total of 346,693 passengers on board. This reflects a growth of 35% in the number of ships and 52% in passengers compared to the previous year. The resurgence of port calls by cruise ships in Colombia further strengthened by the return of Royal Caribbean on April 18, 2007, 2 and the designation of Cartagena as a port of call and intermediate port for Royal Caribbean and for Pullmantur Cruises for the season, reaffirms the good moment the industry in the country is going through and the opportunities that are opening for investment in the sector. 1 Includes Immigration Checkpoints. Does not include Cruise Ship Arrivals, or inter-frontier transits. 2 Royal Caribbean is the world s most modern cruise line and second in size: El Tiempo Cruise ships to leave USD 14 million in Cartagena during the season April 17, 2007

7 ARRIVAL OF CRUISE SHIPS TO COLOMBIA Number of Ships Number of passengers (Thousand) Source: Ministry of Commerce, Industry and Toursim (SPRC, SPSM, Port Authority San Andrés Island) *Preliminary Data AVERAGE OCCUPANCY RATE IN MAIN DESTINATIONS IS AROUND 60%. A growing demand, thanks to the improvement in perception abroad about Colombia, has triggered investments in new hotel projects focused mainly on business travelers. In spite of this, hotel occupancy rates in main destinations remain high, especially in high income areas, resorts, and ecotourism facilities, where supply does not yet meet demand.

8 Hotel Occupancy Rate 2008 and 2009 AVERAGE stars 4 stars 5 stars Bogota San Andres Cartagena Northern Santander Barranquilla Atlantico Comercial Santander Antioquia Influence Bogota Valle del Cauca Coffee Triangle (JAN - DEC) 2008 (JAN - DEC) 64.3 Source: Cotelco. Calculations: Proexport AVERAGE REVPAR IN LUXURY COLOMBIAN HOTELS IS NEARLY USD100 Colombian hotels show strong performance in terms of profitable investments. RevPAR in main Colombian tourism destinations is higher than in other Latin American cities including Mexico City and Sao Paulo. Luxury hotels show a stronger RevPAR with most 5 stars well above the USD100 per night, and higher particularly inthe Boutique segment. Revenue per Available Room (RevPAR) 2009 $120 $100 $80 $60 $40 $20 0 Sao Paulo Mexico City San Andres Bogota Buenos Aires Cartagena Sources: STR Global, Cotelco.

9 2. Why is Colombia an opportunity for tourism investment? BECAUSE TOURISM DESTINATIONS IN COLOMBIA ARE BEING RECOGNIZED THROUGHOUT THE WORLD. Colombia has been selected as one of the 31 Places To Go in 2010 by the New York Times, and won the 2010 Top Emerging Destination Award by Wanderlust Magazine. In 2009, Colombia was appointed by UNWTO as an example to the world because of its successful collective effort and strategy for creating a new country image, and for its social and economic development. With 3,208 km of coastline (1,760 km in the Caribbean Sea and 1,448 km in the Pacific Ocean), 400 km 2 of Amazonian rainforest and Andean mountains, Colombia enjoys a vast mix of all the possible landscapes and natural attractions of the world. The strategic geographical location of Colombia in the tropics makes it have all the types of climate and tourism available all year round. Colombia, the Latin American nation whose wild beaches, colonial cities (including Unesco-listed Cartagena), archeological sites and rolling coffee plantations are fast erasing outdated stereotypes of drugs and crime. Wanderlust Magazine, on the Award as 2010 Top Emerging Destination to Colombia 3 3 Wanderlust Magazine is one of the most recognized travel media in the UK, also host of the Wanderlust Destinations Show Travel Awards.

10 BECAUSE OF THE REMARKABLE GROWTH OF OUR MICE TOURISM Colombia climbed from 50th to 38th in ICCA s latest ranking of international events. Colombia organizes more world-class events today than countries like Russia, New Zealand, Panama, Peru, or Puerto Rico. Our MICE infrastructure includes more than 18 convention centers to host world-class events. The fast growth of demand, both internal and external, however, makes it essential to increase the offer of this type of venue in the country. Only Corferias 4 carries out over 34 large events, with over 1,200 exhibitors, and receives 2.6 million visitors a year. 5 Large conventions centers being built in cities like Cali, Armenia and Barranquilla, however, are still in need of world-class hotel infrastructure to support them. During the last few years, Colombia has positioned itself as an excellent destination for business and events. Colombia is the seat of internationally renowned events such as: World Economic Forum Latin America 2010 South American Hotel & Tourism Investment Conference th Annual Meeting of the Board of Governors of Inter-American Development Bank 2009 ALTA 6 Airline Leaders Forum 2009 FIFA U-20 World Cup 2011 Carnival of Barranquilla (UNESCO Masterpiece of the Oral and Intangible Heritage of Humanity) International Book Fair of Bogota Iberoamerican Theater Festival Colombiamoda Cartagena International Film & TV Festival Hay Festival Festival of the Leyenda Vallenata (Vallenato legend) The best General Assembly I have attended in all of the 18 years I have been with the UNWTO Very organized, Colombians are hospitable; everyone was very happy. Francesco Frangialli, Former Secretary General, UNWTO 4 Corferias is the leading fair and events organizer in Bogotá. 5 Cambio Magazine, August Latin American Air Transportation Association.

11 BECAUSE THERE ARE MORE THAN 26 MILLION AIRWAY SEATS AVAILABLE FOR DOMESTIC AND INTERNATIONAL TRAVELERS. Aerial connectivity has been increasing consistently during the last decade. During 2009, Domestic airplane seats supply grew by 9.5% reaching 17.4 million. International supply also increased by 5.4% offering 8.7 million seats to Colombia. Companies such as Avianca, Aerorepublica, Aires, Aeromexico, AeroGal, Aerolineas Argentinas, Air Canada, Air France, American Airlines, Continental Airlines, Copa Airlines, Cubana de Aviacion, Delta Air Lines, Dutch Antilles Express, JetBlue, Iberia, LAN Airlines, Mexicana, Spirit Airlines, TACA, TAME, Tiara Air and Varig, reduced distances with direct flights between Europe, North and South America and Colombia; which in turn, because of its privileged geographical location, could become the perfect hub for all of America. Total seats offered (Thousand) 30,000 25,000 20,000 15,000 10,000 5, ,854 17,367 8,229 8,670 Domestic International % Change Source: Aerocivil (Civil Aeronautics Authority) Colombia s back. After decades of civil conflict, Colombia is now safe to visit and travelers are discovering what they ve been missing. The diversity of the country may astonish you. Modern cities with skyscrapers and nightclubs? Check. Gorgeous Caribbean beaches? Check. Jungle walks and Amazon safaris? Check. Colonial cities, archaeological ruins, high-mountain trekking, whale watching, coffee plantations, scuba diving, surfing, the list goes on. BECAUSE OF ITS EXCELLENT LABOR AND VOCATION OF SERVICE 92% of foreign tourists would return because of the kind treatment Lonely Planet World guide, Because of the cordial treatment to tourists, Colombia offers one of the best services and personal attention in tourist travel. Ninety-two percent (92%) of foreign tourists visiting Colombia rated their stay in the country with a grade between 4 and 5 points out of a possible 5 points, and rated treatment afforded to the tourist with an average of The known kindness of its people, as well as the excellent training imparted by 23 institutions of higher learning in tourism, makes Colombia the best place to hire your employees Foreign Tourist Survey. Ipsos-Napoleón Franco and Proexport

12 HUMAN TALENT AT THE LEVEL OF UNITED KINGDOM AND ITALY According to the IMD World Competitiveness Yearbook 2009, Colombian labor force skill is qualified at levels similar to those in Italy and United Kingdom. The Colombian worker is joyful and kind. Labor relations are the best qualified in the region according to IMD, ranking better than ountries such as Germany, Canada, United States, Belgium, Spain and Italy. Skilled Labor Venezuela 3.92 Peru Poland Spain Brazil Mexico Argentina Portugal Italy Colombia United Kingdom Source: IMD World Competitiveness Yearbook Colombia has very capable human resources; they are well trained in administrative, commercial, industrial, technical and agricultural activities. Some of the most important universities, schools, and technical institutes in South America are located in the country. Paulo Cesar Amaro Former President of Petrobras International S.A. BECAUSE OF ITS RICH GASTRONOMY The recognized gastronomical richness of the country has been acknowledged by newspapers such as the New York Times and has piqued the interest of international chefs such as Anthony Bourdain. Colombia s gastronomic tradition spanning several centuries has been recognized by UNESCO, which has appointed the city of Popayan, Cauca, a UNESCO City of Gastronomy. According to the Survey to Foreign Tourist conducted by Ipsos-Napoleon Franco for Proexport in 2007, 59% of international visitors to Colombia have a special interest in the country s gastronomy. Colombia has high level gastronomical schools such as Gato Dumas, Verde Oliva, SENA and the Mariano Moreno School, which contribute to forming new generations of world-class chefs. "Colombian cuisine is varied, colorful, exciting, everything I love of the best places. My favorite places are countries with a cultural mix such as Singapore, Malaysia, Brazil and I believe Colombia also exhibits thoseaspects. Anthony Bourdain, International Chef 7 9 Anthony Bourdain, during his visit to Colombia to tape his much acclaimed show No Reservations.

13 BECAUSE COLOMBIA IS SAFER THAN OTHER REPRESENTATIVE DESTINATIONS IN THE REGION The progress and growth in safety is well worth mentioning. Security has turned into a priority for the country since 2002, having shown positive results since the implementation of the Democratic Security Policy 10 in 2003; results of which have been reflected in greater international confidence. According to the World Competitiveness Yearbook 2009, published by the Institute for Management Development (IMD), Colombia enjoys a higher Personal and Private Property Security than Peru, Brazil, Mexico, and Argentina, among others. The homicide rate, as a security indicator, has decreased systematically during the last few years. Bogota, Medellin and Cartagena are today among the safest cities in the Americas, placing better than cities such as Sao Paulo, Washington D.C., and Rio de Janeiro C. Guatemala Homicide Rate per 100,000 people Sao Paulo Rio de Janeiro Washington D.C. Medellin C. de Panama Cartagena Mexico Bogota Quito Buenos Aires Santiago Source: Crime Observatories BECAUSE THEY ARE ALREADY INVESTING Hotel and hotel services investment experience a 189% increase and levels above USD 500 Million Investment in Hotels and Restaurants ( ) USD Million % 170% 125% 67% 20% 189% Hotel Investment 2006 Growth Source: Cotelco. Estimated numbers 10 The Democratic Security Policy is an initiative of the administration of Alvaro Uribe Vélez, and consists in the strengthening of the activities and presence of the armed forces throughout the national territory and the fight against terrorism and insurgent groups.

14 Some of the companies and brands already operating in Colombia: Colombia represents our second investment focus, not only because its economic and financial stability, but because of its valuable natural resources, which make it attractive and touristic Colombia is one of the most interesting and prosperous focus for our Chain in the continent Cristiano Gonçalves Vice-president of Development for South America - Hilton Corporation BECAUSE OF ITS ATTRACTIVE INCENTIVES FOR NEW INVESTMENTS Colombia offers special characteristics that make us a great potential destination for your investment in tourism, particularly in terms of the incentives package we offer to investors in the sector and to visitors to the country.

15 INCENTIVES FOR INVESTORS Income tax exemption for a 30-year period for: Hotel services provided in new hotels built between 2003 and Hotel services provided in hotels remodeled and/or expanded up until 2018, prorated to the amount that the cost of remodeling and/or expansion represents with regard to the total taxable cost of the remodeled or expanded piece of real estate. Income tax exemption for a 20-year period beginning in 2003 on: Ecotourism services. Income tax deductions Likewise, investors in the tourism sector are entitled to a 40% deduction on the amount of their investment made only in real fixed productive assets acquired. Special Free Trade Zone The legal benefits of the Free Trade Zone are: Single 15% income tax rate for industrial users of goods, industrial users of services, and operators, except for commercial users, which are taxed at the general rate. No custom taxes (VAT and CUSTOMS DUTIES) on merchandise imported from abroad. The Free Trade Zone status is granted to an individual company undertaking a new investment project. In order to qualify, the company must meet one of the following investment and job creation ranges: Investment (in USD million) USD 2.5 USD 11.4 USD 11.4 USD 22.9 More than USD 22.9 Number of Direct Jobs The investment amounts required to obtain the Free Trade Zone status are calculated in Minimum Monthly Legal Wages (M.M.L.W). This information is presented in dollars using a USD 1 = COP 2,000 exchange rate. For 2010, the M.M.L.W is COP 515,000. The M.M.L.W, as well as the exchange rate, are subject to variations.

16 If the project is developed throughout various geographical areas, it may exceptionally apply to have such additional areas also declared as Special Free Trade Zones. Tax deduction on Capital Goods used for Tourism Exports An investor can import capital goods that are used for providing tourism services that will be exported with total or partial exemption from customs duties and deferred VAT payment through a program known as Vallejo Plan. The tourism services that can be exported under this mechanism are the following according to the CIIU classification adapted to Colombia: 6.9 Tourism services and those related to traveling, and lodging services (CPC classification 631), CIIU classification: 5511 Hotel, hostel and apartment-hotel lodging Holiday centers and camping zones lodging. The enterprise that applies for the implementation of the Vallejo Plan acquires the following commitments: Export services worth at least 1.5 of the FOB price of the imported capital goods. Constitute a global guarantee of a bank or an insurance agency that is worth 20% of the FOB price of the authorized imports in the program. Legal Stability Agreements Through these agreements, the Colombian Government guarantees investors that if during the life of a contract, legislation is passed adversely affecting any of the rules identified in the agreement as having been a determining factor to make the investment, they will be entitled to continue operating under the prior rule during the term of the corresponding agreement. The period of such agreements may vary between 3 and 20 years, and they may cover new investments or increases of existing ones for amounts equal to or above 150,000 UVT Units of Tax Value equivalent to COP 23,763 (approximately USD 1.78 million based on a COP 2,000 = USD 1 reference rate of exchange). The investor must pay the Colombian government a premium equal to 1% of the amount of the investment made every year, or 0.5% during non-productive periods.

17 INCENTIVES FOR TOURISTS TO COLOMBIA Differential 10% VAT rate for hotel services. There is a VAT exemption applicable to tourism services provided in Colombia to residents abroad through packages sold either in Colombia or abroad by agencies, operators or hotels registered with the Colombian national tourism registry. Foreign tourists may request reinstatement of 100% of the VAT for purchases of the following goods: confections, shoes, perfumes, leather goods, compact discs, hand crafts, liquor, and food for humans, toys, emeralds and Colombian handcraft jewelry. 3. Related entities Entity COLOMBIA'S OFFICIAL TOURISM PORTAL COLOMBIA'S OFFICIAL INVESTMENT PORTAL PROEXPORT PRESIDENCY OF THE REPUBLIC MINISTRY OF TRADE, INDUSTRY AND TOURISM ASSOCIATION OF HOTELS OF COLOMBIA COLOMBIAN ASSOCIATION OF TRAVEL AGENCIES AND TOURISM COLOMBIAN ASSOCIATION OF GASTRONOMY INDUSTRY CIVIL AERONAUTICS AUTHORITY Web Page

18 4. Proexport Services WORLD CLASS SERVICES FOR INVESTORS The Colombian government creates favorable conditions and offers the best support for investors. Proexport occupied position 16 in the list of the best investment promotion agencies of the world and provides the following services to foreign investors: Information requests (economic, sector specific information, legal, procedural, etc). Contacts with public and private sectors. Set up of agendas when investors decide to visit Colombia. Aftercare services for investors that are already established in the country. Assessment and improvement of business climate. All services are free of charge. The primary goal is to create an efficient and friendly process for the development of new businesses. All information provided is confidential. Proexport has Investment Promotion Teams in 21 cities around the world. We will be delighted to assist you.

19 What is Colombia is Passion? It is a strategy of competitiveness that aims to change Colombia's international image. It is a way to tell the world that Colombians are passionate because passion is the force that moves us everyday. It is the source of the extraordinary intensity, creativity and tenacity Colombians possess. Passion is natural and part of our identity. We are one of the happiest people in the world. It is an attitude we have for life, and everything that we do is fed by this Passion.

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