Colombia: An Upcoming Emerging Market for Japanese Investors February 28 th, 2012
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Colombia in the context of the growing importance of the emerging markets
Three of the most important rating agencies have granted the Investment Grade to Colombia The three rating agencies agree on the good economic and financial performance of the country, highlighting: Its ability to deal with internal and external shocks The country's long history of timely debt payments Increased macroeconomic policy credibility A visible improvement in Security 31st May 2011
Colombia: third "friendliest" country to do business in Latin America and the biggest reformer of the region Colombia remains as the top reformer country of the region during the last years. Change in Doing Business Ranking, 2007-2012* (Variation in the number of positions) Colombia Perú Panamá México Ecuador Venezuela Brasil Argentina Chile Costa Rica -6-10 -12-14 -15-20 11 9 26 45 Country World Ranking 2012 World Ranking 2011 Chile 39 41 Peru 41 39 Colombia 42 47 Mexico 53 54 Panama 61 63 Argentina 113 114 Costa Rica 121 121 Brazil 126 120 Ecuador 130 131 Venezuela 177 175 Source: Doing Business 2012 World Bank Report *Positive numbers indicate improvements in business environment
Colombia Peru Chile México Brazil Argentina Panama Venezuela Investor Protection Index 2011 8.3 6.7 6.3 6.0 Colombia is ranked 5th worldwide and 1st in Latin America in terms of Investor Protection 5.3 4.7 4.7 World Ranking Country 5 Colombia 20 Peru 2.3 28 Chile 44 México 74 Brazil 109 Argentina 109 Panama 179 Venezuela Source: Doing Business, 2011 World Bank
Some examples of strategic investment decisions in Colombia made by leading MNCs Mining Acquisition to diversify Japan s energy sources (thermal coal) One of two new product research and product development centers out of the USA One of 6 Global Services Centres to serve internal and external clients (Bilingual) One of four countries around the world selected to prioritize growth in added-value BPO (Spanish speaking markets)
Economy Growth Enhanced economic performance has come hand in hand with improved security 16 16 14 14 12 12 10 10 8 6 4 2 0-2 -2-4 -4 Colombian GDP GDP Growth Vs. Vs. Security Perception, 2001 2010 (%) (%) 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011F2012F2013F2014F 2011F2012F2013F2014F Colombian Colombian Growth Growth Security Security Perception Perception World World Growth Growth 16 16 14 14 12 12 10 10 8 6 4 2 0-2 -2-4 -4 Security Perception Source: ANDI (Asociación Nacional de Industriales), EIU F:Forecast
Colombia's population is 47 million More than half of them under age 30 7 metropolitan areas with a population above 1 million people
The third largest population in Latin America and the second largest Spanish speaking population in the world 120 100 80 112.5 Population (Million of People) - 2010* 60 40 46.9 45.9 40.5 38.2 34.0 30.0 28.6 22.2 17.1 20 11 10.6 10.6 9.4 8.4 7.8 7.6 5.1 4.9 4.4 0 Source: EIU (Economist Intelligence Unit) *Forecast (23 May 2011)
According to international standards, Colombia classified in Upper Middle Income Economies. US $ Income Per Capita, Atlas Methodology Upper Middle Income +180% Lower Middle Income Low Income Source: Ministry of Finance and Public Credit EIU, WorldBank e: forecast - February 7-2012
Colombia reach the highest FDI flow in history FDI, 2000 2011 US $Million Main Investors in Colombia 2000 2011 2.436 1.720 10.252 6.656 15.032 10.564 6.914 7.137 United States Accumulated US $9.333 Billion 28.8% share England Accumulated US $4.631 Billion 12.8% share Spain Accumulated US $2.637 Billion 7.3% share Mexico Accumulated US $1.517 Billion 4.2% share *Figures obtained through the foreign currency balance of the Bank of the Republic. 2011 preliminary **Share of all countries with positive cumulative investment, without reinvested profits or investments in the oil sector. Accumulated value 2000 2010: US $45,946 million Note: the list of the top countries investing in Colombia does not include Anguilla or Panama, in third and fourth place. Source: Bank of the Republic - Balance of Payments
Non Traditional Sectors such as Financial Services, Trade and Manufactures are contributing more to Colombia s FDI flows. FDI in Colombia by Sector, 2009 3 rd Quarter 2011 FDI in Colombia by Non-Traditional Sectors, 2009 3 rd Quarter 2011 Share of all countries with positive cumulative investment, without reinvested profits or investments in the oil sector. Accumulated value 2009 3 rd Quarter 2011: US $17,999 million Source: Bank of the Republic
Colombian FDI to the World 2000-2010 US$ Millones 7,000.0 6,000.0 5,000.0 4,000.0 3,000.0 2,000.0 1,000.0 0.0 6,503.7 4,662.0 3,088.2 2,254.0 937.7 325.3 912.8 142.4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Country Ranking (2000-2010) 1. USA 2. England 3. Panama 4. Brazil 5. Peru 6. Guatemala 7. Mexico 8. Chile 9. Ecuador 10. Venezuela Setting up of the first power transmission system of 500.000 volts in Peru. Investment: US$130 Millions Acquires the 60% of the Peruvian Electric Company Cálidda. Investment: US$ 111 Millions Source: Banrep -Dinero Acquires all ING company portfolio in Chile, México, Peru, Uruguay y Colombia. Investment: US$ 3.763 Millions Acquires the 100% of Banco Centroamericano. Investment: US$ 1.900 Millions
In 10 years, exports tripled Top Exports Destination, 2011 United States US $21.720 B 38.1% share Netherlands US $2.524 B 4.4% share Chile US $2.205 B 3.9% share Variation 2009-2010: -21.2% Variation 2010-2011: 43% Source: DANE (National Department of Statistics) China US $1.989 B 3.5% share
Colombia is increasingly attractive to visitors Foreign visitors to Colombia 2006-2011 (thousand) Main nationalities of visitors arriving to Colombia, 2011 Estados Unidos 317.954 visitors Share 20.1% Venezuela 228.926 visitors Share 14.5% Ecuador 108.913 visitors Share 6.9% Argentina 93.822 visitors Share 5,9% Sources: DAS, MCIT, Bank of the Republic. Proexport Calculations.
Positioning Colombia as an export platform: 11 free trade agreements (FTA),allowing preferential access to over 1,500 million consumers In Force Signed In Negotiation Future IN FORCE SIGNED IN NEGOTIATION FUTURE CAN (Peru, Ecuador y Bolivia) MERCOSUR (Argentina, Paraguay, Uruguay and Brazil) Chile G2-Mexico North Triangle (Honduras, Guatemala y El Salvador) Switzerland Liechtenstein Canada United States EFTA (Iceland and Norway) South Korea Panama Turkey European Union (Signature) Japan Australia New Zealand Costa Rica Dominican Republic Gulf Community
Note: The International investment agreements (IIA) include Agreement Investment Treaties (BIT) (agreement) and Free Trade Agreements (FTA) with investment In 2012, Colombia will be negotiating 21 international investment agreements (IIA) In Force Signed In Negotiation IN FORCE SIGNED IN NEGOTIATION Peru (Agreement) Mexico (Agreement) Spain (Agreement) Switzerland (Agreement) Liechtenstein (Chapter) CAN (Ecuador and Bolivia) (Chapter) Chile (Chapter) North Triangle (Honduras, Guatemala and El Salvador) (Chapter) Canada (Chapter) China (Agreement) India (Agreement) United Kingdom (Agreement) South Korea (Agreement) EFTA (Iceland and Norway) (Chapter) United States (Chapter) Japan Kuwait Turkey European Union Panamá
In 2012, Colombia will be negotiating 16 double taxation agreements (DTA) In Force Signed In Negotiation IN FORCE CAN Peru, Ecuador and Bolivia Spain Chile Switzerland Canada Mexico South Korea India SIGNED IN NEGOTIATION United States, Germany, Czech Republic, Netherlands, Belgium, Portugal, Japan, France
National Development Plan 2010-2014 Strengthen cultivable areas and mechanized them to increase exports AGRIBUSINESS Stimulate the creation, improvement and infrastructure development INFRASTRUCTURE Leading driver of economic and social development INNOVATION Take advantage of large, unexplored gold and coal reserves MINING Promote the development of Housing for everyone Vivienda para Todos HOUSING
Opportunities Linked to the Engines INNOVATION Increase Science and Technology share in Domestic GDP. 2019 goal: 2%. Increase the number of patents per 100,000 inhabitants Increase nearly 4 times 2006 results for 2012: the Professional Education Challenge. INFRASTRUCTURE The Government has launched an ambitious infrastructure plan, which involves new interdepartmental highways, ports and airports to make Colombia more competitive. This plan requires over US $50 billion and significant support from the private sector. MINING Colombia has a potential of approximately 17 billion tons of possible coal reserves and 28 million ounces of gold, generating a competitive advantage compared to other countries in the region
Opportunities Linked to the Engines HOUSING AGRIBUSINESS Opportunities in: Requirements: One Million Homes Biofuels, Reforestation, Dairy Sector Colombia has potential cultivable areas, which require significant capital investment to mechanized the sector in order to increase exports. Peasants and indigenous communities living in these areas will benefit from this initiative. Colombia has a high housing deficit in the country's largest cities due to internal displacement and economic difficulties. The sector is divided into 2 major areas: Low Income Housing and Non-LIH. The government has planned to build one million homes, 70% of which will be LIH.
Why Colombia for Japanese investors
Recognized Japanese companies are established in Colombia Holding Automotive Manufacturing Finance Automotive Retail and motorcycle Other industries
Investment Opportunities in Colombia ICTs: Creation and development of shared-service centers and regional outsourcing offices to serve Latin America Strengthening of telecommunications infrastructure Cosmetics, Toiletries and Cleaning Products: Industry growth over 8% 13 centers to support research and development Automotive: Fifth largest manufacturer in Latin America 6.2% of the country's GDP Agribusiness: 7.3 million hectares suitable for biofuels Fourth largest milk producer in Latin America Tourism: 34th place in the ICCA ranking 10 UNESCO recognitions
Regions with opportunities in the automotive sector Assembly: In 2010, Colombia ranked as the fourth largest producer of the region with a high growing potential. This sector employs 2.5% of manufacturing labor force in Colombia. National and regional mass transportation system development (Panama) Presence of international assembly plants: Renault, General Motors, Mazda, Hino, Busscar, Superpolo and Daewoo Bus. Auto parts 61% growth in auto part exports over the last five years. Around US $700 million sales in auto parts to local producers. Car fleet 1.2 million units bigger Creation and construction of a technological development center for industry strengthening. Domestic and foreign companies certified according to the highest international standards. Competitive incentive system: Warehouses for Processing or Assembling vehicles and auto parts (DHTE): 0% duty for importing vehicles produced or assembled to any of the Andean countries, as well as the auto parts and materials produced in these warehouses.
Regions with opportunities for the Agribusiness sector Colombia has competitive advantages in the agribusiness sector such as the availability of land, generous water sources and high export potential. Opportunities in Biofuels: More than 7.3 million hectares suitable for biofuel production. High levels of Sugar Cane and Palm Oil productivity. Forestry opportunities: species with high profit margins and low biological cycles. Opportunities in the Dairy Sector: Fourth largest milk producer in Latin America. Third largest market in Latin America.
Regions with opportunities for the Cosmetics, Toiletries and Cleaning Products sector Production: About 20% industry growth (2010). Skilled Labor: More than 140,000 graduates with industry-related degrees between 2001 and 2010. Natural ingredient and cosmetic packaging companies Research and Development: One of the most biodiverse countries in the world R&D Centers Network for industry support: National Biotechnology Program and two important R&D centers supported by the public sector. Network of Universities and R&D Centers: 11 academic centers working on sector development and research. Tax Benefit through Colciencias: 125% income tax discount on the value invested in R&D. Logistics Centers: Trade Agreements: 7 trade agreements, 3 agreements signed and 3 under negotiation. Export Logistics: more than 3,700 scheduled shipping routes from 4 main ports that cover both the Atlantic and the Pacific oceans Main exporters of the Region One of the fastest growing markets with the highest share in the region.
Regions with opportunities for the IT and BPO&O sector BPO Creation of Shared Services Centers for Latin America. Opportunities for Outsourcing Companies that provide Costumer Care, ESO, FAO, HRO, Telemedicine, and R&D services Software & IT Services Development and integration of IT Services and Applications. M&A and Software Factories Creation of Data Centers Telecommunications Provide Telecommunications Services for growing markets and strengthen Telecommunications Infrastructure.
Opportunities in the Colombian Oil Products and Services Sector Due to sector s great dynamic there are opportunities in the Oil Products and Services sector for growth and improvements on an international scale. Growth is projected in terms of the number of wells explored (570 by 2014) and extraction (nearly one million barrels of oil per day, 2012). The Cartagena Refinery will begin operating in 2013 with a capacity of 165,000 BDP. The demand for related goods and services at this facility as well as at the Barrancabermeja Refinery will increase. Various investment opportunities exist in producing specialized, high-quality goods and developing high-tech oil services. A regional goods and services export platform can be established to meet the needs of the Venezuelan, Peruvian and Ecuadorean markets.
Some Projects on the Portfolio - Transportation Sector Source: National Planning Department
Some Projects on the Portfolio - Other Sectors Source: National Planning Department
The most competitive FTZ s in Latin America: 15% income tax and sales allowed to the local market 15% income tax rate. No import duties. VAT exemption for goods sold from Colombia to FTZ Benefit from international trade agreements. (Except Peru) Allow sales to the local market. Free Trade Zones Permanent (PFTZ) Single-Company (SCFTZ)
100 Free Trade Zones Free Trade Zone Approved Single - Company Free Trade Zone Permanent Free Trade Zone Investment commitments Total Investment (USD Million) 7.036 Direct Jobs 47.163 Indirect Jobs 97.363 Investment executed so far Total Investment (USD Million) 3.158 Direct Jobs 6.674 Indirect Jobs 23.069 Source: Ministry of Trade, Industry and Tourism. 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 2012, the M.M.L.W is COP 566.700. The M.M.L.W, as well as the exchange rate are subject to variations. 35
Other incentives by sector: Income tax exemption for up to 20 years Tourism Eco-tourism Late yield crops Forestry Editorial New medicinal products and software Renewable energy River transport Research and Technological Development Exemption for 30 years for those who invest in the construction or renovation of hotels between January 1 st, 2003 and December 31, 2017. Exemption for 20 years starting from 2003. Exemption for 10 years after the start of production in crops planted between 2003 and 2014. Permanent exemption for investment in new forest plantations, sawmilling and timber plantations. Publishing of books, magazines, booklets or collections of scientific or cultural characteristics are exempt until 2013. Exemption for 10 years for products manufactured in Colombia with high scientific and technological research content, starting from 2003. Exemption for 15 years for sale (by the generators) of electricity based on wind resources, biomass or agricultural waste. Exemption for 15 years starting from 2003 to provide services in slabs and boats with net weight below 25 tons. 175% income tax deduction over investments in scientific and technological developments.
Formalization and Employment Generation New employees under twenty eight (28) years old. Length of benefit by employee: 2 years. Discount in the income tax and supplementary contributions, and other contributions from payroll (Do not include positions generated by mergers or replacements) New employees certified in displacement situation, reintegration or disability. Length of benefit by employee: 3 years. New women employees above 40 years old with more than 1 year unemployed. Length of benefit by employee: 2 years. New employees with incomes lower than 1.5 SMMLV. Length of benefit by employee : 2 years.
Japanese FDI projects 2003-2011 Japanese investment in the world (# of projects) 2003-2011 Automotive and Components, 1510 Others, 2720 Industrial Machinery, Equipment & Tools, 1120 Textiles, 220 Food & Tobacco, 288 Electronic Components, 735 Consumer Electronics, 354 Plastics, 367 Metals, 388 Chemicals, 570 Source: FDI Markets Total # of projects: 8,272
Preferential access to the US market using Colombia as qn export platform Colombia has a better ad valorem equivalent tariff than Japan with the US - FTA. MAIN JAPAN EXPORTS TO US Top 10 Sectors: Japan exports to US (million US$) - 2010 Ad Valorem Equivalent Tariff (%) Ad Valorem Equivalent Tariff (%) Japanese investment in the world (US$ million) 2003-2011 CHEMICALS 6,219 3.61 0 427,239 ELECTRONIC COMPONENTS 22,941 2.49 0 33,885 INDUSTRIAL MACHINERY AND EQU. 20,817 3.70 0 31,350 PLASTICS 2,143 4.11 0 12,221 METALS 4,534 3.32 0 528,680 RUBBER 2,553 3.55 0 15,789 AUTOMOTIVE 45,864 1.97 0 108,790 COAL, OIL & GAS 665 4.09 0 121,638 TEXTILES 661 6.63 0 4,642 MEDICAL DEVICES 2,167 3.98 0 1,390 Source: USITC, Macmap, Trademap, FDI Markets
To sum up Colombia stands as one of the most interesting emerging markets in Latin America. It ranks among the top countries in the region due to its market size, macroeconomic stability, long term growth potential, and new business opportunities. A sustained improvement in security conditions has led to a significant growth in foreign investment, exports and international tourism. The boom in Colombia s oil and mining sector has been fueled by foreign private investment. Likewise, an increasing number of foreign companies, including some Japanese, in the manufacturing and services sectors are choosing Colombia as a location for their investments. There are many opportunities for Japanese companies in Colombia to serve the local market and to export to third markets taking advantage of Colombia s competitive location, its network of FTAs, and the country s abundance of natural resources and competitive human capital.