Opportunities in Colombia

March 27th, 2014 - Trade agreements and infrastructure projects facilitate trade with Colombia

European companies in search of new business opportunities are increasingly turning to Colombia, the fourth-largest economy in Latin America with rich oil reserves and a political will to boost trade.

“Big European groups are trying to explore new horizons beyond the traditional regions of Asia and Africa,” says Philippe Lescuras, managing director of SDV Colombia. “Colombia offers political stability, a growing middle class and improved security that has created an economic boom.”

Crucially, the Colombian government is negotiating with the rebel group, the Revolutionary Armed Forces of Colombia, or FARC, ending 50 years of fighting and improving the country’s international image. The results of May’s presidential elections will shape the next round of peace talks. “The main challenge for President Juan Manuel Santos, if he is re-elected, will be to consolidate the peace process,” Lescuras says.

So far, the results are impressive. This year, Colombia is expected to enjoy economic growth of 4.3 percent compared to an average 2.6 percent in South America, according to estimates from the World Bank. Industries including mining, oil, textiles and clothing along with agriculture such as flowers, bananas and coffee are powering the growth.

Groups including France’s engineering group Alstom, construction materials manufacturer St Gobain and car manufacturer Renault are among the long-term international investors there.

The Colombian government has an ambitious agenda, signing bilateral and multilateral trade agreements with most countries in North and South America including the U.S. and Canada. The European Union has also ratified a Free Trade Agreement with Colombia while the South American nation has launched trade negotiations with South Korea, Panama, Japan and Turkey.

The initiatives are working. Colombia ranks the third-largest market for U.S. exports in Latin America since the implementation of the Free Trade Agreement with the U.S. in May 2012, for example. Colombia has other attractions. It’s the only country in South America with two seacoasts, the Pacific and the Caribbean, providing tactical shipping advantages, Lescuras notes.

Colombia also boasts five commercial hubs - Bogota, Medellin, Barranquilla, Cali and Cartagena. Despite its trade advantages, Colombia has long suffered from poor infrastructure that slows transport times and increases costs. At present, just 20 percent of Colombia’s roads are paved while the nation has just 1,200 kilometers of dual-lane divided highways.

That looks set to change with the government’s massive $23 billion infrastructure program that will invest in roads and ports. Transporting goods along the 500 kilometers between the port of Buenaventura and Bogota in central Colombia, for example, will take around 18 hours after the construction of a new road link instead of the current 36 hours. “At the moment the goods have to cross two mountain ranges and that takes time and adds costs to the route,” Lescuras says. Another dual-lane highway, known as the Ruta del Sol or Sun Road, will run from Bogota across the eastern range of the Andes to reach the Caribbean Sea and connect to the port of Cartagena. “This is an important route for access to and from the east coast of the U.S. and Europe,” Lescuras says. The link should be completed in 2018.

Administrative barriers to trade remain, however. “Customs formalities in Colombia can be very complicated,” Lescuras warns. For example, customs officers can physically check every cargo and this can delay customs clearance by days. Even when goods come from a country where there is a Free Trade Agreement, companies must still produce a certificate of origin, he adds.

In order to meet growing demand, SDV opened its Colombian branch in February last year, complementing its existing Latin American network of Argentina, Brazil, Chile, Mexico and Uruguay. The Colombian branch offers a full range of logistics services, including organizing customs clearance when required.

SDV already serves its major oil and gas, mining, aerospace and healthcare clients there. One client, a U.S.-based manufacturer of pumps and valves, for example, imports goods from the U.S. to Colombia and exports them to countries such as Panama, Costa Rica, Chile, Argentina and Mexico. “The Colombian economy ranks fourth in Latin America and is fighting for third place with Argentina,” says Lescuras. “Its recent GDP growth and continuing economic reforms made it an opportune time to extend our service network.”

Key Figures
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