Interesting FDI (Foreign Direct Investment) Article

COLOMBIA COMES OUT OF THE SHADOWS

Por Courtney Fingar
Editor
Foreign Direct Investment
www.fdimagazine.com


Colombia has been fighting to prove that it is a safe and worthwhile
investment destination and has now put itself firmly back onto the
investment map. Courtney Fingar reports from Bogotá and Medellín.

Colombia is a country where beauty is pervasive. The world's second
largest exporter of flowers, its stunning roses add a touch of
glamour and flashes of brilliant colour to local hotel receptions,
restaurants and office buildings as well as dispersing their beauty
to appreciative international recipients. Its natural areas –
mountains, jungles, beaches and much else in between – are
breathtaking. Yet when local men and male visitors speak of the
gorgeous scenery, with a sly wink, they are more likely to be
referring to the renowned beauty of Colombian women.

For decades, Colombia's ugly side overshadowed the beautiful, and the
ugly face was the one most often shown to the outside world, courtesy
of a steady stream of news reports of kidnapping, murder and drug
trafficking. Still today, even though the news trickling out is more
positive, tell people you are going to Colombia and they will look at
you as if you have a death wish.

Dangers remain; backsliding is certainly possible; a series of car
bombs in Bogotá in late October and early November rattled nerves.
But the darker forces have retreated into the shadows and the warm
light of hope now flickers across what was until recently the Western
world's most violent country. In much of Colombia, for the first time
in recent memory, life is beautiful again. The country is safer and
more optimistic than it has been in many people's lifetimes.




Security programme


The `democratic security' programme of president Álvaro Uribe, re-
elected in May after the constitution was amended to allow him to run
for a second term, has succeeded in restoring government authority
over patches of the country formerly threatened by guerrilla and
paramilitary groups. On the strength of security improvements, the
economy is growing, purchasing power is rising, unemployment is
declining, exiles are returning and capital is flowing in.

"My message to international investors is that Colombia deserves all
their confidence. International investors can trust in Colombia," the
president told fDi. "We are making great efforts to create stable and
transparent rules and to create the conditions for our country to
have sustainable economic growth that will not be less than 6%. We
are totally open to international investors and we consider them
necessary partners to create social cohesion in Colombia."

Mr Uribe is the man behind Colombia's dramatic about-face. "He is
doing real things for Colombia – there has been no one like him,"
says one security analyst familiar with Colombia. "The risk factors
have certainly been reduced in Colombia because of his fingerprints."

Another, Daniel Linsker of Control Risks, says there have
been "exponential" improvements in security under the Uribe
government. The administration's single biggest achievement "has been
to return trust to Colombia", says vice-president Francisco Santos
(see page 23).

Mr Uribe's political skills were on full display at an international
mining show in Medellín in September, where he took questions from
the audience, routinely calling cabinet officials to account and
pressing them for answers and results. He spent nearly three hours on
stage at the event, presiding over discussions like a judge in a
civil dispute or – more accurately – a CEO at a board meeting,
listening to grievances, admonishing when necessary, delegating
action and seeking prompt resolution. "There are some things we need
not for tomorrow but for yesterday … so let's do it," he urged the
mining ministry in reference to a local complaint.

"I don't like to discuss good ideas but implement them," he said at
another point. "An administration that has been re-elected has no
excuse not to solve problems."


Finding solutions


There is certainly no shortage of problems for Mr Uribe to try to
solve, above and beyond the security issue. Nearly half the
population lives under the poverty level; he wants to bring the
percentage down to 35% by 2010. Rapid GDP growth presents its own
problems, such as pressure on inadequate and outdated
infrastructure. "We had in mind for the country to grow at 2%-3% but
when it began to grow at 5%, and looking at 6% next year, [roads,
ports, etc] overflow and everything is too small," Mr Uribe told the
audience in Medellín. "The government has to get on step."

The business and regulatory environment, while decent, still needs
fine-tuning. The corporate tax rate is among the highest in Latin
America, although some relief is on the way: a bill working its way
through Congress would reduce the rate from 38.5% to 32% and simplify
the tax code. "Colombia has been reluctant to use tax as a driver for
growth," the president admitted. "But experience has shown that the
tax element plays an important role in investment."

A more dramatic rate reduction might catch more international
investor attention, however, and some existing investors grumble that
the reform is not ambitious enough. But Mr Uribe is only willing to
go so far. Tax reform, he argued, should stimulate growth but also be
structured in such as a way as to create sustainable growth for the
long term. The tax-cutting policies of former US president Ronald
Reagan and former UK prime minister Margaret Thatcher "had short-term
benefits but did not guarantee sustained increases in growth", he
said.

Before wrapping up the session, the president asked for the minutes
to be transcribed so he could follow up on all the issues raised. He
summed up what had been discussed and stated the action points. One
gets the impression that he will check that they have been resolved.


Irrevocable change


One valid point of concern is, if Colombia's resurgence is in such
large part down to one man, what will happen when he leaves office?
Yet many foreign observers believe that the country has changed
irrevocably and, now that people have had a taste of security and
stability, and got a glimpse of a brighter future, there is no
turning back.

"Colombians have confidence in themselves, they have taken charge of
their destiny," says Frederick Felder, executive vice-president of
Greystar Resources, citing 2003 as the tipping point. Canada-based
Greystar halted a drilling project in Bucaramanga, in north-east
Colombia, in 1999 because of security threats but resumed work in
2003. The company now employs 400 people in Colombia, 35 of them
professionals.




Political dynamic


The political dynamic has also changed, and not only at the federal
level. A younger, more idealistic and yet pragmatic breed of
politicians has emerged, such as Antioquia governor Anibal Gaviria
Correa and Medellín's charismatic jeans-wearing mayor, Sergio
Fajardo. Both enjoy astronomical approval ratings and neither are
career politicians: the governor came from the private sector and the
mayor was a mathematician before entering office.

Medellín is a sterling example of Colombia's turnaround. Not all that
long ago its murder rate was among the highest in the world, but Mr
Fajardo says the city has undergone a "beautiful transformation":
crime has been reduced, public spaces refurbished, schools improved
and innovation encouraged. "Medellín has a completely new perspective
with regard to itself," he says.

Resilience is a national trait, it seems. Having learned to laugh in
the face of danger and to look on the bright side of life during the
dark days of the past, Colombians have a naturally sunny disposition
coupled with a strong sense of self-reliance – characteristics that
serve them well in business.

The `people are our greatest asset' line is usually more tired than
true, but in the case of Colombia, it is backed up by testimonial
after testimonial. Each of the several multinational CEOs and
managing directors that fDi interviewed in Bogotá and Medellín agreed
unequivocally that human capital is Colombia's greatest advantage.
Colombians make excellent employees, and the country is seen as
fertile breeding ground for international management talent.

"I have worked in many places around the world and have never had
employees as educated, smart, professional, hardworking, passionate
and loyal as in Colombia," says Karl Lippert, president of Bavaria, a
subsidiary of beverages giant SAB Miller and Colombia's largest
foreign investor.



Tourism promotion


If efforts to promote tourism pay off, more foreigners will get to
know Colombians' positive attributes. It has been a struggle, says
Juan Salazar, director of ProExport Colombia in London, just to get
Colombia included in travel agency brochures. But minds are being
changed and the tourists are starting to come.

Patrick Vaysse, director of operations for Colombia, Ecuador,
Venezuela and Central America for French hotel group Accor, says
Colombia will be one of Latin America's biggest growth markets for
tourism over the next few years. Accor has been in Colombia for a
decade and has four high-end hotels under the Sofitel brand, but is
looking to add 10 economy hotels under its Ibis brand to capitalise
on increased tourist visits and convention traffic.

Of course, for hotel and other investors, the size of the opportunity
must always be weighed against the level of risk. This interesting
but long-ignored market holds the promise of more than 40 million
consumers with burgeoning spending power, an abundance of clever
workers, and a flair for business and entrepreneurism. The
opportunity is undeniable. What, then, of the risk?



Safety issues


Control Risk's Mr Linsker says there are still parts of the country
that he would not recommend to his corporate clients, but "the
general feeling of security has improved", especially in the cities.
Bogotá and Medellín are safer these days than Caracas, the Venzuelan
capital, and Mexico City, he says.

"Security should not put off companies, because the political
environment offers all the safeguards foreign investors need."
Security, in any case, is a fixed cost and security-related risks are
manageable, in contrast to political risks elsewhere on the
continent. "The cost of the risk of expropriation in Venezuela, for
example, is much higher than the cost of kidnap precautions in
Colombia," he says.

Crucially, Colombia lacks the anti-capitalism, anti-gringo fervour
and populist proclivities of some of its neighbours, and has
stronger, more stable institutions, he says.

Overall, Mr Linsker reckons "Colombia is a good bet" and, despite
perception, a safer bet than many other Latin American
countries. "With appropriate risk mitigation strategies in place,
Colombia is a very good place to do business," he says.

By gabo4ever on Jan 25, 2007, 08:04 in Friendly Talkzone.

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