Country risk reference rating: level 7 (7/9)
Country Risk Outlook: Positive
◆Political Risk
◆Economic risks◆Business environment◆Policy recommendations
Colombia’s political risks are relatively stable and its economy is relatively diversified. The country welcomes foreign investment in most sectors, but security and some business environment indicators still need to be improved. At present, the foreign debt burden is low and the fiscal balance and expenditure situation is improving. The Colombian government has promoted economic development, attracted foreign investment, and further consolidated the momentum of economic recovery through measures such as the reform of mining royalty distribution. In addition, Colombia has signed free trade agreements or free trade zones with many countries such as the United States, the European Union, Canada, South Korea and Latin America, so the possibility of nationalization and expropriation in the future is very small.
◆Economic Risk
Colombia is rich in resources and has a more robust regulatory system than other Latin American countries. It has the long-term potential to significantly promote economic growth. The economic prospects have improved significantly in the past few years, which will help consolidate national security and promote institutional reforms. Despite the impact of drug trafficking and violence on Colombia’s long-term political and economic stability, the country’s macroeconomic and business policies are expected to continue to advance steadily in the future.
Consumption and investment are the main factors driving economic growth. The Colombian economy has generally maintained a steady recovery, with GDP growth rates higher than most Latin American countries, inflation stable and controllable, and registered unemployment rates declining. In the future, investment in infrastructure and housing will be further increased. Low interest rates and low inflation will help increase residents’ purchasing power, and private consumption levels will also increase. In addition, Colombia has become the most attractive investment location in Latin America. Another factor driving its economic development. At the same time, the continued inflow of foreign capital has caused the local currency to maintain an appreciation trend. Therefore, the central bank will adopt a tighter monetary policy.
On April 15, 2013, the government launched an economic revitalization plan worth 5 trillion pesos (approximately US$2.8 billion). The plan will focus on industry, infrastructure construction, construction, agriculture and other sectors, and is expected to create 350,000 new jobs. It will expand credit lines, provide financial subsidies, reduce import tariffs, guide exchange rate balance, crack down on smuggling, Increase investment in public security and other financial, taxation and administrative measures to actively improve Colombia’s industrial market competitiveness. The country’s macroeconomic and business policies are expected to continue to advance steadily in the future. In 2013, the bilateral trade volume between China and Colombia reached US$9.86 billion, setting another record high. Colombia is China’s eighth largest trading partner, eighth largest import source and sixth largest export market in Latin America. China has become Colombia’s second largest trading partner, second largest export market and second largest source of imports for several consecutive years. According to Colombian national statistics, Colombia’s exports to China accounted for 8.7% of Colombia’s total foreign trade in 2013, making it the market with the largest growth in export value and the largest export driver globally. According to statistics from the Ministry of Commerce, China’s direct investment in Colombia in 2012 had a flow of US$83.51 million, a stock of US$346 million, 149 newly signed contracts involving US$570 million, and a completed turnover of US$420 million. The Colombian economy has quickly shaken off the impact of the financial crisis, continues to be attractive to foreign investment, and its economic growth is optimistic.
◆Business environment
The Colombian government is in good financial condition. One of the problems currently facing economic development is the excessive proportion of informal employment, which limits the expansion of the tax base and makes tax collection and administration more difficult. Colombia’s tax system is relatively complete, and its main taxes include: income tax, fair tax, temporary income tax, property tax, value-added tax, stamp duty and consumption tax. In addition, the new tax law will reduce taxes on labor-intensive industries. The Central Bank of Colombia adopts a managed floating exchange rate system, and the Colombian peso is freely convertible with the U.S. dollar and the euro. Under normal circumstances, foreign-funded enterprises can only open peso accounts in local banks. Foreign investors can remit investment income abroad, and international remittances are subject to a 7% remittance tax, which can be exempted only if certain conditions are met.
Judging from the four indicators of tax system, investment convenience, infrastructure and administrative efficiency, Colombia has undergone a series of policy reforms in recent years and has made progress in streamlining procedures, simplifying management, strengthening investment protection, and improving government management transparency. A great achievement. The Colombian government is further improving the business environment by reforming the tax system and increasing investment in infrastructure, but it has more difficult tasks in improving government efficiency and combating corruption.
◆Policy suggestions
As Colombia quickly shakes off the impact of the financial crisis, Colombia’s social and economic development is stable and its economic prospects are generally optimistic. Currently, his government is implementing various tax and judicial reforms, but structural bottlenecks, widespread corruption and a turbulent global environment will reduce the effectiveness of policies, and the strength and effectiveness of the policies remain to be seen. In addition, the signing of free trade agreements with foreign businessmen in 2013 achieved remarkable results, and completed free trade agreement negotiations with Panama and Israel; Colombia actively signed free trade agreements with foreign countries, which is conducive to exploring the world market and attracting foreign investment.
