Doing business in Colombia

0
Colombia Bogota skyline

Twenty years ago Colombia was considered one of the world’s most dangerous countries. Now, it’s the darling economy of Latin America thanks to multiple free trade agreements and a burgeoning middle class. Director investigates the opportunities for UK companies

The first episode of critically acclaimed TV drama Narcos begins with the line: “Magical realism is defined as what happens when a highly detailed, realistic setting is invaded by something too strange to believe. There is a reason magical realism was born in Colombia.”

The show, Netflix’s most popular last year, traces the blood-stained tale of infamous drug baron Pablo Escobar, gunned down on a Medellín rooftop in 1993 after amassing a $30bn fortune and a place in Forbes’s world billionaires list, during a ‘career’ which saw him control three-quarters of America’s cocaine trade and cripple Colombia with a murderous reign of terror.

But magic realism – the literary style whose leading exponents included Colombian Nobel laureate Gabriel García Márquez – is an apt description of the Lazarus-style story of the country itself over the last decade.

Once a byword for drug cartels, paramilitaries and armed insurgents, in the past five years Colombia has emerged as one of Latin America’s fastest-growing economies, recently overtaking neighbour Peru. With GDP growth hovering around five per cent, the Andean nation of 48 million has sidestepped recent recessions thanks to the high price of its natural resources (chiefly coal and oil).

Falling crime, a thriving middle class and peace talks with rebel group Farc – meaning a cessation to one of the world’s longest-running conflicts could be in sight – have all augmented this stability even if, for many Europeans, some old attitudes are harder to shake off.

“When I take British people on trade trips, they have a 10-year-old perception of Colombia based on old movies,” says Tania Hoyos, executive director of the British and Colombian Chamber of Commerce. “As soon as they arrive in Bogotá, they see it’s a sophisticated place much the same as London.” British companies Virgin, BT and Foster + Freeman have all established a presence in the country, with the UK the second-largest investor in Colombia after the US.

Meanwhile, tourism is booming, rising by 12 per cent a year. As for its drugs legacy? Ask Colombians and they’ll tell you the only terror exerted by Escobar’s legacy are his pet hippos, which have invaded villages after escaping from his ranch’s menagerie after his arrest.

Master of modernisation

Colombia’s increasing status in the global arena is thanks in no small part to the modernising policies of president Juan Manuel Santos, a Harvard-educated former economist and newspaper editor. Since 2010, he has promoted Colombia as a regional hub by boosting its number of free trade agreements (FTAs) to 13, enabling duty-free access to Latin America, the US and EU.

Another of Santos’s landmark policies – and one which British firms can take advantage of – are his plans to upgrade Colombia’s roads, railways and airports by auctioning $25bn (£17.6bn) of infrastructure to PPP (public-private partnerships) by 2018.

Such is the dire state of existing networks, CPL Aromas’ Nick Pickthall bemoans that “it’s more expensive transporting our goods in a container from Bogotá to Cartagena [a port on Colombia’s Caribbean coast] than it is from UK to Cartagena.”

Leo Suarez from Colombia Holdtrade Atantico

Leo Suarez

Aiming to remedy that is Holdtrade Atlántico, which – as Holdtrade – is the UK’s largest supplier for industrial railways. When Santos founded infrastructure agency ANI in 2011, it triggered “an earthquake of interest” according to Leo Suarez, Holdtrade Atlántico’s vice-president of business development.

During a trade mission with then-deputy prime minister Nick Clegg in 2014, Holdtrade Atlántico hosted an industry event in a railway station, and harnessed UKTI’s help to secure a £47m contract in Colombia to develop fleet for two rail corridors.

With Colombian railways effectively abandoned since the 1970s, combined with the difficulty of building through the country’s volatile topography (Andean mountain ranges to Amazon jungle), the project could seem daunting.

“Trains might be familiar to us, commuting every day, but in Colombia people have forgotten what railways are about,” says Suarez. “On each side of the tracks, places have been invaded by squatters, rails are stolen to build farm fences, people stop at crossings because they’re not used to seeing trains.

“What we’re doing is opening the door for UK plc – Britain is a world-class player in consultancy and railways,” he adds. “[Railways] are an area where [Colombians] don’t have expertise anymore… There are also opportunities for high-cost products – transloading equipment and when the railways start running cargo again, you’ll get businesses, industrial parks, storage facilities popping up along the corridor. It’s a big market.”

Hoyos adds: “Infrastructure is a major opportunity for UK companies over the next 10 years. It’s a government priority and the new model is based on a UK one, PPP. There’ll be a close association between Colombia and companies on that front – we’re already seeing successes with [engineering consulting companies] such as Atkins and McBains Cooper.”

British expertise 

Tony Blair is among those to have spied the opportunities – earlier this decade his Government Advisory Practice secured a multimillion-pound deal with Colombia to provide consultants. It’s not just infrastructure projects that are hungering for Britain’s prized expertise – construction is growing at 20 per cent annually, while there are openings in education, biotech, mining and financial technology.

With less than seven years of oil reserve life left, Colombia is developing its offshore sector (a field where the UK has extensive experience) with state oil company Ecopetrol ploughing $85m (£60m) into supply-chain investments in the five years up to 2020.

Thanks to the aforementioned FTAs, Colombia is evolving into a regional hub for foreign firms, aided by its geographical location slap-bang at Latin America’s mid-point, offering access to Central American and Caribbean nations to the north and Brazil, Argentina and Chile to the south.

Exports from the UK have also swelled in recent years, by 126 per cent between 2009-2012. Colombia imports Scotch whisky more than any other UK product, forming around 16 per cent of all British exports to the country. Worth £24m a year, the Colombian liking for a dram is eating into well-established aguardiente (sugar cane brandy) and rum markets.

“Scotch exports are a good tracker of economic welfare,” says Sarah Dickson, global affairs director at the Scotch Whisky Association. Having recently visited Bogotá with a trade delegation, she observed a diverse “demographic mix drinking Scotch in Colombia” with “people relating strongly to the brands”. One of the biggest Scotch sellers is Diageo’s Buchanan’s whisky, which many Colombians believe to be a locally distilled brand.

colourful buildings in Bogota Colombia

Colourful buildings in Bogota’s La Candelaria district

Concurrent with the rising Colombian appreciation for whisky (served in Bogotá bars in long glasses with plenty of ice) is the growth in the country’s middle classes, forming 27 per cent of the population, up from 16 per cent in 2002 (13 per cent of the population still live in poverty, on less than $3.10 a day).

Evidence of Colombia’s nouveau riche can be seen from “people understanding different styles of whisky like wine”, Bogotá’s Armani and Cartier boutiques, and being identified as one of the world’s fastest-growing markets for retail sales. “The [economic growth] has been led by the middle class,” says Pickthall.

“Ten years ago, the higher classes in Colombia would only exercise that purchasing power outside the country – in Miami or Europe. Now, they’re doing it at home as those prestige brands have been introduced there.”

There is a magic realism-style flipside to this prosperity, as Bogotá’s business community would testify. According to Suarez, now that people have the disposable income to afford cars, Bogotá’s streets are often clogged with nerve-shredding traffic – meaning meetings are commonly postponed.

The traffic-induced tardiness is so problematic, even UKTI politely suggests: “Punctuality is frequently an issue in Colombia, but you should not interpret lateness as a sign of rudeness or laziness.”

Colombia Business etiquette

Patience is also needed when brokering business, with Suarez noting the Latin American penchant for face-to-face communication means “[Colombians] don’t close the deal until after a third meeting”. Colombia’s past woes could be to blame here. “Drug trafficking permeated many sectors and, for that reason, people tend only to do business with those they know,” he adds. “Breaking those circles can be difficult.”

Dickson advises: “The chance to talk to people about politics, family and wider issues first is important. Anybody who has worked in Latin countries knows that’ll make things easier down the line – you shouldn’t be launching into an email relationship straight away, expecting it to work.”

This seemingly laissez-faire stance has a desirable upshot: bureaucracy is relatively straightforward, with Colombia the highest-ranking Latin American country in the World Bank’s Ease of Doing Business index. Businesses can be established within 11 days, while there’s a sturdy legal framework (according to Investopedia, Colombia has the world’s sixth-best investor protection). Despite this, firms resident in Colombia pay a 25 per cent corporate tax rate. Foreign companies are taxed at 39 per cent.

All of the experts Director met stressed the need to establish quality agents and distributors, as Colombians prefer to do business with foreign companies that have local representatives within the country. “The thing British companies get wrong is not doing proper market research on Colombia,” says Hoyos. “Yes, the economy’s growing but you need to do market research on products and competitors, plus be flexible when approaching partners.”

Still, the safety issue explains the reticence by some British businesses to enter the market. Although the Foreign Office advises against “all but essential travel” to many rural regions of Colombia, decades of dealing with crime has meant cities such as Bogotá and Medellín have sterling security firms. “There is a strong culture of security,” points out Pickthall.

“Many companies have private security firms or share them with other companies – a throwback to the insecurity of the 1980s and 1990s. In 2002, you saw a great deal of military presence on the streets because security was still an issue. Now, you’d be hard-pressed to see anybody other than the odd policeman… I’ve never felt unsafe in any region despite nine years living here.”

Traditional dancing in Bogota Colombia

Traditional dancing in Bogota’s La Candelabra district

But for all Santos’s work in curbing the drugs trade, cocaine remains a problem in Colombia. The country recently overtook Peru as the world’s largest producer, with the UN estimating production rose 52 per cent last year, with one million citizens linked to the trade. Yet if anybody wants to see what is achievable, they need only look at the transformation of Medellín, Colombia’s second city.

Previously home to Escobar and his violent cartels, today the metropolis is one of South America’s most dynamic cities, bustling with aerial gondolas, cutting-edge urban projects and high-rise offices for multinationals such as Hewlett-Packard. Named “the world’s most innovative city” by the Urban Land Institute, the murder rate has dropped from 381 per 100,000 in Escobar’s heyday to less than 27 today.

“When I first arrived in Colombia in 2002, it wasn’t a country you’d recognise today,” says Pickthall. “Every part of the country has changed dramatically, from security to the feelgood factor – it was like chalk and cheese… If you think how far Colombia has come, it’s a remarkable growth. If it keeps on that trajectory, it will be a serious economy.”

As Narcos suggests, there’s a reason magic realism was born in Colombia. But when the alchemy of the country’s dynamism defeats the outlandish nature of its troubles, then surely – to paraphrase García Márquez’s most famous work – the many years of economic solitude will come to an end, once and for all.

Case Study

Nick Pickthall coo Colombia CPL Aromas

Nick Pickthall

CPL Aromas
Founded in Bishops Stortford, Hertfordshire, in 1971 by the Pickthall brothers, family-run CPL Aromas has spent four decades creating scents for perfumes, deodorants and air fresheners.

Having already established an international presence in Asia, it made its first Latin American foray in Colombia in 1993. Initially starting as a sales-only operation, it relied upon local distributors and agents to sell its UK-manufactured products in Colombia.

However in 2002, chief operating officer Nick Pickthall (above) moved to Colombia for a year, later returning in 2007 to expand CPL Aromas’ distribution model into a physical ‘creative centre’ 25 minutes outside Bogotá.

Today, that plant incorporates a factory, laboratories, R&D facilities and a sales and marketing team over 20,000 sq ft – producing more than 300 tonnes of fragrance per month.

During his time in Colombia, Pickthall – who left Colombia last year – increased staff from 16 to 50, all of them Colombian. “I’m not saying an expat can’t be successful – but if the team is local, the culture works better,” he says. “There’s an incredibly hard work ethic among Colombians, with lots of aspiration and hunger to succeed. We train staff internally at CPL before promoting them. The chemists and R&D researchers have been fantastic – we now use our Colombian chemists for projects in Europe.”

Although bemoaning infrastructure and the country’s “slow, cumbersome tax”, Pickthall says CPL’s Colombian presence enabled it to set up offices in Peru in 2012. His advice? “All pre-conceived notions people have, just ignore them – none are true.”

cplaromas.com
@CPLAromas

Colombia Facts

  • Colombia’s coffee industry employs 570,000 producers, exporting goods worth $2.5bn (£1.76bn) in 2014
  • Decades of conflict has meant an estimated 5.7 million people are internally displaced in Colombia – more than in any other country, excluding Syria
  • Colombia ranked 128 out of 180 countries in the World Press Freedom Index 2015
  • A quota dictates that women should fill at least 30 per cent of top positions in public service

britishandcolombianchamber.com
@BCCCLondon
@taniahoyos
holdtradeatlantico.com
scotch-whisky.org.uk

Flight info 

British Airways flies to Bogotá via Madrid with Iberia. Return fares start from £847.
Visit ba.com for more details.

Read more on Colombia

Businessperson’s city guide to Bogota

About author

Christian Koch

Christian Koch

Alongside his work for Director, Christian has written features for the Evening Standard, The Guardian, Sunday Times Style, The Independent, Q, Cosmopolitan, Stylist, ShortList and Glamour in an eclectic career which has seen him interview everybody from Mariah Carey to Michael Douglas through to Richard Branson with newspaper assignments including reporting on the Japanese tsunami and living with an Italian cult.

No comments

Time limit is exhausted. Please reload the CAPTCHA.