Jaime E Trujillo Caicedo, Partner and Chair of Latin America Mergers and Acquisitions Practice Group, Baker McKenzie Colombia: Viewpoint

Jaime E Trujillo Caicedo, Partner and Chair of Latin America Mergers and Acquisitions Practice Group, Baker McKenzie Colombia

Viewpoint: Jaime E Trujillo Caicedo

Looking ahead, it is difficult to imagine more interesting times for Colombia from a political, economic and business perspective. The country has come a long way in establishing itself as a credible, fast-growing and resilient economy, which is now producing companies capable of competing on a regional and global level. Security is improving by the day, a large-scale infrastructure programme is coming together, and the government and the largest remaining guerrilla group finally signed a historic peace agreement.

Investment should increase in the foreseeable future for a number of reasons. Colombia’s institutional framework, while not perfect, is robust and works reasonably well. It has a modern central bank and orthodox monetary policies, a free and active opposition, and an independent judiciary that ensures that democratic checks and balances operate effectively. Colombia compares well to the region in terms of GDP growth and demographics. The exchange rate has made targets more affordable and locally produced goods should be competitive again. Although lower commodity prices and compliance scandals have put some regional players in distress, these same factors have prompted a welcome spike in deal making.

A number of fourth generation toll roads and other infrastructure concessions have been awarded and have achieved financial close, which speaks to the new public-private partnership framework and the reforms introduced in the pension and tax regimes to facilitate the financing of major projects. In 2017 we should see the implementation of the infrastructure programme, which should generate the counter-cyclical effect touted by the government. The business community will now need to focus on ensuring that projects are not only completed on time and within budget, but that the upgrades actually make the country more competitive.

The peace deal FARC and the post-conflict environment offer many opportunities for investment and growth in sectors such as infrastructure, tourism and agri-business. Perhaps more importantly, they have also provided enterprises with a key role in building and maintaining peace.

The legal community, in particular, will play a role in maintaining peace by helping create the conditions required for displaced Colombians and demobilised combatants to make an honest living by engaging with established firms as suppliers, employees or perhaps business partners and associates. That entire areas of the country will finally be open to legitimate businesses is a golden opportunity to attack corruption at its core, and for the best Colombian companies and foreign investors to act as role models.

We cannot ignore that Colombia is facing important challenges. Some are global in nature, such as the downturn in the price of commodities, the volatility of exchange and interest rates, weak equity markets and political uncertainty. Others are local and self-inflicted, such as a politicised judiciary, legal instability and a polarised political leadership. Perhaps the most salient obstacle to competitiveness is the country’s uncompetitive tax regime, which will continue as is, at least in the medium-term.

Since 2015 the government had committed to submitting a tax reform bill aimed at restoring competitiveness without sacrificing revenue by lowering rates and expanding the base. Thus, we were made to expect that a business that was properly paying its taxes would benefit from a noticeable reduction in its future tax burden. A tax reform bill was submitted and approved in late 2016, but the outcome was disappointing. Due to global commodity prices and the domestic political landscape, the government was unable to push for structural changes to the tax regime. The result: the effective income tax rate for companies remained roughly the same. This obliges us to focus on the country’s many other strengths, which allow us to stay positive. Thinking that Colombia has a bright future is not only good for business, the outlook is probably correct.

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The Report: Colombia 2017

Legal Framework chapter from The Report: Colombia 2017

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This article is from the Legal Framework chapter of The Report: Colombia 2017. Explore other chapters from this report.

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