Colombia

Originally published: Jul-23-2007

Official Name: Republica de Colombia

Internet Domain: .co
International Dialing Code: +57

Table of Contents

Government

Colombia is a republic in which the executive branch dominates the government structure. There is judicial review of executive and legislative acts.

Legal System

Based on Spanish law. A new criminal code modeled after US procedures was enacted into law in 2004 and is gradually being implemented.

People

• Population: 44,379,598 (July 2007 est.)
• Population growth rate: 1.433% (2007 est.)
• Languages: Spanish
• Literacy: 92.8% of population over 15 years of age

Economy

Colombia is the fourth largest country in South America and one of the continent's most populous nations. The economy has experienced steady growth since the president, Alvaro Uribe, came into power in 2002. This sustained growth can be attributed to an improvement in domestic security, the policies of keeping inflation low and maintaining a stable currency (peso), the rise in global oil prices, and an increase in exports as a result of trade liberalization.

Colombia is endowed with abundant natural resources. However, half the population suffers poverty and severe income inequality, and there is a wide gulf between urban and rural areas that has undermined the country's cohesiveness.

Economic policymaking is anticipated to remain prudent in 2007-11, but the government will face rising challenges and forward progress will be constrained by inflexible budgetary commitments, a large structural central government deficit and rising spending pressures to meet social and infrastructure demands.

Currency: Colombian Peso (COP)

• COP per USD: 1,978.08 (7/12/07)
• COP per EUR: 2,720.24 (7/12/07)

Leading Markets (2005): US 41.8%, Venezuela 9.9%, Ecuador 6.3% (2005)

Leading Exports-commodities: petroleum, coffee, coal, nickel, emeralds, apparel, bananas, cut flowers

Leading Suppliers (2005): US 28.5%, Mexico 8.3%, China 7.6%, Brazil 6.5%, Venezuela 5.7% (2005)

Leading Imports-commodities: industrial equipment, transportation equipment, consumer goods, chemicals, paper products, fuels, electricity

Top Industries: textiles, food processing, oil, clothing and footwear, beverages, chemicals, cement, gold, coal, emeralds

Economic Indicators

(e) estimate (f) forecast

Comparative Economic Indicators - 2006

*2007 estimate

Credit and Collections

• Collection Experience: Fair-Good
• Exchange Delays: 3 months
• Preferred Credit Terms: Unconfirmed letter of credit
• Minimum Credit Terms: Sight draft

Credit and Payment

Most products are imported through letters of credit and/or time drafts. Soft and long-term financing is an important sales tool, especially for government imports or public tenders.

Colombian importers may freely negotiate payment terms with their suppliers, but importers must list the agreed payment terms on the import documents and may not subsequently change them. Payment terms are generally between one and six months for imported products for immediate consumption, including raw materials, intermediate goods, and consumer goods, with almost no term limitations for capital goods, which are payable within the timetables set on the import documentation, plus a grace period of three additional months. Foreign payments may be authorized in installments, but in no case can the original terms listed on the import documents be changed.

Dispute Resolution

Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency (MIGA).

The law allows contracting parties to agree to submit disputes to international arbitration, provided that the parties are domiciled in different countries; the place of arbitration agreed by the parties is a country other than the one where they are domiciled; the subject matter of the arbitration involves the interests of more than one country, and the dispute has a direct impact on international trade.

However, foreign investors find the arbitration process in Colombia complex and dilatory, especially with regard to enforcement of awards. Despite Colombia's commitment to international arbitral conventions and its domestic legal framework for arbitration and resolution of disputes, foreign companies have continued to endure lengthy dispute settlement processes. There have been cases in which foreign investors have won arbitrations, only to have the losing party seek their annulment by the Council of State, a judicial body. The Council has ruled that until it decides on such requests, arbitration awards are not final, and do not need to be paid.

Risk Assessment

The security situation is still a problem due to the presence of Latin America's largest guerrilla movement, the FARC, and the climate of violence linked to drug smuggling. The insurgents lack the military or popular support necessary to overthrow the government, and violence has been decreasing since about 2002, but insurgents continue attacks against civilians and large swaths of the countryside are under guerrilla influence. The Colombian Government has stepped up efforts to reassert government control throughout the country, and now has a presence in every one of its municipalities.

Coface Country Risk Rating: A4 -- An unsteady political and economic environment is likely to affect further an already poor payment record.

Ducroire Delcredere Political Risk Rating: 2 – Low risk
Ducroire Delcredere Commercial Risk Rating: C – Highest risk

Business Climate

Despite the political and security issues, there is a growing sense of confidence in the Colombian business sector due largely to the government's economic policy, democratic security strategy, and the signing of a free trade agreement with the US.

Contraband: Consumer articles including, electronics, audio/video equipment, data processing, communications items, storage devices, electric/electronic household appliances, etc., from around the world now appear in Colombian stores. Although an increasing percentage of these products is legally imported, a significant amount comes in through contraband. In fact, it is estimated that annual imports of contraband exceed USD 5 billion. One of the reasons is that imports of consumer goods, consumer electronics, and apparel (in addition to a 15 percent estimate for freight and insurance FOB costs), are subject to an FOB 1.2 percent surcharge, plus a 20 percent CIF import duty and a 16 percent value-added tax (VAT) assessed on the CIF-duty-paid value. This results in close to a 62 percent margin over the basic FOB price of legally imported goods.

Transparency of Regulatory System: Colombian legal and regulatory systems are generally transparent and consistent with international norms. Colombia's civil codes define commercial entities' legal rights and outline enforcement procedures regarding commercial activities. Enforcement mechanisms exist, but historically the judicial system has not taken an active role in adjudicating commercial cases. The 1991 Constitution provided the judiciary with greater administrative and financial independence from the executive branch, and Colombian courts have tended to behave more independently and unpredictably ever since. The Colombian judicial system continues to be clogged and cumbersome.

Intellectual Property, Patents and Brands: In Colombia, the granting, registration, and administration of intellectual property rights (industrial property and copyright) are carried out by four different government entities. Colombia currently lacks a unified IPR registration system. This lack of uniformity and consistency in IPR registration and oversight procedures limits the transparency and predictability of the IPR enforcement regime. Colombia is a member of the Inter-American Convention for Trademark and Commercial Protection. Enforcement of trademark legislation in Colombia is showing some progress, but contraband and counterfeiting are widespread.

Corruption: The Colombian government's Comptroller General estimates that corrupt activity drains $6 million per year from Colombia's economy. "Transparencia por Colombia", the local chapter of Transparency International (TI), has implemented a number of anti-corruption programs in an effort to reverse these trends.

Political Violence: The U.S. Secretary of State has designated three Colombian groups, the Revolutionary Armed Forces of Colombia (FARC), the National Liberation Army (ELN), and the United Self-Defense Forces of Colombia (AUC), as Foreign Terrorist Organizations. These groups have carried out bombings and other attacks in and around major urban areas, including against civilian targets.

President Uribe has introduced measures to restore law and order, intensifying the offensive against guerrilla groups in order to weaken them militarily and force them into political negotiations. The demobilization of paramilitary groups has begun through the government's passage of the Peace and Justice Bill in June 2005. Over 16,000 combatants, mostly AUC, have demobilized so far.

Business and Cultural Practices

Business Cards: Bring a plentiful supply of business cards, printed in Spanish on one side. When presenting your business card, pass it to the recipient with the Spanish side facing up, and turned so that the Colombian business person can read it without turning it around.

Business Attire: Colombians view a person's clothing as an indicator of status, so be sure to dress conservatively, but with class. Ensure that your clothes are pressed and up-to-date and your shoes are polished.

Names and Titles: Most people should be addressed by their title and surname. The majority of Hispanics hold both maternal and paternal surnames. The father's surname is listed first and would be used to address the person. For example, Carlos Lopez Garcia would be addressed as “Señor Lopez.”

Meetings and Negotiations: Local, third-party intermediaries are a must when dealing with Colombian business. Expect preliminary “small talk” at the beginning of any meeting, which conveys that the personal rapport you have established is a higher priority than simply “doing business”. Wait for the Colombian party to initiate the business discussion. Generally, Colombians make decisions on the basis of feelings, rather than empirical evidence and other facts. This can be true even if you present them with an enticing deal and a “bottom line” that seems sure to be profitable.

Acceptable Public Conduct: Yawning in public is considered impolite; always cover your mouth. Pointing or using the index finger to beckon someone is frowned upon. You should extend your hand palm down and use your fingers, motioning toward yourself.

For more detailed information on these topics, visit Colombia, on the Executive Planet web site.

Sources for further information on doing business in Colombia

Colombian American Chamber of Commerce

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Colombia. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources including: the U.S. Department of State, U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," June 2007.