I. COMMERCIAL OVERVIEW EXECUTIVE SUMMARY The Colombian economy has been undergoing dramatic changes during the past several years with the policy of aperatura (opening). The Government of Colombia (GOC) under the administration of President Cesar Gaviria (1990-94) has become a leader in Latin America in forging free trade agreements (FTAs) with neighboring countries. FTAs have been signed with Venezuela, Ecuador, Chile, and Mexico, and others are in the process of negotiation with the Central American and the Caribbean nations. Colombia has given notice to the United States that it wishes to be one of the first countries in the region to become part of the North American Free Trade Agreement. In 1992, the growth of U.S. imports into Colombia increased to almost 3.3 billion U.S. dollars, an increase from the previous year of over 68 percent. This increase was sustained during 1993 and is projected to be maintained in 1994. Growth in leisure and business travel and services is also expected due to the expanding economy, increased U.S. investment in Colombia, the access to the market of new air carriers, and the general growth in leisure travel to the United States. Colombia is undergoing strong economic growth in most sectors of the economy, with 1993's growth of 5.3 percent expected to be surpassed in 1994. With a long history of democratic governments, sustained economic growth since the 1950's, and the aperatura process that is underway, which includes the privatization of many state-owned enterprises, Colombia will continue to expand. Despite the pluses there are a few negatives as well. Colombia's production of illicit narcotics has been problematic for the country, both in terms of violence in the countryside, and in relations with major consuming nations. Another problem has been the absorption of large amounts of laundered dollars as a result of the sales of narcotics overseas. Although inflation has not been high according to South American standards (22 percent in 1993), the effect of these large inflows of illicit earnings has caused rapid expansion of certain sectors (i.e. construction). Violence in the countryside caused by guerilla groups has been another major deterrent, mostly affecting the oil exploration and oil transport activities of major international corporations. General violence in Colombia is high, common street crime in Bogota abounds, however, foreigners do not seem to be targeted any more than Colombians. In summary, Colombia is an expanding market that deserves more attention by U.S. companies, despite the problems it presents. U.S. exports have grown substantially during the past several years, and promises for the future are encouraging. OVERVIEW OF THE IMPORT MARKET Colombian imports have grown substantially over the past three years due to the Government's economic opening policies, known as "apertura". Total imports were valued at $9.8 billion in 1992, and are estimated to grow to US$ 15 billion in 1995, a growth rate of almost fifty-three percent in just three years. The U.S. share of Colombian imports is approximately thirty-six percent. BRIEF SYNOPSIS OF THE COMMERCIAL ENVIRONMENT Colombian business persons reflect the values of the U.S. business environment, long hours and hard work have proven to be beneficial to them and to the country. Colombia is the fourth largest trading partner in South America for U.S. suppliers of goods and services, and has shown a preference for U.S. produced products for several years, with an increasing emphasis during the past three years, when trade has skyrocketed between the two countries. While the image for Colombia is too often focused on the negative aspects of narcotics and violence, the country has a very attractive investment and commercial climate for U.S. business. In fact, many U.S. multi-national companies have been operating in Colombia for many years, with factories, offices, and local employees. Colombia is rich in natural resources such as petroleum and minerals, and is undergoing infrastructure improvements in transportation, including the privatization of ports, railroads, and highways. Concessions are being negotiated with private contractors, including foreign bidders, to build major highways, bridges, and other roads, and concessionaires are receiving the tolls for a determined period as payment before returning the entity to the state. Domestic value-added services in the telecommunications sector may now be provided by foreign companies, and private generation and distribution of electrical energy is also permitted. The newly activated cellular telephone system throughout the country has provided new opportunities for U.S. companies through operation of two of the six licenses and for the sale of cellular telephone equipment. This year, new franchising agreements between U.S. franchisors and Colombian investors have been dotting the business sectors throughout the country. New companies, such as Office Depot (office supplies), Save Computer Shops (computers and software), McDonald's (fast food), and Norwalk (furniture) have begun operations, or soon will. It is expected that others will soon join the race to cash in on Colombia's fantastic growth and thirst for U.S. products. As the Gaviria administration leaves office (August, 1994), its "aperatura" program (opening of the economy to foreign goods and competition) has been generally seen as a success and the newly elected government of President-elect Ernesto Samper is expected to continue the "aperatura" process. U.S. produced consumer goods are now highly competitive in the local marketplace, and are preferred in many cases. Under the ongoing process of privatization in Colombia, one of the most important changes was the restructuring, privatization and modernization of Colombia's port system. During the last quarter of 1993 the Port of Buenaventura, the major port on the Pacific side, and the ports of Cartagena and Santa Marta, on the Atlantic side, were all privatized. Other important reforms have included the privatization of the banking system, telecommunications services in both cellular and paging systems, a complete overhaul of customs' procedures (and of the customs service itself), the creation of a new Ministry of the Environment, and restructuring other ministries of government. A continuing problem is that of large amounts of disposable dollars from illicit sources that seep into the local economy. This "laundering" of money equally plagues local businesses and foreign companies, and the Colombian bureaucracy. Exports of Colombian products to foreign locations have been effected, and imports from foreign countries have been sold at sometimes unrealistic prices in the Colombian market as a means of returning foreign currencies to local companies, even at discount prices. These practices have produced some problems for importers. The Colombian government bureaucracy has proven to be another continuing problem, even though reforms have been made. Although customs procedures have been streamlined, for example, the clearance of goods at airports and ports sometimes presents importers with situations that require patience and perseverance. In every phase of life in Colombia, the bureaucracy inhibits instead of promotes ease and efficiency. HOST COUNTRY BUSINESS ATTITUDE TOWARD THE U.S. As can be seen by the number of U.S. companies operating in Colombia for an extensive period of time (in many cases more than 50 years), it is easily surmised that Colombia's attitude toward doing business with the United States has been positive for some time. Colombia has had good relations with the United States in both the business and diplomatic arenas, with some small disputes being settled promptly. U.S. companies operating in Colombia operate under the same rules as the Colombian companies. That is to say, there is no national preference given to local firms. Colombians are seeking out new U.S. companies to represent in this market, and in other markets in the region. Because of the various free trade agreements that have been negotiated, Colombian companies are well situated to enter other markets in the Andean region. Because of this facility, many U.S. companies are locating their regional headquarters in Colombia, mostly in Bogota. MAJOR BUSINESS OPPORTUNITIES The construction and telecommunications sectors will be the major opportunities for U.S. business in 1995 particularly due to the privatization of the road system and the growth of the telecommunication sector. (See Best Prospects Section II and Appendix B) . The organization of the new Ministry of the Environment will present new opportunities for cleanup of several areas of the country where environmental projects are most needed, including the cleanup of the Bogota and Medellin rivers. Equally important is the electrical generation sector, with several projects being planned, including: La Loma: A new project of 300 MW(e) coal fired power generation. It is being offered by Interconexion, S.A. (ISA), Medellin. It is now being prepared for public offer. The company, a government entity owned by Interconexion Electrica, S.A. (ISA), is interested in developing the nearby coal mine to feed the generation plant, as well as for a coal export project, if feasible. Central del Pais: A 150 MW(e) gas fired plant. ISA is offering 2- 3 sites for evaluation and bidding by prospective partners. Sites are in the areas of Barrancabermeja, Dorada, and in the Meta/Casanare region of Colombia. ISA is now in the process of organizing the company that will promote the project. Once this is complete they will offer bidding documents to interested parties. Termo-Valle: A 150 MW(e) fuel oil plant in the Cali area. Eventually it will expand to 300 MW(e) and will be converted to natural gas once the gas pipeline is completed. Other projects are in the development stage and will be reported as they are ready for bidders. MAJOR ROADBLOCKS TO DOING BUSINESS Colombia offers no major roadblocks for U.S. companies interested in doing business. National treatment is afforded to those foreign companies opening offices here. However, the Colombian government bureaucracy creates major problems at times for both local and foreign companies. NATURE OF LOCAL AND THIRD COUNTRY COMPETITION European and Japanese companies are very competitive in the marketplace in Colombia. When one thinks of the telecommunications sector, for instance, one pictures Ericcson, Alcatel, and other European manufacturers who have maintained a local presence for many years. U.S. manufacturers have been in and out of the marketplace, thus injuring their reputations locally. Since aperatura some have returned. But the competition is very strong, and the other companies are imbedded with the customers. Colombian companies had been operating in a protected economy for many years until the aperatura process began some three or four years ago. Since then they have been modernizing their equipment and gearing up for competition, both in the home market and in the countries where free trade agreements have been negotiated. These companies produce quality products, generally light manufactured goods, that are price competitive with imported products. Many of them are seeking representation for complimentary U.S. products. U.S. multinationals have been present in the Colombian market for many years, several are celebrating their 50th anniversaries this year. Until aperatura, many U.S. multinationals were manufacturing their products for the Colombian market, but now they are expanding their operations and reaching out to the markets that have been opened through the negotiations with the neighboring countries, particularly Venezuela and Ecuador, the same as their Colombian counterparts.