Monday, 10 Dec 2012
Overseas Business Risk - Colombia
Political and Economic
Colombia has suffered from an internal conflict for a number of years. This arose when left-wing groups took to armed struggle in the mid-1960s. The most well-known of these groups is the Revolutionary Armed Forces of Colombia (FARC). The conflict has become increasingly complex as paramilitary groups emerged to defend the interests of large landowners against the rebels. Moreover, the ideological conflict has been largely overtaken by a struggle for control of the drugs-trafficking business.
While the conflict is still a fact, it is no longer a significant issue for businesses operating in Colombian cities, although the possibility of indiscriminate attacks still exists. In general, the more remote the area, the greater the potential threat to safety. The FCO continues to recommend against travelling to certain rural parts of the country (please see latest FCO Travel Advice for full details).
Further barriers to the full realisation of potential for business include poverty, corruption, poor infrastructure and the complicated situation of land distribution. Again these are likely to be more acute in remote areas where the government may lack effective control.
Businessman reading newspaper
Despite the conflict, Colombia’s democratic system has been resilient and stable. Traditionally two major political parties - the Conservatives and the Liberals - have dominated the Government, largely alternating in power over the last 130 years. The only period of military rule in the 20th Century was from 1953 – 1957. The election of President Alvaro Uribe in 2002 marked something of a change, as he led a new party that crossed traditional boundaries. Uribe focused heavily on the security issues, and had considerable success, pushing the rebels to more marginal/remote areas. But he was not able to completely defeat them.
In 2010, Juan Manuel Santos was elected as President, taking office in August of that year. Uribe was unable to run due to term limits. Santos, a former Defence Minister, has maintained a focus on security, while also looking to broaden economic participation and tackle some of the economic causes underlying the conflict. His government has pursued a number of new reform initiatives, including tackling the difficult issues of land ownership and the distribution of mining royalties. Several of these reforms passed through congress in mid-2011 and are now moving to the implementation phase.
Colombia has enjoyed stable economic growth and relatively low inflation for the last decade. It has traditionally suffered less from the economic crises that have periodically affected other countries in the region. Macroeconomic management is generally prudent and effective.
The economy grew at 6% in 2011 and is expected to reach around 5% in 2012. Inflation is well controlled, at under 3%. Foreign Direct Investment has grown significantly in recent years, and now hovers around US$13bn a year. Most of this is focused in the extractives sector (mining and oil & gas), but the economy is starting to diversify, with investments in service centres, hotels and financial services.
The Colombian government maintains a positive attitude to foreign direct investment with relatively few limits. It operates a large number of free trade zones that can offer advantages for investors, although operating in such zones does bring requirements relating to levels of employment etc. Colombia has had a system of ‘legal stability contracts’ for large investors that allow a company to fix certain aspect that an investment (e.g. tax rates) for a certain period for payment of fee. Certain municipalities and departments operate additional incentives for investing in certain regions.
The UK signed an Investment Protection and Promotion agreement with Colombia in March 2010. This is currently going through the ratification process. Once implemented it will provide mechanisms for dispute settlement in cases of expropriation and other forms of protection.
More information on political risk, including political demonstrations is available in FCO Travel Advice.
In his inauguration speech President Santos declared that the defence of human rights would be a “firm and unavoidable commitment” of his government. Nevertheless, the situation on the ground continues to cause concern. Human rights defenders are frequently victims of violence and intimidation; peasant, indigenous and Afro-Colombian people suffer displacement, threats and massacres; and impunity levels remain high. Problems are most acute in remote areas where state presence is limited and illegal groups have significant power.
Colombia has ratified 60 ILO conventions including 8 on fundamental labour rights. However, intimidation and violence against trade unionists is still an area of concern. Trade unions are legal but unionisation levels are low and members can be subject to threats and violence. The 2011annual TUC report states that 29 trade unionists were killed in Colombia, the highest number of any country in the world. In April 2011, President Santos signed an “Action Plan on Labour Rights” guaranteeing further protection for labour rights, such as the right to collective bargaining and also greater resources for the security of trade unionists. The government has also increased its spending on protection measures for trade unionists.
The Colombian constitution guarantees extensive rights to indigenous and Afro-Colombian groups, over their traditional territories and to protect their culture. Activities such as mining and oil exploration or infrastructure development in the regions where these group live have to go through a process of consultation known as ‘consulta previa’.
Land issues in Colombia are complex, in light of the extended conflict and the fact that Colombia has the second-highest number of internally displaced people in the world. A Land and Victims law was passed in June 2011. It aims to recognise victims of the internal armed conflict and to provide them with compensation. It aims to return illegally seized or abandoned land to those who have been forcibly displaced. Companies should note that under the law they are expected to not only be able to show that they acquired land legally but also that they carried out the due diligence necessary to establish that it has not previously been illegal acquired. Overall the issues of human rights and land use have the greatest impact on mining, oil and gas and agriculture sectors operating in remote, rural areas.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
Colombia ranks joint 80th in the world in the 2011 .(CPI) putting it alongside Peru and ahead of Argentina, Mexico and Venezuel in the region. Other data from Transparency International suggests that the problem is most serious in the political field, although it is also present in business. A number of high profile cases, primarily involving construction projects and local government authorities have recently been brought to prosecution.
Although the security situation in Colombia has improved considerably in recent years, the threat of terrorism is still high in many parts of the country. In Bogotá, where the threat has decreased in recent years, indiscriminate attacks do still occur. A attack targeted at a former Minister killed two of his security team in May 2012. A car bomb on 12 August 2010 near the studios of Caracol Radio Station in northern Bogotá is reported to have injured at least nine people A previous bomb attack on a video rental store in north of Bogotá on 27 January 2009 killed two people and injured at least twenty others. You should be vigilant, particularly when visiting or staying in public places used by expatriates and foreign travellers, and in the vicinity of government buildings and military establishments.
There are a number of illegal armed groups operating throughout Colombia. Because they are mobile there are many parts of the country where it is not possible to determine in advance whether they will be unsafe at a particular time. In general, the more remote the area, the greater the threat to your safety. If it is essential that you travel to areas that are remote or reported to be dangerous, you are advised to seek professional security advice and make arrangements for your security throughout your visit. You should seek up-to-date advice from the local authorities before each stage of your journey.
Protective Security Advice
While most visits to Colombia are problem free, visitors should be aware that problems can arise.
Criminal activity in urban areas, including Bogotá, is relatively common. Crimes such as mugging and pick pocketing are often accompanied by violence. Foreign visitors present a tempting target to thieves, pickpockets and drug traffickers. When walking in urban areas, you should avoid any unnecessary display of wealth. You should only use pre-booked taxis, where possible. You should be wary of unsolicited approaches from strangers.
There have been several cases of assailants using drugs to subdue their intended victims. Drugs can be administered through food, drinks, needles, cigarettes, aerosols, powder, and have even been impregnated in ‘flyers’ handed out at traffic lights. These drugs can take effect extremely quickly, allowing an assailant to rob the victim and escape before the attack can be reported. It can take several days for the drug to wear off and the victim to recover. These attacks frequently occur on public transport. You should never accept offers of food, drink or cigarettes from strangers – no matter how friendly or well dressed a person appears.
There have been reports, including in Bogotá, of bogus policemen approaching foreigners to ‘check’ documents or foreign currency.
You should avoid unnecessary visits to deprived areas of all Colombian cities.
High-profile businesses can provide targets and will need to consider adequate security for office buildings and high-level personnel. Most major office buildings and residential blocks in smarter areas of town have private security. Businesses operating outside of main cities will need to give adequate thought to protective security and take specialist advice.
Political demonstrations do occur. As in any country, it is best to avoid such events.
Businessman working at a computer
IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, they you should consider registering your IP rights in your export markets.
Patent and trademark law is subject to change. Manufacturers and traders are strongly advised to patent their inventions and register their trademarks in Colombia, and to do so through a patent or trademark agent.
Patent processes in Colombia can be long and a backlog of applications exists. Application for patents of overseas inventions must be made within one year of filing the first foreign application. Patents are granted for twenty years from the date of filing the application.
Compulsory licences may be granted if, after three years, the patent has not been worked, the working has been suspended for more than one year, national market demands have not been met, or if the patentee has not granted licences under reasonable conditions. The responsibility for notifications of working within three years is the responsibility of the patentee.
Regulations for the protection of IPR exist in Colombia. However, concerns exist in relation to enforcement. Piracy and counterfeiting of products does exist.
Organised criminal activity is primarily linked to the drugs trade. Such groups are also engaged in many of the common activities of organised crime groups in other countries (e.g. racketeering).