International Real Estate, STAFF NEWS & ANALYSIS
Colombia Emerges as a Regional Tech and Bank Powerhouse
By Staff News & Analysis - December 22, 2014

Colombia Is One Of Latin America's Most Promising New Tech Hubs … Ten years ago, the idea that Colombia would become a burgeoning hub for any dynamic industry beyond its notorious drug trade would have struck most observers as far-fetched. As recently as the turn of the century, conventional wisdom had it that the tropical, Andean nation was on the verge of becoming a failed state. Fast forward to the present day and Colombia already boasts one of the region's stronger startup ecosystems, with huge potential upside still waiting to be explored. By 2018, the government hopes to have 63 percent of the country connected to broadband. And according to 2013 GSMA mobile economy figures, there are already 43.9 million mobile connections and 24 million mobile users in a country whose 47 million people give it the third largest population in Latin America and third largest Spanish-speaking population in the world. – TechCrunch

Dominant Social Theme: You don't need to go abroad to find profitability.

Free-Market Analysis: Recently, High Alert announced the opening of an expat community in Colombia in an editorial by Anthony Wile, here:

A New Free-Thinking Community for Your Life, Safety and Sanity!

While the editorial was greeted with an overwhelmingly positive response, some of the comments focused on the idea that Colombia was not far away enough from the proverbial "beaten path." The idea was that if Western economies became increasingly dysfunctional, Colombia was yet overly committed to a Western orbit.

Yet Colombia is certainly not Canada, nor England, nor the US, nor Europe generally … It is its own country … differentiated by culture, language and location. And increasingly, Colombia offers separation from the West alongside of a sophisticated quasi-Western economy that will allow Colombia to make its own way, separate from the West and yet co-equal in many ways.

Here's more:

It follows that a stronger internal tech culture will also form the groundwork for Colombia's own aspirations in the field of innovation.

The first stage of the government's concerted campaign to rebrand Colombia as a technology center involved drawing in IT services with tax incentives and professional training programs. A $6.8 billion industry has taken strong root as a result, with 1,800 software development and IT service companies registered in the country. Looking forward, the hope is that IT, and the investments that went into promoting it, can diversify into a broader innovation ecosystem.

With that in mind, the government has spurred a number of public initiatives to address the lack of venture capital in Colombia, currently the biggest ceiling on startup growth. Founded to support and promote tech innovation and new ventures, iNNpulsa awarded three grants of up to $800,000 in 2013 to investor groups establishing operations in Colombia … Where once there was nothing of the sort, there are now 38 private equity, venture capital or seed funds in the country.

These and other efforts have succeeded in convincing big names like Facebook and Google that a favorable labor market and budding consumer base are worth investing in, with both companies opening permanent Colombian offices in recent years. Where the government's strategy has so far fallen short, however, is in replicating that sort of international success for homegrown Colombian companies.

There is no doubt that Western investment is coming to Colombia. That means increased jobs, increased technology, increased prosperity.

But none of that surely disqualifies it as a location for an expat community. Colombia is not a small country and the location of the announced expat community is near enough to urban centers to be practical yet far enough away to reap the benefits of a rural, agrarian location.

The once-maligned "drug capital" of Medellin beats at the heart of much of this technological progress. But Medellin, too, has changed. In fact, in 2012, Medellin won the "most innovative city of the year" award. The city's inhabitants have always been entrepreneurial and now that energy and drive has transferred itself to technology.

Bogota remains Colombia's tech capital, but many reportedly believe that Medellin is not far behind. In fact, in 2013 the city government decided to commit $389M over 10 years to support advances in entrepreneurialism and technology. The article cautions that the leadership position that Colombia aspires to worldwide is not easy to attain, but then lists a number of reasons why it may be possible.

  • In 2014, Colombia's GDP "has grown faster than any in Latin America." Amazingly, it is actually the fourth fastest growing in the world. Unemployment, poverty and inequality of all types are falling.
  • Colombia's business success is attracting immigration. But the growth rate is so strong that the country can benefit from immigration without developing the kinds of difficulties including hostility that often accompany such migrations.
  • Relative to other countries, Colombia enjoys a number of sociopolitical advantages. It is as stable as other advanced countries like Chile and more advanced industrially than many of its neighbors including Peru, Venezuela, Ecuador and the like. Its giant neighbor to the south – Brazil – is industrialized but suffers from a corrupt political infrastructure and high price inflation. Argentina has similar problems.

Colombia has been known for such strengths for a while, but these strengths have not been broadcast. Some know, however. Back in late 2011, billionaire Sam Zell announced that he was limiting his US investing in order to concentrate on Colombia and BRIC powerhouse India. Bloomberg reported the move as follows:

Billionaire Sam Zell said he is entering the real estate markets in Colombia and India in the next two weeks as he continues to favor international investments over U.S. property deals.

Zell, chairman of Chicago-based Equity International, will invest in real estate in Colombia and will eventually move on to residential projects, he said in an interview today on Bloomberg Television … "Colombia is the next star of Latin America," Zell said on "In the Loop" with Betty Liu.

… Equity International's first deal in Colombia is a $75 million investment in Bogota-based Terranum Development, a closely held real estate company, according to a statement today. Terranum is developing a 190,000-square-meter (2 million- square-foot) mixed-use complex near Bogota's El Dorado International airport, the companies said.

Given its many growing advantages, one cannot be surprised that Zell, one of the savviest real-estate operators, has turned his focus toward Colombia. In fact, while Zell announced his move some five years ago, other powerful players are now announcing their own increased presences.

According to Bloomberg, "JPMorgan, BTG Expand in Colombia to Tap Best-in-Region Growth." The article reports that, "JPMorgan Chase & Co. (JPM) and Grupo BTG Pactual (BBTG11) are among foreign banks expanding in Colombia, where economic growth is set to outpace Latin America's six biggest economies this year."

Moody's Investors Service recently raised Colombia's rating to its highest level ever. Here's more about the banking invasion:

JPMorgan plans to increase its approximately 100-person workforce around 10 percent in Colombia by adding executives including investment bankers, traders and private bankers, according to Juan Manuel Munoz, the firm's head of investment banking for the country.

"Colombia has one of the biggest potential growth opportunities in Latin America," Munoz said in an interview last month, adding that JPMorgan also rented more space in Bogota. "In relative terms, the country remains the best performer in the region."

BTG, with about 300 workers in Medellin and Bogota, is asking for a banking license so its subsidiary there can invest its own capital in private equity and make corporate loans in the local currency, Juan Luis Franco, the bank's chief executive officer for the nation, said in an interview.

Switzerland's UBS AG and Itau Unibanco Holding SA, based in Sao Paulo, are also expanding their operations in the South American nation, where gross domestic product may expand 4.5 percent in both 2015 and 2016, after growing about 4.9 percent this year, according to a survey of economists by Bloomberg.

Despite a strong dollar and falling commodities prices, Colombia is not only weathering problems of emerging markets, it is triumphing while others regions stumble. The surge of financial/banking exposure is just the latest sign of Colombia's coming-of-age as a regional money hub.

"About 20 years ago the local banks were the only ones, but since then the local companies grew and the investment-banking deals became bigger and international, so foreign lenders started to look at Colombia in a different way," said Jaime Bermudez Merizalde, president at MBA Lazard Colombia. "The sophistication and expertize needed now is much higher," Bermudez said.

Many people in the West still associate Colombia with drugs and corruption. This perception isn't really hurting Colombia these days because "smart money" understands the reality of Colombia as an emergent regional powerhouse.

It also isn't hurting those investors who are positioning themselves in Colombia from an industrial and real-estate standpoint. They are still doubtless early enough to reap considerable benefits from Colombia's expanding and increasingly sophisticated economy.

After Thoughts

It's a secret but not one that will be for long.

Posted in International Real Estate, STAFF NEWS & ANALYSIS
  • Ronald Holland

    Yes readers only need to visit the new Colombia to see the massive development, sophistication, vitality and growth of the country. My last trip a few weeks ago so reminded me of the boom conditions and prosperity I recently saw in Asia.

  • goldbug

    Do you anticipate that Colombia will eliminate capital controls and allow money to move freely in and out of the country?

    • Two things are likely necessary for that… A final peace pact with the FARC and the legalization of cocaine. Neither are all that far fetched. However, a peace pact with the FARC means the FARC sympathizers will become an obvious part of the government. Corruption in government is already far greater than anyone wants to publicly admit and it will grow.

      • News on the FARC front …

        http://www.bbc.com/news/world-latin-america-30558863

        Colombia’s Farc rebels have begun an indefinite, unilateral ceasefire.

        The group unexpectedly announced on Wednesday that it would begin a truce for an unlimited time from Saturday.

        The move has been welcomed by the UN and the European Union. However, Colombia’s government said it would not join the rebels in the truce.

        Hours ahead of the ceasefire, the army said Farc had killed five soldiers in an ambush. The rebels attacked a patrol in a rural area of western Colombia.

        President Juan Manuel Santos described Farc’s ceasefire declaration as a “gift… full of thorns”.

        He has rejected rebel calls for a bilateral truce, warning that this would give them the chance to re-arm.

        He also condemned the ambush, saying the soldiers had died “defending the security of their fellow Colombians”.

        Representatives of Colombia’s government and the Farc have been holding talks in the Cuban capital, Havana, for more than two years …

        • (Postdatum disclaimer: Despite what I wrote here about the FARC, other things being equal in my life and had the resources, I would have considered investing and moving there at this time. My future is hopefully soon in Honduras)

          I lived in Columbia during some of the most difficult times, as a missionary. I’ve followed events there with interest.

          The FARC is a pack of lying wolves, if I may be so understated. One president gave them the territory they asked for (size about the average state in the USA) and they did not slack off anything. Finally the president declared they had not negotiated in any kind of good faith and took over the territory.

          The much-unfairly maligned self-defense groups started off as a collaboration among ranchers to protect their property and their families from looting and kidnapping. The world’s controlled media (MSM) accused them only because of alleged connections with military, but they were quiet about moles in the military working for FARC.

          Fool me once, shame on me. Fool me twice, shame on you.

          They’ve had multiple chances to blend back in with amnesty provisions. That’s one way this band has been cut back, with leaders giving up. Santos has millions of reasons to distrust them and to finish what the Columbian people always wanted anyway. Uribe got the momentum going. Instead of giving up like Lindbergh after the bad guys killed his son, Uribe pressed forward and became a national hero to Columbians.

          Their unilateral ceasefire is likely a regrouping strategy, biding time. Time will tell. Marxists want to fulfill Lenin’s strategy.

          But I don’t think this should deter anyone. They just may fade away. But all libertarians everywhere have an interest in educating the populace while there’s still time and an Internet such as it is now.

          • Yes, the FARC did indeed begin as a group of farmers (wealthy farmers) to protect their rights from the then even more corrupt government. However, a man by the name of Pedro Antonio Marin Marin (better known as Manuel Marulanda Velez – “Tirofiho”), who was a very cold blooded killer, took over the group. That began the reign of terror. Marulanda died of a heart attack in 2008. After his death, the FARC began to decline in power. Frankly, most Colombians believe the current negotiations are simply a ruse, so the FARC can rebuild their forces. There is another loosely affiliated group, called ELN, that is not a party to the “peace talks” in Cuba. The ELN has continued their drug running and kidnapping operations, mostly in the northern part of Colombia, near the border with Venezuela.

            Basically, the central part of Colombia (BTW it’s Colombian with an “o” not a “u”) is fairly safe. I’ve traveled all over the back roads of Antioquia, which used to be infested with FARC as well as AUC (“disbanded” paramilitary group), and have never felt in any danger. That said, it is important to understand, Colombia is a very socialist country. Not communist, socialist. The government has its hands in everything.

            And, one should note, the tax regime here is just as onerous as in the US, maybe even worse. Also, I’ve read the tax code here very carefully. If you become a Colombian resident and live in the country for more than 183 days a year for five years (or actually become a Colombian nationalized citizen), you will be subject to Colombian tax laws. Most importantly, once you become subject to these regulations, your world wide income is subject Colombian tax law, just like in the US (http://www.kpmg.com/global/en/issuesandinsights/articlespublications/taxation-international-executives/colombia/pages/income-tax.aspx).

            Another thing… If you plan to purchase property or otherwise invest in Colombia, make sure you file a “Form 4”, declaring the amount and source of funds. If you don’t, you could have problems repatriating your money.

            All the negatives considered, I’ve lived in Colombia for almost eight years and I have no plans to live anywhere else. I was raised in the foothills of California. When I arrived here and saw the magnificent mountains and discovered it never gets cold enough to snow, I was hooked. One would be very hard pressed to find a better place to live… beautiful scenery, friendly people, good economics, secure property rights, great public transportation, and excellent healthcare (full coverage health insurance for under $60 month for the whole family).

          • You said, “Yes, the FARC did indeed begin as a group of farmers (wealthy farmers) to protect their rights from the then even more corrupt government”, and that may be (before the Communists took them over) but I was talking about the “paramilitary” groups, using the “slur” of MSM against the ranchers that wanted to protect themselves against the FARC.

            Colombia is nice, you’re right. My wife’s from Honduras, we’ll be going there after some time (sooner I hope). There are a great many American and European expats there. Not so onerous, though they seem to be learning a few things about taxation from the gringos.

            Girl at work just visited her friend, in fact, who is setting up a jewelry store in Roatan (island off Hnduras coast).

loading