BY ANA-MARIA POVEDES GARCES
Outward foreign direct investment (OFDI) from
Latin American corporations are going global, as reflected in their higher OFDI growth rates in recent years, compared to those of a decade earlier.
At the beginning of 2011, Standard & Poor’s raised the sovereign rating of
investment grade, two levels behind
While Colombia’s OFDI flows started from an insignificant base in 2000, their growth rate during the past decade has shown considerable momentum: Colombian OFDI flows grew twenty-fold in the 2000s, from US$325 million in 2000 to US$6.5 billion in 2010. A 2005 reform consolidated financial regulatory bodies into one entity, the Financial Superintendence (Superintendencia Financiera), perhaps one of Colombia’s most important steps toward regulatory efficiency in its domestic financial markets. After this consolidation, domestic M&As have soared, contributing to the development of many MNEs. The sectoral and industry distribution of Colombia’s OFDI is evolving. During the 1990s, the secondary and services sectors together accounted, on average, for more than 95 percent of Colombia’s OFDI flows, with financial services accounting for the single largest share of OFDI in the ten-year period. In the past decade (2000-2009), OFDI in the services sector still continued to grow, albeit not as aggressively as in the primary sector. As Colombia’s economy gradually shifted to a knowledge-based economy, cross-border investment in services (other than financial) increased rapidly (see annex table 3). Since 2007, however, Colombian FDI outflows were strongly dominated by large investments by Ecopetrol SA, now a public-private holding that was privatized in that year. Since then, the primary sector has accounted for roughly 70 percent of Colombia’s OFDI, with petroleum and natural gas accounting for most investment.
In 2010, the main recipient economies of Colombia’s OFDI flows included Bermuda (US$2.1 billion), the British Virgin Islands (US$!.4 billion), Guatemala (US$661 million), the United Kingdom (US$631 million), Panama (US$414 million), the United States (US$375 million), Peru (US$307 million), Chile (US$282 million), and Brazil (US$189 million). There is no specified economic activity in the case of Bermuda and the British Virgin Islands other than financial, suggesting a possible outflow of capital to avoid home-country taxes. Also, it is difficult, on the basis of standard data, to determine how much of this capital has returned to the country as “round-tripping” FDI.
The corporate players
Colombia has shown a tendency for state-owned enterprises to be turned into national
champions, as in the case of Ecopetrol SA, Interconexión Eléctrica (ISA), Empresas Públicas de Medellín, and, most recently, Empresas de Telécomunicaciones de Bogotá (ETB). These largely state-owned enterprises rank among the top Colombian MNEs, with OFDI mainly (but not exclusively) flowing from them to Latin American economies.
• Colombia’s largest company, Ecopetrol SA, is one of the world’s top 40 oil companies. It has activities in Colombia, the United States, Brazil, and Peru, more than tripling its
production since 2005. Ecopetrol SA had its initial public offering on the Colombian
stock exchange in 2007, selling to 500,000 shareholders and raising equity capital of
• Colombia’s Interconexión Eléctrica S. A. (ISA) is one of Latin America’s largest
electricity providers, with operations in Brazil, Chile, Ecuador, Panama, Peru, and
Venezuela. It has evolved from being just an electricity company by diversifying its
investment portfolio into multiple infrastructure projects, including transportation and
telecommunications, under a cost-effective model entitled “lineal infrastructure systems”
(e.g. fiber-optics for communications connected to the electricity grid).
• Empresas Públicas de Medellín (EPM) is the largest electricity provider in Colombia,
serving roughly 25 percent of the national demand for electricity. EPM is developing the
Bonyic hydroelectric project in Panama, and has grown considerably both in assets and
capacity in 2000-2010. Along with ISA, EPM is largely a public holding operating with a
minority stake of private capital.
• In the financial services industry, Grupo Bancolombia, a rapidly developing translatina, is by far the largest corporate player. In 2007, Bancolombia completed one of Central
America’s largest deals with the US$790 million acquisition of Banagrícola in El Salvador. This transaction represented Bancolombia’s entry into the international
financial services market, positioning the company as a key player in Central America.
Bancolombia has also invested in foreign affiliates in Brazil, the United States, Puerto Rico, Panama, and Peru.
• Argos, a Colombian cement translatina, started its internationalization in 2000 after
acquiring the debt-stressed Belgian firm Holcim’s holdings in the Dominican Republic,
Haiti and Panama, thus opening the door for the company’s expansion and consolidation
in the Caribbean. Argos operates today in the southern United States, Mexico, Central
America, the northern part of South America (Colombia), and various islands in the
• Terpel, a gasoline distributor, had been for many years (before Ecopetrol’s transformation) Colombia’s largest company by turnover, which reached US$3.4 billion
in 2009. With activities in Chile, Ecuador, Mexico, Panama and Peru, the company
competes today for second place in turnover after Ecopetrol SA.
• Another important translatina that internationalized its production in the 2000s after
going through a strategic sequence of local acquisitions is Grupo Nacional de Chocolates
(GNC), now called Grupo Nutresa after its recent acquisition in 2009 of the Mexican
food company Nutresa, which produces chocolate-based confectionary. After beginning
its operational expansion in Ecuador and Venezuela, the emerging food conglomerate is
now operating in 14 economies.
• Avianca, Colombia’s oldest airline went in one decade from filing for Chapter 11 bankruptcy in New York to becoming one of the region’s largest, most competitive airlines. Avianca’s most recent acquisition of 10 percent of Central America’s Taca has made Avianca-Taca a competitor with a strong presence outside Colombia, reaching more than 100 destinations globally and 75 in Latin America; with operations in Colombia, Costa Rica, El Salvador, and Peru, Avianca-Taca delivers an improved service to more than 30 million clients annually. (…)
The largest cross-border M&As by Colombian MNEs during 2008-2010 [include] the ISA acquisition of Cintra Concesiones (Chile) for US$ 2.6 billion, as well as the acquisition of Grupo Aval of
Newly emerging MNEs include Juan Valdez (Procafecol), Grupo Aval, ETB, Promigas, Gerfor, Grupo Phoenix, Casa Luker, Allus Global
EFFECTS OF THE RECENT GLOBAL CRISIS
In spite of the global economic and financial crisis in 2008-2009, Colombia’s economy has continued to grow in recent years. Although real
Strong domestic investment and IFDI flows contributed substantially to an increase in gross fixed capital formation, which peaked in 2010 at an 11 percent growth rate. Inward FDI flows grew from US$ 2.4 billion in 2000 to US$ 10.6 billion in 2008, and while they decreased slightly to US$ 7.2 billion in 2009, IFDI stock continued its upward trend, rising from US$ 67 billion in 2008 to US$ 74 billion in 2009. OFDI flows emerged virtually unshaken from the crisis, peaking in 2010 at US$ 6.5 billion, a six-fold increase vis-à-vis 2007. Some of today’s translatinas, including Cementos Argos, EPM, and Grupo Nacional de Chocolates (Nutresa), took advantage of the crisis to invest at record low cost and thus expand abroad.
THE POLICY SCENE
In the 1990s, the Colombian Government’s predominant method of encouraging international economic transactions did not go beyond supporting trade activities in export markets. Today’s key recipients of OFDI from Colombia are in most cases also the main recipients of Colombian exports. During the past decade, Colombia has revised its investment framework with efforts directed at promoting investment and the emergence of translatinas.
In 2005, after the creation of the Superintendencia Financiera, procedures and transaction costs for domestic M&As improved, so Colombia’s largest MNEs were able to capitalize on domestic expansion through innumerable local acquisitions that positioned many of the top firms on a path of further growth and internationalization. Also in 2005, “Ley 963 de 2005” established legal stability for investors, both foreign and domestic.
In 2006, the Uribe Government focused on investment, dedicating Chapter Four of the National Plan of Development 2006-2010 to laying out a national blueprint for facilitating investment, as well as embarking on a new era of investment promotion by promoting security, stability and competition at home. Then in 2008, the Government enacted “Ley 1253 de 2008” in which it regulates “productivity and competitiveness (…) that facilitate the incorporation of Colombia in the global economy and better export performance”. The combination of these policies has served to strengthen Colombian enterprises and their ability to invest abroad.
Most recently, in 2009, the Government enacted “Ley 1340 de 2009”, in which it regulates the “protection of free competition in the Colombian territory”, a norm that is attractive to both domestic and foreign investors.
In 2010, Chile, Colombia and Peru signed a commitment to create the first regionally integrated stock exchange, the Mercado Integrado Latinoamericano (MILA), which started trading operations on
These policy developments suggest that Colombia’s policy makers now understand the
dynamism and opportunity that OFDI brings, as reflected recently in international investment agreements (IIAs). Colombia has signed six double taxation treaties (DTTs) (with Argentina, Canada, Chile, Mexico, Spain, and the United States), and nine bilateral investment treaties (BITs) (with China, Cuba, Guatemala, India, Luxembourg, Peru, Spain, Switzerland, and the United Kingdom), (while most OECD economies had signed more than 50 each by 2010). Two-thirds of Colombia’s BITs were signed in the late 2000s, suggesting that Colombia has recently begun to take a more active role in international investment diplomacy.
In addition to expanding its network of IIAs, Colombia now faces the challenge of encouraging sustainable investment. Policy reforms are needed that can optimize investments in oil and gas in a world of twin energy-environmental crises, as well as encourage corporate social responsibility that balances the returns to Colombian MNEs with a positive environmental impact and the human, social and economic development of the host economies in which their foreign affiliates operate. In particular, Colombia must continue to strengthen its environmental impact assessment (EIA) system, as well as ensure a more effective application of international standards related to EIA in the public and private sectors (including as regards OFDI by Colombian MNEs), and in line with Colombia’s commitments under relevant international agreements. Recent studies have concluded that Colombia has promulgated laws regulating the environmental impact of commercial activity, but still needs to widen the (currently rather limited) scope of legal measures and administrative support, and put in place procedures for the design and implementation of environmental impact systems and follow-up and control mechanisms.
Colombia also faces specific challenges in infrastructure. Although the country is one of the region’s largest and most developed economies, bottlenecks in transport could pose avoidable limitations to the domestic growth and corporate profits of emerging MNEs, and thereby also to job creation and
Colombia’s OFDI has shown considerable growth after major policy reforms, enhanced security and investor confidence in the past decade. Similar growth rates were recorded in the mid-1990s after the opening of the economy to world trade and other liberalizing policies of the early-1990s. The improved security situation, a stronger financial sector with increasing capital available for local MNEs, a combination of liberalized policy in trade and investment, and conservative monetary policy and financial regulations have all also contributed to strengthening Colombia’s economy and enabling the internationalization of its corporations. Colombia nevertheless faces challenges, especially in infrastructure development, in strengthening its MNEs’ capabilities, and the need to take further advantage of IIAs and seek to promote sustainable OFDI.
Ana-María Poveda Garcés, “Outward FDI from Colombia and its policy context,” Columbia FDI Profiles, September 1, 2011. Reprinted with permission from the Vale Columbia Center on Sustainable International Investment (www.vcc.columbia.edu).
Ana-María Poveda Garcés holds a Masters degree in Public Administration from Columbia University. She previously was a consultant for the Ministry of Foreign Affairs of Colombia, the Economist Intelligence Unit (EIU) and the United Nations Development Programme (UNDP) in Tanzania. The author wishes to thank Thomas Jost, Gianluca Mele and José Antonio Ocampo for their helpful comments. The views expressed by the author of this Profile do not necessarily reflect the opinions of Columbia University, its partners and supporters.