The Colombian
Cleanup
An interview with
Francisco Santos Calderón,
vice president of Colombia
Francisco Santos Calderón was elected vice
president of Colombia in 2002 and re-elected
in 2006. During that time, Colombia has gone
from a troubled country to a rising economic
star of Latin America—due in no small part
to the policies of Mr. Santos and Colombian
President Álvaro Uribe Vélez. Improving
security, instilling a sense of stability and confidence, and promoting free trade have fostered
Colombia’s resurgence.
A.T. Kearney
|
EXECUTIVE AGENDA
25
In 2002, Colombia was a troubled
country. Government forces were waging
South America’s longest-running armed conflict, some 40 years of fighting against leftwing insurgents and right-wing paramilitaries.
Fueled by the drug cartels, the violence had
escalated dramatically in the 1990s. As newly
elected President Álvaro Uribe Vélez and Vice
President Francisco Santos Calderón prepared
to take office, their mandate was to take back
their country — stipulating a focus on ending
violence, kidnappings, drug trafficking and
corruption. They also had the longer-term
objective of establishing a system where democracy would not only prevail but also help
the country flourish — opening the country
to foreign investors, commerce and economic
success. Today, just six years later, Colombia is
one of the hottest emerging markets in the
world, with foreign direct investment (FDI)
jumping from $2 billion to between $8 and
$10 billion a year, and an economy that grew
by more than 7 percent in 2007.
How did Uribe and Santos reverse Colombia’s downward slide? Recently, A.T. Kearney’s
Ricardo Haneine and Eulalia Sanín Goméz
sat down with Vice President Santos to discuss
how Colombia managed its unprecedented
turnaround.
Ricardo Haneine: Mr. Vice President, in the
past six years, we have witnessed a tremendous
success story in Colombia. Tell us about your
country’s journey.
Vice President Santos: I think a good
way to illustrate the Colombian success story
is with an anecdote that took place about
a year and a half ago when I met with Jeffrey
Francisco Santos Calderón
Francisco
Santos
Calderón was
elected Vice
President of
Colombia on
the same
national ballot as Colombian President Álvaro Uribe Vélez in May
2002. They both were re-elected for
a second term in May 2006.
As vice president, Mr. Santos
heads the presidential programs for
human rights, youth, transparency
and the fight against corruption,
and action against land mines. He
also leads the shared responsibility
initiative, an international campaign
to create awareness about the social
and environmental damages caused
by the cultivation of coca and the
production of cocaine in Colombia.
26
the colombian cleanup
In 1990, Mr. Santos was
kidnapped by Pablo Escóbar, the
leader of the Medellín drug cartel.
Along with 10 other journalists, he
was held for nearly eight months in
an ultimately unsuccessful attempt
to extort a promise from thenPresident César Gaviria that the
Colombian government would not
extradite drug traffickers to the
United States. Once released, the
vice president spent a year at
Harvard University as a Nieman
Fellow. In 1992, he returned to
Bogotá and founded País Libre
(Free Nation), an organization to
assist the victims of kidnappings
and their families.
Through País Libre, Mr. Santos
also promoted civil society resistance, protests and marches against
kidnapping and terrorism, culmi-
nating in the massive 1999 march
involving millions of Colombians
rallying under the banner “No
Más!” (“No More!”).
Mr. Santos then worked as
editor of El Tiempo, Colombia’s
largest daily newspaper, where he
wrote a weekly column in which he
often spoke out against kidnappings
and massacres and called for civil
society to take a more active role
in finding peaceful solutions to the
problems facing Colombia.
In March 2000, Mr. Santos left
Colombia after receiving multiple
death threats by the guerilla group,
the Revolutionary Armed Forces
of Colombia (FARC). He moved
to Madrid, Spain, where he was
a journalist for two years for the
daily newspaper, El País.
Immelt, CEO and Chairman of General Vice President Santos: Our first objective
Electric. He had just come from São Paulo and was to ensure security, and in this sense the turna meeting with Brazil’s captains of industry. around has been dramatic. The ship has turned
He asked them, “If you had money to invest 180 degrees from a country that people viewed
in Latin America, outside of Brazil, where as having no future and experts considered as
would you invest?” Do you know what he almost a failed state, to a country with a security
told me? He said everyone in the room said situation better than most Latin American
they would invest in Colombia. That’s what’s countries. It is ironic. Today, our major cities,
happening. All of the work
we’ve been doing has created the conditions for
Colombia to move up and
our most important achie ve attract investments. I have
no doubt that if we conment has been something that seems
tinue with our policies, in
very simple but is very difficult
10 to 15 years people are not
going to be talking about
to achie ve : trust.
Chile or Brazil; everyone
will be talking about the
Colombian miracle.
Ricardo Haneine: What do you consider
the major achievements of President Uribe’s
administration, and how has this been reflected
in the country’s economy?
Vice President Santos: Our most important achievement has been something that
seems very simple but is very difficult to achieve:
trust. Colombians have been able to trust again
in their futures and their institutions. Today,
Colombia is a viable country. Everything we
are doing, day in and day out, is to build on
and consolidate that trust. With trust, investment is returning, people are coming back to
Colombia, and entrepreneurs are investing for
the long term. You start to see a new vision of
what people expect of the country.
Ricardo Haneine: You attribute Colombia’s
transformation to many of the policies implemented since taking office. What are the most
important policies?
Bogotá, Medellín, Barranquilla and Cartagena,
have murder rates lower than Detroit. In Bogotá,
the murder rate is lower than Washington, D.C.
And if you compare that with the rest of Latin
America, where crime rates in most urban centers are increasing dramatically, the situation in
Colombia is quite different and quite remarkable. That same thing has happened with kidnappings, which are down by 90 percent since
2002. Obviously, we have to remain aware of
the situation and keep working on it, but we
have solved some deep problems.
Our success is also attributed to government leadership and institutions. We have
almost doubled the resources for the judicial
system. We have nearly 50 percent more police
on the streets and military personnel — Army,
Air Force and Navy—on our roads and in the
jungles and mountains. Institutional strength
is key. Without institutions, you can put in
money and leadership, but you cannot turn
A.T. Kearney
|
EXECUTIVE AGENDA
27
things around. Colombia today proves that the
institutions that we have had for so many
years—the country has been a democracy since
1837—are a critical part of our success.
Ricardo Haneine: And in terms of the impact
on the economy, how have things changed?
Vice President Santos: We created economic incentives and policies that have been
very successful. Today, Colombia is one of the
top emerging markets in the world, with a rise
in foreign investment and economic growth.
We are not a huge commodities
country, ye t we have been
able to more than double
our e xports , and convert our
debt to Colombian pesos.
We are not a huge commodities country, yet we
have been able to more than double our exports
and convert our debt to Colombian pesos. Debt
as a percentage of GDP was reduced from 54
percent to 21 percent. All macroeconomic indicators of Colombia are becoming more solid.
Ricardo Haneine: With respect to the increase
in FDI, what do you consider to be Colombia’s
value proposition? What makes Colombia
more competitive relative to other countries for
investing?
Vice President Santos: Colombia has
been a bedrock of economic stability. While all
of Latin America has had huge economic peaks
and valleys, Colombia has not. Colombia grew
28
the colombian cleanup
less than most countries but it has never stopped
growing in the past 50 years, with the exception
of 1999. This is a quality that Colombia brings
to the table. It has been a very serious, stable
country that has never negotiated or defaulted
on its debt. In the long run, stability is what
a foreign investor looks for.
Also, investors will find a government and
a society that is well prepared for foreign investment. In the World Bank’s Ease of Doing
Business Index, Colombia ranks number two
in Latin America. We also rank second in Latin
America for quality of managers, and
in first place for quality of trained
workers. We have jumped ahead
because the government and the private sector work together to make
the country more competitive —
which is something we work on day
in and day out.
Additionally, we have set a
very aggressive agenda to promote
national and foreign investment.
For example, we have individual
free-trade zones so foreign investors
can establish a free-trade zone anywhere in Colombia, with a tax rate of 15
percent and no duties, no tariffs on imports,
and with the possibility of also selling to the
Colombian market. This last point is very
important. You pay a 15 percent income tax
on what you sell outside the country and the
regular 30 percent income tax on what you sell
to the internal market. These types of freetrade zones are for the long term because they
comply with the World Trade Organization
and they apply to both goods and services.
This is why we are seeing, for example, the
BPO [business process outsourcing] industry
moving very aggressively into Colombia.
Similarly, for investments in tourism, in building or remodeling a hotel or ecolodge, we offer
a 30-year tax break. There is nothing like this
in the world.
Eulalia Sanín Goméz: You have talked about
BPO and tourism. What other sectors have you
identified as attractive for investors?
Vice President Santos: I have spoken
already of the macroeconomic strategy. The
microeconomic strategy is focused on eight
sectors. In four of these, we see huge possibilities
for growth, because we have a base and because
we have all the right conditions to be world-class
competitors. The four sectors are BPO, software,
medical tourism, and cosmetics and personal
care. In fact, last month we granted two freetrade zones to medical tourism foreign investors in Medellín and on the Caribbean coast,
and granted two free-trade zones to global BPO
companies in Bogotá and Pereira. The other
four sectors—auto parts, energy, graphic industries, and textiles and apparel — are where we
already compete but where we can improve. Let
me put it this way—doing more of what we do,
but doing it better. In textiles and apparel, we are
not just referring to production, or máquila, but
to improving the whole value chain from design
all the way to production. So, you see, we have
a full strategy of micro and macro policies.
Colombia at a Glance
Colombia is the third-largest country in population in Latin America,
and the fifth-largest in all of the
Americas. A country rich in institutions and democratic history,
Colombia has posted a remarkable
recovery in GDP and per capita
growth since 2004 and prospects
continue to be favorable compared
to other Latin American countries.
Colombia’s inclusion in the
global marketplace has increased
growth in both exports and imports.
In 2007, exports totaled $30 billion,
and imports were $33 billion. The
value of Colombian exports and
imports have increased steadily—
exports rising by 176 percent and
imports by 124 percent between
1998 and 2007. The rise in exports
is mainly due to global high prices
for oil and commodities and strong
growth in nontraditional exports to
Venezuela (31 percent of total nontraditional exports).1 Colombia’s
main trade partners are the United
FIGURE: Foreign direct investment in Colombia
$12
US$ billions
$10
10.3
10.3
9.0
$8
$6
6.7
$4
$2
2.8
2.4
2.5
2000
2001
1.5
$0
1998
1999
3.0
2.1
2002
1.7
2003
2004
2005
Year
2006
2007
2008
States (35 percent of exports, 26
percent of imports), Venezuela (17
percent of exports), Ecuador (4 percent of exports) and the European
Union (15 percent of exports, 12
percent of imports).
The population is expected to
rise from an estimated 45 million
people today to 51 million by 2020,
and security has improved considerably during Alvaro Uribe‘s presidency. Since 2003, homicides are
down by 30 percent, kidnappings
are down by 80 percent, and terrorist attacks went from 1,257 in 2003
to 347 by the end of 2008.
FDI increased over the past
six years due to improved security
and confidence in the economy. FDI
rose 220 percent between 1998
and 2007, with a peak in 2005 due
to the acquisition of Bavaria by
SAB Miller (see figure). However,
growth rates are expected to slow
in tandem with global capital flows
due to the current worldwide
economic slowdown.
Sources: Banco de la República (Central Bank); A.T. Kearney analysis
Colombia’s traditional exports are oil, coffee, coal and ferrous materials.
All other exports are nontraditional.
1
A.T. Kearney
|
EXECUTIVE AGENDA
29
Colciencias, our science and technology
institute, has been promoted to the level of
a ministry and the budget has been increased
dramatically to more than $100 million. It has
a fund to promote R&D that will increase in
the next five to 10 years. For all of these worldclass sectors that we want to promote, and for
other sectors that might come up, this new
institutional boost and budget for research and
use the internal markets, but also become
a platform for exports. We are close to having
a free-trade agreement (FTA) in force with the
United States, and we have signed free-trade
agreements with Canada, Chile and various
Central American countries. We are in an accelerated process of eliminating pending tariffs
with Mexico, with whom we already have
a free-trade agreement. We have integrated with
Mercosur and are in a
process of really decreasing
tariffs between them and
us, and are currently negoCompanies can se t tle in colombia ,
tiating an FTA with the
European Union. We are
use the internal markets, but also become
setting the conditions for
a pl atform for e xports
Colombia to go from
a country that has had
a quite interesting internal
market and some advandevelopment is going to be of great support. tages in other markets, to having free access to
All the institutional pieces are in place so that a market of 1.2 billion people in 45 counColombia is poised for dramatic growth, and tries. It’s a very well-structured policy that is
perhaps to become the number one country producing the desired results.
in the region.
Ricardo Haneine: Do you consider that the
Eulalia Sanín Goméz: Tell us about people. market and the major investors that you are
You mentioned the importance of having the trying to attract are aware of all these strengths?
right people with appropriate levels of educa- Vice President Santos: No. And that’s
tion, and skilled managers. Is that enough for one of the problems we have. This is the job
that we are doing. Colombia is the least-studied
what you want to achieve?
Vice President Santos: Our availability and the least-seen country of the region. People
of technically trained workers is number one tend to look at Mexico and then go all the way
in the region, and this is critical. Our flexibility to Brazil, Argentina and Chile. People don’t yet
in terms of contracts and policies is also high, understand that there is a country, Colombia,
and our managers are qualified, competitive that plays a strategic role, a sort of a swinging
and aggressive, so they rank among the top one door between Central America and the United
or two in the region. Everything is set up for States and North and South America. We have
success, both in taxes and in terms of workers.
never played that role, but now we are starting
Another advantage is the size of our inter- to play it.
nal market now that we are opening up our Let me give you an example of our strateeconomy. Companies can settle in Colombia, gic role. Colombia is going to become a very
.
30
the colombian cleanup
important hub of energy in the next five to why is it important to have an FTA with the
10 years. We are interconnected with Ecuador United States?
and Venezuela and we are getting a submarine Vice President Santos: Stable rules. A
energy interconnection with Panama that is free-trade agreement sets rules of the game for
going to allow us to sell energy all the way to many, many years. Colombia is always looking
Mexico. We are starting work on the largest for stability; entrepreneurs are always looking
submarine energy lines to Puerto Rico and for stability. The only thing that gives them the
to the Dominican Republic. And why is that stability of an open market for years to come is
a possibility? Because Colombia
is full of energy. Colombia right
now has 9,000 megawatts of
hydroelectric power. The same
The same mountains that used
mountains that used to have
guerrillas five to 10 years ago
to have guerrill as five to 10
now are wide open for the
ye ars ago now are wide open for
development of the cheapest
renewable energy on earth:
the development of the che apest
hydropower. We have 10 times
that amount to develop in the
rene wable energy on e arth :
short term. It’s a huge amount
hydropower .
of energy without even including our enormous coal reserves,
or the other renewable resource
that we can bring to the table—
biofuels. In just five years, Colombia has an FTA. It is not the ATPDEA [Andean Trade
become the number two country in ethanol Promotion and Drug Eradication Act], or the
trade preferences, because you don’t know
production in the region.
So, everywhere you look in Colombia, what is going to happen in two, three or five
there are huge opportunities for foreign inves- years. These preferences move on the mood
tors, with a condition that I think is also unique. of Congress or of the administration. Instead,
In Colombia, we don’t have an anti-foreign the FTA sets the rules of the game from now
investment message that you often hear from on. And that is basically the reason why it is
other countries in the region. Colombia is per- so important for us. Because everything we are
haps the only country in Latin America where putting forward is to generate conditions for
public opinion is positive toward the United investors, national and foreign, to use Colombia
States, as measured by regional public opinion as a platform for exports, as a gateway to South
surveys. That just shows you how different America, and to Central and North America.
U.S. corporations have paid around $1 billion
Colombia is.
in tariffs that they would not have had to pay
Ricardo Haneine: The relevance of the free- over the past two years if the FTA had been
trade agreement with the United States is very approved. A billion dollars less in tariff reveclear from what you are saying. Beyond trade, nues certainly will open a hole in our budget,
A.T. Kearney
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EXECUTIVE AGENDA
31
but we understand it and are ready to assume it,
because of the importance of stable rules.
Ricardo Haneine: What are the foundational
elements that you need to ensure in order to
make these aspirations sustainable over the next
10 to 15 years?
Vice President Santos: The strength of
our institutions is very important. People see
the swings in Latin America and they think,
“Is Colombia going to go there?” The answer is
“no” because we have a democracy and the institutions that generate stability. When you have
a 170-year-old democracy, which never found
populism, you have a range of options and policies, and don’t experience the wild swings in
policy-making that countries with weaker institutions do. The strength of our institutions in
Colombia has allowed us to undertake these
dramatic changes and produce fantastic results
while also providing permanent stability to
make sure the policies endure for the long term.
That is what Colombia has always been. It is
not dependent on one man, which I think may
be another concern. “Is Uribe going to be there
forever?” Institutions are solid. Colombia has
an independent central bank, an independent
congress, and a judicial system that has sent 60
members of Congress to jail without causing
an implosion of democracy or an institutional
breakdown. That’s what Colombia brings to
the table, and is what investors are beginning
to see and understand.
Eulalia Sanín Goméz: Finally, what would
your message be to the CEOs who read
Executive Agenda?
Vice President Santos: I’d say Colombia’s
attributes are far more than what you read in
the papers. Colombia is more complex, more
profound and richer than you know. It is a truly
unique story in Latin America. In this sense,
it provides huge opportunities for investors
because it’s a country that provides a transition from Mexico to Brazil and Argentina and
Chile. Democracy in Colombia brings a level
of conversation, of sophistication in decisionmaking, that generates stability. At a time when
the region is undergoing some immense difficulties, we are an exception to the rule. That
adds to the immense possibilities of Colombia
and its people.
Interviewers
Ricardo Haneine is a partner and head of the firm’s Mexico City office.
He can be reached at [email protected].
Eulalia Sanín Goméz is an associated consultant. She can be reached
at [email protected].
32
the colombian cleanup
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