By Kirk LaughlinBureaucratic red tape is nothing new in Latin America, but for Colombia – a nation devoting an enormous amount of energy to attracting global services investment – the long and drawn out process of obtaining a ‘single enterprise free trade zone’ exemption has been the country’s one big, gaping weakness.
Why is it that an investor can show up in San Jose, Costa Rica and obtain such an exemption within days, while in Bogota, the process takes up to nine months? The complaints are widespread and have become so amplified that government policies are about to change. During a recent interview with Nearshore Americas at the ANDI Outsourcing Conference in Cartagena, Juan Carlos Gonzalez, Vice President for Foreign Direct Investment of Proexport Colombia, said that instead of having multiple agencies review and approve the exemption, a new policy is being implemented to assign just one agency to oversee the process and thus greatly accelerate approvals. Gonzalez and other officials expect the new policy to take effect within the next few weeks.
The single enterprise exemption is attractive to foreign companies seeking to establish operations in Colombia who want to lower their operating overhead by reducing tax burdens while receiving other benefits.
“The feedback we’ve heard from the market has been taken into account,” said Gonzalez. “We – the Ministry of Trade, Industry and Tourism – are here to convey the message to our constituents in the government.”
Although details are sketchy, the widespread expectation is the new approval process will take around two months or less – dramatically reducing the wait time.
Gonzalez explained that the legacy approval process was borne out of the era of manufacturing, which required different levels of oversight and review. With services, he says, there needs to be the ability to adapt to the demands of the industry.
In many cases, existing free trade zone parks (also known as “permanent trade zones”) in Colombia have been designed for manufacturing or light industrial. With the boom in services, many cities have focused on re-defining the purpose of these parks, yet for a variety of reasons – including far distance to city centers and disruption and noise from trucks and transport activities – many investors have opted out of locating in the dedicated free trade zone areas.
One example is international customer service provider Sykes, which last year announced its intention to open a 500-person center in the Caribbean coastal city of Barranquilla. The firm decided to wait to obtain the single enterprise exemption and the tax benefits that come along with the package.
Recognizing the comparative lack of dedicated services-focused parks, a group of investors in Bucaramanga, Colombia – a city of about 1 million with one of the highest concentrations of colleges in the country – recently opened “Zona Franca Santander” which is slated to have buildings entirely dedicated to services that will be physically separated from industrial areas of the park.
Proexport’s comprehensive manual on free trade zone policies can be obtain here.