May 31, 2022
Make bold bets
In 2018, when Amazon Web Services announced it was opening a facility in Bogotá, where 600 customer service associates would answer calls in Spanish, English, and Portuguese, I remember thinking, “They get it.”
For years, people in the US-Colombia business community have known that Colombia is an ideal base for US companies with hemispheric ambitions. Amazon’s decision to launch a data center in Colombia in 2019, lever aging the country’s location and human capital to facilitate growth across the Americas, was a case in point.1Amazon Web Services Public Sector Blog Team, “President of Colombia joins AWS in Bogota, talks innovation across the region,” Amazon Web Services, April 12, 2019, https://aws.amazon.com/ blogs/publicsector/president-of-colombia-joins-aws-in-bogota-talks-innovation-across-the- region/.
There have been many other promising advances since the two countries signed a Trade Promotion Agreement in 2012. The United States is now the largest global investor in Colombia. More than 450 US companies are active in Colombia, while some 2,200 Colombian firms do business in the United States. The United States is Colombia’s main bilateral trade partner and the leading destination of Colombian exports, representing almost 30 percent of the total. Colombia is the third-largest trading partner of the United States in Latin America and the twenty-fifth worldwide, with around $28 billion worth of goods and services exchanged in 2020. And while much of South America remains a mystery to people in the United States, Colombia is dif ferent; US citizens account for nearly one in three foreign visitors to Colom bia, vastly more than any other country. And 60 percent of all foreign travel by Colombians is to the United States.
When you consider the history of deep cooperation on security issues and the legacy of Plan Colombia—arguably the most ambitious and successful US government initiative in Latin America—there is no question that both countries are uniquely positioned to enjoy an exceptional commercial partnership.
Yet this relationship is far from reaching its full potential. In recent years, US investment in Colombia has been flat, averaging a modest $2 billion per year. Trade growth has also been lackluster, and Colombian exports to the United States are still primarily dominated by raw materials and agricultural products. After the setback inflicted by the COVID-19 pandemic and the geopolitical convulsion prompted by Russia’s invasion of Ukraine, how can Colombia and the United States recharge their economic relationship and chart a faster path toward mutually beneficial growth in the future?
This requires action on two broad fronts: constructing a world-class commercial and trade architecture and aggressively promoting investment in a group of emerging business sectors that offer rewards to both countries.
Trade opportunities remain
First, Colombia and the United States should finish the unglamorous but critical work of removing structural obstacles to trade and investment. Many experts have already highlighted the pending tasks of this agenda, which are well-summarized in the Atlantic Council’s 2019 report, “The Untapped Potential of the US-Colombia Partnership.”2The Atlantic Council’s US-Colombia Task Force, The Untapped Potential of the US-ColombiaPartnership, The Atlantic Council, September 26, 2019, https://www.atlanticcouncil.org/in-depth-research-reports/report/untapped-potential-us-colombia-partnership/.
In broad terms, Colombia can do much more to create an ecosystem that encourages competitiveness, productivity, and innovation domestically. It should continue to reform its tax structure and modernize tax procedures to increase revenue. Stronger incentives for formalization through improved access to credit and other business services are essential if Colom bia’s resourceful entrepreneurs are to join regional and global value chains. Using US labor regulations as a framework, Colombia could regulate work by hours, thus permitting a substantial number of young workers to work shorter hours while contributing to the country’s social security reserves. This can be done in combination with varying minimum hourly wages for urban and rural areas.
Similarly, Colombia could look to US business-regulation frameworks to facilitate business creation. Reducing unnecessary norms and barriers for firms and making labor regulations more flexible are also crucial. While Colombia’s labor action plan has increased avenues for labor association, specific regulations within it have placed strains on payroll costs for compa nies, creating a rigid labor environment that disincentivizes foreign investment.
Colombia and the United States should further streamline immigration, customs, and inspections procedures. By accelerating the digitalization of processes and sharing real-time information, the two countries could set a new regional benchmark for agility and speed, while simultaneously enhancing the traceability of goods to undermine illicit activities.
Both countries will gain from full implementation of the United States-Colombia Trade Promotion Agreement (TPA). For Colombia, this means prioritizing protections for intellectual property rights, labor rights, and the environment, while the United States could resolve cumulation provisions for textiles and increased access to biodiesel products. Under the current agreement, textile cumulation provisions only allow the usage of raw materials that originate from either the United States or Colombia, limiting the attractiveness of the TPA for certain products as a result of pan demic-induced supply chain disruptions. The United States could also grant Colombia tariff exemptions on steel and aluminum and further facilitate imports of Colombian crops such as passion fruit, blueberries, dragon fruit, and papayas, as well as bovine and poultry meat. The potential for agricul-tural trade remains vastly underexploited.
Removing these lingering structural constraints would clear the way for a coordinated push to fully develop sectors that show promise.
Several multinational pharmaceutical companies have made Colombia a hub for regional production and distribution in recent years. Between 2018 and 2020, Colombian pharmaceutical exports grew at an average annual rate of 11.5 percent by volume and now reach more than fifty countries.3“Potencial de Colombia como exportador de productos farmacéuticos,” SICEX, July 2, 2021, https:// sicex.com/blog/exportacion-de-medicamentos-en-colombia/. Colombia’s robust domestic consumer market and comprehensive healthcare system make it attractive for medical tourism, clinical research, and medical device testing companies. The number of med- ical tourists to Colombia quintupled between 2010 and 2019, to more than twenty-one thousand patients.4“Number of medical tourists in selected countries in Latin America in 2019,” accessed February 25, 2022, https://www.statista.com/statistics/910471/latin-america-number-medical-tourists- country/. The COVID-19 pandemic led to a temporary contraction of these flows, but long-term trends in US healthcare and cost structures will make Colombia extremely attractive to service providers. Colombia should lure major US hospital groups to create full-service surgery and rehabilitation facilities to draw patients from across the hemisphere.
Colombia is also well-positioned in the Business Process Outsourcing (BPO) sector, where it has world-class capabilities in contact centers, collection, in-house technology provision, marketing, auditing, and consulting. Colombia ranked third in Latin America in the availability of skilled labor in the 2020 International Institute for Management Development World Talent Ranking and accounted for 17 percent of BPO sales in the region.5IMDWorldTalentRanking2020, International Institute for Management Development, November 2020, https://www.imd.org/globalassets/wcc/docs/release-2020/talent/imd_world_talent_ ranking_2020.pdf; and Cristina Estrada Rudas, “Las exportaciones de servicios BPO durante 2021 ascendieron a US$1.475 millones,” La República, February 16, 2022, https://www.larepublica. co/empresas/las-exportaciones-de-servicios-bpo-durante-2021-ascendieron-a-us1475- millones-3303864.
Colombia’s numerous universities and worker-training options could give it a competitive edge in the emerging Knowledge Process Outsourcing (KPO) industry. With bots and artificial intelligence handling a grow- ing range of basic customer service tasks, companies are looking for work- ers with higher-value capabilities in paralegal support, health insurance processing, and cybersecurity. Colombia could become a preferred destination for companies needing these next-generation skills. Doing so would require developing the single most promising area for US-Colombia collaboration in the coming decade: building education, science, training, and research clusters based on public-private partnerships between universities and companies.
The COVID-19 pandemic has simultaneously exposed the weaknesses in traditional education and training models and the pent-up demand for new, flexible approaches to continuing education in the digital age. While millions of students in the region would love to attend US universities, the prohibitively high cost means fewer than fifty thousand can do so each year.6In 2021, Colombian students attending US universities reached 52,064. “The Colombian Study Abroad Market,” educationfair.nl, accessed February 25, 2022, https://www.educationfair.nl/market-reports/south-america/colombia/. For their part, US universities face dramatic drops in enrollment due to long-term domestic demographic trends, combined with declining demand for the traditional four-year degree. Now is the time to foster large-scale joint ventures between leading US and Colombian universities to offer state- of-the-art virtual and hybrid learning models at price points attractive to college students and people in their prime working years. This market segment (ages twenty to fifty-five) numbers more than 300 million in LAC.
Using Colombia as a base, these partnerships could develop programs in Spanish, English, and Portuguese that range from full academic degrees to continuing-education certificates tailored to meet the needs of specific industries. In addition to the skills demanded by the KPO sector, these pro- grams could focus on areas that Colombia has already identified as strategic, such as energy, infrastructure, construction, the creative industries, information and communications technology services, agribusiness, manufacturing, chemicals, and life sciences.
Both governments could also introduce incentives to develop applied research centers along the lines pursued by the US National Science Foundation and the National Institutes of Health. The United States could share its expertise in strengthening industry-university collaboration and promoting innovation of research centers that respond to the needs of firms. The United States could also support Colombian efforts to provide technical assistance to firms to increase their productivity and enable them to join value chains requiring more sophisticated processes.7US-Colombia Task Force, “Untapped Potential.”
In addition to cultivating local human capital, these joint ventures could attract funding for research and development in renewable energy and bio-technology. According to the World Bank, in 2017, total public and private sector spending on research and development in Colombia was only 0.24 percent of the country’s gross domestic product (GDP), a level far below the regional average of 0.8 percent of GDP. The joint ventures proposed herein could make Colombia a much more attractive destination for research and innovation.
There is no time for complacency. The war in Ukraine marks the end of an era in global economic and geopolitical relations. For the past thirty years, Colombia and the United States have reaped the fruits of liberalization and economic opening that followed the collapse of the Soviet Union. Millions of Colombians emerged from poverty, and the United States enjoyed extraordinary prosperity. This period also marked China’s rise as an industrial, commercial, and military superpower. China’s push to enter LAC markets is now visible on numerous fronts, from consumer electronics and automobiles to large infrastructure investments. And like the rest of its neighbors, Colombia’s trade strategy must look to Asia and Europe as well as North America.
As Colombia and the United States navigate the unknowns of this new era, their shared values and security priorities will become ever more important—as will the advantages of the enhanced economic partnership proposed herein. In a world where regional ties are becoming more vital than global ones, Colombia and the United States could model a new kind of political and economic synergy in the Americas. I see no reason why US direct investment in Colombia could not quintuple in the coming decade, generating tens of thousands of jobs in both countries. Achieving this will require a level of ambition, coordination, and commitment comparable to what enabled Plan Colombia. This time, the leadership and execution will depend more on the private sector. Old assumptions should be abandoned as a new generation of entrepreneurs and civic leaders forge a vision for a future attuned to an altered set of realities. But as was the case with Plan Colombia, a bold bet today could yield multiple gains and new opportunities well into the twenty-first century.
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