Colombia, rich in resources but needing to build the industrial and social infrastructure to fully exploit them and improve living standards, offers Canadian companies the attraction of free trade and a new tax advantage.
It’s an opportune time for more Canadian firms to consider exporting to, or setting up shop in, what is the fourth largest economy in Latin America, explains Stephen Benoit, EDC’s chief representative in the Andean “community”, which also includes Venezuela, Ecuador, Peru and Bolivia.
Canadian companies have long had a presence in this Latin American republic, he says, stressing that Canada was also the first industrial country to strike a free trade agreement (FTA) with Colombia (ratified in 2010). As of this year, it also has an agreement that allows Canadian firms to avoid double taxation.
COLOMBIA Fast Facts
- 4th Fourth largest economy in Latin America
- 27th World’s 27th largest market by GDP
- 48M Population nearing 48 million
- 2nd Ranked 2nd, after China, in export growth
- $760M Imports from Canada exceed $760 million
EDC’s own client base in the country has grown by more than 50 per cent, to over 200 companies, since the initial FTA talks in 2007, adds Benoit. And with Colombia now having a free trade agreement with the United States and with Mexico, it effectively has become part of an enlarged North American Free Trade Agreement (NAFTA) zone, allowing for the free flow of goods among all four countries.
“Free trade agreements, over and above the tariff reductions, create an air of comfort from a legal perspective for doing business in that market,” Benoit explains.
But Canada has a leg up on its NAFTA partners in Colombia, in part because it was the first to sign a free trade deal, and also because of similarities in our countries’ resources and development.
Good match for Canadian firms
“We share similar types of economies, with oil and gas and mining being important,” says Benoit, who has covered the region over the past three decades, the last six years for EDC. “We have been successful in Canada at developing a strong infrastructure base and Colombia now too needs such a base to be more competitive internationally.
“It’s probably one of the best times to be doing business there as they’re no longer in a conflict situation,” he adds. With economic, political and social reforms that started a decade ago and an ensuing drop in political and criminal violence, Colombia is now rated an “investment grade” country.
Also, those years of intense turmoil left Colombia with “under-investment in all types of infrastructure,” including in transportation, in engineering-construction projects and in social and financial services, all areas where Canadian firms have expertise and where many already have a presence in Colombia, Benoit adds.
“We’re major players in mining and oil and gas, and Canadian firms as a whole are just behind the domestic industry in terms of market presence and penetration (in those sectors),” he says.
Bogotá, the capital of Colombia, is also seen by some Canadian oil and gas and mining firms – which have brought in more than 50 suppliers and sub-suppliers – as a regional hub and springboard for exports to and investment in the growing hydrocarbon markets of the other Andean nations.
Parex draws energy from Colombia
One of up to 30 Canadian oil and gas exploration and production firms already operating in Colombia is Parex Resources Inc. of Calgary. With the help of EDC, it originally set up operations in Argentina, which it sold five years ago, and, then – using EDC services again – re-established in Colombia as Parex.
“There are a lot of core EDC programs that have been essential for us,” says Parex president and CEO Wayne Foo, citing an EDC insurance program that assisted Parex in underwriting the deposit required by the Colombian government for foreign energy companies operating there.
“That allowed us to pick up land for oil exploration and production a lot faster than some of our competitors from other countries,” Foo says. “That relationship with EDC has been central to our success.”
This success is reflected in the growth of Parex oil production in Colombia from zero in 2009 to up to 15,000 barrels per day this year, generating up to $400 million in annual revenues and $250 million in profit.
“That’s all in the last two and a half years,” notes Foo, who has over 30 years of experience with oil and gas firms, ranging from startups to senior independent producers.
Parex’s entry into Colombia has been a winning situation for Parex, its Canadian suppliers and financiers, and the Colombian and Canadian governments.
“Anything that can’t be built in Colombia, we try to have built at home, and that’s important,” Foo says, referring to machinery and equipment imported from Canada by Parex for use in its Colombian operations.
“Further, by having the company capitalized in Canada and listed on the TSX, the trading profits from the growth of the stock are taxed in Canada,” he explains. “That’s probably the most significant benefit for our country.”
For firms considering entering the Colombian market, he stresses the importance of showing respect for the people, the local customs and the environment. For example, Parex, in conjunction with the communities and local authorities where it operates, is developing “social services and voluntary investment programs.”
Between guest and citizen
“We’re not actually guests in the country, as we own property, but we’re not citizens either,” Foo says. “We have to benefit the host country.
“The advice I give is the same advice my dad gave me,” he says, noting that his father also worked internationally in the oil and gas industry. “Wherever you go, people want to be treated as people, not as an impediment.”
The outlook for energy production in Colombia is bright. “They have basins that are very rich and that are underexplored by North American standards; a lot of that is because of the security issues that dogged Colombia,” Foo says.
“The cost of finding and developing resources there are higher than in North America,” he adds, but the royalty regime is less onerous for companies, like Parex, willing to “discover and exploit smaller fields.”
Setting Up Shop in Colombia
EDC will launch its first representation in Colombia this fall. EDC’s Chief Representative for the Andean Region, Stephen Benoit, who has long been shuttling between Peru and Colombia, will soon be based in Bogotá.
“Colombia is one of the larger economies in South America, and a growing market for Canadian exports and investments,” says Benoit. “Given the country’s major institutional and business reforms in recent years, and a return to greater security, top Canadian businesses have been coming back to Colombia in full force.”
Benoit will still travel frequently between the two markets and work closely with all the Canadian trade commissioners in the Andean region. EDC will retain a local presence in Lima, Peru.