Foreign direct investment into Colombia – a country that foreign investors have largely ignored in the past – continues to see exceptional growth. Our on-the-ground experience in the country tells us that many industries and businesses here in Colombia are deserving of that capital, with macroeconomic circumstances creating an environment for strong potential investment returns.
Defined by its competitive geographical location, Colombia bridges North and South America as a stable partner for the larger economies, such as the U.S., in the region. Colombia’s history of a capitalistic market system nurtured under its democratic government has distinguished it from the volatile nature of other countries in Latin America. At the same time, the country is still nascent enough where a gap in capital available to local industries and businesses in the region gives foreign investors substantial buying and investment power.
1. Foreign direct investment has been growing in Colombia: Foreign direct investment into Colombia (FDI) was notably strong during 2022, rising strongly from historical norms. In December alone, Colombia received FDI of $3.9 billion, nearly as much as it received in the entire first half of 2021. Despite a substantial slowing of funding into LATAM recently, investments in technology and innovation have tripled in Colombia in the last two years, making it the third largest technology ecosystem in the region. The country is currently home to over 5,300startups. Companies receiving unicorn ($1b+ USD) valuations like Rappi and Habi serve as examples that Colombian startups have the potential to generate meaningful investor returns.
2. High upside with typically lower relative capital requirements as compared to developed markets: The current exchange rate of the U.S. Dollar versus the Colombian Peso (COP) is the most advantageous it has ever been for investors holding Dollars that they can invest into Colombia. Investments today can cost Dollar investors as much as 35% less than they cost as recently as early 2022 just as a result of currency fluctuations. Combining the Dollar strength with the potential for meaningful returns if investors can participate in the growing number of Colombian businesses that can generate multiple returns on capital creates an exciting potential investment opportunity for investors looking at Colombia.
3. Colombia strategically links the Americas, creating a lucrative export system: The country’s proximity to the Pacific, Atlantic, and Caribbean oceans establishes easy access to global markets. Colombia has become the trading bridge between North and South America, providing accessibility to an abundance of resources. Colombia’s surplus in oil, coal, gold and coffee gives the country a competitive advantage, delivering products easily to the Western and Eastern shores of the U.S.. While American companies reconsider their current supply chain and trends in deglobalization and onshoring continue, we expect to see more U.S. businesses looking to Colombia. As of late 2022, Colombia has proven its ability to grow exports substantially, recording non-mining exports of $21.6 billion in 2022, up 19% compared to 2021. The United States is included on the list of its largest buyers. Colombia exported $6.6 billion to the U.S. in 2022, which made up 31% of Colombian global exports and represented an astounding 27% annual growth rate.
“We want to invite North American buyers to keep discovering other industrial regions of Colombia and to think of Colombia as a geographically close and strategic ally for all their sourcing needs.” – Carmen Caballero, President of ProColombia.
4. Colombia’s macroeconomic environment has favorably recovered from COVID-19: Before the pandemic, Colombia’s economic growth rate consistently remained nearly 4% for decades. Despite the challenges from COVID-19, the economy continues to progress and is one of the fastest growing economies among its peers. Preliminary results from the International Money Fund indicate that Colombia’s strategy in effectively responding to the pandemic has been beneficial. Colombia’s economy expanded by 8% in 2022 thanks, in part, to free trade agreements and a strong post-pandemic operating model. Employment levels bounced back as the suppressed demand for goods and services exploded. Colombia currently has 17 free trade agreements with 65 countries, competing as a dominant player in the Western hemisphere. A need for continuous growth and new revenue streams, particularly in a green energy transition, continues to motivate Colombia’s government to promote foreign direct investment into the country.
5. The United States is the largest trading partner with Colombia and that relationship should only grow as supply chain tensions with China continue: The opportunity for a revamp in the global supply chain has never been more positive for countries in Latin America, specifically Colombia. We believe that Colombia is poised to capture a tremendous amount of this opportunity and that the COVID pandemic has only increased the chance of this becoming a reality. Excessively relying on China and other Asian countries for supply sourcing while experiencing major consumer and industrial product shortages resulting from the pandemic has presented new opportunities with nearshoring. While China’s government favors domestic companies, its intellectual property protection is subpar and wage rates are increasing significantly. ProColombia and The Ministry of Trade, Industry, and Tourism linked together in March 2023 to strengthen trade relations with the United States. The forum united approximately 2,000 Colombian providers with 1,000 buyers from 60 different countries, the United States being the largest. Colombia’s Business Matchmaking Forum creates new opportunities for different industries to flourish, such as agriculture and information technology, to name a few. This business meeting promoted a diverse range of exports that included exotic fruits, cacao, textile products, and software, proving that Colombia is a competitive and innovative exporter.Additionally, through the U.S. Chamber’s U.S.-Colombia Business Council, trade opportunities between both countries promote an inclusive and sustainable economy through a digital frontier. This new initiative helps establish economic security and competitiveness, enhances growth and transparency for investors, while creating opportunities in new markets.
6. Colombia has a large and growing domestic consumer market: The population of Colombia is currently 52.1 million people and is forecasted to continue to grow. Domestic wealth creation is increasing, and the middle class is steadily strengthening. This consumer class brings a large benefit to a number of industries. Colombia’s increasing move to digitalization with a young population creates many opportunities in e-commerce and the connectivity economy. While Colombia has typically been viewed as an investment market driven by value creation through export, the ability of domestic Colombian producers to sell to a growing and increasingly wealthy populace at home grows every year and only adds value to foreign direct investments into the country. Domestic consumer spending reached an all-time high in Colombia in the third quarter of 2022.
7. Limited access to local capital makes international investors more valuable to Colombian businesses: The Colombian government is committed to maintaining and attracting foreign investment, recognizing it is a main catalyst for economic growth. Colombia has established a stable legal and regulatory framework that appeals to foreign investors. Colombian businesses thrive from foreign capital essential for developing and expanding operations they often do not have access to locally. Limited access to bank debt in Colombia and rising financing costs continue to challenge businesses. Colombia’s central bank raised interest rates to 13% in March 2023. A domestic capital gap creates an opportunity for foreign capital to find a home with Colombian businesses potentially on terms not available in a more readily accessible capital market.
Conclusion
Colombia is a market that U.S.-based accredited investors and those looking for new investment opportunities with the potential for outsized yields should be focusing on. Investors would be wise to take note and participate in this growth in Colombia before pricing becomes too lofty.Within Colombia, we see the most individual investor capital flowing into the areas of agriculture, real estate and technology and see these markets as the most viable for high-net-worth-individual capital placements. We suggest catching this rising tide before it gets too expensive to do so in Colombia, a market we see full of opportunity.
About the Authors
Cole Shephard is the founding partner of the alternative asset manager, Legacy Group, and the founder and a board member at the Green Coffee Company. As a former PwC alum working in accounting, advisory and consulting solutions across the United States, Bermuda, Hong Kong and Beijing, Cole is an expert in emerging markets and understanding the capital movements of high-net-worth investors.
Adam Jason is a partner at Legacy Group and a board member at the Green Coffee Company. He is an attorney specialized in corporate finance, governance, securities regulation and international business transactions. He has advised Fortune 500 companies and investment banks, including JP Morgan, Morgan Stanley, Citibank and Goldman Sachs, through initial public offerings (IPOs) and offerings of debt and equity securities exceeding an aggregate of $10 billion.
