Colombia rolled out the red carpet to foreign investors, only to pull it out from under them.
First elected by the people of Colombia in the summer of 2010, President Juan Manuel Santos quickly turned his focus to a new constituency: foreign investors.
Santos would need them to stabilize his country’s economy, suffering from anemic and even negative growth rates and unemployment rates spiking higher than 14 percent. He hit the road, traveling to the U.S. and Europe, touting a new and improved Colombia.
Santos promised growth, stability and rule of law, offering tax incentives to companies who would make long-term investments. In Dec. 2012, Florida Governor Rick Scott led a delegation of 190 eager business executives to Bogota. He’d claim the trip alone would result in $40 million in trade between Florida and Colombia businesses.
Santos’ strategy worked. Foreign direct investment in Colombia grew 126 percent from 2010 to 2013. From the U.S., it nearly doubled. According to Enterprise Florida, Colombia is Florida’s third-largest merchandise trading partner after Brazil and China. More U.S. investment in Colombia originates in Florida today than in any other state.
Yet six years later, though the economic gains persist for Colombia, the country’s political will has taken a decidedly anti-business turn.
This December, President Santos is leading a campaign in his country against those very companies he recruited, supporting a measure to renege on their tax incentives and massively raise taxes on Colombian employers.
“Permanent” Free Trade Zones no more
Companies like Tampa-based Sykes took advantage of Santos-promoted tax incentives. A year after Governor Scott’s trade mission, it hired 670 employees for a new call center in Barranquilla, one of eight “Permanent Free Trade Zones”
Sykes and dozens of other companies from around the world invested billions in the trade zones, hiring tens of thousands of Colombians in exchange for a 15 year agreement of lower corporate income tax rates and value added taxes (VAT).
But a Santos-promoted Comprehensive Fiscal Reform pending this week before Colombia’s Congress would tear up the trade zone tax agreements, raising the income taxes of foreign investors from 15 to 20 percent and their VAT taxes, including indirect costs by 220 percent, based upon estimates from the Asociación Nacional de Industriales (“ANDI”).
“Santos made promises to get us to come here; now they have vanished in thin air,” an executive with a major U.S.-based company who wished to remain anonymous, fearing more retribution, told Florida Business Daily. “If this bill passes, we’re going to have to restructure everything we have in Colombia and reconsider any future investment we were going to make. If there’s no legal certainty there, we cannot make major commitments.”
Questions about rule of law for businesses in Colombia come amidst charges President Santos led an “end run” around the country’s Democratic process to approve a peace deal with the communist Revolutionary Armed Forces of Colombia (FARC).
Colombia voters rejected the deal, which lets FARC terrorists off without jail time and gives unelected congressional seats to FARC members-- by national referendum on Oct. 2, but Santos pushed it through Congress anyway.
“Santos has backtracked on numerous pledges to respect democracy. But none of his broken promises is as disgraceful,” wrote the Wall Street Journal, which also criticized Santos for seeking to put his political rival former Colombian Agriculture Minister Andrés Felipe Arias, behind bars.
In 2012, the U.S. signed a Trade Promotion Agreement with Colombia that spiked exports to the country from $12 billion (2010) to $17 billion (2012).
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