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Cablegate: World Bank Boosts Colombia's "Doing Business"

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DE RUEHBO #7265/01 2822151
ZNR UUUUU ZZH
R 092151Z OCT 07
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 9378
INFO RUEHBR/AMEMBASSY BRASILIA 7787
RUEHCV/AMEMBASSY CARACAS 9393
RUEHPE/AMEMBASSY LIMA 5485
RUEHZP/AMEMBASSY PANAMA 0704
RUEHQT/AMEMBASSY QUITO 6086
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS BOGOTA 007265

SIPDIS

SENSITIVE
SIPDIS

FOR EEB/CBA DWINSTEAD; WHA/EPSC JSALAZAR

E.O. 12958: N/A
TAGS: ECON BEXP ETRD EFIN CO
SUBJECT: WORLD BANK BOOSTS COLOMBIA'S "DOING BUSINESS"
RANKING


1. (SBU) SUMMARY: According to the World Bank's "Doing
Business 2008" report released September 27, companies are
finding it easier to do business in Colombia. In comparison
to last year, Colombia improved 13 positions to 66th out of
178 countries ranked. The World Bank identified Colombia as
the top reformer in Latin America in 2007 -- and among the
top 6 globally -- as a result of progress in trade
facilitation, investor protection and reducing the tax
burden. In several areas, USG assistance directly supported
cited reforms. However, Colombia slipped backwards in
facilitating the employment of workers, registering property
and enforcing contracts. Local private sector contacts
acknowledged Colombia's progress but emphasized the GOC must
do more to expand access to credit. END SUMMARY.

Progress on Trade, Investor Protection, and Taxes
--------------------------------------------- ----

2. (U) Colombia registered its largest improvement in the
area of trade facilitation, jumping 23 positions as a result
of its efforts to extend port operating hours and streamline
duplicative customs inspections. These steps have reduced
time in ports by an average of three days. Colombia improved
14 positions to 19th in the world for investor protection
after implementing a decree to require increased
related-party transaction disclosures. Colombia moved five
positions up for its efforts to simplify tax payments and
filing that cut compliance time by an average of 41 percent
or 188 hours per year. The GOC also reduced Colombia's high
real tax rates on corporations. Many analysts blame
Colombia's complex tax system and high rate of taxation for
fostering the country's high rate of business informality.

USG Assistance Supporting Reforms
---------------------------------

3. (U) The U.S. government, through USAID, has provided
assistance to Colombia in several reform areas commended in
the 2008 report. USAID supported trade facilitation through
the development of a modern risk management model for the
Colombian customs system and the establishment of
simultaneous inspection procedures for police, health, and
customs authorities. The two reforms eliminate duplication
and have reduced inspection time in ports by approximately 30
percent. In investor protection, USAID assisted the Ministry
of Finance and Financial Superintendency in organizing the
securities market information system to require securities
brokerages to provide more rigorous and regularized
reporting. Specific disclosure requirements now replace the
previous subjective and vague reporting requirements. On
taxes, USAID did a comprehensive analysis of the Colombian
tax structure and its impact on competitiveness that included
several recommendations incorporated into the GOC's 2006 tax
reform. Adopted recommendations included reduction of the
corporate income tax, elimination of the foreign remittance
tax, rationalization of investment deductions, simplifying
tax computations, and eliminating complex subsidy schemes.

Still Room for Improvement
--------------------------

4. (U) Despite improvements in several areas, Colombia ranks
among the least efficient countries (147th) in the world in
contract enforcement with an average time to enforce a
contract of 1,346 days. Colombia also still lags on ease of
employing workers, starting a business, and accessing credit.
Disturbingly, Colombia slid 13 positions compared to 2007
for registering property. Finally, even with positive steps
on taxes, Colombia still ranks 167th in tax burden with small
businesses paying an average of 82 percent of commercial
profits in taxes, making 69 tax payments a year and spending
47 days complying with all tax requirements.

5. (SBU) National Association of Industries (ANDI) Vice
President Hernan Puyo told EconOff October 4 that the 2008
report accurately reflected improvements in Colombia, but
said the single biggest boost for facilitating business has
been the improved security situation throughout the country.
He cited limits on access to credit for small and medium
enterprises as a continuing impediment and said he expected
contract enforcement to improve as more legal cases are
handled under the new "oral argument" system rather than the
previous "written argument" system. Separately, Hernando

Jose Gomez, President of Colombia's Council on
Competitiveness, cited conflicting and onerous regulations as
a major bridle on competitiveness, but said Colombia's
biggest challenge for long-term economic development remained
increasing investment in education, infrastructure and
innovation. He identified all three as potential areas for
greater U.S-Colombia economic engagement.
Brownfield

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