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Cablegate: Colombia's International Competitiveness and Business

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INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
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E.O. 12958: N/A
TAGS: ECON ETRD EINV PGOV PREL CO
SUBJECT: COLOMBIA'S INTERNATIONAL COMPETITIVENESS AND BUSINESS
CLIMATE RANKING IMPROVE

1. (SBU) Summary: The World Bank and World Economic Forum (WEF)
published their "Doing Business" and "Global Competitiveness Index"
reports on September 8. Colombia's ranking improved in both
publications. The World Bank listed Colombia as the best country
in Latin America for doing business, while the WEF report ranked
Colombia five places higher than in its report last year. The
improved rankings demonstrate positive evidence of the GOC's
implementation of ongoing structural reforms. Both reports,
however, also make negative observations about doing business in
Colombia. The World Bank gave Colombia low marks for its ability
to enforce commercial contracts and collect taxes. The WEF
highlighted problems in Colombia with infrastructure and the
judicial system. Overall, GOC officials are pleased with their
progress promoting private investment, diversifying exports, and
reducing poverty -- as it works through structural difficulties.
End Summary.

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Doing Business in Colombia Getting Easier

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2. (U) In the World Bank's 2009 "Doing Business" report, geared
toward small and medium size businesses, Colombia moved up 12
positions to reach the 37th spot out of 183 countries. Of note,
the report found Colombia to be the number one country in Latin
America for facilitating business. Colombia received high marks
for its reforms that promote business, protect investment, improve
transparency of transactions, reduce wait times for construction
permits, improve access to credit, and simplify tax filing and
payment processes.

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Conditions Improved But Challenges Remain

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3. (U) Factors hindering business in Colombia according to the
World Bank include high labor costs and assorted taxes, the
elevated expense of moving containers in and out of the country
(due to inadequate infrastructure), and the incredibly long time it
takes to resolve a commercial dispute in the judicial system (on
average 1,346 days). Colombia's two worst scores were the ability
to enforce commercial contracts and tax collection.

4. (U) The 2009-2010 World Economic Forum's Global Competitiveness
Index (GCI) does a more in-depth analysis than the World Bank
report and ranked Colombia 69 among 133 countries, up five places
from last year. The GCI report ranks Colombia 7th in Latin
America, behind countries like Chile, Brazil, Mexico and Uruguay.
The report identifies several of the same structural problems
mentioned in the World Bank report, and gives greater emphasis to
the negative impact terrorism, crime, and violence have on
Colombia's competitiveness.

5. (U) For a second consecutive year, the GCI describe Colombia as
an "efficiency-driven economy." At this stage of development,
Colombia's competitiveness is driven by efficient goods markets,
well-functioning labor markets, sophisticated financial markets,
higher education and training, and the ability to harness the
benefits of existing technologies. The GCI report indicated
Colombia maintains important competitive advantages, notably its
degree of customer service and strong investor protection.
Colombia also improved in two other competitiveness areas: number
of internet users and information communications technology. The
report noted, however, that Colombia lags behind several other
countries in Latin America in the areas of higher education and
training.

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Minister of Commerce Forging Ahead

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6. (U) Trade Minister Luis Guillermo Plata views the reports as a
positive sign for investors considering Colombia. The Ministry has
developed a strategy to continue its reforms, such as contract
enforcement, quicker judicial action on commercial disputes,
streamlined labor processes, and cheaper construction permits.
Hernando Jose Gomez, President of the Private Council on
Competitiveness, stated that the goal is to improve Colombia's
ranking further, and hopefully break into the 20's next year. He
acknowledged that this will require greater efforts by the GOC and
increased cooperation between the private and public sectors.

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Comment: Filtering the Rose-Colored Glasses

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7. (SBU) While Colombia can be proud of its improved rankings,
systemic problems with doing business in Colombia continue to
exist. Colombian institutions remain fragile and inefficient,
government officials often exhibit favoritism, government
regulations can be burdensome, and infrastructure is lacking for
the country's size and stage of development. Chile, for example,
has more than double the kilometers of paved roads in Colombia.

8. (SBU) Foreign (including U.S.) investors often find themselves
competing against unfair practices by Colombian companies fighting
to keep markets closed through legislative or regulatory actions.
Companies have identified problems such as lax enforcement of
intellectual property rules, market access barriers, arbitrary
customs treatment, corruption, and judicial uncertainty -
specifically related to the treatment of arbitration cases.
Furthermore, inaction and slow implementation of decisions,
particularly in the Transportation and Communications Ministries,
have left some U.S. investors frustrated at what they perceive as a
less-than-friendly environment for foreign investment.

9. (SBU) Despite the many areas for improvement, Colombia is
headed in the correct direction. The country received record
levels of foreign direct investment in 2008, an estimated $10
billion, and poverty levels are decreasing. The GOC seeks further
trade agreements, notably with Asian countries, to diversify the
destination of its exports and incorporate more workers into the
formal sector.
BROWNFIELD

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