Investment opportunities in Colombia (Part 2)

Colombia is one of the most stable economies in Latin America. Macroeconomic strength, an attractive labor force, and a network of treaties and investment guarantees have helped Colombia stand out among regional economies as a strategic hub for the supply of reliable, quality goods and services.

Sectors for Investment

Electricity and Renewable Energy

The transition to renewable energy in Colombia is well underway. With a plan based on private investment, Colombia aims to remain a leader in clean energy production, aiming to reduce emissions by 51% by 2030 and achieve carbon neutrality by 2050, working together with investors who are also contributing to achieving the Sustainable Development Goals set by the United Nations and positioning Colombia as a global powerhouse.

The Colombian President emphasizes the energy transition as a key priority of his administration and calls his policy the Just Energy Transition Plan. The government is working on a roadmap for a just energy transition that will focus on community-based electricity generation (including rural communities).

Colombia’s installed electricity generation capacity currently stands at 17,771 MW, of which 68% is hydroelectric, 31% is gas and coal, and the remaining 1% is wind and solar. The country’s energy matrix is clean but highly dependent on climate conditions for hydropower generation.

Colombia’s Mining and Energy Planning Unit (UPME) has held three renewable energy auctions and awarded a total of 9 wind and 16 solar large-scale projects worth approximately US$3.1 billion. Developers have signed 15-year power purchase agreements (PPAs) for 2.1 GW of wind and solar capacity. The projects will contribute to the country’s goal of generating 2.5 GW of solar, wind and biomass energy.

The addition of Law 2099 of 2021 (Energy Transition Law) has created the basis for a robust regulatory framework to facilitate the deployment of this sustainable energy vector, which will be key to the country’s emissions reduction targets. The new law has created an attractive fiscal structure for investments in non-traditional energy sources, including green and blue hydrogen, with the benefits of Law 1715 applicable for 30 years, including exemption from customs duties, VAT exemption, accelerated depreciation and income tax deduction of 50% of the investment.

In 2021, the Colombian Ministry of Mines and Energy presented its Hydrogen Roadmap. The stated goals were to achieve between 1 and 3 GW of electrolysis capacity by 2030 and produce 50 kilotonnes of blue hydrogen from new steam methane reforming plants and carbon capture and storage at existing facilities. With abundant natural gas reserves and being Latin America’s largest coal producer, Colombia has focused on blue hydrogen production as a base for starting to build out the hydrogen value chain.

In 2022, Colombia published its offshore wind roadmap, part of a broader plan to transition the country away from hydropower and fossil fuels. The roadmap was developed by London-based Renewables Consulting Group (RCG) in partnership with the World Bank and the British government. The long-term forecast is part of a best-case scenario that also includes 1 GW of capacity by 2030 and 3 GW by 2040. In a less-than-optimal scenario, which assumes development without a forward-looking strategy and procurement program, capacity would likely reach 200 MW by 2030, 500 MW by 2040, and 1.5 GW by 2050, according to RCG.

Distributed generation projects are also growing in Colombia. More than 1,000 private sector projects from various industries are seeking to install solar PV solutions that will allow them to generate their own power.

Opportunities

With the government developing several new power generation projects to meet growing demand through 2031, the outlook for Colombia’s electricity sector is promising. The 2.4 GW Ituango hydroelectric project, which was hit by landslides and flooding at the power plant, is facing delays in completion. The first block was commissioned at the end of 2022, and the last block is expected to be completed in 2026. Empresas Publicas de Medellin (EPM) continues to face challenges of high technical complexity, the protection of vertical injection wells and subsea operations at a depth of 50 meters in the reservoir have become a critical path, and EPM requires the contribution of world-class companies and specialists, as well as the use of state-of-the-art technologies to continue operations.

The Ministry of Mines and Energy is preparing an auction of offshore wind concessions as part of efforts to achieve up to 50 GW of power generation potential on its Caribbean coast. The first projects are expected to begin commercial operation in 2030.

Given the country’s wealth in both renewable and conventional natural resources, Colombia has enormous potential for energy production, making it a priority to implement a modern regulatory, institutional and market framework to diversify the energy matrix by expanding the installed capacity of non-mining foreign direct investment (FDI) sources. Foreign investors have opportunities to invest in areas such as:

• Distribution and special transformers
• Switchgear
• Solar photovoltaic systems
• Wind power systems
• Industrial control
• Steam, gas and hydraulic turbines
• Smart meters and demand response systems
• Turbo generator sets
• Consulting services (Project management)
• Energy storage
• Lithium batteries
• Offshore wind energy technologies
• Green and blue hydrogen technologies
• Electric cables (copper)

Infrastructure

The Colombian presidential administration aims to improve the social, equity and environmental situation in the country, including infrastructure and transport policies that will benefit rural areas that have been left behind. The infrastructure portfolio includes the reopening of railways, the reconstruction of airports and water projects.

Railways

In November 2020, the presidential administration launched the Colombian Railways Master Plan. It aims to improve and develop freight and passenger rail lines. The plan aims to reduce the country's logistics costs by 26% to improve productivity and reduce pollution.

The Bogotá and Medellín regions are planning to develop railways in the coming years. Bogotá aims to develop the Cundinamarca region, connecting the city and rural areas with metro lines and commuter trains. Similarly, Medellin is seeking to improve the competitiveness of the Antioquia department by connecting the city’s distribution centers with seaports.

Railway rehabilitation is a priority for the presidential administration, as it was a high-profile campaign promise. Colombia’s rail network is only 37% active (2,195 miles). The government plans to reopen another 1,181 miles. The National Infrastructure Agency is working to reopen three corridors, including La Dorada-Chiriguana, Bogotá-Belencito, and the Pacific Corridor, the first two of which are operational, while the Pacific Corridor has been inactive since 2017. To ensure the development of existing corridors and the development of new ones, the presidential administration has included the projects in the National Development Plan, meaning the Colombian government will fund 70% of the projects, with local governments funding 30%.

Bogotá’s First Line and Medellín’s light rail have been awarded to Chinese concessionaires. Spanish, French and Colombian companies are expected to submit proposals for the development of the second line of the Colombian metro.

Airports

In Colombia, airports are operated by the private sector through concession agreements lasting between 10 and 25 years. The government has announced five airport renovation projects worth US$2.7 billion. The renovations are planned for two airports in Cartagena, San Andrés, Cali and Bogota.

The private Colombian company ODINSA has submitted projects to the National Infrastructure Agency (ANI) for the development of the Cartagena International Airport. The project is in the feasibility study stage. If ANI approves the project, ODINSA will develop the airport in Baunque (a district of Cartagena). It will be able to handle 8 million passengers per year and will operate 35 flights per hour.

The Bogotá Airport expansion initiative, called IP EDMAX, is the second largest private investment in the airport segment. The project is in the feasibility study phase and will be awarded by the end of 2024 with a projected cost of US$1.5 billion. In addition, the government is structuring the reconstruction of the Gustavo Rojas Pinilla airport in San Andrés, Alfonso Bonilla in Cali and Benito Salas in Neiva.

Seaports

The Colombian National Infrastructure Agency (ANI) grants 20-25 year seaport concessions to private companies. Colombia has 8 port zones located in the Pacific and Caribbean regions. ANI has granted concessions to 61 ports. Colombia's seaports in Buenaventura and Barranquilla are losing competitiveness as sediment velocity affects port access. By developing water projects such as the Magdalena River and the Dique Canal, the ports of Barranquilla and Cartagena are seeking to improve their competitiveness by reducing sediment volume.

Puerto Antioquia is the newest seaport in the country. The port is located in the Gulf of Urabá, near the border with Panama on the Caribbean coast. Puerto Antioquia will be able to handle 1.15 million tons of cargo per year, 3 million tons of bulk cargo and 60,000 vehicles. In addition, the port will be the main export route for bananas and fruits to international markets. The main investors in Puerto Antioquia are local banana companies, as well as French and Colombian businessmen. The investment in the port amounts to US$650 million, and Puerto Antioquia is expected to begin operations in 2025.

Dredging

In 2017, the Colombian government, together with the Dutch government, developed the National Dredging Plan. The goal was to develop a dredging maintenance strategy to support Colombian ports. The Colombian government, through the National Road Institute (INVIAS), carries out annual dredging operations in the ports of Buenaventura, Cartagena, Barranquilla, Tumaco, Providencia, San Andres and the Gulf of Urabá.

Canal del Dique — is an environmental project that will be implemented in the departments of Bolivar and Atlántico on the Colombian Caribbean coast. The goal of the project is replicate the Panama Canal by constructing dams and dikes to reduce sedimentation rates, prevent flooding, and restore mangroves and marshes damaged by sedimentation on the existing canal.

Investment Opportunities:

• Integrated engineering projects and services related to public transportation systems: seaports, dredging, tunnels, and bridges
• Construction Machinery
• Intelligent Transportation Systems Equipment and Services
• Road Safety Equipment and Services
• Railway Transport Supply

Medical Devices

Colombia is the third largest medical device market in Latin America after Brazil and Mexico. The medical device market accounts for about 5% of Colombia's healthcare expenditure. It is highly competitive and relies heavily on imports. Domestic production is concentrated mainly in low-tech consumables. The medical devices market is expected to expand at a compound annual growth rate (CAGR) of 2.1% in dollar terms from 2022 to 2027, according to Fitch Solutions.

The country's healthcare infrastructure is adequate in major urban areas, but overall needs to be modernized and expanded. The Colombian government provides universal healthcare coverage, known as the "General Social Security System in Health" (SGSSS, or Sistema General de Seguridad Social en Salud), thanks to Law 100 of 1993, which states that all citizens, regardless of their ability to pay, are entitled to a comprehensive package of healthcare services.

In February 2023, the president introduced a healthcare reform bill. It aims to improve primary health care, expand access to treatment, increase salaries for health workers, and eliminate the private sector from managing payments to combat corruption. This reform has created primary health care centers that guarantee rapid patient care, expanding opportunities in the medical device market.

The overall trend in import volumes showed the most significant growth in consumables. Diagnostic imaging, orthopedics, and prosthetics accounted for the largest share of imports. Dental product imports have increased sharply as dental procedures have rebounded from COVID-19.

The most promising niches for foreign medical device manufacturers are:

• Laboratory supplies and equipment
• Diagnostic equipment
• Electrodiagnostic devices
• Medical, surgical and dental instruments
• Orthopedics and prosthetics

Opportunities

The Colombian government is the main buyer, and foreign companies can find opportunities to participate in public tenders on the Ministry of Health (MOH) website and Colombia Compra Eficiente (the government’s public procurement system that offers bidders tools to simplify the bidding process in the Colombian public procurement system).

The best approach to entering the Colombian medical devices market is through a local partner, such as a distributor. Colombian companies prefer to buy from companies with a local presence that can provide after-sales services in the country, but some of the country’s largest end users import equipment and supplies directly.

The medical devices industry is concentrated in Bogotá and the department of Antioquia. Several multinational corporations manufacture products domestically. While there is some domestic capacity to produce basic goods, the medical device market relies heavily on imports, especially for more high-tech items.

Oil and Gas Exploration and Production Equipment

The oil and gas sector is key to Colombia's national income, accounting for about 10% of GDP and 20% of exports. While private foreign investment is permitted, all of the country's refineries are 100% owned and operated by Ecopetrol, Colombia's national oil company. The company also manages approximately 64% of the country's total oil and gas production. The remainder is made up mostly of smaller independent producers. 

The government's role is largely reserved for regulating oil and gas developments by private investors in the sector through joint ventures (JVs) or separate companies that are permitted to explore for and produce hydrocarbons in Colombia. A company or entity must be registered with the Ministry of Mines and Energy (MinEnergy) as an exploration and production company to participate in the domestic market.

According to Fitch Solutions Macro Research, at current production rates (around 700,000 barrels per day), Colombia has only 6.3 years of crude oil reserves. The picture is similar for gas, with only 7.7 years of production. Large areas of the country, particularly offshore Caribbean blocks, remain underexplored, meaning new hydrocarbon resources could be discovered in the coming years.

Opportunities

The Government of Colombia (GoC) has committed to decarbonizing Colombia’s energy matrix by moving from liquid fuels to natural gas and electricity as the primary energy sources for transport, industry and residential sectors. Colombia’s limited reserves and declining production could lead to increased natural gas imports in the coming years. Opportunities could arise for natural gas exporters from other countries.

The GoC has issued a tender for the development of a second LNG import facility in Buenaventura on the Pacific coast. Additional pipeline infrastructure is also needed. Investment Opportunities:

• Seismic services (2D and 3D)
• Drilling equipment (including directional drilling) and drilling fluids
• Wellhead equipment (Christmas trees, valves, compressors, pumps, pipeline equipment, safety equipment, well completion, casing and cementing equipment)
• Enhanced production stimulation and artificial lift systems
• Enhanced oil recovery in selected fields
• Crude oil and natural gas pipeline design and construction services
• Filtration or purification equipment

Information and Communications Technology (ICT)

The Colombian ICT market is experiencing significant growth. Colombia’s hardware manufacturing industry is small and the market relies on imports, while the software and services industry has become an important regional nearshoring hub. Colombia’s local software industry has many software firms, some of which are targeting regional expansion. Local software firms have strengths in financial applications, digital animation, and mobile and web applications.

Colombia has made significant strides in expanding internet and ICT access to its citizens in urban areas. The most commonly used technology is 4G, accounting for 85.2% of connections, followed by 3G with 13.2% and 2G with 1.5%.

Mobile subscription growth is booming, with significant increases each quarter over the past few years. According to Fitch Solutions, mobile penetration reached an estimated 155.8% in Q422, suggesting that the mobile voice market is approaching saturation.
On July 25, 2019, Colombia passed the ICT Sector Modernization Law (Law 1978 of 2019). The law aims to reduce the digital divide in Colombia. It aims to stimulate the ICT sector by allowing existing and new companies to develop innovative projects related to ICT services, improve access to these services, ensure progress and modernization, and implement new technologies.

The best prospects for the ICT sector lie in digitalization and cybersecurity solutions. Also:

• Cloud computing services: data center capacity is increasing, cloud providers are rolling out more services, and enterprises are adopting platform as a service.
• Servers and storage: data center hardware is in demand from telcos, cloud services, and content companies.
• Software as a service (SaaS): on-premises software adoption is low in Colombia, and many companies are preparing to bypass the on-premises era and move straight to the cloud.

Opportunities

Cloud adoption will be the most significant driver of the ICT market in Colombia in the medium term. In the Colombian IT market, most demand comes from a few key subsectors, such as the ICT industry, the public sector, and retail. In Colombia, there is demand for ICT investments and services that improve the efficiency and flexibility of financial services, including digitalization and platforms for payments and banking, fraud detection and cybersecurity solutions. Opportunities for foreign companies will come from increased connectivity and availability of equipment, multi-sector economic growth and government programs for institutional and regional modernization.

Tourism

Colombia is an attractive tourism market in the region. The country's position as a tourist destination has been achieved thanks to its natural, geographical and cultural wealth in 6 tourist regions, each of which allows for a combination of beach holidays, as well as social and cultural tourism in one territory. This makes Colombia a country with great potential to develop infrastructure and tourism services aimed at different niches and able to meet new trends in national and international demand.

In its efforts to create sustainable ecosystems, Colombia is looking for new investments and developments that will have an impact on sustainability and green innovation in hotel infrastructure and tourism activities, for which incentives are provided for such projects.

With Decree 646 of 2021, Colombia officially adopted a sustainable tourism policy, the purpose of which is to position sustainability as a key principle in tourism development. This policy aims to make tourism a tool for environmental conservation that also contributes to the development of local communities, and Colombia is one of the few countries in the world with such a law.

Investment opportunities:

• Rural and community tourism: development of hotel projects (including eco-glamping, eco-hotels, campsites and sustainable green development) to improve the offer of high-potential tourist destinations, especially in new areas, and create a positive impact on communities and the environment by promoting sustainable practices.
• Sun and beach tourism: opportunities for the development of hotel businesses, combining jungle ecosystems with beaches; bird watching infrastructure, construction of tourist docks, marinas and access to new technologies.
• Urban hotels: opportunities for new hotels targeting the youth, senior, corporate or leisure segments in large and medium-sized cities.
• Entertainment: development of theme parks and event venues.

In addition, all this natural, geographical and cultural wealth of Colombia must be supported by a local infrastructure that promotes tourism, which includes the following investment areas:

• Civil infrastructure (roads, airports, water works, etc.).
• Telecommunications, innovation and IT tools.
• Regional training.

The tourism industry has established itself as an important driver of the country's economy. In the diversification process, tourism plays a key role as the main generator of foreign exchange in the non-energy mining sector, surpassing industries such as coffee, bananas and flowers. For this reason, the National Government aims to maintain the competitiveness of the tourism sector through a favorable investment environment, providing incentives to attract investment, such as:

• Infrastructure: Special rental rate of 15% for 10 years (compared to the general rate of 35%) for the development of hotel infrastructure and theme parks in municipalities that are part of the Development Programs with Territorial Focus (Programas de Desarrollo con Enfoque Territorial, or PDET) and in areas most affected by the armed conflict (ZOMAC).
• Environment: Deductions from rent for investments in the control, conservation and improvement of the environment. This includes investments in the acquisition of land for tourism activities in accordance with the conservation and restoration of biodiversity and renewable natural resources.

Restrictions for foreign investors

Foreign investments in the financial, hydrocarbon and mining sectors are subject to special regimes such as investment registration and concession agreements with the Colombian government, but are not limited in the amount of foreign capital. The following sectors require foreign investors to have a legal local representative and/or commercial presence in Colombia:

• infrastructure, data and information processing, travel agency services;
• money transfer operators;
• customs brokerage;
• postal and courier services;
• warehousing of goods;
• transport of goods under customs control;
• international cargo agents;
• public utility companies, including sewer and water works, waste disposal, distribution of electricity, gas and fuel, and public telephone services;
• insurance companies;
• legal services;
• specialized air services, including aerial firefighting, sightseeing and surveying.

According to According to the Colombian Constitution and Foreign Investment Law, foreign investment in Colombia has the same status as investment by Colombian nationals.

Foreign investment is permitted in all sectors, with the exception of activities related to defense, national security, and the treatment and disposal of toxic waste. There are no performance requirements that explicitly apply to the entry and placement of foreign investment in Colombia. The Colombian government does not have a mechanism to screen investments, based on national security or otherwise.

Foreign investors face specific exceptions and restrictions in the following sectors:

• Media: Only Colombian nationals or legal entities may provide subscription radio or television services. For National Open Television and Nationwide Private Television operators, only Colombian nationals or legal entities may obtain concessions to provide television services. Foreign investment in national television is limited to a maximum of 40% ownership of the operator.
• Accounting, Auditing and Data Processing: To engage in accounting activities in Colombia, accounting service providers must register with the Central Council of Accountants and have a permanent residence in Colombia for at least three years prior to registration. Providing data and information processing services in Colombia requires a legal commercial presence.
• Banking: Foreign investors can own 100% of financial institutions in Colombia, but must obtain approval from the Superintendent of Finance before making a direct investment of 10% or more in any entity. Foreign banks must establish a local commercial presence and meet the same capital and other requirements as local financial institutions. Each investment of foreign capital in the portfolios must be made through a Colombian administrator company, including brokerage firms, trust companies and investment management companies.
• Fishing: A foreign vessel may fish in Colombian territorial waters only through association with a Colombian company that has a valid fishing license. If the vessel's flag corresponds to a country with which Colombia has an additional bilateral agreement, that agreement determines whether the association requirement applies to the process necessary to obtain a fishing license. The cost of fishing licenses is higher for foreign-flagged vessels.
• Private Security and Surveillance Companies: Companies created with foreign capital before February 11, 1994 may not increase their foreign capital share. Companies created after this date may only have Colombian nationals as shareholders.
• Transportation: Foreign companies may provide multimodal cargo transportation services within or from Colombia only if they have a domiciled agent or representative legally responsible for their activities in Colombia. International cabotage companies may provide cabotage services (i.e. between two points in Colombia) "only in the absence of national capacity to provide these services." Colombia prohibits foreign ownership of commercial vessels licensed in Colombia. Port services concession holders must be legally established in Colombia, and only Colombian vessels may provide port services within Colombian maritime jurisdiction unless there are no suitable Colombian-flagged vessels.