Top 10 challenges of doing business in Colombia
Colombia is one of the most attractive economies in Latin America for international trade and foreign investment. However, the complex business environment means investors must navigate challenges around tax, accounting, regulatory compliance and foreign exchange rules.
Colombia's prime location near the Panama Canal makes it a gateway country to a wide range of markets. It links North and South America and is the only country on the continent with access to both the Pacific and Atlantic Oceans. Through its network of trade agreements with over 60 countries, Colombia has access to a market of 1.5 billion consumers across the US, EU and Mercosur.
Colombia is a member of the Pacific Alliance, a Latin American trade bloc that includes Peru, Mexico and Chile. The Alliance aims to increase competitiveness by integrating its member economies and allowing the free flow of capital, goods, people and services. It represents 50% of the total trade and attracts 45% of foreign direct investment (FDI) in Latin America and the Caribbean.
Colombia is also a member of the Organisation for Economic Co-operation and Development (OECD). It was welcomed into this forum in 2020 after standardising processes and adjusting legislation to OECD standards to encourage FDI, trade and international relations.
Here are the top 10 challenges of doing business in Colombia.
1. Regulatory and tax complexity
Colombia's regulatory framework is complex, with frequent changes made to laws and regulations. Recent reforms to tax, labour and pension laws aim to address the widespread social inequalities across the country. For example, the 2022 tax reform allows the government to collect an additional US$3.9 billion in tax per year by raising taxes only for high-income earners as well as by targeting corporate tax avoidance. The goal of this tax reform is to increase the GDP-tax ratio from 13.5% to 15%. While these reforms have long-term benefits, they add complexity in the short term, which is likely to affect financial forecasts. To properly navigate these shifts, companies doing business in Colombia must remain adaptable and well-informed.
2. International trade and bureaucracy
Colombia has made progress in international trade through the US-Colombia Trade Promotion Agreement and the Pacific Alliance. However, the country has a history of complicated and unpredictable bureaucratic processes, including a lack of clarity around customs laws and regulatory requirements that can hamper business activities. Despite an effort to streamline these processes, companies are likely to face an increase in procedural complexity during the transitional period. Staying up to date with trade regulations and cultivating solid ties with trading partners are vital for efficient business operations.
3. Security Concerns
Security in Colombia is a major concern. Despite significant efforts and some success over the last decade, several regions continue to suffer from political turmoil and security threats from criminal groups. Companies doing business in Colombia should consider security measures and know their areas of operation well to protect the safety of their activities and staff.
4. Corruption
Tackling corruption is a top priority in Colombia. According to Transparency International's 2022 Corruption Perceptions Index, Colombia ranked 87th out of 180 nations, indicating continuing issues. Companies should implement ethical policies and do extensive due diligence to reduce the dangers connected with corruption. This includes adhering to anti-money laundering (AML) and counter-terrorism financing (CFT) legislation, as well as establishing anti-bribery and anti-corruption policies.
5. Infrastructure deficiencies
Infrastructure development is a key focus, with major investments planned for the near future. Colombia has initiated the Fourth Generation (4G) infrastructure programme, with plans to invest US$24 billion in road, rail, port and airport developments. However, logistical obstacles persist, particularly in areas beyond large urban centres. Strategic planning and local alliances can assist businesses in addressing infrastructure concerns and optimising operations.
6. Access to finance
One of the primary goals in Colombia is to make it easier for SMEs to obtain financing. Even though 87% of Colombians are financially included, SMEs still have trouble getting capital. To support these endeavours, businesses should establish solid ties with financial institutions and investigate a variety of financing options.
7. Skilled labour shortage
Colombia has taken positive steps towards making education accessible and raising educational standards, but disparities between regions and income groups mean the system still favours wealthy urbanites. Even though the country currently has a 94.6% literacy rate, a lack of skills training makes it difficult for companies to locate and retain skilled workers. To close this gap and guarantee a trained workforce, companies doing business in Colombia should consider investing in training and development programmes to upskill potential local workers.
8. Cultural and language barriers
Although Spanish is the main language, Colombians are increasingly aware of the need to speak English as commercial environments become more multinational. Dealmakers may find that new clients or associates will be able and happy to speak some English. However, English is not widely spoken at a very high level, so it’s sometimes advisable to have a translator for business deals and paperwork.
Colombians are generally outgoing and welcoming people who will go to great lengths to make you feel at home. Business dealings are usually friendly, but formalities remain commonplace.
9. Economic volatility
Global commodity markets have an impact on Colombia's economy and constantly changing policies can further complicate matters. The country is estimated to grow its GDP by 1.4% in 2024, but changes in oil prices and foreign economic conditions continue to pose a threat to economic stability. Businesses should keep a careful eye on economic data and plan volatility.
10. Contract enforcement and stability
Colombian contract enforcement can be difficult because of the court system's backlog. Resolving a commercial dispute takes an average of 1,288 days, which is much longer than the OECD average of 590 days, according to the World Bank's Doing Business 2020 report. Some of these difficulties can be reduced by making sure contracts have clear terms and by getting legal counsel.
Contact our local TMF Group experts
At TMF Group, we have global reach through 87 jurisdictions with local teams on the ground in each one. We can help you navigate any challenge or opportunity that arises when expanding into Colombia. Whether you want to set up a business in Colombia or simply streamline your existing operations, get in touch with us today.
Learn more about TMF Group in Colombia.
