Colombia: The turning pointRemarks by Alvaro Uribe October 2013

Question 1: The triggers of the Colombian transformation?

Colombia’s Picture in 2002

Security28.837 homicides

2.882 kidnappings

69 homicides per 100.000 habitants

1.645 terrorist attacks

350 mayors out of their municipalities

158 municipalities without police

EconomyAverage Economic Growth 1994-2001: 2.1%

GDP per Capita: US$2377

Investment as % of GDP: 16.5%

Exports: US$11.975 million

FDI: US$2.100 million

Inflation: 6.99%

Fiscal balance: -3.2%

SocialUnemployment: 16.2%

Health Coverage: 25 million Colombians

Pension affiliates: 4.5 million

Poverty: 57%

Education Coverage: Primary 97%, High school: 57%, University: 24%

Mobil Phone Lines: 4.6 million

Internet coverage: 1.9 million

Eleven years ago Colombia was a fragile state…The Colombian Paradox: a long and stable democracy in a permanent threat from terrorist groups, drug dealers

and organized crime…

Colombia faced an Confidence Deficit

Confidence DeficitThe elusive quest for peace

Many governments exhausted all their political capital attempting to reach peace through political dialogue…the result was military strengthening from illegal armed

groups and a rapid growth in their criminal activities (68%

thought the country was going in a negative track)

Terrorist Groups (Guerrillas and Paramilitaries) had created a

sense of defeat in the Colombian people

Fear impacted in the Colombian people Mindset

The lack of investmentThe drain of human capital

The sense of danger in Colombian roads

The expansion of massive kidnappings created an

emotional domino effect

Facing the problem

VISIONOur vision was to build a Comunitary State:

CONFIDENCE was our main goal Without Confidence:

• No investment• Unemployment• Lack of opportunities• Brain Drain (Young people wanted to leave without a

return ticket) Three main Policies:

Democratic Security Investment with fraternity Social cohesion

For the First Time a National Development Agenda had Security as a driver of Development (Security = Investment = Social Cohesion)

No more a debate between left and right

Policy Vision

WE INTRODUCED A COMPREHENSIVE POLICY FRAMEWORK…

Social Cohesion

Investment with

fraternity

Democratic Security

Confidence

Security as a Democratic Value

Security for allConfront all

criminal organizations

Security without

martial law

Security with freedoms and human rights

protection

Security in coordination

with the people

Investment Target

Security:HumanLegal

Political

Sound Macroeconomics

Incentives Access to markets

Competitiveness factors:• Infrastructure• Regulation• Connectivity• Logistical chain

Social Cohesion

Highest quality in education

Universal healthcare

Access to Finance

Stable Jobs and entrepreneurial

spiritConnectivity

Security as a development cornerstone

Innovation in SecurityRecovering Security

1. Macro Vision and Detailed Follow up:• Daily commitment to monitor security in every region• How citizens had the President Mobile Phone Number

2. Early Victories :• Road caravans• Massive kidnappings are over

3. Strategic Force Integration• All Forces working together• Share success

4. National Informant Network• Citizens became active in denouncing criminals• Reward Mondays

5. Commander in Chief assumes responsibility• The Granda Story• Operation Fenix: Fire the Air Force Commander• Operation Jaque: The pressure for a humanitarian exchange and the final outcome

6. Smart Weapons:• The importance of strategic warfare

7. Extradition:• The decision to extradite the Paramilitary Kingpins

A viable country for long term investment

Structural Elements

Political Stability

Sound Macroeconomic Management

Human, Political and Legal Security

Competitive elements

Investment incentives

Access to markets (Canada, EU, EEUU, MERCOSUR, etc)

Free Trade Zones

Logistical advantages

Legal stability agreements

Comparative elements

Investment Grade

Stable institutions

Growing internal demand

Complementary

Human Capital

New World Class Sectors incentives

Strong financial system

We made Colombia a viable country for FDI due to a multiplicity of factors…

Social Cohesion was our ultimate objective

Social Cohesion

Education Coverage and

quality

National Learning System –SENA-

Conditional Cash Transfers

Access to Finance (Banca de

Oportunidades, Micro-Credit)

Financial Sector Downscaling

Public Utilities Coverage

Rural Development

Breaking the communication and technology

gap

Oil and gas a success case

In 2002 it was believed that by 2009 Colombia oil

production will not be able to attend national

demand

In 2003 the oil and gas sector restructuring was

designed

ECOPETROL undertook a strategy shift to become a

more competitive and professional corporation

The National Hydrocarbon Agency was created

Between 2002 and 2010, 341 exploration and

production contracts were signed

In 2007 ECOPETROL was capitalized by 10%

through local capital markets. 486.000

Colombians bought shares

Between 2002 and May 2010, 447 new fields were

explored

From 2002 to 2010 successful exploration

passed from 40% to 61.4%

Seismic exploration in the country (Onshore,

Offshore and 2 dimensions) increased by

more than 250%

Colombia is currently close to produce 1 million oil

barrels per day

Success triggers

Security: Investment, exploration

Government Reform: New ECOPETROL and ANH

Investment target policies: New players and new

exploration and production contracts

The case of the oil sector in Colombia: Change is possible

Results oriented administration

Indicator 2002 2010

Homicides 28.838 15.000

Kidnappings 2.882 228

Homicides per 100K Habitants

69 35

Terrorist attacks 1.645 250

Municipalities without mayors

presence

350 0

Municipalities without police

158 0

Indicator 2002 2010

Average Economic Growth

2.1% 4.3%

GDP per Capita 2377 5.300

Invest % GDP 16.5% 24.6%

Exports US$11.000

US$ 39.000

FDI US$2.100

US$ 7.000

Inflation 6.9% 2.5%

Indicator 2002 2010

Unemployment 16.2% 11.6%

Health Coverage 25.1 million 43.1 million

Pension affiliates 4.5 million 7.1 million

Poverty 57% 38%

Education coverage (Primary, Hs, University)

97%57%24%

100%79.4%35.5%

Mobile phone users 4.6 million lines

41 million lines

• Reached the highest economic growth in more than 20 years

• The largest education, health and connectivity coverage in its history

• The largest poverty reduction in Colombian history• The biggest FDI rates in history• The lowest violence records in 30 years

• Expanded the middle class• Highest exports in Colombian History.• Paramilitary groups dismantled• FARC structure severely dismantled• Per Capita income more than doubled

Our policy achievements generated a turning point

Question 2:How would you judge Colombia’s investment climate and public-private relations?

Colombia has mixed results in Business Climate Indicators

Colombia in comparison to the Region best and worst performers…

Indicator Brazil Chile Mexico Colombia Peru Venezuela

Starting a Business (Proceadures)

15 8 6 9 6 17Starting a Business

(Days)120 22 9 14 27 141

Days for Construction Permits

411 155 105 50 188 395Hours devoted to pay

taxes (Hours per year)

2.600 316 404 208 380 864

Days to enforce a contract

616 480 415 1346 428 510Enforcing Contracts

(Cost % Claim)16.5 28.6 32 47.9 35.7 43.7

Cost to export US$ per Container

US$1.730

US$745 US$1.420 US$1.770 US$860 US$2.590

Colombia in the Doing Business Report

Country DB 2013 DB 2012 DB2011 DB2010

Mexico 48 53 35 41

Peru 43 41 36 46

Colombia 45 42 39 38

Chile 37 39 43 53

Argentina 124 113 115 113

Uruguay 89 90 124 122

Ecuador 139 130 130 127

Brazil 130 126 127 124

Venezuela 180 177 172 170

Colombia is one of the best regional performers in the Doing Business Report. Its performance has been consistent over the last four years, although a reduction in the ranking has been the characteristic

Colombia risk perception

Colombia is perceived by the financial markets as a low risk country…

Public – Private sector relations in Colombia

Energy

Ecopetrol IPO ANH with a new partnership vision Mining Concessions

InfrastructureDorado Airport and others Second Generation road concessions Port Development in Cartagena, Barranquilla

and others

Financial servicesBanca de oportunidades (Corresponsales no

bancarios) Cajas de compensación Cooperatives

SecurityWork with the private sector to expand

telecommunication coveragePartner with communities to denounce

criminal activities Forest Guards Families

The Colombian government and the private sector have been working closely in strategic areas…

Characteristics of the Colombian entrepreneur

TrendsWell

educated professional

Highly prepared to

deal with adversity

Result based manager

Socially Conscious

Politically non radical

Policy awareness

Supports access to markets

through FTA’s

Colombia’s private sector leadership counts with valuable trends and principles…

Public –Private institutional governance

CharacteristicsOpen policy dialogue with representative

groups

ANDI and other representative groups actively

participate in policy discussions

Government executes market

oversight through specialized agencies

Government and private sector

discuss employment policies like

minimum wage, among others

The National training system is managed according to private

sector demand

Congress and the Judicial System have

respect towards privates sector

initiative

The relation between public and private sector has positive characteristics that favor a sustainable institutional environment…

Investor confidence policies 2002-2013

Investor Confidence

Tax Incentives

Free Trade Zones

Legal stability agreements

Human and infrastructure

security

Dialogue with investors

Constant Market development

reforms

Access to markets

Drop double taxation

agreements

Internal competitiveness

agenda

The relation between public and private sector has positive characteristics that favor a sustainable institutional environment…

Question 3:Colombia’s current challenges and opportunities

Colombia’s main challenges

Security

Maintain Macro-Vision and Micro-Management

Continue dismantling all terrorist organizations

Continue dismantling drug cartels apparatus

Strengthen Citizen Security agendas with local authorities

Economic

Face new trends of currency appreciation

Maintain and increase FDI flows (Security, incentives and

stability rules)

Fiscal Policy to face new countercyclical challenges

Increase tax collections

Expand new trade markets through FTA’s

Social Cohesion

Fight labor informality and create quality jobs

Insure education and health quality

Expand vocational training coverage

Create Entrepreneurial Family Transfers program

Political

Judicial reform

Strengthen Democratic Center

Improve local institutional capacity

New law implementation (Victims and land)

Prevent the emergence of populist movements

Colombia faces challenges that will determine the future of institutional and investment climate…

Economic sectors with Growth Potential

Oil and gas: Colombia has been growing its production reaching 1 million barrels per day. New exploration will expand…

Mining: Colombia’s mining potential continues to grow expanding opportunities in sectors like

emeralds, gold, cooper, nickel, iron, coal, among others

Agribusiness: Food demand in the world would trigger new opportunities in the Colombian rural

areas. These opportunities ought to be faced with a genuine agribusiness model that integrates small

producers and industrialized structures

Services and creative industries: The constant expansion of the middle class and the per capita income will boost the service sector and turn the

country into a larger consumer of creative content in T.V., Cinema, magazine, radio, arts, jewelry, design,

etc

The Big Four Sectors

There are 4 sectors with a big potential among many other…

Opinions about specific sectors

Infrastructure

Requires a profound interaction with local capital markets in order to achieve long term

financing

Access to finance for infrastructure development is critical

Government Procurement must turn more expedite

The sector has a growing potential for investment, considering Colombia's growth

and the need to improve logistical networks.

Oil and mining

Environmental licenses must be more expedite without affecting effective oversight

Labor conditions and social investment are crucial for the sector to build a community in

areas of operation

Sector must become a leader in environmental standards

Partnership agreements with the government are positive operational conditions.

Creative sectors

Advertising services exports are 1.5 times bigger that tobacco exports

Creative services exports are bigger than natural gas exports

Arts and craft exports are bigger than electrical energy exports

Content consumption will boost advertising, music, animation and other industries

Reflections on some market conditions…

Economic Growth

Colombia must reach a growth rate above 5% to achieve its social cohesion goals

Economic growth will require structural reforms in the taxing, investment, pension, judicial and labor system

Colombia requires and significant constant investment rate to expand markets and finance its social safety net

Certainty will be the mantra of long term investment. Certainty depends on the institutional architecture of the country

Question 4:Colombia in the regional context

Regional opportunities

Policy Changes since 1980 match four range of opportunities

Population

Close to 600 million people

Average age between 24 and 28

Per Capita Income in PPP close to US$10.000

Poverty reduction

64% of our population is a expanding middle class

During the last decade 40 million people have left the poverty line

Life expectancy has increased from 65 to 75 years

Child mortality has been reduced by 50 per cent

Literacy rates are above 94%

Mobile phone penetration has increased by 78 per cent

Internet access has increased by 33%

Healthcare coverage has increased by 50 percent

Water and sanitation coverage has reached 80%

Commodities in time of Demand

10 percent of the World oil reserves

6 percent of the World gas reserves

Almost 50 percent of the World cooper reserves

50 per cent of the World silver reserves

13% of the World iron reserves

26% of the World fertile land

24% of the World beef supply

Bio Reserves

20 per cent of the World Biodiversity is concentrated in the

Amazon ring

Almost 50% of the World potable water

supply

57% of the world primary forest

The model of transformation

The strengthening of Liberal Democracy

The adoption of an institutional Framework in favor of foreign and

national investment

The construction of a sound and sustainable

social safety net

The expansion of export markets and the

commercial integration with the World (FTA’s)

A public administration driven by results

A sound Macroeconomic

Administration driven by fiscal and monetary

prudence

Better regulatory environment

Construction of strategic infrastructure

The consolidation of an innovation agenda

leaded by an improvement in

education

A well capitalized financial sector and the constant expansion of

financial services

The change process is a consequence of the consistency, congruence and sense of urgency that a group of countries have adopted as their policy cornerstone. Brazil, Mexico, Colombia, Chile, Peru and Uruguay represent 70 per cent of the region’s population and 75% of the regional GDP

Today countries like Panama, Dominican Republic, Costa Rica, Salvador, Guatemala, Honduras, Paraguay, as well as most of the Caribbean States, are following that line of behavior

The two regions

The regional current Political Map is a “Tale of two cities” like the Charles Dickens Book… (The ALBA and the non Alba Model)ALBA

(Leaders: Venezuela, Ecuador, Bolivia, Nicaragua

and Cuba)

Anti-U.S.

Anti-Free Trade

Lack of investment Confidence

Weak institutions

Political Insecurity

Ideology driven countries

Political Polarization

Modern Democratic Center Countries (Brazil, Colombia, Peru, Chile, México, Uruguay, Paraguay, Panamá, Republic Dominican,

Costa Rica, etc)

Cooperation with the U.S.

Pro Free Trade

Investment Confidence

Independent Institutions

Political Stability

State Long Term Policies and Mgt by Results

Organized Party Systems

The Democratic Center takes the lead: • Investment grade countries are in this Group: Mexico, Brazil, Chile, Colombia, Peru and Panama• Countries with more market access through FTA’S are in this group• Countries with more FDI are in this group• Countries with more Middle Class Expansion are in this group• Better fiscally sustainable social programs: Chile, Mexico, Brasil and Colombia

Only the group of Countries in the Democratic Center will become the regional active participants of the Emerging Markets Boom…some of the ALBA Members will see some benefits, but without solid long term development agendas, they will face transitory profits…

But not all the socio-economic models are a success story…

The Alba failure

Venezuela

Inflation

Reduction in oil production

Brain drain

Social conflict

Insecurity

Private initiative in Jeopardy

Bolivia

Loss of citizen support

Quality of live deterioration

Lack of private initiative

Loss in private investment

Ecuador

Press Liberties in danger

Lack of long term private investment

Political stability at the expense of higher tensions

Oil driven political power

Nicaragua

Institutional deterioration (Reelection without

constitutional authority)

Corruption

Private initiative: Uncertainty

Shameful Chavistas

Bad policies are deteriorating the political and economic context in the ALBA Countries….

The regional challenges

Building Modern Democracies

(5 parameters)

Security

Freedoms and Private Initiative

Independent Institutions

Social Cohesion

People Participation

A dynamic Economic

transformation

Investment Target Policies

Maintaining Fiscal and Monetary transformation

Integrate commodity and knowledge based economies

Expand export markets

Create an Entrepreneurship culture (Innovation agenda)

Closing Social Gaps

Improve education (quality, coverage, vocational)

Insure Universal Healthcare

Formal Job creation

Access to Finance

Climate Change, Environment and

Energy Sustainability

Expand renewable sources

Install an energy efficiency conscience

Improve waste management

Protect the Amazon Ring

Reduce Co2 Emissions

Despite the changes that have been achieved some important challenges remain…

Colombia’s great opportunity

Institutional Stability

Political Center prevent radicalism

and populism

Economic Policy has been stable, credible and transparent

Pacific Alliance emerges as an opportunity

Stable trade with new partners through FTA’s

Investment grade Low risk perception Solid financial system

Fiscally viable social agenda

Governance guaranteed by

institutional independence

Colombia has conditions that make the country a stable, credible and profitable investment destination

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