Doing Business In: Cali
Saavedra Becerra AbogadosView firm profile
Santiago de Cali, capital of the Departamento del Valle del Cauca (Cauca Valley) is the second largest city in Colombia (after Bogotá) and the most populous city in southwest Colombia with 2.227.642 residents according to the latest census (2018)1.
Founded in 1536 by Sebastian de Belalcázar, it is located on both sides of the Cali River at an elevation of 1,014 meters in the subtropical Cauca Valley. As the only major Colombian city with access to the Pacific Coast, Cali is the main urban and economic center in the south of the country.
Since 1954, the agricultural and industrial development have been improved by the Cauca Valley Corporation (CVC), a regional autonomous corporation that modeled after the Tennessee Valley Authority, drained the Cauca River, Colombia’s second largest river, to generate electrical power, prevent flooding and make marginal farmland more suitable for large-scale cultivation by irrigation and mechanization. The agricultural products that are grown and commercialized in the valley include sugarcane, coffee, cotton, soybeans, pineapples and more recently, avocado. White protein (poultry and pork) is also an important sector. Regarding industrial products, the most important are printing paper (created by using the sugarcane bagasse), paperboard, pharmaceuticals, beauty products, and chemicals.
II. Cluster Initiatives Program.
In 2014, with the help of the Valle del Cauca Regional Competitiveness Commission, a group of researchers from several universities, the Governor’s Office, the Cali Mayor’s Office, regional unions, research and development centers and with the support of the other six chambers of commerce of the Department, the Cali Chamber of Commerce began its Cluster Initiatives Program with the purpose of identifying the new regional productive bets.
The clusters that were identified in the Valle del Cauca correspond to industries with increasing global demands, driven by adjustments in consumption patterns induced by factors such as the increase in the world middle-income population, increase in the purchasing power of households, aging of the population, healthier consumption habits and incentives for the use of renewable energies.
After a process of characterization and analysis of the competitive advantages of the companies located in the region, related to various productive activities and modern industries, seven business groups were identified that met the requirements of high density, important dynamics of economic growth, relative technological sophistication and great market opportunities in the medium and long term.
The Bioenergy Cluster groups together the companies related to the processes of generating energy and fuels from the different biomass available in the geographical valley of the Cauca River (agricultural, forestry and livestock, among others).
The following business segments have been identified in this cluster: co-generators, biomass generators, agricultural machinery, transport and logistics, seeds and fertilizers, engineering services, electrical equipment, energy and gas distributors and marketers and distillers.
2. Fashion System
In this Cluster companies have been identified in 9 business segments: supplies, textiles, clothing, retail and wholesale marketers, accessories, footwear, machinery and equipment and support services.
The Beauty Cluster is made up of companies that produce cosmetics and personal care items, along with suppliers of packaging, chemicals, natural ingredients, and all of the different distribution channels of these products.
In this Cluster 7 segments have been identified: companies that produce final goods, companies that produce natural ingredients, companies of chemical inputs, companies of packaging and specialized graphics for these products, engineering and equipment companies, treatment facilities and retail companies.
4. Macro Snacks
This Cluster groups together companies related to the manufacturing, distribution and marketing of packaged foods and non-alcoholic beverages that are easily accessible to the consumer and are ready to consume.
In this Cluster, 11 business segments have been identified: bakery; pastry and biscuits; confectionery; beverages and dairy; fried and extruded; fruits; nuts; the supply industry conformed by the packaging and graphics segments; sweeteners; milling; oils and fats; and flavorings and extracts.
5. White Protein
The White Protein Cluster is made up of companies related to the production of eggs, chicken, pork and their derivatives, together with the auxiliary industry and distributors.
In this Cluster, 256 companies have been identified in Valle del Cauca which are integrated into 9 business segments: Egg Industry, Fattening, Slaughter and Refrigeration, Auxiliary Industry, Processed, Incubator, Distribution, Supplies and Integrated Processors.
6. Urban Habitat
The Urban Habitat Cluster corresponds to the grouping of all the companies directly related to the activities of construction and adaptation of urban spaces, in Cali and Valle del Cauca.
It includes companies related to the design, financing, construction, marketing and management of residential buildings, offices, shopping centers, parking buildings, hotels, sports venues, event centers, restaurants, gyms and all the buildings that all modern cities require.
7. Clinical Excellence
The Clinical Excellence Cluster is made up of companies related to the provision of specialized clinical / medical services in Valle del Cauca. The Cluster includes 536 companies, distributed in 12 business segments: clinics and hospitals, specialized service providers, aesthetic clinics, medical supplies, medical equipment, prostheses and implants, pharmaceutical industry and support services (diagnosis, specialized outsourcing, specialized research), chemical products, marketing and packaging.
III. Investment in Valle del Cauca.
First, some key takeaways:
- It contributes 9.7% of the Colombian GDP, with a growth of 3.1% (above the national average – 2.6%2 ).
- With only 1.9% of the national territory, it concentrates 15% of the national industry and 23% of the agroindustry3.
- It has the main port of Colombia in the Pacific Ocean which mobilizes 42.4% of foreign trade4.
- It has the most diversified export basket in the country. It originates 12.2% of the country’s non-mining assets5.
- It has a world-class business fabric with +180 active multinational companies that generate 47,7% of the Department’s exports and represent +2.900 USD in investment. According to the number of projects, this investments in mainly concentrated in BPO, KPO & C.S.C (12%), Processed foods (9.3%) and logistics (8.8%).
- These +180 multinational companies from different sectors contribute 12% of the regional GDP6.
- The region is part of a network of seven intermediate cities with more than 150.000 people7.
Invest Pacific, the Investment Promotion Agency in Valle del Cauca created in 2011 with the purpose of promoting the Department to attract national foreign investment, identified the following reasons to invest in Valle del Cauca:
1. Geostrategic location
Valle del Cauca, located in the South West of Colombia upon the Pacific Ocean, is the most cost-efficient region to provide goods to the national and international markets. It has the most important port on the Colombian Pacific, Buenaventura, which allows the export and import of goods and services from and to countries in America, Europe and Asia. From Valle del Cauca, the Andean market (124 million people), the Pacific Alliance (+257 million consumers) and other regions can be served, maximizing the commercial agreements that the country has with more than 60 countries.
Its proximity to more than 72% of the country’s middle class, and its strategic location makes Valle del Cauca the most cost-efficient region to serve the inner market.
In 2018, Valle del Cauca was recognized by Financial Times as one of the TOP 10 regions with the best FDI attraction strategy in Latin America, and in 2017 Cali, its capital, was recognized within the top 10 most cost-effective cities of the American continent and among the top 10 cities with the best Foreign Direct Investment (FDI) Attraction Strategy.
Valle del Cauca is within the same time zone (GMT-5) of countries like United States, Canada, Brazil and the whole Latin America, which enables it to timely serve the most important service markets. Also, it has access to 67% of the domestic market and 61% of the population within a 450-kilometer radius.
2. Business Network
Valle del Cauca is known as the “Cradle of Multinationals”, with more than 180 multinationals settled in the region since 1938: Ingredion, Unilever, Cargill, Baxter, Nestlé, Abbott, Goodyear, J&J, among others. These companies contribute approximately 48% of the region’s exports and 12% of the regional GDP. (See Annex No. 1)
The region is home to 4 of the main 10 software companies of the country and home of the largest in BPO services: Carvajal Technology and Services.
3. Export Platform
- It has the main port of Colombia on the Colombian Pacific (Buenaventura) that moves 42% of Colombia’s Foreign Trade.
- 5 Port Terminals that move 25.8 million tons of cargo per year.
- 830 km of primary roads in excellent condition.
- 90 weekly flights to 11 international destinations and +30 daily flights Cali-Bogotá. The internet in Cali has the best quality of service in Colombia.
- 7 Free Trade Zones generate 45% of exports from Free Zones in Colombia. It has the 1st Global Service Free Zone in Colombia (Zonamerica).
Source: Legis (Legiscomex, 2019).
Source: Legis (Legiscomex, 2019).
4. Human Capital
The current availability of labor in Valle del Cauca is diverse, efficient and productive. It has 33 Higher Education Institutions (18 Universities) and +30,000 graduates in 2018: 45% have technical / technological degrees and 22% postgraduates. It is important to take into account that +180.000 inhabitants know how to speak English and there are lots of initiatives to improve bilingualism in the region.
5. Quality of Life
Cali has the lowest cost of living among the large cities in Latin America, two of the best fourth level clinics in the region and the second-best air quality in Colombia. It offers the same life standards to a much lower cost than cities such as México City, Bogotá, Santiago de Chile and Lima among others.
The public transport system that covers 93% of the city and has +135 electric buses with an access ticket worth less than a dollar. There are +110 km of bike paths through the city and cultural and sports venues and activities that have worldwide recognition. Cali is known as the “World’s Capital of Salsa” with more than 90 dance academies and where renown salsa dancing groups are form.
Furthermore, Cali has 6 social clubs and 4 golf courses. Currently, the city is undergoing an urban renovation with the construction of shopping malls, hotels, parks, highways and public recreation areas.
6. Institutional Sinergy.
Valle del Cauca has a regional institution that works in synergy with the National Government and with the broad business fabric of the territory to strengthen this opportunity to promote and attract investment.
7. Competitive Costs
The average rental price in Cali for offices and warehouses is up to 25% cheaper than the main cities in the country.
Cali es the city with the lowest salaries compared to Bogotá and Medellín for most positions related to a BPO operation, as well as for industry.
From the Port of Buenaventura, it is 35% to 85% cheaper to transport a container to the main cities of the country (Cali, Medellín and Bogotá) than form the Port of Cartagena.
8. Nearshoring Strategy (Trade War)
Due to the publicly known trade war between the United States and China, the Valle del Cauca is performing a crucial role in the attraction of new investments in the region. It is a great opportunity of nearshoring for the American corporations that looking to relocate their supply chains outside Asia and to guarantee their supplies in a more “local” environment.
The region has an enormous potential to favor the investment of more American businesses and that’s why, in the words of the Executive Director of Invest Pacific, “is advancing with firm steps in this commitment, with the identification of several companies in sectors with high dependence on China, and where the region offers strong productive potential as a manufacturing export platform for the US and the countries of the region.”
Among the sectors that are have been identified are: Metal-mechanics, Electrical Equipment, Processed Foods, Pharmaceuticals and Medical Supplies, Furniture, Auto parts and Toys, Agro-inputs, Snacks and Light Machinery.
Its geographical proximity with the United States, the advantages of a Free-Trade Agreement and being the only multimodal region in the Colombian Pacific, are just some of the reasons that will make it easier to attract American investment. The Port of Buenaventura and its 5 por terminals, with a direct connection within 12 days of the Port of Los Angeles, enables the access to markets in the west coast of the United States. If all this is added to the fact that the Valle del Cauca has six free trade zones with logistics and industrial vocation, the best motorway network in the country, and an international airport with high connectivity, the opportunities are limitless.
IV. Key Infrastructure Projects
In the second semester of 2020 and during 2021, the most important infrastructure projects that will be awarded in the region are:
1. Buga – Buenaventura Highway.
It is a 31,3 km dual lane highway located between de cities of Buga and Buenaventura. It has a 1-year preconstruction phase and a 5-year construction phase. The required investment (CAPEX) for the project is 825,2 million USD and the operating expenditure (OPEX) is 534,4 million USD.
This project would reduce the operational costs and travel times for more than 7.900 vehicles per day. The main objective is to connect the most important economic centers of Colombia with the Port of Buenaventura to improve foreign trade.
2. New Malla Vial del Valle (Valle del Cauca Road Network).
The Cali-Palmira Accesses PPP Project, as it is also known, will have a length of 310 km. The project includes the construction of 15.6 km of new simple road lanes between Cali and Jamundí as an extension of Ciudad de Cali Avenue where heavy traffic will move.
In addition, the project includes the construction of 12.6 km of new double lane roads, 291.4 km of improved corridors, 2 track exchangers, 2 vehicular bridges over the Cauca River and 13 pedestrian bridges.
The duration of the works is estimated to be five and a half years, including a pre-construction year. The concession will be for a period of 29 years.
This project, which is characterized by being the first of the 5G Concessions Program, has a CAPEX of 1.16 billion pesos and an OPEX of 1,8 billion pesos. It is estimated that the project will generate at least 4000 jobs in the region and will help reduce accidents and improve road safety.
3. Cali – Rumichaca Corridor. (Highway)
It is a strategic highway for the commerce between Colombia and Ecuador which is the second destiny of Colombian exports. One of the main objectives of this project is to increase the transit speed to 80 km/h and to improve the road conditions of 465 km between Cali and the International Bridge of Rumichaca.
4. International Airport Alfonso Bonilla Aragon.
With the prospect of serving a hypothetical flow of ten million passangers per year by 2030, a private conglomerate presented a private initiative to expand the International Airport Alfonso Bonilla Aragon. The new works that are projected for the airport will represent investments of 4.6 billion pesos in the coming years and include: the expansion and remodeling of the national terminal, a new domestic dock (to connect domestic and international passengers), 18 boarding bridges, 31 boarding gates, 26 security checks plus claim and luggage bands.
According to Pro Pacifico, a non-profit organization that works for the sustainable development of Cali, Valle del Cauca and the Pacific Region, this project is very important because it will allow to increase passangers, attract new airlines and increase air cargo operations. Also, it is perfect opportunity for the growth of existing productive sectors, for the generation of new business models and for the attraction of foreign investment and tourism.
Between 2014 and 2018, the occupation factor of flights went from 79% to 85%, showing a potential for growth in air demand.
5. Light Train and Green Corridor. (Tren de Cercanías)
The light train is an urban mobility project for the region, that articulated with the green corridor, proposes solutions in passenger transport improves the population’s quality of life.
Its main objective is to socially, spatially and economically, integrate Cali, Palmira, Yumbo and Jamundí and to give new conditions to passenger mobility, impacting positively the time it takes to commute. The Municipality expects a daily passenger demand of 60.800 in 2025 and of 244.100 passengers in 2035.
The expected investment for the first line is 1,9 billion pesos and 5,9 billion pesos for the whole network.
V. Legal Overview
Colombia is a democratic, presidential and unitary republic. With a civil law tradition, as well as much of the legal systems in the region, it is highly influenced by French and Spanish law. The main sources of the legal system are the Constitution and written law; the general principles of the law, doctrine and jurisprudence are auxiliary sources.
Laws are made by the National Congress and must be approved by both houses (Senate and House of Representatives) in a number of debates that depends on the type of law that is to be approved. However, once the law is approved and is fully valid, it can be declared unconstitutional by the Constitutional Court and thus may not be applied ever again.
The rule of law is generally respected, and law itself is generally well enforced, but there have been some isolated cases that have been marked by corruption, which is currently the most serious issue the government faces. There is a culture of litigation, which promotes jurisprudential development, but the legal system is slow and tends to take between 8 and 10 years to solve a big case.
Regulators and lawmakers are powerful due to the rule of law that is generally respected in Colombia, making Colombia a legal power in the region. This is also as a result of the litigation culture and business opportunities that enhance the increased development of law and jurisprudence in comparison with other jurisdictions.
Colombia’s legal system is based on French law and theory, both civil and administrative. Finally, it is generally friendly to business and investment if businesses conduct their activities in accordance with the law and respect certain issues that Colombia considers to be of importance at the moment, such as the environment and indigenous groups.
VI. Dispute resolution and Arbitration.
First of all, in Colombia is not common that large commercial disputes are submitted to regular jurisdictional power, because normally an arbitration clause is agreed upon. However, when submitted to regular jurisdictional power, depending on the amount of money in dispute (if there is any) the case may be studied in first instance by a municipal judge and in appeal by a circuit judge; or by a circuit judge in first instance and in appeal by a superior tribunal. This later type of procedure is subject to reach an extraordinary instance after the appeal is solved called cassation which is solved by the Supreme Court of Justice, but the requirements for that to happen are very strict. This whole process may take about 8 to 10 years.
If the business has anything to do with public entities, depending on the amount of money in dispute, the case may be heard in first instance by an administrative judge and in appeal instance by a tribunal, or in first instance by the tribunal and in appeal instance by the Council of State. This process takes more time because of the delay in the administrative jurisdiction.
Along the whole process, constitutional actions are available whenever fundamental rights are violated during the process, mainly relating to the constitutional right of due process.
Arbitration has become very significant as a method of dispute resolution and the most important cases are being solved by arbitration. The arbitral procedure is regulated by Law 1,563 of 2012, and it has been very valuable because it ensures a quicker resolution of conflicts in an effective manner. Also, there are arbitrators of the highest quality in Colombia.
Nonetheless, this method tends to be very expensive and therefore is not universally available. In Colombia, the arbitration tribunal itself cannot execute arbitral awards; if the party that loses in the arbitral process does not want to comply with the award, a new process must be started before a judge (not the same arbitral tribunal) to execute the award.
Regarding foreign court or arbitral judgements, the awards need to be recognized by a local court, which is normally the Civil Chamber of the Supreme Court of Justice.
The requirements for the enforcement of the judgment or award are set forth in article 606 of the General Procedure Code, and are as follows:
It may not be about rights in rem located in Colombian territory at the moment of the beginning of the process.
- It may not be contrary to Colombian law and public policy, except laws about procedure.
- It must be enforceable according to the law of the country in which it was ruled.
- It may not be about matters that are the exclusive competence of Colombian judges.
- There cannot be any other process in course, or decision in Colombia, about the same matter.
- If it is a contentious process, notification and contradiction rights must be respected.
- It must be recognised by the procedure of exequatur.
The exequatur procedure is regulated in article 607 of General Procedure Code, and it is the procedure by which the Civil Chamber of the Supreme Court of Justice recognizes that a foreign court judgment or an arbitral award is enforceable in Colombia.
Arbitral awards have their own regulation in Law 1,563 of 2012, but it is not radically different from the General Procedure Court, though it is more specific to arbitral tribunals and awards.
VII. Covid – 19 Infrastructure regulations.
The Constitution stipulates that when events occur that disturb or threaten to seriously and imminently disturb the economic, social and ecological order of the country, or that constitute a serious public calamity – such as the covid-19 pandemic – the president may, with the signature of all the ministers, declare a state of emergency for periods of up to 30 days in each case, which together, may not exceed 90 days in the calendar year. By means of that statement, which must be motivated, the president may, with the signature of all the ministers, issue decrees with the force of law that are exclusively intended to avert the crisis and prevent the extension of its effects.
As of August 2020, the president has twice declared a state of emergency to deal with the covid-19 pandemic. During that period, it has issued several decrees. Although some of those decrees indirectly impact public-private partnerships, only three specifically deal with infrastructure, public transport and public-private partnership projects: Decree No. 482/2020, Decree No. 569/2020 and Decree No. 768/2020.
Some key aspects of these regulations are:
- Exemption from collections of tolls;
- Suspension of airport infrastructure charges;
- Temporary suspension of the collection of rental fees for spaces subject to commercial exploitation located at non-concession airports.
- Creation of the Logistics and Transportation Centre, which has the power to order the suspension of any infrastructure provided for the provision of the public transportation service;
- The continuation on the building and operation of infrastructure projects if they comply with the biosafety protocols issued by the Ministry of Health;
- In respect of the public-private partnership schemes that Law 1508/12 (the PPP Law) deals with, and owing to the adoption of measures by the national government that lead to a reduction in the collection of projects, time extensions may be made that, when added together, exceed 20 per cent of the value initially agreed in the contract. In the case of private initiative projects, the contracts may be extended by more than 20 per cent of the initial term;
- The possibility for public entities to unilaterally suspend state transport infrastructure contracts under their charge, in the event that the suspension is necessary for compliance with the measures derived from the declaration of economic, social and ecological emergency in the face of the pandemic and the subscription of the suspension act by mutual agreement has not been achieved within two days of the communication sent by the contracting public entity for those purposes;
- The possibility for entities granting port concessions to extend the terms of extension of the concessions provided for in the contract for the time they deem necessary to recognize the effects that the provision of services in their ports may eventually generate on the economy of the contract, during the period of the emergency declaration, taking as a framework the contractual risks and the recovery of the value of the investments made; and
- In respect to the concession contracts referred to in the General Statute of Public Procurement and in the public-private association schemes referred to in the PPP Law, signed before the issuance of the relevant decree, the parties may agree to an extension in time that added exceeds the limits set forth in the current regulations, an extension that will be based exclusively on the measures of noncollection of fees and tolls adopted by the national government.
Appendix No. 1
Investments established in Valle del Cauca 2015- 2019
2. DANE (Cuentas Nacionales, 2018).
3. DANE (Encuesta Anual Manufacturera, 2018
4. Superintendencia de Puertos y Transporte, 2018
5. Legis (Legiscomex, 2019) & Concejo Privado de Competitividad, 2019.
6. Regional Competitive Council, 2020
7. DANE (Proyecciones Censales, 2018-2023).
Contributed by Carlos Francisco Saavedra