Doing Business In: Cali

Compartimos el artículo "Doing Business In: Cali" escrito por Carlos Francisco Saavedra, miembro de la firma Saavedra Becerra Abogados y de la Unidad de Acción Vallecaucana, para la editorial y firma de análisis legal inglesa The legal 500. Se pretende que este documento pueda ser utilizado para promover la inversión en la región. Ver publicación original: https://www.legal500.com/doing-business-in/doing-business-in-cali-colombia/


I. Overview


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.


1. Bioenergy.


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.


3. Beauty


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


Real Estate:

The average rental price in Cali for offices and warehouses is up to 25% cheaper than the main cities in the country.


Salaries:

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.


Logistics:

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