Corporate Challenges and Opportunities in Colombia in 2015

Transcription

1 Corporate Challenges and Opportunities in Colombia in 2015 Elzbieta Czetwertynska Colombia TTS Head Treasury and Trade Solutions

2 1. Colombia General Overview 2. Citi Colombia Footprint

3 What is Colombia? Opportunities Colombia is the only country in South America with access to the Atlantic and Pacific oceans Since 1999 Colombian monetary authorities allow the Peso to float freely. Under the floating exchange-rate regime, interventions in the exchange-rate market are done only under very specific circumstances Colombia is the oldest democracy in Latin America Since 1999 Colombia has a one digit inflation and has never suffered from hyperinflation The Colombian banking sector expanded rapidly since the 1990s as foreign investment increased and state assets were sold off during the economic liberalization process Colombia has never defaulted on its international indebtedness 55% of the population is less than 30 years old. There are nine cities with over 500 thousand people Colombia s external debt rating has improved, and it currently stands at investment grade Source: Investment Environment and Business Opportunities in Colombia January 2015 / 3

4 Colombia Overview Area : 1,141,748 sq km Nominal GDP (2014) : US$375 billion GDP per Capita (2014) : US$7,878 Real GDP Growth (2014) : 4.6% CPI (2014) : 3.66% Exports FOB (2014) : $56.98 billion Imports CIF (2014) : $61.68 billion FDI (2014) : $17.3 billion Main Cities (population) Bogotá(Capital) 7.8 million Medellin 3.4 million Cali 2.3 million Source: Citi Research and Bloomberg. 4

5 The Highest Growth in 2014 among LatAm s Major Economies Growth of Gross Domestic Product, % LatAm and Caribbean (Average Growth) 2.5% 2.4% 2.1% 1.9% 0.5% 0.0% Colombian Growth Drivers According to OECD High investment in housing and infrastructure (12% growth) Growth in private consumption (4.6%) Solid labor market Public expenditure (3.8)% Venezuela 2014 GDP growth estimate. Sources: Citi Research and Bloomberg, OECD, IMF (World Economic Outlook October 2014) and DANE. Among the main countries in the region in terms of GDP. Investment Environment and Business Opportunities in Colombia January 2015 /

6 Colombia s Main Figures 2014 Highest in the Region. Average Growth Rate for LatAm: 1.3% 8.7% Unemployment Rate by the End of December 2014 Fourth Largest Producer in South America GDP Growth Forecast for 2015: 3.5% Agreement has been Reached in Three Out of Five Points GDP growth: 4.6% Urban unemployment rate: 9.3% 1 million barrels per day of oil production 4 th largest economy in LatAm and 28th in the world Currently peace talks in La Havana Record Figure in the History of Colombia 66% of Exports Were Hard Commodities Aligned with Government Forecast Colombia is the Second Largest Spanish Speaking Country in the World Investment Planned to Be Financed Through Public/ Private Partnerships Direct Foreign Investment: US$17,290 million Exports of goods and services US$56,980 million Controlled inflation 3.66% Central Bank interest rate: 4.5% Population of 48 million US 35 billion to be invested in infrastructure in the near future The key drivers for Moody s upgrade were 1. Expectations of continued strong growth dynamics despite external headwinds 2. Sound fiscal management 6 Source: Citi Research and Bloomberg

7 Impact of Oil Price Decrease in Colombia s Economy A decrease in oil prices has an important impact in Colombia s macroeconomic situation (7% of GDP comes from Mining and Oil). Main impact to occur in 2016 given 2015 tax revenues are paid based in 2014 companies performance For every $10 decrease in oil price government s income is impacted in $2.1 billion per year (approximately 0.5% of GDP) Fiscal impact for 2015 estimated at COP 9 Trillion Lower oil prices and a fall in FDI flows to Colombia generate FX depreciation which compensates partially the fiscal impact (for every COP10 depreciation Government receives approximately additional $150 million) Increasing fiscal deficit will require a tax reform and additional government debt which could be allowed under the fiscal rule due to materiality of impact (in a below $60/B scenario) Central Bank likely to control inflation through monetary policy Macroeconomic Impact of Lower Oil Prices WTI at US$55 Colombia GDP Inflation Fiscal Deficit Unemployment

8 Peace Talks Status Timeline November 2012 FARC rebels declare two-month ceasefire and peace talks begin in Cuba July 2013 FARC chief negotiator states the armed conflict is nearing an end, and calls on left-wing parties and unions to join efforts December 2014 FARC s unilateral ceasefire January 2015 President Santos says government ready for bilateral ceasefire with FARC Three months after the start of the FARC s unilateral, indefinite cease-fire, the guerrillas violated it President of France François Hollande offered financial and technical support to a post-conflict Colombia Breakthroughs Agreement on the first three items of a five-point agenda 1. Rural development. Development programs for infrastructure, social development and farming policy among others 2. Political participation. Guarantees for the political movement formed after the conflict ends 3. Drug trafficking. FARC s final cease of any activity related with drug traffic Challenges of a Successful Process Disarmament: FARC negotiators show reluctance to turn in their weapons after signing a peace accord Demobilization: Colombia must contend with a wave of former fighters, most of whom have no education or marketable skills Financing According to the government 1, the minimum cost 2 of Colombia s Peace Deal for the next 10 years would be about US$44.4 billion Although the government states that the cost is still lower than the current war expense, there is an anticipated need for Implementing structural reforms to make sure there is sufficient funding for such post-conflict programs Reevaluation of government spending and taxation 8 1. October 2014 estimated by Peace Commission and presented to Colombian Senate. 2. To be used in demobilization, victims compensation and return of displaced population. (Presentation of Peace Commission to Colombian Senate).

9 Foreign Direct Investment ( FDI ) in Colombia FDI Inflows Q14 (US$ in Million) In 2013 Colombia Reached a New Record in FDI: Nearly 10 Times of What it Received 10 Years Ago Avg Colombia is the Leader in Terms of Investor Protection in the Region and 10 th Worldwide Source: Doing Business 2015 World Bank. 1. Index: 0 10 and 10 = the best score. Source: Investment Environment and Business Opportunities in Colombia January 2015 / 9

10 Colombia has Easy Access to Markets around the Globe Los Angeles 8H20M Mexico City 4H45M Quito 1H30M Mexico Lima 3H00M Canada US Ecuador Peru Chile Santiago de Chile 5H00M Toronto 6H05M New York 5H35M Caracas 1H20M Brazil Sao Paulo 5H45M Argentina Buenos Aires 6H15M Madrid 9H40M Paris 10H40M Spain Frankfurt 11H15M France Germany Over 935 Weekly Direct International Flights More than Weekly Domestic Flights Less than 6 Hours to the Main Capital Cities in Latin America More than 20 Different Airlines Operating in Colombia Source: Investment Environment and Business Opportunities in Colombia January 2015 / 10

11 Colombia Tops the Region in the World Bank s Doing Business Report Factors with Positive Behavior Positions Change ** (US$ in Million) Getting Credit Registering Property Trading Across Borders Position Out of 189 Economies Dealing with Construction Permits Position Out of 189 Economies Change in Rank ** 11 Source: Doing Business Report World Bank, Investment Environment and Business Opportunities in Colombia January 2015 / * Position between 189 economies. ** Positive numbers indicate an improvement in the business environment.

12 Some Examples of High Profile Colombian Multilatinas One of the largest food companies in Colombia, Nutresa has presence in 12 countries in LatAm, with manufacturing plants in 8 of them. Recently, the company signed an agreement to acquire 100% of the shares in Tresmontes Lucchetti SA in Chile for US$758 million SURA Brand is currently well known in the insurance, pension and investment fund business through its operations in Mexico, Peru, Uruguay and Chile. In 2011, the group bought ING assets in LatAm for US$3,614 million Carvajal SA, is a conglomerate with presence in 15 countries and recognized for its role in the field of packaging, stationery, design and advertising Tecnoquímicas is specialized in health products and services, personal care and household cleaning, processed foods, and agricultural and veterinary products in Colombia and LatAm. The company has direct resence in Central America through its 3 plants in El Salvador Colombina SA is one of the country s leading companies in the production and marketing of sweets, chocolate and biscuits. The company has strengthened its international strategy with the opening of 11 branches throughout the Americas and has a production plant in Guatemala to supply the American market 12 Source: Investment Environment and Business Opportunities in Colombia January 2015 / * The brands mentioned are trademarks/registered marks.

13 Regulatory Environment General Solid regulatory environment focused on reforms to improve business conditions and adequately protect investments Colombia faces certain challenges as its judiciary system continues to be slow and judicial decisions continue to leave room for legal uncertainty Reforms Amendment of rules pertaining to investment funds Raised risk management standards (SAR) 1 Improved transparency standards New rules pertaining to data protection FATCA pursues foreign financial institutions to prevent tax evasion by US citizens and residents through use of offshore accounts Underway 2015 Tax Reform: Additional tax reforms are expected during the course of the year Risk Bureau Restriction: Limits the information sent to the credit bureau in order to protect customers Transnational Corruption: Transnational corruption acts will be considered criminal acts 1. SAR: Sistema de Administración de Riesgo. 13

14 Anti Money Laundering Environment Context Banking Law Colombian authorities are deeply committed to combating money laundering and have achieved a significant number of convictions. With respect to confiscation of illicit property, Colombian legislation is among the few that provide for extinción de dominio (domain extinction) which facilitates the forfeiture of illicit property through a process separate from money laundering criminal procedures. (2005 Financial System Stability Assessment Update, International Monetary Fund) Non-residents cannot open bank accounts, except for very specific transactions (i.e. to pay for a foreign investment or loan) Domestic banks cannot open dollar accounts, except for certain types of companies (i.e. travel agencies, hotels, embassies, free trade zones, airlines) Monetary obligations between residents in Colombia must be paid in local currency There are no restrictions to pay any obligation in cash (COP) Data Privacy Demographic data/information can be shared with third parties in most cases, locally and abroad, based on general authorization from customer. Anti Money Laundering data cannot be shared Cash Transactions Reports-CTR Legal obligation for customers to fill out a cash declaration form for amounts equal or greater than ~US$5,000 Banks must identify monthly aggregated transactions totaling ~US$25,000 per customer Banks must send that information to the UIAF on a monthly basis The Government of Colombia ( GOC ) is a regional leader in the fight against money laundering and terrorist financing (US Department of State, 2012 International Narcotics Control Strategy Report) 14

15 Corporate Tax Environment General Taxes Income tax rate CIT rate 25% CREE 1 9% (complementary to income tax) VAT 2 rate 16% Capital Gain tax rate 10% Other Taxes Capital Gain tax rate 10% GMF 3 : 0.4% on financial transactions (Debits) ICA 4 : 0.2% to 1% on total income (Municipal) Withholdings 33% on foreign short-term debt unless trade related 14% on long-term debt 2014 Tax Reform a) Wealth Tax It applies for taxable years 2015, 2016 and 2017 to legal entities who are Income Tax taxpayers Taxable Year Tax Rate Taxable Base % % Equal or Higher than $5.000 million of Colombian Pesos, and up % Equal or Higher than $5.000 million of Colombian Pesos, and up Tax Reform (Cont d) b) Surcharge on Income Tax for Equality (CREE) Wealth Tax Tax base Tax rate 1.15% 1% 0.40% Tax (A) Success during Congress Debate: Wealth Tax was reduced from 4 to 3 years, and the proposed rate was reduced from 1.75% to 1.15% in the first year Further down in 2016 and 2017, collection is compensated by a new surcharge to Income Tax for Equality (CREE) equivalent to 5% for year 2015 Income Tax Cree & Cree Surcharge 6% for year % for year 2017 Tax Base 158 9% for year 2018 Income Tax 25% 39.6 Cree 9% 14.2 Cree Surcharge (B) 7.9 Total Tax 61.7 Total (A+B) 16.9 Withholdings 39% on royalties 2015, 40% 2016, 42% 2017, 43% % on Consultancy, Technical Services, Technical Assistance Income Tax for Equality (CREE: Contribucion de Renta para la Equidad). 2. VAT: Value-added tax 3. GMF: Gravamen a los Movimientos Financieros 4. ICA: Impuesto de Industria/Comercio y Avisos y Tableros

16 Industry Specifics Colombia Infrastructure Construction industry with the fastest growth 7.6% on average) Transport infrastructure Plan announced by Government (US$55 billion) Public-private partnerships ( PPP ) to support infrastructure concessions Infrastructure funds with a mandate to invest in Colombia The construction industry still restrained by the internal security situation Pharmaceutical and Healthcare Increased investment in healthcare has driven growth in pharma consumption Counterfeit drugs continue to represent up to 40% of the market 1 Some 14% of Colombian population remains uninsured 2 Most of the local production is dependent on imported active pharmaceutical ingredients ( APIs ) Telecommunications Significant investments taking place in this industry (US$10 billion ) Mobile market growth fuelled by prepaid segment with low usage, more competitive prices for subscriptions Expected subscription growth over is weak The dominance of Claro remains an issue for market competition and growth Retail Modern retail space gaining importance, traditional small outlets still account for half of food sales by value Traditional stores will remain popular with low-income consumers, who lack the purchasing power to buy in bulk and lack transportation Price remains the decisive factor in many consumers purchasing decisions Mass grocery retail formats catering for lower-income consumers, offer significant growth potential 16 Source: Business Monitor International. Industry Report & Forecast Series. Colombia Infrastructure Report Q1 2015, Colombia Telecommunications Report Q2 2015, Colombia Pharmaceutical and Healthcare Report Q and Colombia Retail Report Q Business Monitor International. Industry Report & Forecast Series. Colombia Pharmaceutical and Healthcare Report Q Page Business Monitor International. Industry Report & Forecast Series. Colombia Pharmaceutical and Healthcare Report Q Page 9.

17 Opportunities and Challenges Opportunities Challenges Explicit backing from the IMF and the ratings agencies has boosted confidence in the economy Lower that initially expected GDP growth due to drop in oil prices The government s endorsement of public-private partnerships ( PPP ) as a means of procuring infrastructure has supported an active concessions market The Pacific Alliance, in addition to the increased number of FTAs that the Government is negotiating, is expected to boost the growth of exports. This will encourage the development of infrastructure to support logistics operations The global demand for coal remains high and Colombia is South America s largest coal producer Significant currency depreciation due to lower oil prices and signs of inflationary pressures Lower fiscal income led to high taxation and more taxes are likely to come Peace Process: finalizing the peace process is at the top of the Government s agenda. Once signed this will impact the economy and present its own challenges Significant infrastructure projects in the near future (Metro, roads, etc.) with interesting business opportunities 17

18 1. Colombia General Overview 2. Citi Colombia Footprint

19 Citibank Business Segments Consumer Citi Private Bank Citi Commercial Bank Full banking services, including current accounts, investments, financing and insurance, with the practicality of a global bank. Promotes access to a range of products and services and capital markets, investment managed, portfolio management, planning Trust and estate. Focused on medium and large companies, stands out by having skilled managers that contribute to good financial performance customer. Citi Markets and Security Services Corporate and Investment Banking Treasury and Trade Solutions Citi Markets provides world-class products and financing solutions for corporations, governments, and institutional investors through our dominant underwriting, sales and trading, and distribution capabilities. Positioned between the major corporate banks and investment in the world. Integrated local/international cash management solutions and foreign trade. Own the most comprehensive portfolio of the financial industry, which includes services such as payments, receivables, liquidity management solutions working capital and funding. 19

20 TTS Citi Colombia Full Solution Offering Payables Integrated Payments Service Commercial Cards Vendor and Tax Payments Receivables Passive Collection Services Active Collection Services Receivables Management International Cash International and US Demand Deposit Account Citi Online Investments (OLI) FX and Trade Solutions CitiFX Pulse Online Trading for FX Processing Trade Solutions Supply Chain Finance Solutions (Supplier and Distribution Finance) Liquidity Management Citibank Smart Account Citibank Zero Balance Account Electronic Banking CitiDirect Online Banking Treasury Vision Data Aggregation Project Implementation and Client Services Regional Implementation Management Global Account Documentation Regional Customer Service Regional Relationship Management 20

21 IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby ("Transaction"). Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. In any instance where distribution of this communication is subject to the rules of the US Commodity Futures Trading Commission ( CFTC ), this communication constitutes an invitation to consider entering into a derivatives transaction under U.S. CFTC Regulations 1.71 and , where applicable, but is not a binding offer to buy/sell any financial instrument. Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the information contained herein and the existence of and proposed terms for any Transaction. Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction. We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided. Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time. Although this material may contain publicly available information about Citi corporate bond research, fixed income strategy or economic and market analysis, Citi policy (i) prohibits employees from offering, directly or indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated for specific recommendations or views contained in research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citi has enacted policies and procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances Citibank, N.A. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world. Citi believes that sustainability is good business practice. We work closely with our clients, peer financial institutions, NGOs and other partners to finance solutions to climate change, develop industry standards, reduce our own environmental footprint, and engage with stakeholders to advance shared learning and solutions. Highlights of Citi s unique role in promoting sustainability include: (a) releasing in 2007 a Climate Change Position Statement, the first US financial institution to do so; (b) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of renewable energy, clean technology, and other carbonemission reduction activities; (c) committing to an absolute reduction in GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (d) purchasing more than 234,000 MWh of carbon neutral power for our operations over the last three years; (e) establishing in 2008 the Carbon Principles; a framework for banks and their U.S. power clients to evaluate and address carbon risks in the financing of electric power projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with a broad range of stakeholders on the issue of climate change to help advance understanding and solutions. Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks. efficiency, renewable energy and mitigation