Invest. Colombia. Textile & Apparel Industry. September Hard-Working, Commited, Talented

Invest September 2009 in Colombia Hard-Working, Commited, Talented Textile & Apparel Industry

Contents 1. Where have we come from? 2. What are we doing now? 3. The reasons why Colombia is an attractive place to develop production projects in the Textile & Apparel Industry: 1. For the access to markets 2. For the domestic market 3. For the industry track record 4. For the competitive human resources 5. For the legal incentives and special tax regimes 4. Conclusions

Contents 1. Where have we come from? 2. What are we doing now? 3. The reasons why Colombia is an attractive place to develop production projects in the Textile & Apparel Industry. 1. For the access to markets 2. For the domestic market 3. For the industry track record 4. For the competitive human resources 5. For the legal incentives and special tax regimes 4. Conclusions

The country has shown a consistent growth higher than that of Latin America. GDP Growth Rate: Colombia (2000 2008) % Projection 2009 2010 Col L.A. Col L.A. Latin Focus 2.1 1.1 3.0 2.9 EIU -3.0-1.2 1.5 1.7 IMF 3.5 3.2 5.0 4.1 Source: DANE (National Accounts), DNP, EIU (Market Indicators & Forecasts) Note: * Last Update: April 7, 2009 4

Huge increases in FDI, exports and foreign visitors US$ Millions Exports 2002/2008 Increases 214% US$ Millions FDI 395% Millions of Visitors Tourism 120% Source: DNP, Banco de la República (Central Bank), Note: * (pr) Preliminary Projection

Market confidence: recovery of investment rating (coming soon) Risk Analysis Foreign Currency Debt 2003 2008 Outlook STANDARD & POOR S BB BB+ Moody s Ba2 Ba1 Fitch BB BB+ Source: Standard & Poor s, Moody s, Fitch 6

Violence levels have declined dramatically 2002/2008 Decreases -44% -85% -50% Source: Ministry of Defense

The specialized press has shared our development with the world

Commercial agenda: preferential access to 1.2 billion consumers We increased our preferencial access from 233 million consumers in 2002 to 1.2 billion consumers in 2010 2002 2010

2011 Investment agreement agenda: 19 IPPA s with 42 countries, and DTT s with 23 countries Double Taxation Treaties (DTT) International Investment Agreements (IIA) Both instruments will be available to all commercial parties 2002 2010

Second most friendly country in Latin America in the Doing Business 2007-2009 Colombia jumped 26 spots in two years! Two years as the most reforming country in Latin America (2009) Country Ranking 2007 Ranking 2009 Chile 28 40 Colombia 79 53 Mexico 43 56 Peru 65 62 El Salvador 71 72 Panama 81 81 Dominican Republic 117 97 Argentina 101 113 Costa Rica 105 117 Brazil 121 125 Ecuador 123 136 Venezuela 164 174 Source: Top Reformers Report. World Bank

Most competitive Free Trade Zones in Latin America: 15% profitability and allow sales to the local market Capital Gains Tax 15% No Customs taxes are incurred or paid (VAT, Tariffs) Benefits of international trade agreements. Share in the local market Goods Investment in millions Direct Jobs US$ 29.81 150 Services Investment in millions Direct Jobs US$ 1.99 9.94 500 AgriBusiness - BioFuels Investment in millions Direct Jobs US$ 14.91 500 ZFU- Cauca Nariño, Huila, Caquetá, Putumayo. Investment in millions Direct Jobs US$ 1 50 13

56 Free Trade Zones Approved Free Trade Zones Figures for New FTZ s Total Investment (USD Millions) 4,668 Direct Jobs 39,620 Indirect Jobs 86,137 14

Colombia offers legal stability contracts as a guarantee for investment projects Conditions For amounts greater than US$ 1,500,000 A bonus paid to the Government of 1% of the investment. Term Up to 20 years Approved Contracts 41 legal stability contracts, as of February 2009

The Apparel industry production grew 11.8% in real terms* from 2006 to 2007. Colombia has positioned itself in recent years as a center for apparel production and fashion in Latin America The Apparel and Textile Industries generate more than 800,000 direct jobs, which represents 12% of the total labor force in the manufacturing industry. Textiles and Apparel exports on average represent 12% of non traditional exports from Colombia, during the last five years. *Prices from year 2000

The textile and garment production exceeds US$ 2.5 billion annually The production of fibers and yarns, fabrics and garments grew at a real rate of -3.3%, 8.6% and 11.8% respectively during 2007. Source: DANE (National Department of Statistics)

and is especially strong in garments such as T-shirts and Jeanswear Total Industry Production - 2007 Garments, 72% of the total Textile and Apparel Industry production in 2007. Fibers and Fabrics share the remaining 28% Source: DANE (National Department of Statistics)

80% of the industry activity is concentrated in the regions of Antioquia and Bogotá Textile sales by region - 2007 - US$ millions Region Operating Sales Operating Costs Operating Profits Share of Sales % Bogotá 1,060.1 818.2 241.9 45.2 Antioquia 974.3 796 178.2 41.6 Atlántico 109.5 92.7 16.8 4.7 Cundinamarca 75.4 57.2 18.2 3.2 Risaralda 66.1 48 18.1 2.8 Tolima 26 24.2 1.8 1.1 Valle 17.3 14.4 2.8 0.7 Cauca 7.9 6.9 1.0 0.3 Cesar 3.9 3.5 0.4 0.2 Caldas 2.8 2.2 0.6 0.1 Santander 0.9 0.6 0.3 0.04 Bolívar 0.3 0.3 0.1 0.01 Quindío 0.3 0.2 0.1 0.01 Total 2,344.7 1,864.40 480.4 100.0 Source: DANE (National Department of Statistics)

Textile & apparel export industry : 12% of non-traditional exports from Colombia in the last five years. Source: DANE (National Department of Statistics)

Although we export textiles, more than 65% of industry exports are dedicated to value-added clothing of knit fabrics: US$ 1,381 million Garment Exports 2008 Main Destinations Country Weight in Tons FOB value US$ million FOB Share (%) Venezuela 20,213 777 56.2 United States 17,096 283 20.5 México 2,725 91 6.6 Ecuador 1,904 67 4.9 Costa Rica 632 21 1.5 Peru 656 19 1.4 Puerto Rico 427 14 1.0 Others 6,866 111 8.0 Total 50,518 1,382 100.0 Total : US$ 1,382 million Source: National Department of Statistics, DANE Source: DANE (National Department of Statistics)

Venezuela and Ecuador are the main importers of Colombian textiles to satisfy domestic industry demand Textile exports - 2008 Principal destinations Destination FOB Value US$ million FOB Share (%) Venezuela 527.2 71.0 Ecuador 73.5 9.9 Mexico 35.6 4.8 United States 22.3 3.0 Brazil 15.6 2.1 Others 68.3 9.2 Total 742.6 100.0 Total : US$ 742 million Source: DANE (National Department of Statistics)

1. For the free market access of more than US $207,000 million annually* Thanks to Trade agreements signed with countries in America and Europe, Colombia has become a production and distribution center for South, Central and North America. Additionally, transportation costs and lead times are better when compared to Europe or Asia. * GDP at 2007 prices, DANE (National Department of Statistics)

0% Tariffs for textile & apparel exports to American and European markets Agreement Countries Average Tariff Average Tariff for Colombia Bolivia Andean Community Ecuador Venezuela (until 2006) Peru 0% 0% FTA G2 Mexico 20% - 35% 0% SGP - PLUS Europe 6% - 12% 0% FTA- Chile Chile 6% 0% FTA USA United States 0% - 38% 0% Liechtenstein FTA- EFTA* Norway Iceland 6% - 12% 0% Switzerland FTA-Canada Canada 10-20% 0% Brazil Mercosur Argentina Paraguay 6%-26% 0-13% Uruguay FTA North triangle Honduras 10-15% 0-5% Source: Proexport

Colombia is a privileged site as export hub of the Americas 5:30 New York 3:00 Miami 4:30 Mexico City 1:40 Caracas Bogotá, only a 3 hour flight from Miami and 5 hours from São Paulo and New York 2:30 Lima 5:45 São Paulo 5:00 Santiago 6:10 Buenos Aires

2. For the domestic market of more than US $900 million During 2008, textile imports totaled more than US $952 million and apparel imports US $407 million. Colombia mainly imports fibers and synthetic filaments. Market segments such as Jeanswear and Lingerie are highvolume importers of raw goods and materials for production.

The local textile production does not cover domestic demand, therefore Colombia imports more than 50% of textiles used in local industry Source: DANE (National Department of Statistics) Source: National Department of Statistics, DANE - PROEXPORT

66% of imports are fibers and synthetic fabrics Textile imports - 2008 Imports origin Country Weight in Tons FOB value US$ million FOB Share (%) China 43,259 191.9 20.2 United States 20,427 125.4 13.2 Mexico 22,033 83.8 8.8 India 29,910 80.5 8.5 Brazil 9,514 49.0 5.2 Taiwan 13,250 42.6 4.5 Pacific FTZ in Col 20,093 40.2 4.2 Peru 5,999 35.4 3.7 Pakistan 8,619 31.4 3.3 South Korea 6,997 29.1 3.1 Others 52,994 242.4 25.5 Total 43,259 951.8 100.0 Total: US$ 952 million Source: DANE (National Department of Statistics)

Cotton fabrics, artificial fibers and fabrics, the most demanded by the local industry Local Sales - Textiles - 2006 (%) Total: US$ 3.32 billion Source: DANE (National Department of Statistics), Manufacturing Survey. Exchange Rate: Col$ 2,361 / US$

Colombia mostly imports Garments and Knitted Clothing Accessories Imports Garment - 2008 Total: US$ 407 million Source: DANE (National Department of Statistics)

3. For the textile & apparel industry track record Companies such as Coltejer and Fabricato have been producing for the local market and abroad for over 100 years. The textile & apparel market involves more than 6,000 companies with sales of more than US $4 billion in the year 2007.

More than 100 years of experience and development Industrial production represents 11% of all manufacturing activity and 1.7% of Colombian GDP, while generating 600,000 jobs. Medellín is the production center for textiles and apparel in Colombia. Shifting from 807 to Full Package production schemes to develop the industry vertically, Colombian companies offer the full service: everything from design in niche markets to Lingerie and Jeanswear. Colombia has specialized in becoming a design reference center for Latin America.

One of the most important fashion shows in Latin America takes place in Medellín Colombia is recognized in Latin America for its fashion shows, especially for events like Colombiatex and Colombiamoda which attract recognized international companies. Colombia has a 0.31% and 0.17% share of the world market value in textile and apparel production respectively, and 0.25% in the fashion show market.

4. For the competitive human resources Colombia s labor costs are among the the lowest in Latin America. Labor flexibility and the availability of skilled human capital enables production projects in Colombia to be profitable.

Colombia, high labor productivity and few labor disputes According to EIU*, Colombian workers occupy second place in labor productivity in Latin America, measured by: Number of annually labor strikes, Labor productivity Scale: 10: Outstanding 0: Worst. Source: EIU * (Economist Intelligence Unit) 2009.

One of the most competitive labor forces in Latin America. Availability of Skilled Labor Competitiveness - Senior Management Venezuela 3.52 Venezuela 2.48 Argentina Argentina 3.58 Argentina 4.13 Brazil Brasil 4.41 México Mexico 4.26 México Mexico 4.72 Colombia 4.94 Chile Chile 5.79 Brasil Brazil 5.08 Colombia Colombia 6.28 Chile 6.89 Source: IMD, World Competitiviness Year Book, 2008 Score /10

Labor costs in Colombia are below the average in Latin America US$ / month P: Provisional F: Estimated Source: EIU, 2009

According to Werner International, Colombian industry labor costs are among the lowest in Latin America Source: Werner International

Demand for Labor and Labor Costs in the Colombian Textile Industry 2006-2009 The Colombian Textile Industry workforce is highly skilled, 22% of the total employed population works in this industry. Total Employee Type Number of Workers 132,021 Permanent 53,097 Temporary 34,791 Others 44,133 Variable 2006 US$ 2009 US$* Salary & Wages 339.8 million Monthly Salary 214.5 273.9 Social contributions 229.0 million Monthly Payroll 144.5 184.5 Monthly Salary Cost US$ 359.0 458.4 Exchange Rate 2,361.1 2,252 The average salary for a Textile Industry worker is US$ 274 (m) in 2009, whereas the minimum salary is US$ 221 (m). This salary is locally and internationally competitive. *Adjusted for inflation and exchange rate m. monthly Source: DANE, Banco de la República (Central Bank), Colombia

5. For the legal incentives and special regimes for foreign trade. Colombia is a country with positive investment conditions. Not just competitively, but also in terms of the legal framework, which provides excellent incentives.

Types of Free-Trade Zones PERMANENT FREE-TRADE ZONE Can be new or existing zones, organized as an industrial park, wherein companies develop their industrial goods and services for trade. SPECIAL PERMANENT OR SINGLE ENTERPRISE FREE-TRADE ZONE Authorized such that only one company, using its own facilities, develops their industrial goods and services for trade.

Most competitive Free-Trade Zones in Latin America: 15% profitability, allow sales to the local market Capital Gains Tax 15%. No Customs taxes are incurred or paid (VAT, Tariffs). Benefits of international trade agreements. Sales to the local market. Goods Investment in millions Direct Jobs US$ 29.81 150 Services Investment in millions Direct Jobs US$ 1.99 9.94 500 AgriBusiness - BioFuels Investment in millions Direct Jobs US$ 14.91 500 43

Some tax deductions 40% deduction on the value of investments made in Real Productive Fixed Assets. 100% deduction on industry, commerce, advertising & publicity, and property taxes so long as they have been paid in the respective tax year and are coincidentally related to the economic activity of the taxpayer. 25% deduction of the tax on financial transactions, regardless of the type of economic activity of the taxpayer. 125% deduction on capital gains taxes for science & technology projects. VAT exemption on products designated for export. Vallejo Plan : VAT exemption on the temporary import of raw goods and materials for the production of finished goods designated for export.

Special regime for foreign trade, Vallejo Plan for raw goods and materials Allows: the import of raw goods and materials for the production of a determined amount of finished goods. Benefit: imports are completely exempt from customs taxes (VAT and Tariffs) for a determined amount of finished goods. Obligation: to export all finished goods to third-party countries in a determined period (18 months). User: any company that requests these privileges to the DIAN (National Customs and Tax Administration).

The Junior Vallejo Plan or Replacement Plan Allows: that goods exporters, whose production process has used a determined amount of imported raw goods and materials subject to Customs taxes and VAT, may import the same quantity of raw materials with tax exemptions. Benefit: raw materials imported exempt from Customs taxes (VAT, Tariffs). Users: any company exporting finished goods. Obligation: guaranteed export of finished goods having used the imported raw materials. Difference with the sale price of raw materials: there is no need to present additional evidence or samples, just export and import declarations of finished goods along with descriptions of the raw material. Customs mechanism used mostly for SMEs

The 807 Vallejo Plan Allows: the temporary import of raw goods and materials by an 807 type manufacturer for s assembly only into a finished good destined for export Benefits: 1. Import of raw goods and materials exempt from Customs taxes (VAT, Tariffs). 2. Not necessary to pay non-refundable import taxes 3. And as the goods/services are exported, they are billed without VAT. Users: 807 type manufacturers (Assembly only plants) Obligation: guaranteed export of 100% of the goods produced by assembly only manufacturer.

The use of the highly exporting users (ALTEX) framework Requirements for recognition: Export activity of more than FOB value of USD $2 million during the 12 months prior to application submission. The value of the direct exports, or value determined through the Customs Intermediary Society, must account for at least 30% of the total sales for the year prior to application submission.

The use of the highly exporting users (ALTEX) framework The following is achieved: Efficiency in the supply chain: Presentation of global shipping applications to make partial exportations, elimination of physical customs inspections (some exceptions) or site inspections. Cash Flow Increase : Single worldwide guarantee to the DIAN, on all imports and exports. Taxation: Exemption from VAT in the import of industrial equipment not produced in the country destined for raw materials transformation. In the production chain: Authorization as private deposit for industrial processing. Joint Qualification: Possibility of being both UAP (Permanent Customs Users) and ALTEX certified..

Other frameworks such as the customs deposit authorization for industrial processing Allows: the storage of raw goods and materials that will be submitted to transformation, processing or industrial manufacturing. Users: highly exporting users ( ALTEX ) and Permanent Customs Users (UAP). Benefit: possibility of importing under temporary import conditions, goods intended for industrial processing, without incurring customs or value-added taxes. These imports are for the production of finished goods destined for export only. Customs mechanism used mostly by textile and metalworks companies

Recognized companies have invested in Colombia DuPont de Colombia S.A. In 1963, this company began operating directly in Colombia in diverse commercial areas such as Textile and Nylon Industry products, advanced fiber systems, polymers and packing materials, lycra, photopolymer sheets for marking packages, security holograms, and much more. Colombia has a privileged geographic location that makes her a stepping stone, an equidistant point for all regional markets - Guillermo A. Heins, President & General Manager for Colombia, Ecuador, Peru and Venezuela, DuPont Through the years in Colombia, DuPont has established important alliances. In addition, DuPont de Colombia S.A., the corporation and the associate companies in the country, have made excellent investments in the automotive, textile, housing, paint and other local industries.

Recognized companies have invested in Colombia Coats Cadena S.A. Coats is the largest manufacturer and provider of industrial sewing and embroidery threads in the world. The wide range of Coats products provide solutions for every application for jeans, athletic shoes, airbags or even bulletproof vests. Our global product offering, and the availability of our brands of the highest quality, offers the best products and services to satisfy global specifications in 67 countries all over the world. This range of products is backed up by Coats Sewing Solutions value-added services to help you improve your sewing capability, allowing you to offer better-quality sewn products in less time.

Proexport will provide you with world class services Customized Information Contacts: with the public and private sectors Agendas: Organization of, and accompaniment during visits to Colombia On-Site Investor s Service Free and confidential: All services are free-of-charge and all information provided in the process is treated as confidential.

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