Over the last several months we've had the opportunity to meet Mark Svoboda, a Russian-by-birth and current American resident looking for his next “Shangri-La” around the world. So far he has reported on Malaysia, Singapore, and Tanzania. Today Mark heads to South America for his findings on Colombia…
A Beginner's Guide to Colombia (Part 1)
Spanish colonizers first sailed along the north shores of Colombia as early as 1499. Spanish rule in the region lasted until 1819, when military and political leader Simon Bolivar led the country to Independence. Throughout its history, the Colombian landscape has changed immensely – for example, in 1538 the then-named colony of New Granada was comprised the modern-day territories of Colombia, Venezuela, Ecuador, north-western Brazil and Panama. Today, Colombia, whose name comes from Christopher Columbus (“Cristoforo Colombo” in Italian), is bordered to the east by Venezuela and Brazil; to the south by Ecuador and Peru; to the north by Panama and the Caribbean Sea; and to the west by Ecuador and the Pacific Ocean.
Although the Republic of Colombia was officially formed in 1886, its current geography was not finalized until the 20th century. In 1903, the Unites States and Colombia signed a treaty according to which the US was going to build and manage the Panama Canal (Panama at that time was part of Colombia). The treaty, however, was not ratified by the Colombian congress and the US then began to actively support the separatist movement in Panama. Subsequently, Panama separated later that year, but was not formally recognized by Colombia as a sovereignty until 1921, when the US compensated Colombia with USD 25 million and issued formal apologies for its role in the conflict.
Colombia lies in the so-called “ring of fire,” a region of the world subject to earthquakes and volcanic eruptions; It is also dominated by the Andes Mountains, which contain the majority of the country's urban centers. In terms of population, Colombia has a little over 46 million people, with large proportion of young people.
In HSBC's The world in 2050, a perspective on the economic outlook in 2050, Colombia is seen playing a decisive role in the global economy and predicted to become the number 26 economy in the world, as measured by GDP (up from position 33 or 34 now depending on the research). It is also part of CIVETS, a group of emerging markets seen as “the next BRICs.”
According to the IMF, the GDP of Colombia in 2011 was USD $328,422 (the 3rd biggest in South America) with per capita GDP of USD $7,132. In purchasing power parity terms, numbers are USD $471,964 billion and USD $10,249, respectively.
GDP growth over the last 10 years averaged to about 5%, similar to that of Brazil, but less than neighboring Panama, which was growing a little faster. Interestingly, the Colombian economy did not contract in the disaster years of 2008 and 2009, posting a modest growth of 1.45% in 2009, showing pretty good economical resiliency. Last time its economy shrank was back in 1999.
The country is rich in natural resources, with the main industries being petroleum, coal, coffee and other agricultural produce, and gold. Colombia is also known as the world's leading source of emeralds, and over 70% of cut flowers imported by the United States originate from Colombia.
The oil sector has been a huge success in Colombia, with production ramping up rapidly in the last several years. It went from 525,000 barrels per day in 2005, to almost a million in 2011. Yearly rate of increase is comparable with that of Brazil, which has been in the news much more extensively than Colombia, who is the fourth largest oil producer in South America. Production in Brazil per year is still much higher, with about 2.7 million barrels per day (2010).
The official currency in Colombia is the Peso, and it has been rising substantially over the last few years due to increasing investment inflows from outside the country (with the oil industry being one of the main beneficiaries).
Almost 90% of Colombians are Christian Catholics, with the rest being Protestants and, to lesser extent, Judaists, Muslims, Hindus, and Buddhists.
While Colombia's finance sector is reasonably developed, I would say that neighboring Panama has developed a more advanced banking industry. It probably makes good sense for someone living in Colombia to have both Colombian and Panamanian bank accounts (diversification is never a bad thing).
Colombia's stock exchange, known as Bolsa de Valores de Colombia, has less than 100 listings and USD 250 billion in total market capitalization. In 2011, plans were announced to unite the exchanges of Colombia, Chile, and Peru, which should significantly improve participation levels on all of those markets.
Business and Taxation
Colombia has been a huge success story in recent years, and a lot of the “smart money” has moved to the country. The country is ranked 42 worldwide in terms of ease of doing business, and number 3 in Latin America (after Chile and Peru), which is pretty good in my view. Interestingly enough, according to the same research, Colombia ranks number 5 in the world in terms of protecting investors, a good indication of how serious the Colombian government is about attracting foreign investment.
Personal Income tax in Colombia is based on a progressive scale and is relatively steep for high earners. While percentages one needs to pay don't change year-to-year, the income at which the income tax is triggered and escalated thereafter changes based upon inflation. Figures for 2012 are as follows, where 1 UVT (Unidad de Valor Tributario) is USD 26,049 in 2012:
0-1.09 UVT (0 – USD 28,393) — no tax obligations
1.09 – 1.70 UVT (USD 28,393 – 44,283) — 19%
1.70 – 4.10 UVT (USD 44,283 – 106,800) — 28%
> 4.10 UVT (> USD 106,800) — 33%
Corporate tax is a flat 33%.
The good news for a potential expat is that newcomers are entitled to a 5-year tax holiday on income earned outside of the country.
This marks the end of the first part of Mark's report on Colombia. Join us next week as he continues to shed light on the country, including lifestyle, key cities, and safety.