COLOMBIA: An Introduction
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Current economic, legal and political trends affecting the business climate
The business climate in Colombia is marked by recent events, such as the pandemic and social protest promoted by the São Paulo Forum.
Law firms, as well as other sectors of the economy, such as finance, quickly adapted to a new digital work culture.
The pace of business has been reactivated and companies have recovered their work dynamics. Although the growth of law firms in Colombia slowed during 2020, by 2021 it has stabilised and continues to rise.
Effect of COVID restrictions
Economic activity had a sharp decline in Colombia. According to CONPES, "…in 2020 the Colombian economy registered a contraction of 6.8% - one of the lowest in Latin America; GDP growth of 5% is expected for 2021." CONPES presented an economic reactivation plan on several fronts with investments of COP135 billion in six years. The idea is to achieve greater growth, stop and mitigate the increase in poverty and economic vulnerability of families and promote job creation. It was also planned to recover the productive sector, strengthen the state and promote digital development.
The "New Commitment for the Future of Colombia" plan is equivalent to 12.5% of the country's current GDP and will be used to build housing and infrastructure, as well as improve productivity and regional development. Contributions are also planned for the mining and energy sector, the financing of agricultural projects and financing for education. Other sums are dedicated to social improvement projects and subsidies to vulnerable households due to poverty, such as the Income Support Programme.
Foreign investment fell to around USD3.319 billion at the end of June 2021, which represents a decrease of 21.3% compared to the same period in 2020 when it was approximately USD4.218 billion. The downward trend occurred since 2020, with foreign investment down USD899.2 million compared to the first half of 2021.
Foreign investment in the oil sector also decreased compared to 2020, reaching around USD2.253 billion, which is 7.97% less than in the same period in 2020, when it was approximately USD2.449 billion.
The factors that led to the decrease in investments were COVID, the mobilisation of a national strike promoted by some unions and the loss of the country's investment grade, due to the setback of the government's tax reform project in Congress, which was the object of social protests that led to vandalism in several cities of the country.
All of the above also meant a fall in portfolio investments, from around USD1.509 billion to around USD1.379 billion in 2021. In addition to this, there were investments abroad of USD618 million, a sum greater than that of 2020, when the figure was USD453 million.
The country's economic reactivation plans give priority to vaccination (reaching 35 million Colombians in September 2021, more or less two-thirds of the population), in an environment of biosecurity measures to allow the opening of offices, schools and colleges, hotels, restaurants, theatres, bars and places of recreation, with limited capacity and mandatory security measures.
The level of activity, trends and developments
Most of the government's efforts have been dedicated to generating economic reactivation, after having taken measures on many fronts, especially the social one, to reduce poverty, to care for migrants (more than 1.8 million Venezuelan refugees currently live in Colombia), to grant subsidies to the unemployed and families in great need by way of financial contributions, as well as the creation of new sources of employment.
The government adopted policies such as creating incentives to employ young people between the ages of 18 and 28, with subsidies consisting of government support with social security and pension payments.
Other legislative initiatives consisted of accelerating the digital transformation of the country to allow a rapid reactivation of the economy, with the support of state-of-the-art technological means.
New legislation that will have an effect on clients
Starting in the middle of 2020, Congress and the President implemented a plan to reactivate the economy.
The main projects of the government and Congress yielded several measures of great importance:
• Reforming the judicial system through the application of technology, for example, the introduction of digital hearings, including e-mail notifications and the ability to present documents to the courts by the same means.
• Reforming the procedures for sanitary licences, eliminating obstacles to small and medium-sized companies and accelerating economic growth (Decree 1366 of October 16, 2020).
• New regulations to promote entrepreneurship, reduce job losses, streamline processes, procedures and fees, access to state purchases, financing, and education (Law 2069 of December 31, 2020).
• Boosting the country's digital transformation for the private and state sectors with technological advances such as electronic invoicing, online government, digital filing of tax returns and other initiatives to simplify procedures and generate greater economic activity.
The tax reform bill presented to Congress in 2020 met with popular rejection manifested through social protest that reached high levels of violence. The withdrawal of this bill required the preparation of a new one, more moderate in terms of collection, with a significant reduction in income for the state, while maintaining the purpose of providing for the unemployed and families with incomes below the poverty level. This project includes the following points:
• Social spending and economic reactivation: continuation of the Income Support Programme until 2022 and payroll subsidy (PAEF) until December 2021.
• Tuition subsidy for university students: for 695,000 students in vulnerable conditions, together with incentives and better conditions for users of educational credit.
• Austerity plan: reduction of state spending by COP1.9 trillion between 2022 and 2032, starting in 2023, maintaining the purchasing power of public servants.
• Acquisition of essential goods and services for the state, cutting expenses for mobile telephony, travel expenses, leases and vehicles. Reduction of transfers by the nation to territorial entities and control of contracts for the provision of services and parallel payrolls.
• Anti-evasion proposal: with a collection of USD2.7 billion, which would implement compulsory electronic invoicing.
• Unique registry of final beneficiaries (RUB), identifies beneficiaries of companies so that they comply with their obligations.
• Georeferenced information system to detect the real value of declared properties and to invoice income tax, facilitating collection.
• No adverse effect for the middle class.
• Business solidarity contribution such as income tax at a rate of 35% by large companies in the country, starting in 2022.
• Discount of 50% of the ICA in income tax, a tax normalisation process for 2022 and an extension of the income surcharge to the financial sector of 3% until 2025.
Performance of law firms
The most important law firms in the country suffered a decrease in their growth, with some honourable exceptions that showed growth in their income. Although the results of the firms were exceptional, mainly due to the reduction in the costs associated with office rent and travel, the decline in economic activity presented challenges, especially for medium-sized firms. The economic reactivation has also meant an effort by companies to reduce costs, improve efficiencies, and increase their profits, all in the context of adopting biosafety standards for an extended period of time, accepting the importance of a greater social contribution in an atmosphere of protest generated by the influence of external agents.
Potential hurdles or difficulties faced by clients and how these can be overcome
The effects of the pandemic could last for several years; state support for those who were most affected in their employment, income, business or studies, will be a necessity. The state must comply with these obligations, for which it requires economic growth supported by companies with social sensitivity and who contribute to supporting the country's economy, its improvement projects and to the maintenance of a free enterprise system in a democratic environment.