Colombia's Strengths and Opportunities - Exclusive Interview with President Juan Manuel Santos

16 October 2014

Juan Manuel Santos, President, Colombia and Ioana Belu, Business Intelligence Unit, Bogota, October 8^th 2014 ©Business Intelligence Unit

In October 2014, shortly after beginning of his second term in office, Colombia’s President, Juan Manuel Santos, met with our colleague, Ioana Belu, for an in-depth and insightful conversation about Colombia’s strengths and opportunities, identifying key industries for growth and highlighting the important advances Colombia has made in solving its problems, without shying away from addressing the challenges still present.

The President described the strong Colombian institutions and the rule of law, designed to cater to the needs of the most exacting of investors, as well as Colombia's strategic attributes, from its resource-rich soil and its geographic position, to the potential of the local human resources, powered by his commitment to turn Colombia into the best educated country in Latin America by the year 2025.

He explained that the current peace talks are aimed at securing a better and more inclusive future for all Colombians, one that would ensure significant rates of growth and diversified investment for the country. As key opportunities he identified the traditional sectors, such as hydrocarbons, from upstream to downstream, tourism, health services, agriculture, and the newer, fast growing, technology and biotechnology industries.

Business Intelligence Unit: Mr. President, thank you very much for receiving us today. It is my pleasure to introduce you to the Business Intelligence Unit project, Latin America 2020. We are here with you today to discuss the tremendous evolution of Colombia over the past few years. Colombia has reached very far in a very short amount of time.

Juan Manuel Santos: At the beginning of the century we were on the verge of being declared a failed state. We had many problems in many respects, economic problems, security and political problems, but we made a great effort to start fixing those problems with determination, with national consensus, and since then we have changed the situation, I would say, [to] 180 degrees.

On the security side, we have prepared probably the best armed forces that we have ever had, so we were able to force the paramilitaries into a peace process, to give themselves up in a way, and we are at this moment negotiating with the guerillas a peace process. We have advanced more than any other attempt in our whole history and we have a history of 50 years of war with the guerrillas. We are advancing and I am quite optimistic we will reach an agreement.

In the meantime we have put in place the correct economic policies to attract investment and to make our economy a working and strong economy. We have become the leaders of the pack in a way; we have at this moment the highest rate of growth of all of Latin America, in this first semester of this year [2014] the third in the whole world after China and Indonesia. We have the lowest inflation, we have the highest investment as a percentage of our economy and we are continuing to increase it because that is going to guarantee future growth.

We have our reserves at a level unprecedented. We have lowered our debt to a very manageable level also and we have put in place, this is very interesting, a set of guarantees for our fiscal responsibility, our fiscal discipline. We have set some criteria in our own constitution and we have fiscal rules which have given investors tremendous confidence, so now we are sort of the darlings of the investors, both in financial portfolios and also because of our growth in the productive sector.

We are a very rich country in terms of natural resources: we have energy, oil, coal, minerals, and a tremendous potential to increase the production of food. The World Food Organization has said that there are 7 or 8 countries in the world with big potential to increase the production of food. Colombia is one of them, there is tremendous potential there, and we are passing a series of laws to allow half of the country which is still in a way unconquered to become very productive.

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We have also reached a consensus on maintaining a responsible economic policy because we have learned that that is one of the conditions to maintain the rights of the people, the right to work, the right to health, the right to education at an appropriate level. If you don't have enough resources you cannot guarantee those rights. We have in a way attached the fiscal and economically responsibility to the rights of the people and we have also focused many of our policies to improve the social conditions of our people.

We have been able to increase [the size of] our middle class. We are doing that every single day because we know that if we have a strong middle class that gives us a lot more stability and it is a virtuous circle: a stronger middle class [means] more consumption, more consumption [means] more investment, more investment [means] more resources. So we have at this moment achieved that virtuous circle. Before we were in a vicious circle and we changed that. We are very proud to say that Colombia is sort of a rising star in the world and with no doubt we are the top performers at this moment in the whole of Latin America.

BIU: Mr. President, you have actually anticipated my next question. I was going to discuss how do we make sure going forward that that investment reaches the community, reaches the population?

Juan Manuel Santos: That's a very good question because that’s a question we [asked] ourselves at the moment of establishing the correct policies. First of all, let me be very clear, for us foreign investors are considered our partners in growth, we need foreign investment in order to maintain the high rates of growth; without that investment the high rates of growth are very difficult to achieve. But it must be an investment with certain responsibilities. I tell every investor: social and environmental responsibility and of course paying your taxes. But with those responsibilities [in mind] we want to attract more foreign investment in all the sectors.

We have a lot of investment in the oil sector, the mineral and coal sector, we are one of the largest exporters of coal in the world, but we are increasing, and this is a specific objective for us, increasing the investment in other areas, technology [and] biotechnology, for example. We are the richest country in the world in terms of biodiversity per square kilometer and we want to attract investment in biotechnology, in technology itself, and in communications areas. For example, we connected every single municipality, we have 1,112 municipalities, and we have connected all of them with broadband, fiber optic, so we want to use that infrastructure to increase our development goals like tele-medicine, tele-education, and improve our productivity through the use of technology, and for that we need investment.

What we have put in place is a set of policies that attract foreign investors. Colombia, by the way, has been a country where the rules of the game, the state of law, [are] very, very important; you don’t find in Colombia changes in the rules of the game for the investors. We know that this is one the more important conditions for any foreign investor in the long run. “Will my investment, my capital, be treated fairly and with stable rules of the game?” And the answer is “yes”, we understand how important that is, and for example the investors in our bonds know that Colombia is the only country in Latin America that has never, ever, rescheduled or renegotiated our debt because we think that this is one of those assets that we have to maintain above anything else, our credibility, and that has given us credibility.

Today, thank God, we have access to the world markets with no problem whatsoever because they believe in us and this is very important, that's what we are trying to encourage [in] other investors. We tell the investors: help us improve our social indicators.

I’ll give you an example. Unilever just made another very big investment, the most efficient and modern packaging plant in the whole world. I talked to the chairman of Unilever and [asked], “why are you investing so much in Colombia?” And he said, “because you are doing the correct things, you are increasing the middle class, taking people out of poverty and that for me is very attractive because every Colombian that goes out of poverty is a potential consumer and, at the same time, if you have a strong middle class that gives the economy as a whole much more strength and sustainability”. That's one of many, many examples of foreign investors, for the first time many of them (Unilever has been here for a long time), but many have come for the first time. Those are the best ambassadors that I have, because I tell you these things, but I am the president of Colombia. Other investors, the ones that have come here and go to other parts of the world and say Colombia has great quality of labor, the quality of the management, the resources that we have; those are our best ambassadors that attract more investors.

BIU: It's very interesting that you mentioned this investment in Unilever because it speaks toward a trend that has been happening over the past few years, whereas, maybe 20 years ago, companies would just sell products to Latin America that they had designed for the West, without actually thinking about the particularities of the Latin American consumer or their needs. They would just sell products from very far away, from an office in the US or in Europe; they would just export. Now companies come here and are looking to actually understand the consumer, they're investing here, they start producing products and delivering services that are tailored to the consumer in Colombia and in Latin America as a whole, and that is a very important evolution, it speaks a lot to the purchasing power that the consumer currently has so it's very important that you actually mentioned that because in our report we are talking about this significant evolution in the way that big companies approach the markets.

Juan Manuel Santos: We have another advantage that God gave us, our geographic location. Colombia is right in the middle of the Americas, we are the only country in South America with a coast in the Pacific and in the Atlantic, the Caribbean. We are a two-hour flight from the United States (US) and at the same time we are the port of entry to the whole of South America, so a lot of companies are investing here because of the logistics, they say we can export to one side, we can export to the other and that has been another advantage that we are trying to encourage by uplifting the quality of our infrastructure. We are making huge investments; we have planned investments of 26-27 billion USD in our highways, in our ports, our airports. You probably arrived to the airport of Bogotá. Bogotá now has the most advanced, modern airport in the whole of Latin America. We want the infrastructure as a whole to be very efficient because we also know that is another attraction for investors because good infrastructure makes the companies more competitive and more attractive.

BIU: Absolutely and maybe we can actually discuss a bit looking forward at some of the infrastructure projects that are in place for the future, because it’s true that, for instance, we did speak to some investors in the oil and gas [industry] that complain about the lack of pipelines, or infrastructure, or good roads; or in the tourism industry, the fact that the road network is not yet where it should be.

Juan Manuel Santos: Absolutely, yes. I was Minister of Finance 10-12 years ago and I know how ministers of finance think, and for many years when you had a fiscal problem and you had to cut your budget, the least politically costly decision would be, let’s cut infrastructure, because if you cut education the political cost would be higher. So we accumulated a tremendous deficit in our infrastructure, [about] which, when I became President four years ago, I said if we want to be a successful country and a high rate of growth country, we need to correct this situation.

Since then we started planning and we have been planning very carefully, structuring the projects: highways that would connect the center of the country with both coasts; we are remaking, because they disappeared, our railroads; we are upgrading our ports and constructing new ports, our airports, we are investing in airports. We are a country of many cities, we are not like many other countries with only one big city, we have many cities which is another attraction for many investors, because you find a lot of cities where the consumption is going up; these cities are growing very fast. So this is something that we are working hard on and, as you said, we still haven't reached, but the plans are there, the bids for example have been awarded on the first main projects. These are huge highways that will connect the country as never before.

The infrastructure in Colombia in four or six years, because that's how long it takes to build, will be completely different from the one you have seen. However, we have started to make progress, the airport in Bogotá that I have mentioned; we have right now the most efficient port in the Caribbean, Cartagena is today the most efficient port. We have a long way to go, but the interesting thing is that we are already doing it and there we need also foreign investors to help us finance those projects.

BIU: And now that we are talking so much about all the opportunities for investors, maybe you can give us some examples. For instance if an investor were to come to you today to say that they would very much like to invest large amounts of money, which would be the top sectors currently in Colombia that offer good opportunities?

Juan Manuel Santos: I would say we have of course the traditional sectors [where] we need permanent investment, oil, minerals; but we are increasingly interested in new investments, [in] technology. For example, we have been attracting a lot of companies that want to establish in Colombia their call centers, because [in] Colombia we very proudly say we speak the best Spanish in the world and [due to] our geographic location.

We want, for example, the investments of companies that are now in China, that [want to move] for reasons of [the] increase in the cost of labor in China and the increase in transportation [cost from] China to the US or to Latin America, and something that you mentioned about how to satisfy the consumer, the consumer today is much more sophisticated and much more demanding, so the ability to respond to the consumer at a faster rate becomes very important.

A lot of companies that are now established in China exporting to the US or to Latin America are now looking to Colombia to establish their production facilities, because of the logistics and the facilities that we offer. There you have manufacturing. [To name] other examples of investments, the Portuguese are coming here [for the first time] and establishing factories to supply the construction industry. Our construction figures are very attractive, we are booming, we are building a lot of new houses. We have still a big deficit and we want to provide especially the lower income people with their own houses and we have a very successful plan so companies have been coming here to supply the needs of the construction industry.

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The value added of our oil industry [is another opportunity for investment], the petrochemicals; we have energy; we have a lot of water. The mix of our energy equation is ideal, the majority of the energy that we use is hydraulic, and that is a cheaper and cleaner energy. That gives us in the long run a good advantage for example for all the industries that use energy as part of their main input, like steel.

There are a lot of areas where we want to attract investment. [For] technology, I’ll say the following: we have the infrastructure that I told you about of connecting to the internet. We are promoting a lot the innovation and entrepreneurship in the young people and we see a tremendous opportunity of establishing Colombia as a center for the creation of applications for the different software industries but [catering] to the lower end of the consumers, the peasants who are coffee farmers for example who can use the technology to increase their productivity, to sell their coffee at a better price. They could use that in order to also have a better education. We've already been trying that and we find that there is a very interesting opportunity there for Colombia to become in a way the Silicon Valley but for the lower end of the pyramid.

Those are the type of investments [we want]. [Another example is] the health industry, Colombia has had for many years the tradition of having very good doctors. People from other countries come to Colombia to have their surgeries, to be treated, because we have a good education system, good health system, some very high quality hospitals and the need for good health services is increasing. There is a tremendous opportunity, people are now investing in health facilities and hospitals that bring people from the US for example, they [are] operated here and then bring them back. The days that they [spend] here are days [spent] in beautiful places because Colombia fortunately has some beautiful places; so that’s another sector.

Tourism. Colombia has everything, mountains with snow all year round, deserts, jungles, half of the country is the Amazon, water, rivers. We have more water than the US without Alaska, to give you an example. We have beautiful coasts and so the potential for tourism here is enormous and we want to attract [more investment] and in fact a lot of investment has come to new hotels and new tourist attractions.

What we want is to diversify as much as possible the investment that comes to Colombia.

BIU: Mr. President, speaking about the development of Colombia and the investment coming in, a very important, the most important, resource that an investor will look for here is the human resource. So I wanted to touch upon the education, to explain how education can become more inclusive in Colombia.

Juan Manuel Santos: In my inaugural speak of this period, 7^th of August of this year [2014], I made a speech where I said my vision for Colombia is to have a country in peace, and let me talk a bit about that, a Colombia which is more just, more equitable, with more social justice and the Colombia which will be the best educated country in the whole of Latin America by the year 2025. That’s our goal. We have started to invest in all the links of the education chain.

Early childhood is the best investment that any society can make, because if you invest there, the kids that go to school will be better prepared to learn and learn more. We have made public education completely free for every kid from kindergarten to the 11^th grade and we are now starting to increase the access especially of the lower echelons of society to the best universities.

As a matter of fact just a few days ago I launched a program of scholarships for the people who have no money to go to university, for them to be able to go to the best universities, and we chose the 33 best universities in Colombia and we will pay for their education. The only condition is for them to graduate.

That is because of what you just said, education is the most important asset any society can have, the human capital, and we understand that, and our institutions that prepare the people for technology education, technology work, [represent] something extremely important also so we are making a big effort. We have had agreements with the best countries in that respect like Germany and Singapore to increase the quality of our technical education.

We are making a tremendous effort, that is an investment that of course is long [term] but we are aware of how important that is. Again, if you ask the investors that are already here and about how fast do the Colombians learn a new way of perusing or new technologies, they will tell you that Colombians learn very fast. For me it is important because it is part of the education basis that we want to build and to improve for the long running future.

Talking about peace, this is something that is increasing also the interest of many people in Colombia. Today, the first 6 months of this year [2014] we grew at a rate of 5.2 percent, third largest growth of the whole world. The economists calculate that if we end this armed conflict the rate of growth of Colombia can grow 2 percentage points per year forever. Just imagine if we are growing at 5 percent and the International Monetary Fund (IMF) just yesterday (we are speaking at a time where the IMF is meeting in Washington) made their World Economic Outlook, they said the world is going to grow this year a bit less, Latin America is going to grow less, they lowered the outlook from 2 percent to 1.3 percent. The only country, the only country, in the whole region where they increased, they upgraded their outlook, was Colombia. Instead of 4.5 [percent] they put us at 4.8 [percent].

What I want to say is, we are achieving the goal of having a relatively high rate of growth on a permanent basis but if we reach peace that will be much higher and this is attracting a lot of investors also. They see that there is a market that is growing, the economy is growing and the middle class is growing, so there you have a double growth.

BIU: One final question and a message from you to the world. What would you like your legacy to be?

Juan Manuel Santos: I told you about my vision for Colombia. After 50 years of armed conflict I would want to leave my country as a normal country without a war. People here sometimes don't understand that we have been living this war for 3 generations; but not only that, a peaceful country, a country that is much more equitable, where differences between the rich and the poor are much lower, and a country with a very strong education system which is going to permit us to be more equitable, more just and for that peace, when we reach it, to be sustainable in the long run.

BIU: Mr. President, thank you very much.

Juan Manuel Santos: Thank you.

Born in Bogotá in 1951, Juan Manuel Santos is Colombia’s 32^nd president. He took office in August 2010 and in 2012 commenced peace talks with FARC, aimed at ending the 50-year war with the guerrillas. He is an economist by profession; he attended University of Kansas, London School of Economics and Political Science, Harvard University and Tufts University, and has held multiple ministerial positions prior to becoming president (Minister of Foreign Trade, Minister of Finance, Minister of Defense).

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