Colombia, An Investment Opportunity For Private Equity Funds

Colombia’ s capital fund industry celebrated its 15th anniversary and is advancing at a good pace. According to ProColombia, with information from Colcapital, this sector has more than 151 active funds that have managed more than US$16.4 billion in the country throughout its lifetime.

The investment of private equity funds in Colombia is quite recent and can be dated to 2005, when the first of the funds was created in the country.

This was the beginning of a path of growth that, to date, totals 151 assets, which have reached different sectors of the economy.

In total, the capital committed to the funds amounts to US$16 billion, of which more than US$10 billion has been invested and with capital of US$6 billion available to invest.

Several funds have shown outstanding performance in Colombia in recent years.

Among them is Brookfield, a global U.S. group with more than US$250 billion in assets under management, closed a nearly US$2 billion investment a couple of years ago with Isagen a Colombian electric energy supplier; and also AKKR-an American firm with presence in London and San Francisco-, with the acquisition of the Siigo software company.

Large investment firms focusing in technology such as Sequoia, Andressen Horowitz, Delivery Hero, Softbank, and DST Global, jointly invested more than US$1.3 billion in Rappi, Colombia’s first unicorn startup.

Additionally, the National Infrastructure Agency (ANI, as per its acronym in Spanish), following Colombia’s entry to the OECD, stated that 13 foreign groups (pension funds, private equity funds, among others) had shown interest in participating in various infrastructure projects in the country.

These are just a couple of examples that show signs of the country’s potential for global private equity funds.

ProColombia, the agency responsible for international promotion of exports, international tourism, and the attraction of foreign direct investment, seeks to align the opportunities Colombia has to offer with the interest shown by funds.

“ProColombia’s aims at providing capital funds with information on the supply of companies that are interested in receiving investment to strengthen their
internationalization processes and to establish contact between the latter and the former so that resources may create growth and generate greater employment and competitiveness within companies.

In the current economic recovery scenario there is a great opportunity for private equity funds,” said Flavia Santoro, president of ProColombia.

The Government of Colombia understands that the attraction of investment of private equity funds and family offices is essential and for this reason since 2019, the country has had an exclusive regulatory framework for this type of vehicle that promotes the creation of local funds.

It should be noted that private equity funds are not subject to income tax.

In Latin America, Colombia is strategically positioned as a business and export platform for the Pacific Alliance, Mercosur, and other countries as an alternative for risk diversification and market expansion.

In Europe and Asia, Colombia is viewed as a continental production and distribution center for companies in these regions, with a focus on the market in the Americas.

Thanks to the 17 trade agreements in force, Colombia has preferential access to more than 60 countries and more than 1.6 billion consumers worldwide.

Colombia is regarded as a clear answer for companies that are thinking of relocating their operations.

The trend of nearshoring has been accelerated by the pandemic and the closure of economies has led to a rupture, or at least an interruption, in supply chains, increasing the need to diversify risk.

The pandemic and the dynamics of international trade have forced multinationals to seek new investment destinations close to their consumers.

With this in mind, Colombia enjoys an ideal position as a platform to diversify production and mitigate supply chain risks.

The country also has a competitive free zone regime with tax incentives that generate efficiencies through economies of scale, productive chains, and access to innovation and technology platforms that facilitate business and promote the internationalization of the country’s industry.

Zoom in Key investment sectors

Infrastructure: In order to revive the economy following the health emergency, the Government prioritized investments in Private Public Partnerships amounting to US$5.2 billion.

It is projected that this will create more than 90,000 jobs between 2020 and 2022 in the modernization of roads, highways, ports and airports that are part of the infrastructure development projects known as 5G projects.

In addition to these projects, Colombia has a secondary dynamic infrastructure market, which allows Foreign Investment Capital Funds to join ongoing projects, with stable and secure profitability.

Energy: Thanks to its geographical location and weather conditions, Colombia has great potential for the development and use of renewable energies with a particular focus on solar, wind and biomass, especially in regions such as the Caribbean, where there are important air and solar radiation indicators that make the region ideal for the implementation of such projects.

President Ivan Duque’s Government has made a commitment to ensure the country’s energy efficiency with the incorporation of new renewable energies.

The goal is to increase installed capacity for solar and wind power generation by 50, with an increase from less than 50 megawatts in 2018 to more than 2,500 megawatts by 2022.

This means that there are opportunities available for private equity funds and other forms of foreign investment in the development of new projects.

Tourism and Real Estate: The Economic Growth Act 2019 offers a preferential income tax for hotels, theme parks, agrotourism, ecotourism, and new docks.

Under the same legislation, there are incentives for mega-investments with a value equal to or greater than US$300 million that create at least 400 jobs.

These projects are able to benefit from a tax rate of 27% (which is below the regular 32% rate); as well as tax exemptions on dividends and capital gains; and greater legal fiscal stability through a contract with the tax department.

Mega-investments in the high-tech, emerging and exponential technology, and e-commerce sectors must generate at least 250 direct jobs.

Agribusiness: Colombia is the fifth largest country in Latin America with an area of 114 million hectares, of which about 40 million make up the national agricultural frontier.

Of these, there are about 8 million planted hectares, so the potential for an agricultural boom is enormous.

This, coupled with tropical climatic conditions, make it possible to produce a rich variety of food throughout the year in Colombia.

Colombia is considered one of only seven countries in the world to be a global food supplier according to FAO.

Private equity funds represent an opportunity for all investors to reach Colombia’s agricultural sector and agribusiness. To date, only 3% of fund investments have been made in these sectors.

For more information on investing in Colombia, contact ProColombia: