Colombia: A Golden Opportunity

Colombia: A Golden Opportunity For the Textile Industry

Agenda 1.Colombia Outlook 2. Why to invest in Textile and Apparel Industry 3. Industry Dynamics 4. Proexport Services

Agenda 1.Colombia Outlook 2. Why invest in the Textile and Apparel Indsutry 3. Industry Dynamics 4. Proexport Services

Colombia’s economic growth has outpaced that of the Latin American region GDP Growth: Colombia vs. Latin America (2000 – 2007) % Source: Economic Commission for Latin America and the Caribbean (ECLAC), DANE, Forecasts ECLAC and National Planning Department, and World Economic Forum for Latin America in 2007

Colombia’s significant market potential GDP in Latin America (2007) Current Prices, USD Billion Population in Latin America (2007) Million of inhabitants Source: International Monetary Fund and World Bank 2007

FDI increased 323% since 2002 FDI Flows (1994-2007 ) USD Million Sab Miller´s investment USD 4,715 M Source: Balance of Payments, Central Bank

Exports increased 150% since 2002 Exports (1995 – 2007) USD Million Source: DANE, Proexport

Second Country with Qualified Human Resource Availability of qualified labor (0= not available, 10= readily available) Availability of qualified engineers (0= not available, 10= readily available) Ranking (55 countries) Source: The World Competitiveness Yearbook 2007-IMD

Access to global markets (2010 plan) Negotiation agenda through 2010

Agreements to facilitate investments (2010 plan) Double Taxation Agreements – DTSs – Investment Agreements – BITs –

Agenda 1.Colombia Outlook 2. Why invest in the Colombian Textile and Apparel Industry 3. Industry Dynamics 4. Proexport Services

Colombia has access to markets for more than US$ 220 Billions per year Thanks to the commercial agreements that Colombia has with different countries from America and Europe and to its geographic position, the country has become a center of production, distribution and exports hub for markets of South America, North America and Europe. Source: World Tariff, Ministry of Commerce, Industry and Tourism, USITC

Colombia represents a internal captive market of more than US$ 800 millions per year Currently, imports of textiles, fibers and threads add more of US$ 847 million annually. An investment opportunity exists to strengthen the national fiber and textiles production for internal consumption and apparel exports. Although Colombia has a consolidated and integrated chain of supplying, investment in new technologies , both hardware and software would generate improvements and increase the local production of certain type of weaves like rayon, tweeds, viscose, denim and polyester and to favor the competitiveness of the chain completely. Consumption / Tons / Year

Because Colombia has one of the lower labor costs of South America for the Industry Colombia has a qualified and competitive human resource in terms of costs, confections. In this sense SENA’s ( National Education Service Organization) work stands out because its in charge of encouraging the technical and technological education through free learning programs in diverse disciplines. Source: Werner International, 2007

Colombia has the most competitive FTZ’s in Latin America: 15% income tax and allows sales to the local market • Single 15% income tax rate. • Any goods entered to the Free Trade Zones are considered to be outside the national territory when it comes to taxes related to imports and exports. • No customs taxes (VAT or CUSTOMS DUTIES) • VAT exemption for raw materials, inputs and finished goods sold from the national customs territory to industrial Free Trade Zone users. • Exports made from Free Trade Zones to foreign countries benefit from international trade agreements. (Except Peru) • No customs taxes for any machinery directly related with the business’ operation which is imported for abroad and entered to the Free Trade Zone • Quick and simplified customs procedures

Investment in millions And Direct Jobs USD 38.4 150 A company may benefit from the FTZ’s without being located in one Companies not physically located inside a FTZ are entitled to benefit from the FTZ regime Requirements to get the Single Enterprise Free Trade Zone Status: Goods Each additional investment of U$ 5.9 MM reduces the number of jobs required by 15; in any case 50 job must be created. Exchange rate used: USD 1= COP 1800. Minimum Monthly Legal Wage for 2008 is COP$ 461.500. The M.M.L.W, as well as the exchange rate is subject to variations.

Investments over U$1,900.000 Investor must pay a premium to the Government equivalent to 1% of the investment made. Colombia also offers Legal Stability Contracts Guaranteeing the legislation and administrative interpretation considered as a determining factor for the investment project. Objective Conditions Period From 3 to 20 years maximum. Evaluation and approval of the application Admission Technical report Final evaluation * These contracts exclude rules regarding the social security system, the obligation to report and pay taxes levied by the government under a state of emergency, indirect taxes (i.e., the VAT or the tax on banking transactions), prudential regulations of the financial system and the utility rate system.

100% of the amount paid for industry & commerce, sign and billboard, and property taxes during the corresponding taxable year, as long as they are directly related to the taxpayer’s economic activity. 40% of the amount invested in productive real assets acquired. (No limit in time) 25% of the tax paid on financial transactions may be deducted, regardless of their relationship to the taxpayer’s economic activity. Deduction of 125% of the Income tax paid in science and technological projects VAT exemption on the sales contract (services export exemption). Plan Vallejo: VAT exemption for the temporary imports of raw materials and inputs exclusively and totally used by the producer to produce goods to be exported And other favorable Tax Incentives

Also, special foreign trade regimes like Warehousing for Industrial Processing Allow the producers to import raw material and inputs without paying the VAT and customs duties. Objective:warehouses authorized by the National customs and tax office (DIAN) to store raw materials and inputs scheduled to undergo industrial transformation, processing or manufacturing Users:Highly exporting users (ALTEX) or Permanent Customs Users (UAP). This regime applies only for the manufacturing of goods devoted exclusively and totally to be exported. Metalmechanic and Textile companies are the most frequent users

And The Vallejo Plan for Raw Materials and Inputs Applies to the imports of raw materials and inputs devoted exclusively and totally to the production of a determined volume of final goods to be exported. Benefits: imports are totally exempt from tariff VAT and any other import duties. Requirements:The total exportation of the manufactured goods must be done within the following eighteen months. Users: Any company admitted by the DIAN

The Vallejo Plan for Replacement Gives the exporter of goods the right to replenish or replace, through a new tax-exempt import, the raw materials or inputs he used to produce goods when the initial import was subject to the payment of taxes in full (customs duties and VAT). Benefit: Imports of raw material without VAT Tariff and other custom duties Users: any company that exports manufactured products Requirements: The exportation of all the final products manufactured with the imported raw materials. Difference with the raw materials plan:This program does not requires the presentation of Demonstration Studies, only: the declaration of exportation a importation of final products and the input products square. This plan is mostly used for small and medium size companies

The Plan Vallejo for Maquila • Allows foreign contracting party to provide the national producer 100% of the raw materials or • inputs required to manufacture the good to be exported, national labor and services are • incorporated into the final product. • Benefits: • Raw materials and inputs that are delivered by the foreign client or supplier and which may enter the country’s national customs territory provisionally without paying customs duties and VAT. • Non payment is caused for the importation of the raw materials and inputs. (Non reimbursable import). • VAT exemption on the sales contract (services export exemption). • Users: National producers • This regime applies only for the manufacturing of goods devoted exclusively and totally • to exports.

For Permanent Customs Users (UAP) Imported merchandise is automatically released. An increase in the cash flow and administrative efficiency: Possibility of differ the tax And customs payments for a month. Possibility of being recognized as a warehouse for industrial processing and International distribution. Requirements: During the previous 12 months the company must have conducted foreign trade operations for a FOB price of US$3 m. Have processed at least 2,000 import or export reports during the immediately twelve (12) preceding months. Vallejo plan users that during the last 3 years had exported an amount equal to or greater than US$2 million.

And for Highly Exporting Users (ALTEX) Non-accrual of the VAT for ordinary imports of industrial machinery not produced in the country and destined to the transformation of raw materials. Possibility of DIAN ( National Customs Office) allowing the importer to use a bonded warehouse for industrial processing and of acquire the status as Permanent Customs Users. Consolildate in one single export document all the partial dispatches abroad of the same product, abolishment of the physical customs inspections of imported or Exported merchandise (except for exceptional cases). Requirements: Exports during the 12 months prior to the application date must have been for a FOB Amount equal to or greater than US$2 m. The price of the merchandise exported either directly or through an intermediary must represent at least 30% of the amount of their local sales during that same period.

The production of the Industry has grown by 47 percent (US$ 1,206 million) between 2002 and 2006. Colombia has nearly 500 textile mills and 10.000 apparel companies. Most of them are small and medium sized companies of which 50% have between 20 and 60 machines. Creates more than 800.000 direct and indirect jobs and therefore represents 12% of the total labor force provided by the manufacturing Industry. Accounts for 10.3 percent of manufacturing GDP and 1.6 percent of national GDP. Accounts for 12 percent of the total non traditional exports. In 2007, total exports grew 47 percent from US$ 1,330 million, in 2006 to US$ 1,957 million, in 2007. Over 100 years of experience in this industry and worldwide recognition: sophisticated and mature industry

Fashion Center for Latin America • Industry trade sources have estimated that cotton textile production represents approximately 43 percent; yarns and woven fabrics, 21 percent; knit products, 19 percent; and man-made fiber products, 8 percent. • The textile industry produces annually approximately 950 million square meters of cotton, polyester, nylon, viscose and wool fabrics, as well as twill, satin, cotton poplin and polyester blends. • Colombia has become one of the main fashion centers in Latin America, featuring trade shows such as Colombiatex and Colombiamoda which bring together recognized companies from many countries around the world. • Currently, Colombia accounts for 0.31% and 0.17% world’s textile and clothing exports, and is responsible for 0.25% of world’s fashion market.

Constantly growing industry National Textile and Apparel production U$ Million 2000 – 2006 Production of the Industry has grown by 47 percent (US$ 1,206 million) between 2002 and 2006 Source: DANE – ASCOLTEX

Exports oriented industry • Exports US$ Million In 2007, Textile and Clothing exports accounted for 12 percent of the total non-traditional exports and 7 percent of total external sales. Mostly knits, denim, jeans and cotton t-shirts Source: DANE - PROEXPORT

Exports are mainly concentrated on value added garmets Textiles and Apparel’s – Categories 2007 Total Exports 2007: U$ 1.957 Million Source: DANE

Main textile exports Colombia’s Principal Textile Exports Principal Textile Exporters

Main Apparel Exports Main Exporters Main Exports 2007

Main export markets Textiles and Clothing Exports - Destination 2007 Venezuela appears as the principal destiny receiving 55%of total Textile and Clothing exports, followed by United States with 17%. Source: DANE

Imports have also increased to strengthen the supply chain for the apparel industry • Imports U$ Million Total imports grew 20 percent from US$ 1,060 million, in 2006 to US$ 1,275 million, in 2007. Source: DANE - PROEXPORT

Main imported products Textiles and Apparel 2007 Total Imports 2007: U$ 1.275 million Colombia imports synthetic fibers and plain cotton woven's. Sourcee: DANE

Textile Imports Main Textile Imports Main Textile Importers

Apparel Imports Main Importers Main Apparel Imports

Main suppliers Textiles and Clothing imports - Origin % 2007 China is the main country from which Colombia imports textiles and clothing with 23% of the total imports, followed by United States with 14%. Source: DANE

DuPont de Colombia S.A. This company started direct operations in Colombia in 1963 with diverse commercial activities, including textile and nylon products, advanced fiber, polymer and packing systems, lycra, photopolymer plates for packaging printing and security holograms, among others. During all these years in Colombia, DuPont has established important alliances. Besides DuPont de Colombia S.A., the corporation and affiliates in the country have other investments in automobiles, textiles, housing, paints and national industries. Important multinational companies have operations in Colombia "Colombia has a privileged geographic location that makes it a central cornerstone for all regional markets" Guillermo A. Heins, President & CEO of DuPont for Colombia, Ecuador, Peru and Venezuela

Adidas The company owns eight points-of-sale: four in Cali, three in Bogota and one in Medellin. The goal of the company is to have 12 points-of-sale by the end of 2007 and open six additional points in 2008.. In 2007, the company invested about $ 3 million in Colombia and it is expected to invest $ 1 million in 2008. This company employs more than 120 people in Colombia. “The Colombian consumer should know that what we offer here is the same that he/she can find in Germany or Argentina and at competitive prices," Sarmiento said and added that the company will start producing high-quality products targeting local and Latin American markets. Important multinational companies have operations in Colombia “The Colombian consumer has already learned that you should not wear the same type of shoes for running, playing tennis, or dressing casually . This mature approach shows that there is a large potential market to tap into by diversifying the supply options“ – Federico Sarmiento, Manager of Adidas Colombia.

Coats Cadena S.A. Coats is the world's largest manufacturer and supplier of industrial sewing and embroidery threads. Coats' wide product range delivers solutions for every conceivable application - be it jeans and trainers, or automotive airbags and bullet-proof vests. Coats delivers consistently superior products and services conforming to global specifications and is easily available in 67 countries worldwide. This offer is supported by Coats Sewing Solutions - value added services to assist the sewing process, enabling to deliver sewn products with better quality with shorter lead times Important multinational companies have operations in Colombia

Proexport: Entity that will provide you world-class services • Customer Information • Contacts with private and public Industry • Agendas: Organization and accompanying when you visit Colombia • Attention to the installed investor • For free and Confidential: All services are for free and any information given in the process is confidential.

Proexport offices around the world

Colombia: A Golden Opportunity