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Colombia Boosted by Retail, FTAs, Infrastructure

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Mar 5

Editor's Note: This article was written by Patrick Lamson-Hall for the Sourcing Journal on  Tuesday February 21, 2012, and republished here with the owner's permission.

In the latest sign of Colombia's rising trade profile, Colombiatex, the international garment and textile fair, generated a record breaking $120.5 million in business in only 3 days. The fair, which is in its 24th year, attracted more than 15,000 visitors and 500 international companies.

The fair was held in Medellin, Colombia, the center of the country's garment industry. Textiles and apparel are estimated to account for as much as 35% of economic activity in Medellin. The city was previously synonymous with the drug trade, but has experienced a renaissance since the security situation began improving several years ago.

Nicolas Galarza, a former Colombian government official, said, "It's safer to do business, it's safer to travel around, it's easier to get inputs for your business in a timely manner without extortion. There was always a big potential, but it wasn't happening. The overall situation, especially improvements in security and the regional positioning of Colombian brands have led to this improvement. For example, most jeans from Diesel are made from Colombian inputs."

The Colombian retail sector has been leveraging Medellin's hip design-based culture to propel itself to regional prominence. "The market is expanding. Colombia has always had a big industry, but now with the free trade agreement markets have been expanding. In the last 10 years, Colombian brands have been expanding throughout South America and the Caribbean. You can actually find Colombian brands with retail stores in North and South America and the Caribbean," said Galarza.

Business has also been boosted by the finalization in October of the US-Colombia Trade Promotion Agreement, which reduced tariffs from a maximum of 20 percent on apparel and textiles to  instantaneous duty free status. This comes on the heels of a separate Colombian FTA with the European Union.

The U.S. agreement includes a yarn-forward rule of origin, meaning that in order to enter the US market duty-free, the the products must be made using regional and US yarns and fabrics. This is intended to prevent the use of the FTA as a backdoor for low-cost yarns from Asia.

Colombia is a net importer of textiles, but a net exporter of finished apparel. The textile and clothing sector accounted for 12% of the country's manufacturing GDP in 2007 (the most recent statistic available), and over $2 billion in exports. Overall, GDP is expected to grow 5-6% in 2012, but it is likely that the share of GDP attributed to the textile and clothing sector will rise, due to a potential new FTA with Venezuela that will eliminate duties on 91% of Colombian finished goods.

Colombian exporters have benefited from a historically stable currency. It is the only nation in South America that never experienced an inflation crisis. The Colombian peso has recently begun to appreciate, as foreign direct investment and repatriated profits are causing an influx of dollars.

Colombia is a CIVETS country, one of six countries regarded as economically diversified, and extremely macro economically stable, with a young and growing population. The rally in the peso is largely due to investment booms in mining and oil, and is expected to be controlled by the central government through dollar buybacks.

Even these currency difficulties are symptomatic of a trend that will eventually help lift the Colombian garment and apparel sector.

Colombian commodities are in high demand in China, and that is already leading Chinese companies to invest in infrastructure to connect the Caribbean and Pacific coasts. They are also investing in the development of the interior, which struggles with large mountain ranges despite having all the major cities in the country. The Chinese are also investing in new port facilities, which will increase Colombian shipping capacity.

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