Recently, in the IMD World Competitiveness Ranking, no Latin American country is even within the top 40 regarding competitiveness focused on long-term value creation – as measured by data availability. This invites us to reflect on the performance of countries, but even more so on dimensions such as business efficiency or state infrastructure for competitiveness. Similarly, the OECD has been studying comparative strategies to advance regional attractiveness through investment promotion, tourism, talent attraction, and digitization of the economy.
Thus, amidst the rise of restrictive policies in Latin America, reviewing some escape mechanisms that can help improve the national, regional, and local economies is necessary, counteracting the usual tendency towards excessive interventionism. These mechanisms appear as a beacon of hope within the heavily regulated region.
In this complex scenario, it is important to highlight two recent economic reforms in Colombia, implemented by former President Iván Duque (2021), and in Ecuador, under the administration of President Guillermo Lasso (2023).
Through Decree 278 of March 15, 2021, Colombia modified its free trade zone regime, making it more flexible and adapting it to the new times while closely examining international developments in this field. Some important aspects to consider regarding the approved regulations, which should be monitored for their potential benefits to local communities, include simplification of procedures for e-commerce, elimination of the requirement for a minimum area of 20 hectares for new free trade zones dedicated to service provision in municipalities with less than one million inhabitants, opening the possibility for companies to request new free trade zones for agro-industrial activities, airport and railway concessions; and extending the maximum term for the extension of permanent and special permanent free trade zones to 30 years, among other measures.
It has been demonstrated that the development of free trade zones in Colombia already accounts for an average of 57 percent of the national value-added, stimulating employment and strengthening the business fabric. Similarly, it allows for a greater specialization in economic activities according to the potential of each region, opening doors to increased competitiveness and attraction of foreign investment.
The case of Ecuador also deserves attention from decision-makers at the Latin American level, as it represents a reform that attempted to address the centralized perspective and lack of accessibility to welfare and services in the more remote regions, far from the traditional financial centers of our countries. Although the Constitutional Court ruled against it, the content and objectives it sought should be addressed: investment attraction, competitiveness, and job creation.
The Law for the Attraction and Promotion of Investment for Productive Development, signed on May 23, 2023, proposed a regime to promote new free trade zones and strengthen the so-called special economic development zones. Some notable aspects of this proposal included: a 10-year income tax exemption and 15 years in border areas; exemption from taxes on foreign trade, except for customs service fees for imports of inputs, capital goods, and raw materials intended for the FTZ or SEZ; 0 percent VAT rate for the acquisition of imported or domestic inputs and capital goods destined for the authorized zone, as well as exemption from the foreign exchange exit tax.
There is a potential of over USD 78 billion to be invested in Latin America through nearshoring. The increasingly dynamic, complex, and competitive international scenario compels decision-makers to study and evaluate new alternatives for investment attraction. This is an ongoing and long-term task, where international economic relationships based on freedom are crucial for the benefit of SMEs, the development of new companies, innovation, and improving citizens’ quality of life. Who will take the next steps? Only time will tell.
* Andrés Barrientos is a Civil Engineer with, Master’s in Government Management and a Master’s in Construction Management. Consultant, public policy analyst, and author. He has worked in the private sector in construction and real estate, as well as in the public sector on subnational competitiveness and territorial analysis, serving as a delegate to the OECD in an expert group on multi-level governance and public investment. Co-founder of the free-market think tank Ciudadano Austral.
Source: We Are Innovation
