[TEXT: I swear to God and before the Colombian people, to defend Colombia’s laws and Constitution.]
On August 7th 2018, Iván Duque Márquez was sworn in as president of Colombia.
His campaign promise was straightforward: to get the country in shape and ready for
a rapid development process.
Enough time has passed since Iván Duque rose to power for VISUALPOLITIK to ask some questions:
What is the true strategic plan of Duque’s government?
That is, how does he want to transform Colombia?
Can he achieve this goal?
What could be the legacy of his passage through Casa Nariño – the Colombian White House?
Listen up.
(INTRO)
With almost 50 million inhabitants, Colombia is the second-most populous country in South
America.
But it is, above all, a very, very complicated country:
On the one hand, there’s the problem of the guerrillas and drug trafficking, which
happens to be one of the country’s biggest industries.
To give you an idea, Colombia produces no less than 70% of all the white powder on the
planet.
70%!
Of course, as you can imagine, behind this huge business that moves thousands and billions
of dollars every year, there are some powerful criminal organizations.
Organizations that are willing to control their territory come hell or high water.
That’s precisely why violence rates remain so high.
(AUDIO: Colombia: homicides increased in 2018 due to violence after the FARC’s disarmament-
According to the country's forensic authority, there were 12,130 homicides last year, 6.7%
more than in 2017.
- DW)
And the violence isn’t limited to drug deals gone bad or territorial disputes.
In the last three years alone, it’s estimated that more than 500 community activists and
leaders lost their lives at the hands of these groups; and about 200,000 people have been
displaced from their homes.
And it doesn't end there.
The ELN, a far leftist guerrilla group – also linked to drug trafficking – continues to
operate;
(AUDIO: 21/01/2019 The ELN guerrilla claims the attack on the police academy that caused
more than 20 deaths.
RTVE)
What’s more, about 3,000 former members of FARC may have taken up their weapons again;
and Coca plantations are at a record high.
(AUDIO: Coca crops in Colombia reached an all-time high in 2017 with 171,000 hectares.
UN News)
As if all these problems weren’t enough, Colombia has recently had to deal with the
arrival of hundreds of thousands of Venezuelans fleeing Nicolás Maduro’s despotic regime.
It’s estimated that approximately 1.5 million Venezuelans already live in Colombia.
One thing that is very positive is the Colombian solidarity that’s been witnessed.
The problem is that this influx of people also puts enormous pressure on stability and
public resources.
Ok, so let's say this is the downside.
But it’s not all bad news in Colombia.
You see, despite all the continuing problems, such as drug trafficking, guerrillas, paramilitary
groups, violence, corruption... the country has actually registered an average economic
growth of 3.8% per year over the last 40 years; The middle class has grown and the country
hasn’t suffered any hyperinflation.
And, don’t think this is normal because it’s anything but.
Don’t forget that we’re talking about South America.
In that same period, Peru, Bolivia, Argentina, Ecuador, Brazil and Venezuela have undergone
hyperinflation processes.
In other words, we could almost say that Colombia is a model of stability.
However Colombian President Iván Duque doesn’t quite agree.
(AUDIO: Colombian President Iván Duque affirms that he isn’t satisfied with the more than
3% growth that the Colombian economy is expected to have this year and intends to “push the
country to grow by more than 5% annually”.
ElPaís.com.co)
[TEXT: And of course, I’m not satisfied, I’m not saying that we should grow by more
than 3% and that’d be enough, no!
We want more, and I state it like this: Colombia is a country that has a per capita income
of almost $ 7,000.
We are an OECD country, the other OECD countries have per capita incomes of more than $ 30,000,
so my question is, how long would it take Colombia to reach that level of per capita
income?
100 years growing at 1% or 20 years growing at above 5%.
What we need to do is get the country to grow at above 5%.
Make decisions to get that sustained growth and that’s what we are doing.]
Yes, the Colombian president has set a goal of 5%.
Now, will they be able to achieve it?
How will they go about it?
It seems complicated considering the scenario described, doesn’t it?
Well, you know what?
We can’t say if he’ll be successful or not, but the important thing is that this
government has a plan – which, unfortunately, doesn’t seem to happen so often these days,
right President Macri?
And it’s a plan that doesn’t look too bad, and which we can summarise into three
main points.
Listen up.
(FLEEING LATIN AMERICAN TAXATION)
This may come as a surprise, but in general, Latin American countries’ tax systems have
one common characteristic:
They have the highest corporate taxes on the planet.
Want an example?
Listen up.
The inability of the government to raise money from living, flesh and blood people, has made
them tax the productive system voraciously.
This is quite the opposite of the example set by Nordic countries, and they are often
held up as a benchmark.
And, if Latin America is usually a disaster in this field, Colombia is the worst of the
worst.
But okay, some of you may be wondering, Simon, how much worse?
1 point, 2 points?
Well, not even close.
To give you an idea, according to the latest Doing Business report from the World Bank,
the effective tax rate on Colombian companies, that is, if we consider all the taxes that
a company is obliged to pay: local, national, labor, corporate…
Then it turns out that Colombian companies face an average rate of a whopping 71.9%.
71.9% of the company’s commercial profit, that is the difference between income and
expenses without taking taxes into account, goes directly into the Public Administration’s
pocket.
To give you an idea, when a Colombian company buys a machine, VAT cannot be fully deducted
for that purchase.
And companies have to pay taxes even if they are losing money.
Crazy, isn’t it?
And obviously, all this has consequences:
Such high taxes on the productive sector affect the Colombian economy’s ability to be competitive.
And on top of this we have to add the exhausting and tedious bureaucracy that is so typical
in Latin American countries.
Basically, under these conditions it would be easier to win a fight against a professional
boxer like Andrew Cancio or Floyd Mayweather, than it would be to start a business that
works.
Surely now you understand why Latin American countries generally have low investment levels,
low export levels and a lot, a lot of informal economies.
(AUDIO: 05/2017: Latin America’s informal economy surpasses that of sub-Saharan Africa
for the first time.
World Economic Forum)
In fact, it’s estimated that more than 54% of Colombian companies aren’t operating
within official guidelines.
And of course, an informal company can’t access large contracts, bank financing or
have legal security.
They just can’t grow.
Well, addressing this situation is precisely the first major point of Ivan Duque's plan.
In fact, at the end of last year he got the Congress of the Republic of Colombia to approve
a comprehensive tax reform.
His tax reform.
Basically, the reform aims to reduce the tax requirements of Colombian companies by slightly
increasing taxes on higher personal incomes, for example to people who earn more than $120,000
and who currently pay low taxes.
The reform will also increase VAT collection.
So, with the new reform, corporate income tax will be progressively reduced from 33
to 30%; some additional taxes will disappear and a simplified single-tax system with very
low rates will be created to encourage the formalization and growth of small businesses.
[TEXT: With a 100% discount of VAT paid on capital goods and a 50% discount of the ICA
and the gradual dismantling of the presumptive income.
In addition to a simple regime that differentiates rates, especially for fledgling companies,
is having effects.]
And that's not all.
In addition, the reform has also created tax incentives for entrepreneurs, for investments
in large projects, investments in the tourism sector and in the so-called orange economy.
And yes, okay, this may seem controversial, after all, why apply it to some sectors and
not others?
But at least it seems to be a step in the right direction, doesn’t it?
The problem, and perhaps what has made this project so controversial, is that Duque is
going to increase public spending significantly and the government already has a high public
deficit.
So even though the measure means a reduction of taxes in the medium term, the truth is
that in the short term it implies increasing them.
That is, while the reductions are progressive and will be applied gradually, the increases
will be applied from the very beginning.
For example, a temporary surcharge on bank profits.
And this hasn’t been popular at all.
But still – and you know that on VisualPolitik we don't like tax increases at all – we
think the change is a step in the right direction.
Latin America in general and Colombia, in particular, have to treat the productive sectors
better.
Latin America needs more companies, not more taxes.
Unfortunately, this reform has been declared unconstitutional due to a formality.
Now the government has to get it approved again in Congress.
Could President Duque get it through?
(THE ORANGE ECONOMY)
The second key point in Iván Duque's strategy is to promote the so-called orange economy
with fiscal incentives, participatory loans, venture capital and startup accelerators.
Now let’s pause a second.
Many of you, especially those who aren’t Colombian, will be wondering, what on earth
is the orange economy?
Well, no, it has nothing to do with the fruit, it’s an umbrella term for creative activities
that are related to intellectual property: music, design, audiovisual productions, YouTube
channels, architecture, art, software design, etcetera, etcetera.
[TEXT: Zero, zero income tax for 7 years to all new ventures in the creative and technological
industries because these are the years where those ventures take off.]
Look, have you noticed that more and more movies and series are being filmed in Colombia?
Even more and more productions from platforms such as Netflix or Amazon Prime are being
made in this country.
And there’s a good reason for this.
In 2012, Law 1556 was passed, which provides significant tax breaks and aid to produce
and shoot films and TV series in Colombia.
That way, they not only sought to grow the national film industry but also to foster
a better image of the country around the world.
This resulted in a soaring number of productions shot in Colombia.
Well, now Iván Duque wants to do the same with all the activities that make up this
“orange economy”.
And pay attention because this is serious business.
Today Colombia’s orange economy is almost three times larger than the coffee industry
and almost as big as the entire mining sector.
We’re talking about economic activities whose worldwide trade grows at annual rates
of 7% and whose value in 2015 exceeded 500 billion dollars.
(AUDIO: “The orange economy is larger than new oil.
Oil reserves are limited but creativity is unlimited.
We have to know that the most important heritage we have in a society is the talent of its
people.”
Ivan Duque)
Well, in order to boost other ‘orange economy’ activities, the government is implementing
participatory financing plans, venture capital initiatives, entrepreneurship centers and
tax exemptions.
So, will it work?
Will the orange economy really be able to transform Colombia?
Only time will tell, but, you know what?
This plan sounds pretty good.
And the plan is different in that it is linked to human capital and not just natural resources
or large companies that have suspiciously close ties to governments, which, unfortunately,
is the norm in Latin America.
But it doesn’t end there.
We still have a third essential pillar in this strategy.
(THE NEW BETS)
It isn’t strictly ​​Iván Duque’s idea, but it looks like the new government
has accepted it.
Colombia wants to become a big player in the world market for medical cannabis.
This is a sector that is literally growing like weeds and is expected to become a market
of almost 50 billion by 2025.
And Colombia intends to have a slice of that pie, more than 40%.
We’re talking about a huge sector and a considerable boost for the Colombian economy,
especially for the economy in the poorest rural areas.
(AUDIO “It calls us to the possibility of being very important worldwide players in
terms of exports, estimates state that we could effectively reach levels of US $6 billion
annually in exports”.
Saúl Pineda, Vice Minister of Business Development)
Well, along with the pointy green weeds, the government’s other big gamble consists of
promoting fracking to increase oil production.
So far four pilot projects have been approved that could produce more than 400 thousand
barrels per day when fully operational.
This would mean increasing Colombia's oil production by almost 50%.
In conclusion, with all these measures and with greater investment in infrastructure
and education, Ivan Duque’s government plans to achieve its objective of raising Colombia's
economic growth to above 5%.
Will they achieve it?
Here on VisualPolitik we’ll be watching closely, but as things stand, it doesn’t
look too bad.
Of course, there are other issues yet to resolve and which could generate several problems:
for example, the sharp increase in public spending or the constant devaluation of the
Colombian peso.
And, of course, Duque’s government hasn’t limited itself to act only in the economic
field.
What about drug-traffickers?
How can they improve security?
What are they doing in terms of foreign policy?
Well, we'll cover these topics in an upcoming video here on this channel.
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