From Terrorism to Tourism: Waving the Flag of Development in Colombia

“This country has moved from terrorism to tourism,” former Colombian President Alvaro Uribe told delegates at the United Nations World Tourism Organization gathered in Cartagena for their General Assembly in December 2007.

Colombia’s history has been plagued by violence, corruption and crime, an image that has been readily apparent to the outside world due to media depictions and worldwide travel warnings. Guerilla fighters and drug kingpins rivaled the government in political and economic power well into the 1990s. However, the death of Pablo Escobar in the mid-1990s and President Uribe’s implementation of a comprehensive security strategy in the mid-2000s significantly weakened illegal armed groups.

As a direct result of the increase in safety and stability accomplished by the Uribe administration between 2002 and 2010, Colombia has become a destination accessible to more than just a select group of intrepid business travelers and vacationers. The country is a natural magnet for visitors, boasting richness in both cultural diversity and biodiversity. It is home to eight UNESCO World Heritage sights and is quickly becoming known for its culture and history. Bordered by two oceans, it has three mountain ranges in addition to jungle and plains regions. The country’s cultural diversity is reflected in its heterogeneous roots — mainly, indigenous, European and African. Diversity is also found in its rich urban centers, which thrive on business, commerce, and cultural activities as well as a vibrant nightlife. The largest of these urban centers, Bogotá, is currently the sixth most-visited city in Latin America and 47th worldwide.

Having only recently been a fledgling industry, tourism in Colombia is now thriving. In 2011, the tourism sector is expected to contribute 28 trillion pesos (US$15.7 billion) to GDP (4.9%), 945,000 jobs (5.4% of total employment), and 7.1 trillion pesos (US$4 billion) in capital investment. Foreign travelers’ visits to Colombia rose from 0.6 million in 2000 to nearly 1.4 million in 2009, reflecting an average annual growth rate of more than 10% (almost four times the world’s average). These recent years of growth have shaped political decision making and allowed the government to recognize tourism as a promising avenue for future economic development. Tourism has also greatly influenced the political, social and commercial environments in which Colombians live, and will continue to have important implications in these areas.

Positioning for Growth

In 2005, a multidimensional international marketing campaign, “Colombia Is Passion,” was launched to foster the expansion of tourism in Colombia. The movement aims to improve the country’s image abroad while also rebuilding morale among its citizens. This campaign, a cooperative effort between the Ministry of Commerce, Industry, and Tourism and public and private institutions, invites airline representatives, tourism-agency executives, politicians, celebrities and international media figures to see Colombia’s tourist attractions and recent achievements in safety, foreign direct investment and economic development. Funding has also been used to propagate the new official slogan: “Colombia, the only risk is wanting to stay.” This is an ongoing project with many successes realized thus far, including the inauguration of the coastal town of Cartagena as host of the World Tourism Organization’s 2007 convention. Furthermore, since the campaign’s launch, Colombia has hosted a number of other fairs and trade shows of international prestige.

The country’s appeal to potential investors is strengthened further by government investment in infrastructure. For many years, commerce in Colombia had been hindered by its out-of-date transportation network (in addition to the previously mentioned security issues). With three mountain ranges dividing the country’s most populated regions and a weak network of roads and rail links, the movement of goods had always been time-consuming and costly. The government’s renewed focus on infrastructure investment not only benefits tourism, but also improves transportation costs for unrelated sectors.

Plans to upgrade seven airports throughout the country are underway, including the current expansion of the international airport in Bogotá, which will make it one of the largest and most modern in Latin America. Since 2000, international flights to Colombia have increased by 120%, reaching an average of 5,600 flights per month as of 2008. Roberto Jungito, CEO of Copa Colombia, described the surge in tourism as a virtuous cycle: Improvements in Colombia’s image and security measures have increased the demand for flights, which has in turn increased supply, resulting in more competitive prices and an augmentation of air traffic. In addition, the 2011 Open Skies air-transport agreement between Colombia and the U.S. increases the number of passenger and cargo flights and spurs price competition among airlines.

Recent initiatives aimed at supporting broader infrastructure in the tourism industry have also been announced. For example, in September 2010, President Juan Manuel Santos introduced a 118 billion pesos (US$66 million) plan directed toward projects that benefit the construction and expansion of shipping docks and convention centers throughout the nation.

In hopes of boosting private investments in the hotel sector, the government began a program in 2003 that offers a 30-year income tax break on all construction or remodeling projects through 2018. By 2006, this had led to the addition of more than 7,300 hotel rooms and more than 152 billion pesos (US$85 million) in investment. The government also recently cooperated with the private sector to change legislation and allow the formation of Real Estate Investment Trusts (REITs), investment vehicles that facilitate the flow of foreign capital into real estate development and management. José Robledo, founder of Terranum, Colombia’s first REIT, states that “The regulatory process to launch the REIT was quite complex. However, we managed to achieve a very robust structure because government officials understood the advantages that this type of financial vehicle offered for the development of the country’s capital markets. Even so, I believe it was still unclear to them how this type of vehicle could bring benefits specifically to the tourism and hotel sector.” These benefits can be seen today, as Terranum is currently in the construction phase of several hotel projects that are financed via international parties. By allowing the formation of REITs, the government made it easier for outside institutions to finance and participate in the country’s growth.

Ripples Throughout the Economy

Due to sustained political support for the tourism industry and improvements in safety, tourism has become one of the most important sectors of economic activity in Colombia. The country receives billions of dollars in foreign exchange through tourism each year, making it the third most important sector by this measure, behind oil and coal. As President Santos noted in an announcement at the 2010 Celebration of Tourism Day in Bogotá, “tourism’s importance in generating hard currency inflows necessitates continuation of the government’s policy of growth in tourism.”

Tourism has generated strong economic growth in Colombia, which, in turn, is attracting an increasing number of investors in other sectors from around the world. The effect of Colombia’s drastically improved international reputation, while all but impossible to quantify, is difficult to refute. Net foreign direct investment has peaked in recent years, during which it has averaged approximately 16 trillion pesos (US$9 billion), or about 4% of GDP. Businesses within the tourism industry and related supporting sectors, such as restaurants and retailers, tend to be labor intensive. As a result, foreign investment in tourism has helped reduce the country’s unemployment rate, which fell from nearly 20% in the early 2000s to about 12% in recent years. Even though profits from tourism-related investments are repatriated elsewhere, a great deal of money stays within the country due to requirements that the vast majority of all employees and managers be of Colombian citizenship.

Job creation is partly a result of Colombia’s legal stability contracts and free trade zones, mechanisms that the Colombian government created to generate favorable conditions for both domestic and foreign investors. Legal stability contracts are a unique tool used to boost investor protection against political risk by guaranteeing that changes to legislation will not adversely affect the profitability of a particular investment. Furthermore, within Latin America, Colombia has some of the most competitive free trade zones. While companies in these zones reap benefits, such as a 15% corporate income tax rate and no customs tax on imports, companies must also meet both investment and job-creation requirements.

Colombia’s recent improvement in its macroeconomic performance, internal security and stability for business means more jobs and opportunities. The creation of employment, in particular, has impacted popular vacation destinations, such as Cartagena, which comprises a large Afro-Colombian population living under the poverty line. Tourism will continue to be a factor in reducing unemployment, as illustrated by President Santos’ announcement in 2011 that the national government seeks to create 250,000 jobs in the tourism sector over the next four years.

The growing tourism sector has both created new employment opportunities for locals and influenced migration to tourist-heavy cities, such as Bogotá, Cartagena and Medellin. As has been seen in other developing countries, urbanization results in the creation of new types of employment for individuals previously outside the labor force, such as women. Minister Luis Plata, in an interview with the BBC, stated that “tourism demands a lot of labor and not necessarily the most qualified labor. It has tremendous social impact,” given its effectiveness in fighting poverty.

The government, however, has identified the need for social and education programs to support the increased demand for labor — both skilled and unskilled. In 2006, the Ministry of National Education financed the Caribbean Colombian Alliance, which aims to improve education in the coastal region in order to support technical and technological training for employment in tourism and eco-tourism. Colombian higher education institutions have partnered with foundations and trade unions, local communities and the private sector to accomplish specific goals. These goals include increasing matriculation by 30,000 students, redesigning competency-based curricula to ensure alignment with those skills relevant to the tourism sector and improving educational infrastructure. Within three years, 1,500 young adults received technical training in Cartagena and now have the competencies and skills necessary to work in tourism. There are also expected to be an additional 600-plus graduates per year in the technology space. Germán Bula Escobar, former minister of National Education, praises the success of this type of initiative. “The government supports universities and the productive sector,” he notes. “It is these successes that will drive [us] to continue to support these types of alliances that benefit both education and business.”

Tourism has served as a tool for sustainable social development in Colombia. The training has led Colombia to achieve levels of human capital comparable to those found in other well-developed nations. According to the 2009 IMD World Competitiveness Yearbook, Colombian labor relations are the best in the region, and the labor force is qualified at levels similar to those of Italy and the United Kingdom. This strength, developed through linkages between the private and public sectors, will serve as a strong foundation for growth as other areas of tourism are developed, and they continue to realize additional positive social impacts.

Positive Feedback

Colombia is now on the world stage, and the stakes have been raised. The ever-increasing importance of tourism to the country’s economy places added pressure on the government to continue its multifaceted approach to support this growing sector. This includes not only maintaining a harsh stance against violence, but also continuing the government’s policy of identifying and eradicating fraud and corruption. A cautionary note can be taken from recent developments in Mexico, which ranks 10th on the list of most-visited countries worldwide and whose tourism sector comprises approximately one-tenth of its economy. In contrast to the new growth Colombia is experiencing as it emerges from an era of violence, tourism in Mexico is being threatened by a recent surge of drug-related organized crime. Local businesses have resorted to cutting prices in order to prop up demand, which still has not returned to the levels seen in 2008. Colombia’s tourism industry is less mature and only a quarter the size of Mexico’s, which means it would be even less resilient to government missteps in maintaining security and stability.

Sound economic decision-making will also be critical. To date, the Colombian government has facilitated policies that have led to rapid growth in tourism. However, tax and investment incentives will eventually expire, implying that the industry must become less reliant on such measures to attract investment in the long term.

Although Colombia’s progress in combating its global reputation issues is impressive, the country’s image is still marred by its history of violence — one of the greatest impediments to its growth. Catalina Crane, advisor to President Santos in public and private investment affairs, recognizes the importance of security for the future of tourism in the country when she states that “we need to promote the tourism sector, and as such, security remains the most important factor.”

This article was written by Juliana Berger, Paula Herrera and Kathryn Roberts, members of the Lauder Class of 2013.

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