Investments from companies choosing to nearshore in Colombia have exceeded USD 1 billion in little over two years. That reportedly came in the wake of the current administration beginning to heavily promote nearshoring in Colombia, leading to 60 companies establishing operations in the country since the beginning of 2020.
Nearshoring is the process of companies moving value chains – especially the likes of production facilities – closer to their home base. It is most often used to refer to US and Canadian companies moving elements of their operations from Asia to Latin America, however it can mean any similar relocation efforts.
In general, nearshoring is partly undertaken as a response to rising production costs in Asia, as well as to relieve some of the dependency on Asian markets that governments and companies in North America and Europe have developed over recent years.
However, it also provides companies with the convenience of having operations based closer to home, meaning workers are in similar time zones and distances to markets for manufactured goods are much shorter.
According to a report from La Republica, since the Colombian government began promoting nearshoring in Colombia in 2019, the country has attracted a total of USD 1.072 billion in investment from 60 companies previously identified as being strong prospects for choosing to nearshore to the country.
That is little more than one third of the 165 companies that have reportedly shown active interest in nearshoring in Colombia, from among more than 900 contacted by investment promotion body ProColombia – suggesting that significantly more investment could be forthcoming in the near future.
“Colombia has stood out in the region for maintaining political stability and solid institutions. In addition, its strategic location in the middle of the Americas positions our country as the best point for the regional supply of goods and services throughout Latin America, offering companies competitive logistics,” Flavia Santoro, president of ProColombia, was quoted as saying by La Republica.
According to the report, among the 60 companies that have begun the nearshoring process or signed contracts and committed to nearshore in Colombia, the most common sectors represented are agroindustry, chemical production, life sciences, and metalworking.
Quoted in La Republica, María Claudia Lacouture, executive director of the Colombo American Chamber of Commerce, was keen to point out the favorable conditions on offer for companies considering nearshoring in Colombia.
“The most recent U.S. State Department’s investment climate report highlights Colombia as an optimal destination for attracting capital that offers ideal conditions for companies already located, and those looking to relocate or invest in the country,” she was quoted as saying.
Nearshore Colombia: country ideal destination for nearshoring in Latin America
While Mexico tends to be the first name on people’s lips when it comes to US companies nearshoring value chains to Latin America – thanks in no small part to the proximity and strong economic ties between the two countries – Colombia is also a strong prospect offering a range of benefits to companies that relocate there.
As stated by Santoro, Colombia’s geographic location at the meeting point between North and South America, gives it particular logistical advantages, particularly if primary goods sources elsewhere in South America are needed for manufacturing or production.
The country also boasts major ports serving both the Atlantic and Pacific oceans, providing easy access to markets in North America, Europe, and Asia-Pacific, while regular daily flights between major Colombian and US cities mean the two countries are only a few hours away for business trips.
As Santoro also highlighted, Colombia has enjoyed prolonged economic and political stability, having been led by elected governments continuously since the 1950s. While it faces similar challenges to many developing economies in terms of corruption, Colombia also boasts comparatively sound institutions.
That was highlighted in the US State Department’s 2021 Investment Climate Statements: Colombia, published in November 2021, which states:
“Colombia’s legal and regulatory systems are generally transparent and consistent with international norms. The country has a comprehensive legal framework for business and foreign direct investment (FDI).”
That same report also highlights the work done in Colombia to promote business and foreign direct investment (FDI), including developing efficient capital markets.
As the report states, that is in part thanks to a series of economic liberalization reforms introduced in the 1990s, as well as the country’s success in reducing the threat posed to major urban centers by irregular armed groups.
The country is also a major ally of the United States and European Union, with US President Joe Biden recently designating Colombia a “major non-NATO ally” in a mark of the close political and economic ties between the countries.
The success seen in attracting companies to nearshore in Colombia comes at a time when nearshoring in Latin America is receiving increasing attention and support.
In January, Inter-American Development Bank (IDB) President Mauricio Claver-Carone announced that the institution is offering to help fund transfers of value chains for companies committed to nearshoring in Latin America.
“I am not [just] talking about nearshoring, thinking only of the United States, but also of Spain. If there are Spanish companies that have invested their value chain in China or other Asian countries and want to transfer that chain to Latin America, the IDB will finance it. I believe that Europeans are beginning to see this as an opportunity,” he said at the time.
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