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Why Are Colombians Considering Diversification?

In recent years, geopolitical uncertainty has become a significant driver for individuals and businesses looking to diversify their assets and mitigate risks. One country that has been experiencing such uncertainty is Colombia, which has seen a significant shift in its political landscape in recent years.
The election of President Ivan Duque in 2018 brought hope for political stability and economic growth, but his administration has faced a series of challenges, including protests, economic downturns, and increased violence. In 2022, the election of President Gustavo Petro has further increased uncertainty, prompting many to consider diversifying their assets.

Geopolitics and Uncertainty in Colombia

Colombia is a country with enormous potential. With a population of almost 50 million people, abundant natural resources, and a strategic location, it has been one of the fastest-growing economies in Latin America. However, the country has also experienced a long history of political instability, corruption, and violence. The rise of drug cartels in the 1980s and 1990s led to a wave of violence that destabilized the country and resulted in thousands of deaths.
Despite progress in recent years, Colombia remains a country with significant challenges. The government faces ongoing conflict with armed groups, including the National Liberation Army (ELN) and the Revolutionary Armed Forces of Colombia (FARC). Additionally, drug trafficking, corruption, and social inequality continue to be significant issues.
These challenges have contributed to a sense of uncertainty among individuals and businesses, leading many to explore options for diversifying their assets and reducing their exposure to risk.

The Election of President Petro

The election of Gustavo Petro as Colombia’s president in 2022 has brought further uncertainty to the country. Petro is a former guerrilla and a leftist politician who has promised significant changes to Colombia’s political and economic systems. His election has sparked concerns among businesses and investors who fear that his policies could harm the country’s economic growth and stability.

Petro has promised to introduce sweeping changes to Colombia’s tax system, including increasing taxes on the wealthy and implementing a wealth tax. He has also proposed nationalizing some industries, including the country’s oil sector. These policies have raised concerns among investors and businesses, who fear that they could lead to capital flight and a decline in foreign investment.

Diversification as a Response to Geopolitical Uncertainty

Given the challenges and uncertainties facing Colombia, it is not surprising that many individuals and businesses are exploring options for diversifying their assets. Diversification is a strategy that involves spreading investments across different asset classes and geographic regions to reduce risk. By diversifying their assets, individuals and businesses can protect themselves against losses in any one investment or region.

Spain and Mexico have historically been – and continue to be – popular “diversification destinations” for Colombian business owners, given the language and rapport between nations.

Lately, one popular option for diversification has been to move finances and open up operations in the United States. The U.S. is one of the world’s largest and most stable economies, with a robust legal and regulatory framework and a highly developed financial system. Investing in the U.S. can provide individuals and businesses with access to a wide range of financial products and services, including stocks, bonds, and real estate.

Additionally, the U.S. dollar is one of the world’s most widely used currencies, making it a safe haven in times of economic uncertainty.

Incentives for Investing in the U.S.

The U.S. and Colombia have had a free trade agreement for several years that aims to promote and encourage business between nations by removing barriers to U.S. services and eliminating many tariffs. It also includes flexible arrangements in terms of customs, technical barriers to trade, government procurement, investment, telecommunications, electronics commerce, intellectual property rights, and labor and environmental protection.

The U.S. also offers a range of incentives for individuals and foreign businesses looking to invest in the country. One of the most significant benefits is access to the country’s large and diverse consumer market. With a population of over 330 million people, the U.S. offers businesses access to a massive customer base with high levels of purchasing power.

The U.S.’s highly skilled workforce, advanced infrastructure, and robust legal and regulatory system make it an attractive location for businesses looking to expand their operations.

Some of the most significant incentives include:

  1. Tax Incentives: The U.S. offers several tax incentives to encourage foreign investment. For example, the Foreign Investment in Real Property Tax Act (FIRPTA) allows foreign investors to sell U.S. real estate without paying capital gains tax. Additionally, the U.S. offers tax treaties with many countries to prevent double taxation and reduce the tax burden on foreign investors.
  2. Visa Programs: The U.S. offers several visa programs that allow individuals and businesses to enter and work in the country. For example, the EB-5 visa program provides a path to permanent residency for foreign investors who invest at least $1 million in a new commercial enterprise that creates at least 10 jobs. The E-2 visa program allows foreign investors to start or buy a business in the U.S. and reside in the country for up to five years.
  3. Investment Opportunities: The U.S. offers a wide range of investment opportunities for foreign investors. The country’s stock market is one of the largest and most liquid in the world, providing investors with access to a wide range of stocks and other securities. Additionally, the U.S. offers opportunities to invest in real estate, private equity, venture capital, and other alternative investments.
  4. Infrastructure: The U.S. has a highly developed infrastructure that provides a favorable business environment for foreign investors. The country has modern transportation systems, a reliable power grid, advanced telecommunications networks, and world-class research facilities.
  5. Legal and Regulatory System: The U.S. has a robust legal and regulatory system that protects the rights of investors and provides a stable business environment. The country has strong property rights protections, a well-developed court system, and a transparent regulatory framework.

In the end, as geopolitical and economic uncertainty continues to foster anxiety amongst Colombians and Colombian business executives, the U.S. presents a safe haven for the diversification of assets and to mitigate risk.

If you’re considering expanding your operations to the U.S., require corporate banking services; or if you’re an individual interested in diversifying your assets by opening a bank account or working with a U.S.-based accountant, Factum Global’s U.S.-based, strategic business consultants can provide you with the support you need to have confidence in your decision to protect yourself, your family, and your business.

If you are ready to enhance your organization’s approach to sustainable development, contact us today and we’ll guide you on a sustainable international expansion journey.

March 7, 2023