Business & Investment sat down with César Caro Castellar, President of Barranquilla Free Zone, talking about Colombia’s economy, the future of Barranquilla, and much more.
Business & Investment sat down with César Caro Castellar, President of Barranquilla Free Zone, talking about Colombia’s economy, the future of Barranquilla, and much more.
We are now facing a complex situation due to the global context, although several reports claim that Colombia will be the fastest-growing economy this year. While Bloomberg called it one of the 15 more miserable economies in the world, The Daily Telegraph stated that it's one of the strongest in the region. Apparently it's all in the eye of the beholder. What is your assessment of the Colombian economy in 2015?
Colombia is a rich country for many reasons: its natural resources, its long coastline, its young population, and its strategic location on the map, among others. The best way to explain the moment our economy is going through right now is a pressure pot, that is closed but receives so much heat that actually blows the lid off, or you must open it slowly if you don't want to get burned. The economy has been in a pressure pot situation for over 40 years and we started to open the lid just now. If we survive these years in which we are taking off the lid and releasing the pressure, then everything that comes after that will be a profit. Those hard times are unlikely to come back thanks to everything we have learned, and despite the fact that we weren't able to take full advantage of our resources we have moved forward nonetheless.
Right now there is a boom in the demand for natural and organic products, which is definitely an advantage and an opportunity considering the extensions of arable land that we have and that have not been used in all these years. The world has changed and now people demand for organic food. For a land to be suitable for organic agriculture it must comply with certain requirements, it shouldn't have to be exposed to chemical pollutants. These are lands that can take as much as 10 years to recover but we already have those lands ready for the organic production of bananas, mangoes, avocados, all of which are being recommended by the same science that is recommending eating in a more healthy way and avoiding contaminated food. That is why all the infrastructure development in terms of roads, rivers, ports and airports, etc. makes perfect sense, the boom in the production will be significant and we will need those freight corridors to efficiently send our production abroad and back.
On the other hand, situations like the international fall in the prices of oil, coal, and mining-energy sector goods, actually have a positive side to it, because they are pushing us forward in developing our non-traditional production and being able to export them under a highly competitive exchange rate. We are now expecting Colombia to recover its industrial and commercial manufacturing identity, as well as the agriculture and cattle sectors. The government and the trade unions must be very creative in order to make this a stable and long-lasting situation, promoting the investment and modernization of the production facilities.
What is the responsibility of the private sector in achieving peace and in the post-conflict process?
Our responsibility is to make the general population aware of the legal, philosophical, psychological, and economic issues that have to do with the conflict, and thus be ready for a definitive solution. We are promoting, together with the education institutions in schools, communities, universities, and inside the companies, special training on the subject of the post-conflict context, including the basis for the strengthening of the public opinion in regard of the building of peace.
Additionally, the government must be advised by those who are familiar with the methods of the guerrilla warfare, they know how to take advantage of the community's fear, so it is important to be advised on that to bring a balance into the negotiating table in the post-conflict context.
Finally, we must worry not only about the weapons delivered, but also about the illegally-earned funding they have and which should be returned to the state as a way of repairing all the damage they made to the Colombian society.
By 2017, Colombia is expected to enter the OECD, the “Club of best practices.” How do you think this will affect the private sector?
The situation in Colombia is showing a clear path into the best corporate practices, with the economic opening and the Free Trade Agreements already signed, the country has been forced to improve its practices and comply with the requirements of its international clients. Entering the OECD involves the collaboration with the development of the other countries that are committed to transparency, respect for human rights, and the environment. Without question we are potential exporters of food, and exotic products with added value in areas like fashion, tourism, and music. We hope that with the help of the OECD we can complete that melting pot that will lead us to be more competitive.
The former Colombian ambassador to the United States, Mr. Villegas, told us that the Pacific Alliance is one of the best integration initiatives in the last 100 years. What impact do you think it will have on Colombia and on Barranquilla in particular?
Initially, Barranquilla will not directly benefit from that alliance, but the Colombia Pacific Coastline will. The port sector and its areas of expansion like Chocó, Nariño, and the Valley of Cauca, are just the beginning of a significant development that will, sooner or later, impact on the Atlantic Coast area. With the expansion of the Panama Canal, areas like Barranquilla, Cartagena, and Santa Marta will be truly privileged, they could become freight hubs for all the region of the Caribbean and the countries with an Atlantic coastline. The shipping costs are increasingly influencing the overall final costs, so if we could receive raw products and add value to them here, we could make it all more competitive and gain in the transaction. Our goal is to be a part in some of the businesses that are representative of all the sectors in the region, and turn Barranquilla into the capital of the Caribbean, because of its size, its dynamics, its openness, and its cultural diversity.
Minister of Transport Abello Vives said that Colombia is “a country of regions” and that she wishes “to leave behind a more competitive country, in motion, with progress, and always close to its regions.” What impact will a better-communicated country have on its competitiveness in the international markets?
The lack of communication has taken from us the possibility to export significant businesses. It is not the same to produce for 20 million people than to produce for 500 or 1,000 million. Despite our FTAs with a quarter of the world's population, in many sectors we don't have the capacity to supply such large markets, because our competitiveness is affected by our difficulties in the transportation of goods between the areas that produce them and the ports. For example, the cost of transporting a container from Barranquilla to Bogota is higher than the cost from Miami to Barranquilla.
If we manage to get the goods that leave the country to the south currently by road, to be exported through a multimodal transport system, using the Magdalena River as the main freight channel to the port, we will find a brand new competitiveness for the country.
Because of the focus the Colombian economy used to have on the mining and oil income, which now face a volatile international situation, the director of the ANDI, Bruce Mac Master, suggested focusing on the industrial and manufacturing sectors. He thinks that the free zones are the most effective tool for the development of the sector and to increase the exports. How could these operations be raised in order to move the economy forward, and what is the role played by the Barranquilla Free Zone?
With the new legal framework for free trade zones in 2005, the free zones got a significant thrust; however, because of the volatility in the implementation and the exchange rate, we haven't been able to fully benefit from it. Currently the Barranquilla Free Zone has the right infrastructure for the development of businesses at a global scale. These are the businesses we need to attract, because they create economies of scale, and bring added value which will in turn be more beneficial.
The Barranquilla Free Zone has multiple eyes watching the kind of investment that arrives here; it has an operator that controls the free trade zone regime, an external auditor, and the permanent presence of customs officials. Not all companies are qualified to become users of the free zone, so these controls guarantee that the companies are transparent and well-managed, and getting in return advantages in terms of competitiveness, stability, and investment security. Despite the economic uncertainty and the black clouds we are currently facing, the year 2015 has been so far our most successful in terms of infrastructure growth. For example, this year we have built 100,000 square meters in the ZOFIA – the International Permanent Free Zone of the Atlantic, when in Barranquilla it took us 30 years to build 200,000 square meters. We have managed to create a solid, trust-worthy, and well-structured product that we can offer to the investors who are interested in reaching a wide and important market.
Bruce Mac Master also stated that “even though the instrument has indeed worked, the Free Zone in Colombia is only taking its first steps considering its enormous potential.” What mechanisms and structural measures are required to fulfill that great potential?
People sometimes have a short-term view and don't take into account the whole agendas. When you go looking for businesses you must plan, structure, design and build, and that is not something you do in a short period of time. In our case, after eight years of work we managed to build a park of 1.2 million square meters with the latest technology. This new park, ZOFIA, was built according to the highest international standards for very productive industrial areas, with a system of underground wiring to avoid visual pollution, with water treatment, wide roads, large green areas, a system for the recovery of rainwater which will provide water to the population, and it is also prepared to welcome any kind of industry, contributing our experience in the free zone regime that we have acquired throughout the last 30 years. We are currently very much prepared to meet all their needs and we are going through that process experiencing a very fast growth.
The current infrastructure projects are the most important in the history of the country, they are opening up a new era, with the consolidation of a truly multimodal Colombia. Barranquilla is one of the cities that are benefiting the most from this project, not only in terms of roads but also with the Magdalena River and the Cortissoz Airport. What impact do you think they will have on your operations and how are you preparing for it, for instance with initiatives such as the Salgar Port?
In the process of building the city of our dreams, Barranquilla has now the chance of creating a superb airport, its geography allows for an amazing security and visibility, and its location at sea level makes it possible for it to operate at the maximum freight. We are expecting some very good results from the modernization of the airport, which has just been licensed.
Barranquilla is extremely important because it has both sea and river ports, and soon a large percentage of the goods that go in and out of the country will have to go through our city. The local and national governments have finally decided to recover the largest waterway in the country, the Magdalena River. With the plans for the port expansion and the projects for lifting the bridge over the river, from 14 to 40 meters, we would be improving our facilities and becoming more efficient and competitive. That would allow us to connect the products from the mining and oil sectors in the center of the country, shipped from the Salgar Port to Barranquilla, and finally into international waters.
The Barranquilla Free Zone is betting on this opportunity for development and economic growth, we are already building the port terminal at Salgar Port, and thus finishing the best logistics corridor in the whole country. To continue with our expansion plans, we have in our facilities a terminal for liquid bulk cargo, Portmagdalena, the most important in the country after Ecopetrol.
The Section Director of the Barranquilla Customs Office, Captain Jorge Eduardo Castillo Santos, said that “the Barranquilla Customs is joining in the intention of making this the main sea and fluvial port in Colombia, that is why we authorized the connection between the Barranquilla Port and the Free Zone, to facilitate the import-export process in terms of time and costs, and to be more competitive, with better service and better control.” What is the advantage of this interconnection to your clients and the city in general? What other geographical, infrastructure, and service-related advantages do you offer?
The interconnection in the Barranquilla Free Zone gives a great competitive advantage to both institutions, because it improves the safety and quickness of the delivering and receiving of the cargo.
The Free Zone also offers significant tax benefits. We have a 10% reduction in the income tax and have become a cluster that specializes in foreign trade, where we manage our clients' need in a very efficient and trust-worthy manner, so they can focus on the different international markets they work with, as much as 84 countries.
You have also entered a new phase in the business as free zone developers, building the most modern permanent free zone in the country, ZOFIA. Why did you decide to embark on this new challenge, and what are the specific advantages that ZOFIA has to offer?
ZOFIA offers a very modern and useful infrastructure, very difficult to find somewhere else in Latin America. It has 14 meter wide roads, turns suitable for 22 meter long trucks, a traffic capacity of 1,000 trucks per day carrying 50 tons each. It has security cameras controlling 100% of the operations, three different water supplies for drinking, factories, and recycled water, and different energy sources with automatic transfer and price stability clauses, in order to make good use of the different energy resources the country has. It is located in the core of the Barranquilla metropolitan area, close to all the important areas such as the port, airports, universities, hotels, and labor force, all of them not further than 20 kilometers away. There are also alternative ports like Cartagena and Santa Marta at 125 kilometers each, which makes it even more convenient for us to use the ship roads.
We will build the ZOFIA Trade Center, one of the most modern in all Latin America. It will be a trade center like no other, for the first time it will be inside the free zone, and that way it will mean a significant thrust for international business, allowing for the permanent exhibition of samples which will allow us to take orders and ship to buyers in a few hours, making it easy for Colombians to purchase goods from abroad.
The Free Zone has adopted IMS – Integrated Management System – which is a way of adopting best practices. Can you elaborate on the most prominent elements of this system and the impact it is having on your operations?
It has made us really aware of our actual business, because when you adopt transparency policies and best practices you can improve your efficiency and get to know your own business better. We are an open organization that is constantly evolving, and in that process we are becoming increasingly more secure and reliable. It gives us a clear vision of our future, with long term planning and an empowering policy regarding our employees, providing economic and social reliability and thus making our human resources to grow side by side with the company.
You have developed the “e-Franco” software, specialized in foreign trade. How was this received by your clients?
It is our best possible development; it helps our clients to handle the foreign trade tools in a safer and faster way. The software was created to improve the control and streamline the operations, to work with them at long distance and online with the Free Zone and the Customs office. This makes our operations more transparent and reliable.
The Barranquilla Free Zone was created in 1958 and privatized in 1994, as a way to respond to the general interest in improving the productivity of the state-owned companies. What would you say was the most important milestone in these 20 years of private administration?
When the free zone was handed to the private sector it operated some 190 million dollars a year, and last year we closed the operations around five billion dollars. That is a great accomplishment.
Another area of interest is the corporate social responsibility. How is the Fundación Zona Franca working to benefit the city?
We have made a difference in several areas. We have proven that it is possible to create a change of mentality that brings more hope and strength, and that is the impact we are having on the communities around us. We created Fundación Zona Franca (Free Zone Foundation) in the year 2005, as a way of promoting a better quality of life by supporting a series of programs focused on education, leisure, nutrition, and psychological development for children and teenagers. We did all this after conducting a survey in the neighboring areas about their unfulfilled needs and established that their major problem was safety, up to a point where it actually prevented the children to go to school. After that was nutrition, because of their very limited resources and the possible result this could have on the rest of their lives. We also noticed a general hopelessness in the population, because no one had really paid attention to them before, but since then we have supported the families from the surrounding areas of the free zone with the conviction that we can help them get a better quality of life.
The foundation is currently providing education and food to 1,500 children daily, on the weekends there are approximately 1,500 assisting to the sport events we organize, we make cheerleader courses for the little girls and music workshops, especially drumming, for 400 children, plus several other activities. We also have a group of people in charge of supervising that the kids are getting a good education, we give them computers so that everyone has access to the internet, which puts them all at the same level. We control the little ones to make sure that the nutrition programs actually work. Together with Universidad del Norte we developed a program that measures, through the use of games, their psychological and emotional family environment and makes suggestions to improve it. The parents are starting to become more aware and feel proud of their children, increasingly aware of their responsibility over their own kids. This is helping them to regain their sense of hope, their spirit of achievement, the joy, and the feeling that there is actually a future for them, and it is worth working for it.
How do you assess the relationship of the Barranquilla Free Zone with the United States, and how would you like to see it improve?
The United States is our main market. 15 years ago it represented 50% of our market, nowadays it has decreased in percentage because Colombia has broadened its horizons, but it still represents the bigger market with the 16%. We think that we could have an even better performance once the United States economy recovers from its latest problems. Also their close to home policy is proving to be beneficial for us, it is allowing us to multiply our businesses there in the short term. The relationship between Colombia and the United States is a win-win relationship; we have a lot to buy and a lot to sell. The important thing is to strengthen our exchange channels and invest in new technologies and in the modernization of our production, in order to meet the need of one of the most demanding markets in the world. However, we still need to focus on attracting new markets and diversifying our exports.
What is it that the people from Barranquilla have that makes them so special and different from the rest of the Colombian population?
The people from Barranquilla are open-minded, as a result of the mixture of different cultures and ethnicities. It is one of the most welcoming cities in Colombia and in the Americas. It is a significant fact that it was a new city, open and inclusive, where currently many different peoples from different parts of the world live, we received immigrants from North America, Europe, the Middle and Far East, foreigners who quickly adopted the local way of living, mixed with the locals and thus gave birth to the typical person from Barranquilla as we know it. You land in Barranquilla and people treat you so well that in a few hours you already feel as if you were one of them.
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