VZCZCXYZ2947
RR RUEHWEB

DE RUEHBO #0834/01 0652139
ZNR UUUUU ZZH
R 052139Z MAR 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 1680
INFO RUEHCV/AMEMBASSY CARACAS 0052
RUEHLP/AMEMBASSY LA PAZ MAR LIMA 5977
RUEHZP/AMEMBASSY PANAMA 1347
RUEHQT/AMEMBASSY QUITO 6628
RHEHAAA/WHITE HOUSE WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS BOGOTA 000834 
 
SIPDIS 
 
SIPDIS 
 
WHA FOR CSHAPIRO AND JSALAZAR; PASS TO USTR MCARILLO 
 
E.O. 12958: N/A 
TAGS: ETRD ECON CO
SUBJECT: FTA'S IMPACT ON SMALL AND MEDIUM SIZE BUSINESSES 
IN COLOMBIA 
 
REF: BOGOTA 540 
 
¶1. (U) SUMMARY: Small and medium size enterprises (SME) in 
Colombia expect to benefit from the U.S.-Colombian Trade 
Promotion Agreement (CTPA) as it grows the overall economy 
and increases domestic demand.  SMEs will also benefit from 
cheaper inputs and increased capital investment flows. 
According to local experts, SMEs have minimal risk of being 
harmed by increased competition because they primarily 
operate in non-tradable industries.  The Colombian Ministry 
of Commerce, Industry and Tourism (MOCIT) has identified 
several new products that have a high potential for 
successful exportation to the U.S. and is developing 
strategies for small businesses to access these markets. 
Similarly, the U.S. Agency for International Development 
(USAID) has fostered several initiatives to help small 
businesses seize the opportunities of free trade. END 
SUMMARY. 
 
SME Profile 
----------- 
 
¶2. (U) Colombian law classifies SMEs as having fewer than 
200 employees and $3.3 million in assets.  According to the 
MOCIT, SMEs represent 96% of all business establishments in 
Colombia and generate 63% of all employment.  They also 
account for 43.5% of imports and 32% of non-traditional 
exports.  As of 2003, there were 47,750 SMEs registered 
with the Chamber of Commerce. 
 
Ample Opportunity, Minimal Risk 
------------------------------- 
 
¶3. (U) Colombia's business sector, including SMEs, 
continues to boom thanks to reduced violence and economic 
growth.  A recent Cornell University study shows that the 
survival rate of small ventures in Colombia has doubled 
since 2001 as entrepreneurs have proven increasingly 
willing to take risks in Colombia's stabilizing 
environment.   According to Guillermo Perry, director of 
Fedesarollo and former chief economist for Latin America 
and the Caribbean at the World Bank, Colombian SMEs 
primarily operate in non-tradable industries (construction, 
retail, transportation, etc.).  He sees minimal risk that 
international competition will harm SMEs, and predicts the 
firms will likely benefit indirectly from the CTPA in the 
following ways:  1) their ability to acquire lower cost 
inputs, machinery and technology; 2) the increase in demand 
for services provided by SMEs as trade liberalization grows 
the overall economy; and 3) increase in demand for SME 
inputs to larger exporters. 
 
¶4.  (U) The MOCIT has identified 590 products that have a 
high potential for successful export to the U.S.  These 
products and industries come from all regions of Colombia. 
The majority of products are in the following sectors: 
machinery and electrical/mechanical equipment; common 
metals and related products; agricultural products (sugar, 
palm oil, tobacco, margarine, frozen fruit); clothing 
(fabric and leather); plastics and rubber; and 
transportation equipment.  While most of the products are 
produced by non-SME firms, many SMEs contribute inputs or 
services for these sectors. 
 
Inadequate Infrastructure and Credit Availability Chief 
Bottlenecks 
--------------------------------------------- --------------- 
------- 
 
¶5.  (U) Perry suggests that Mexico's experience with NAFTA 
can inform Colombia's preparation for the CTPA.  He 
explained that while the Mexican economy benefited greatly 
from NAFTA, the lack of infrastructure and planning caused 
some communities to be left out.  Also, many SMEs failed 
because they could not get the credit needed to make their 
operations more competitive and flexible due to the Mexico 
peso crisis that was not related to NAFTA. 
 
¶6.  (U) Both Perry and Norman Correa, President of the 
Association of Micro, Small and Medium Size Businesses 
(ACOPI), stress that the GOC needs to aggressively address 
Colombia's poor infrastructure (e.g. ports, rail, roads and 
airports) in a strategic manner so that the entire country 
 
can benefit from trade integration. While the GOC has begun 
this process (reftel), many local experts worry the long 
time line needed to complete infrastructure improvements 
and Colombia's clouded experience with infrastructure 
development could impede full realization of CTPA benefits 
for all sectors in the near term. 
 
Smoothing the Transition 
------------------------ 
 
¶7.  (U) With U.S. assistance, the GOC has begun taking 
steps to assist SMEs in receiving the training and access 
to credit necessary to strengthen their operations and 
enter the export market.  Mr. Correa praised the GOC 
strategy approved in 2007 (CONPES 3484) to overcome 
weaknesses in businesses by marshaling public and private 
sector resources to provide microfinance, training, market 
information, and reduce costs of formalization. 
Additionally, the Colombian government is reforming the 
banking and microfinance systems to give small businesses 
and farmers the transitional support they need to target 
new markets and respond to market forces. 
 
¶8.  (U) The joint USG-GOC Trade Capacity Building Group 
provides technical support and training activities to help 
SMEs effectively transition to free trade.  The group 
provides training in international procurement 
standards/requirements, integration into supply chains, and 
compliance with critical technical norms/standards.  The 
group, with USAID assistance, also encourages small 
businesses to attain economies of scale by forming trade 
associations and alliances with large exporting 
enterprises.  From 2006 - 2010, USAID will spend $50 
million on technical assistance programs to improve 
competitiveness of small businesses and $10 million on 
microfinance activities.  These programs lay the technical 
foundation for SMEs to participate in the international 
marketplace once the CTPA is approved. 
 
¶9.  (U) Correa told EconOff that he was hesitant to predict 
which industries would benefit most from the CTPA as it 
would depend on how individual SMEs prepare for and take 
advantage of opportunities.  He stated that the pathway for 
success would be for SMEs to identify niche markets, 
improve operational efficiency, and cooperate with U.S. 
partners to enter the supply chains of companies sourcing 
products from Colombia. 
 
Brownfield