Alvaro Uribe: The Turnaround Champion

Colombian President Alvaro Uribe gets widespread praise for dramatically improving Colombia's image and business climate.

BY JOACHIM BAMRUD

When Alvaro Uribe leaves Colombia’s presidency on Saturday, he can boast one of the most impressive turnaround stories in world history. His country has gone from being a “failed state” of rising terrorism and weak investor interest to a global model in fighting crime and an investor darling thanks to a dramatic improvement of security and a series of investor-friendly reforms during his eight-year tenure. 

“President Uribe is one of history’s great men,” says Thomas J. Donohue, President and CEO of the U.S. Chamber of Commerce, the world's largest business federation representing the interests of more than 3 million businesses. “He saved his country. It’s that simple.”

Susan Segal, President & CEO of the Americas Society and the Council of the Americas, agrees. “During President Uribe’s term Colombia has become one of the most important investment destinations in the Hemisphere,” she says. “Probably his most important legacy is that he made the country safe and secure on a personal level by dealing with violence, narco trafficking and the terrorist organizations that had plagued the state for many years. Business executives can now travel and live in Colombia comfortably without personal safety issues.”

KIDNAPPINGS DROP

Kidnapping dropped a dramatic 92.6 percent from 2002 to last year, while the number of terrorism acts dropped 70.5 percent and homicides fell 45.2 percent, according to a Latin Business Chronicle analysis of government data. 

Colombia is now safer for foreign multinationals than Brazil and Mexico, according to the 2010 Latin Security Index from Latin Business Chronicle.

"After so many years of a war with the guerillas and drug cartels ...Alvaro Uribe has restored a sense of pride and a sense of hope to Colombians," says Woods Staton, President and Chief Executive Officer of Argentina-based Arcos Dorados, the world's largest McDonald's franchisee.

Adds Gabriel T. Rozman, Executive VP of Global Delivery Network at India-based Tata Consultancy Services: "Uribe gave us the confidence to invest in the country. He changed to a great extent ... the branding of the Colombia - from a guerrilla infested nation to a serious business partner. His stabilization program where Colombia guarantees that the rules of the game will not change for many years, gave everyone the impression of working with a serious country."

Alvaro Diago, Chief Operating Officer for Latin America and the Caribbean at UK-based InterContinental Hotels Group, points to the difficult start Uribe had when he took over in 2002: “He inherited as many challenges as any leader has ever had to contend with in our hemisphere, and not only conquered many of them, but conquered them to international acclaim,” he says. “My hat is off to him.” 

The improved security has not only benefited foreign investors, but also local Colombian companies. Carlos Piedrahita, CEO of Compania Nacional de Chocolates, remembers how the insecurity impacted the firm before Uribe. “In the late 1990s and early 2000s, we had an average of one attack per day on our trucks, vendors, distributors and regional offices,” he says. “Some of our sales people were kidnapped. We received extortion threats. The guerrillas would say: “If you don’t pay, you can’t operate in this zone.” But our policy was never to make extortion payments. That’s why in 2001, there were 132 municipalities (the equivalent of a county in the United States) where we were forbidden to operate by guerrillas or paramilitaries.” 

Last year Chocolates had just 20 or 25 robberies in Colombia, which is fewer than it had in Mexico, Piedrahita says. “We haven’t had any restrictions on where we operate in Colombia for the past six or seven years,” he says.

FDI A PRIORITY 

However, critical to Uribe’s legacy is also the fact that he defined foreign direct investment as a priority for Colombia and his government, Segal adds. “But he did not just say it -- he created an environment which defined the rules of the game and encouraged investment,” Segal says. “In Colombia today, there is both predictability and confidence -- critical elements in attracting foreign investment.”

As a result of investor-friendly reforms, Colombia this year replaced Chile as the Latin American leader on The World Bank’s Doing business ranking. Doing Business analyzes regulations that apply to an economy’s businesses during their life cycles, including start-up and operations, trading across borders, paying taxes, and closing a business. Globally Colombia now ranks in 37th place among 183 nations. That compares with 76th place in 2006. 

It also improved its score and rank on the Latin Business Index from Latin Business Chronicle – going from 9th place in 2006 to 6th place last year. The index looks at 27 factors to measure a country’s overall business climate, including macro, corporate and political environment and globalization, competitiveness and technology level.  

Foreign direct investment in Colombia reached a total of $48.6 billion in the seven-year period 2003-09. That’s 146 percent more than the $19.8 billion the country was able to attract during the previous seven-year period, according to a Latin Business Chronicle analysis of data from the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). 

The increased foreign and local investment led to an economic boom. During the 2005-7 period, Colombia posted an average annual 6.7 percent GDP growth. Uribe’s eight-year track record is also impressive. GDP grew an average of 4.3 percent in the 2003-10 period, compared with 1.8 percent in the 1995-2002 period, according to a Latin Business Chronicle analysis of data from the International Monetary Fund (IMF).

Foreign investors across sectors say they benefited from that growth in terms of more sales. Meanwhile, the improved security and investor climate led to expansions and increased investments, according to a Latin Business Chronicle survey of prominent executives. 

Alberto J. Bernal-León, Head of Research at Bulltick Capital Markets, illustrates the change in market expectations by pointing to two visits to New York by Uribe.


”The first time I met Alvaro Uribe was in 2002, in New York,” he says. “Minutes before the meeting started I saw his finance minister (literally) begging an analyst of a rating agency to give “the country some more time” before downgrading the rating of the country, so that the government could deliver “corrective action”. Not more than 20 people attended that meeting. The last time I saw Alvaro Uribe in New York, probably more than 250 investors and analysts went to listen to his views. And no one was asking Uribe to take corrective actions. In short, Colombia went from failed state status, to being the leader of the CIVETS (second round of BRIC’s) countries.” 

The CIVETS group (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) are considered the next generation of emerging markets seeing strong growth similar to Brazil, India, China and Russia (BRIC).
 
URIBE IMPRESSES

While investors and business leaders praise the policies of Uribe for the success in Colombia, they are also full of praise for the man himself. “I have always been impressed with President Uribe’s energy and leadership style,” says Carlos Alonso, Latin America president for US health equipment company Baxter.

The former mayor of Medellin, Colombia's second-largest city and the key business city, had ample experience before becoming president in August 2002. His many public jobs included director of civil aviation, secretary general of the Labor Ministry, governor of Antioquia state and senator. As aviations director he decentralized the administration of Cali and Medellin airports and privatized the operation to collect airport and exit taxes. The latter led to reduced corruption and increased revenues for the government.

Uribe, who has a degree in administration and management as well as conflict negotiation from Harvard University, used his education well when dealing with both Colombia’s FARC terrorists and the authoritarian and volatile Venezuelan president Hugo Chavez. 

ECOPETROL TURNAROUND 

But Bernal points out that Uribe also deserves credit for the turnaround of Colombia’s state oil company Ecopetrol, a rising star in the region. 

“The Uribe administration took all the legal and economic steps needed to make Ecopetrol a viable company,” he says. “The social well being that the Uribe administration has been able to deliver via making Ecopetrol a partly privately-owned oil company is immense. Thanks to the changes implemented, Colombia has been able to increase oil production from 500,000 barrels per day in the early 2000’s to 800,000 barrels per day at this time, and it is very likely that the country will reach the 1,000,000 barrels per day mark in 2011. The jump in oil production will increase the fiscal revenues materially, and those higher revenues will allow future presidents of Colombia to implement a significantly more aggressive social policy." 

Ecopetrol last year posted profits of $2.6 billion on sales of $18.1 billion. That compares with Venezuelan oil company PDVSA’s profits of $4.4 billion on sales of $75 billion, according to the company’s own figures. (See PDVSA: More Contradictions). 

Ecopetrol ranks as Latin America’s 10th-largest company on the Latin 500, the annual ranking of the region’s top 500 companies from Latin Business Chronicle and Latin Trade.

COLOMBIA FTA 

Despite all the progress, Uribe leaves office with one major disappointment – the lack of a U.S-Colombia free trade agreement.
 
Although it was negotiated in February 2006 and signed in November that year, it has yet to be approved by the U.S. Congress. That delay has cost US exporters more than $2.9 billion in tariffs, according to the Latin American Trade Coalition.  

“The fact that he leaves office with the landmark U.S.-Colombia trade agreement unrealized is not a blemish on his record but on Washington’s,” Donohue says.  “Luckily, we have the example of his perseverance, which we’ll remember as we work to secure the agreement’s final approval.”

Uribe and his administration spent considerable time trying to counter often inaccurate information about Colombia from opponents of the FTA. One of the most common arguments against passing the agreement was lack of union safety in Colombia. In reality, it improved dramatically during Uribe’s tenure. Homicides of union members fell from 99 in 2002 to 13 last year, official data shows.
 
“He rallied his fellow citizens with his ideals, and he never compromised in his defense of democracy and economic freedom,” Donohue says.  --With additional reporting from John Otis in Bogota.

Originally published in Latin Business Chronicle, August 4, 2010