72051422R00010 - Attachment J.9 - Private Sector Landscape Assessment.pdf

PRIVATE SECTOR

LANDSCAPE ASSESSMENT

U.S. COMPANIES IN COLOMBIA

Final Report

September 29, 2020

PHOTO: HANZ RIPPE / FERNANDA PINEDA FOR USAID COLOMBIA

USAID/Colombia Monitoring, Evaluation and Learning

(MEL) Activity

The report was produced for review by the United States Agency for International Development. It was prepared by the Panagora Group for the USAID Colombia Monitoring, Evaluation and Learning Activity, Contract number 7205419C00001. The assessment team was comprised of Jaime Arteaga, Anamaría

Martínez, Juan Sebastián Henao, and Leandro García. Substantive inputs were provided by Germán

Ospina.

Recommended citation: Monitoring, Evaluation and Learning Activity. 2020. Private Sector Landscape

Assessment, Final Report. Silver Spring, Maryland: Panagora Group. Monitoring, Evaluation and Learning

Activity.

Panagora Group Contacts:

Ana María Rivera

Chief of Party

Carrera 7 No. 74B-36, Piso 6, Bogotá, Colombia

Email: arivera@panagoracolombia.net

Leandro Garcia

Research Expert

Carrera 7 No. 74B-36, Piso 6, Bogotá, Colombia

Email: lgarcia@panagoracolombia.net

Sarah Tisch

Technical Supervisor

8601 Georgia Avenue, Suite 905, Silver Spring, MD, USA

Email: sarahtisch@panagoragroup.net

USAID/Colombia Contacts:

Natalia Leal Puentes

Private Sector Engagement Specialist

Program Office

Email: nleal@usaid.gov

Omar López

Project Development Specialist M&E

Program Office

Email: olopez@usaid.gov mailto:arivera@panagoracolombia.net mailto:lgarcia@panagoracolombia.net mailto:sarahtisch@panagoragroup.net mailto:olopez@usaid.gov

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CONTENTS

ABBREVIATIONS AND ACRONYMS

EXECUTIVE SUMMARY

1. OBJECTIVES AND KEY GUIDANCE QUESTIONS

2. METHODOLOGY

3. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

INTRODUCTION

OBJECTIVES AND KEY GUIDANCE QUESTIONS

1. OBJECTIVES AND KEY GUIDANCE QUESTIONS

CONCEPTUAL FRAMEWORK

1. FOREIGN COMPANIES

2. THE LARGEST COMPANIES IN THE COUNTRY

METHODOLOGY

1. DATA COLLECTION

2. DATA ANALYSIS

3. LIMITATIONS

FINDINGS AND CONCLUSIONS

Q1: HOW WAS THE FINANCIAL PERFORMANCE OF THE U.S. COMPANIES OPERATING IN

COLOMBIA BETWEEN 2014 AND 2018?

Q2: HOW DID U.S. COMPANIES OPERATING IN COLOMBIA PERFORM ON SOCIAL

INVESTMENT AND SUSTAINABILITY IN 2019?

RECOMMENDATIONS

QUESTION 1

QUESTION 2

ANNEXES

ANNEX I: SCOPE OF THE STUDY

ANNEX II: TABLE OF SCOPE AND OBJECTIVES

ANNEX III: LIST OF INFORMATION SOURCES USED

ANNEX IV: DATA SHEET IISP

ANNEX V: SURVEY IISP

ANNEX VI: DATA SHEET FOR THE SURVEY DONE TO FOREIGN COMPANIES

ANNEX VII: SURVEY QUESTIONS WITH FOREIGN COMPANIES

ANNEX VIII: LIST OF SUCCESS STORIES INTERVIEWS

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ANNEX IX: SURVEY QUESTIONS WITH SUCCESSFUL COMPANIES

ANNEX X: CONCEPT FOREIGN COMPANIES IN COLOMBIA

ANNEX XI: SOCIAL INVESTMENT SUCCESS STORIES OF U.S COMPANIES INCOLOMBIA

ANNEX XII: PDET SOCIAL INVESTMENT MAPS

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ABBREVIATIONS AND ACRONYMS

AMCHAM American Chamber of Commerce in Colombia

ANDI National Business Association of Colombia

BEA Bureau of Economic Analysis

CDCS Country Development Cooperation Strategy

CEA Council of American Enterprises

CSR Corporate Social Responsibility

DD. HH. Human Rights

ECON Economic Section of the State Department

FARC Revolutionary Armed Forces of Colombia

GDA Global Development Alliance

GOC Government of Colombia

GRI Global Reporting Initiative

IED Foreign Direct Investment

IISP Private Sector Social Investment Index

JA&A Jaime Arteaga & Associates

LGTBI Lesbian, Gay, Bisexual, Transgender and Intersex Persons

MEL Monitoring, Evaluation and Learning Activity

NNAJ Children, Adolescents and Young Adults

PDET Development Programs with a Territorial Focus

PSE Private Sector Engagement

PSLA Private Sector Landscape Assessment

PYMES SMEs (Small and Medium-sized Companies)

RUES Unified Commercial and Social Registry

SOW Statement of Work

USAID United States Agency for International Development

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EXECUTIVE SUMMARY

USAID/Colombia has implemented a successful strategy to engage with the private sector under its

Country Development Cooperation Strategy. The opportunities to connect and engage with the private sector with the identified Development Objectives of USAID/Colombia creates an environment where synergies can be developed among investors and contributions made to the sustainability of the larger outcome and goal.

Within this context, learning from first-hand experiences about the current working conditions and social investment strategies of U.S. companies in Colombia provides a valuable input to USAID, and will contribute to the development of a joint working agenda. The report presents the results of the Private

Sector Landscape Assessment (PSLA), whose primary objective was to analyze the deployment of capital inflows created by U.S. companies operating in Colombia from a financial perspective and also analyze the companies sustainable and social investments.

1. PURPOSE, OBJECTIVES, AND KEY GUIDANCE QUESTIONS

The PSLA included an overview of private sector contributions to Colombia's development priorities, focusing primarily on U.S. companies operating in Colombia. The purpose is to map the investments carried out by these companies and their interest in expanding these investments. By better understanding the interests, operations, challenges, and goals of U.S. companies operating in Colombia, USAID will have the evidence needed to inform strategies and programs to leverage these interests, and provide solutions to specific concerns, creating a bigger impact in the development of the country’s economy.

SPECIFIC OBJECTIVES

• Define the concept of “U.S. companies” in the Colombian context.

• Create a map identifying U.S. companies operating in Colombia and create a database with the following information: employees, amount invested, annual revenue, and type of industry.

• Analyze the general picture of the private sector and the market activities developed in different sectors, sub-sectors, specific industries, and key geographical areas. This mapping will highlight strategies, operations, and areas of interest for business. Finally, this general picture will point to strategic investments related to social and environmental issues, challenges, and limitations.

• Identify potential areas of joint interest for USAID/Colombia and the various participants of the private sector, as well as their varied approaches to market challenges. Special emphasis will be placed on investments created in prioritized regions, as well as social investments and environmental strategies. Amongst the investments emphasized are those for vulnerable communities, such as

Afro-Colombians, indigenous people, women, children, young adults, and Venezuelan migrants.

• Analyze companies where there is a high potential for USAID/Colombia to leverage private investment, networks, technical capacity, and financial, operational and labor resources. The purpose of this leverage would be to generate a greater impact on the growth of the country’s economy, or to contribute to the development of an economy driven by entrepreneurship and self-sustainability.

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• Create documents for the media, such as dossiers and press releases, to highlight positive stories related to direct investment of U.S. companies in Colombia.

KEY GUIDANCE QUESTIONS

• How was the financial performance of U.S. companies operating in Colombia between 2014-2018?

• How did U.S. companies operating in Colombia perform on social investment and sustainability in

2019?

2. METHODOLOGY

To answer the guidance questions, this study used primarily quantitative research methods to identify findings, conclusions, and recommendations. The research team conducted a series of semi-structured interviews with 10 large U.S. companies: Smurfit Kappa, Drummond, Occidental de Colombia, PepsiCo, Kimberly Clark, Cargill, DirecTV, Microsoft, General Motors, and Pfizer. The purpose was to determine, in a detailed manner, sustainability strategies and collect a series of success stories.

3. FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

The table below describes the main results from the PSLA, which are presented in more detail in the body of the report.

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TABLE 1: QUESTION 1 – HOW WAS THE FINANCIAL PERFORMANCE OF U.S COMPANIES OPERATING IN COLOMBIA BETWEEN 2014 AND 2018?

FINDINGS CONCLUSIONS RECOMMENDATIONS

1. According to Colombia’s Banco de la República, for the years 2007-2018, the country that generated the greatest inflows of Foreign Direct

Investment (FDI) to Colombia was the U.S. (USD

$28.208 billion).

2. The inflows coming from the U.S. represented 19 percent of the total of FDI inflows to Colombia during this same period. However, the inflows coming from the U.S. have had a downward trend. In 2007 they were 30 percent, and in 2018, 23 percent. The reason behind it is the growth of

FDI in Colombia.

3. The amount of FDI inflows to Colombia for the years 2007-2018 has fluctuated between USD $2 billion and USD $2.9 billion, except for the year

2010 when it plummeted to USD $1.592 billion.

4. As of the year 2018, at least 328 U.S. companies were operating in Colombia. From these, 254 companies are foreign companies, and the remaining 74 operate in the country as different legal entities.

5. According to a report published by Semana magazine in 2019, 102 of the 1,000 largest companies in Colombia are U.S. companies.

6. Between 2014 and 2018, the number of SMEs increased rapidly in the country. These organizations are operating in various sectors of the economy, leading to a diversification of U.S.

industrial activities in Colombia.

7. The participation of U.S. companies in the

Colombian economy has mostly concentrated in

1. The U.S. has played an important role in promoting the development of Colombia’s economy, which is demonstrated by FDI inflows from the U.S. during the past decade.

2. Colombia and investments carried out by the U.S.

have developed a win-win relationship. Colombia has created significant growth opportunities for U.S.

companies. A growth in U.S. companies’ assets, equities, and earnings was observed in their financial performance between 2014 and 2018.

3. The importance of FDI flows from the U.S. to

Colombia is demonstrated by the fact that 10 percent of Colombia's largest companies are U.S.

companies.

4. Large U.S. companies in Colombia are highly present in three economic sectors: the mining and energy industry, commerce and reparation of vehicles/motorcycles, and the manufacturing industry. However, their presence in other industries and sectors has also been growing for the last few years, along with the expansion of SMEs.

5. The financial performance of capital invested in the country may be heavily influenced by the overall performance of the extractive and commerce industries. This is because of the high investments by U.S. companies in these sectors.

6. The U.S. has become a key partner in stimulating

Colombia's economy by creating jobs. Between

2010 and 2018, U.S. companies operating in

Colombia have created more than 75,000 jobs.

1. The U.S. Embassy's Economic

Section in Colombia and

USAID/Colombia should consider creating an investment strategy that has a clear focus on new industries, as well as small and medium-sized enterprises. The current approach towards existing industries should also be evaluated. This can be done by studying, for example, potential cooperation models with companies in the mining and energy industries.

2. The U.S. Embassy's Economic

Section should continue implementing strategies to promote

U.S. investment in Colombia's industries, because Colombia generates a growing number of opportunities. Additionally, the national government has been implementing tax measures that benefit the foreign industries, such as the Financing Law. Finally, Colombia's strategic geographic location is viewed as attractive by new investors.

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five sectors: the extractive industry, commerce and reparation of vehicles or motorcycles, manufacturing, information and communication, and professional, scientific, and technical activities. By 2018, the mining and energy, commerce, and manufacturing sectors represented more than 80 percent of capital inflows.

8. Between 2014 and 2018, U.S. companies operating in Colombia greatly improved their financial performance (assets, equity, and earnings). According to a survey of 45 U.S.

companies operating in the country, 62 percent of them believe that their operations have grown during the last four years.

9. The extractive and commerce industries represent more than 65 percent of the total assets owned by U.S. companies between 2014-

2018.

10. According to information published by the RUES

(Unified Commercial and Social Registry), 80 percent of U.S. companies registered in Colombia reported having 49,237 permanent employees in

2018. However, in a report published by the U.S

Bureau of Economic Analysis – BEA, that number doubles. The BEA reported that in 2018, international U.S. companies created more than

86,000 jobs in Colombia. The highest number of jobs in 2018 were created by the manufacturing industry (29 percent).

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TABLE 2: QUESTION 2 – HOW DID U.S COMPANIES OPERATING IN COLOMBIA PERFORM ON SOCIAL INVESTMENT AND

SUSTAINABILITY IN 2019?

FINDINGS CONCLUSIONS RECOMMENDATIONS

1. This analysis found significant differences in the methods the 328 U.S. companies operating in Colombia use to apply sustainability indicators.

For example, while 67 percent of the largest companies published sustainability reports, only nine percent reported this information in Colombia. In the case of small and medium-sized companies, only 16 percent published sustainability reports, and only two percent did so in Colombia.

2. According to the Private Sector Social Investment Index (IISP) of 2020, the largest 26 U.S.

companies contributed USD $46.3 million in voluntary social investments in Colombia during 2019.

3. According to a survey to foreign branches, all of the 45 U.S. SME companies invested USD $10.7 million in social projects.

4. According to the IISP Index, the social projects implemented by U.S. companies focused on three main areas of development: rural (41 percent), socioeconomic (24 percent), and health (17 percent). In terms of demographics, the U.S.

companies focused their social investment resources primarily on children, teenagers, and young adults (52 percent).

5. These U.S. companies also reported that, in 2019, they invested USD $14 million in environmental factors: USD $11 million were voluntary investments, USD $2.5 million were mandatory investments, and USD $0.8 million were compensations.

6. When comparing the average performance of 26 U.S. companies to the 102 companies participating in the IISP, the PSLA Team sees an opportunity to enhance the management of their social investment. The score of U.S. companies in the various aspects evaluated by the IISP index was below average.

1. The standards regarding the inclusion of sustainability criteria and practices vary widely among U.S. companies operating in Colombia.

While some companies have high standards, others present notable opportunities for improvement.

2. The 26 U.S. companies that participated in the IISP 2020 have the lowest performance in all areas of measurement. This does not entail that all of the U.S. companies have poor IISP strategies, but there are evident, wide gaps in the sophistication and alignment to develop social investments.

3. The social investments registered by the IISP regarding both U.S. and non-U.S. companies in PDET municipalities are an opportunity to align the development goals of USAID Mission with the development goals of private organizations, in the execution of social projects. Currently, the priorities of companies when making their social investments in these regions are aligned with the policy approaches of the national government.

4. The data obtained from the survey with 45 U.S.

companies in Colombia reveal a disconnection between cooperation agencies and companies, and the need to establish processes that allow them to know each other and build alliances.

1. USAID/Colombia should consider working on creating a strategy to support U.S. companies facing these three important challenges:

spreading local supply strategies, building a closer relationship between its social investments and strategies implemented by other participants in the same territories, and prioritizing their sustainability strategies across their organizations, so stakeholders recognize them as sustainable businesses.

2. The Mission should consider creating an active networking agenda with both the Colombian government and the private sector, to combine efforts in fostering social investments in PDET municipalities.

3. The Mission could consider designing a strategy that contributes to a better promotion of the investments executed by U.S.

companies in Colombia, in order to improve their recognition among the various stakeholders.

4. It is necessary and a strategic opportunity that USAID/Colombia Mission develop an intensive process of dialogue with companies, organizations, and implementing partners regarding the contributions, challenges, and gaps of social investment of U.S.

companies in Colombia.

5. USAID/Colombia should design a protocol or communication strategy oriented to informing companies about common strategic areas of interest in the country and the

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7. Only 19 percent of the 26 largest U.S. companies did social investments in PDET municipalities (Development Programs with a Territorial Focus). These investments are aligned with four of the eight pillars established by the national government: economic reactivation and agricultural production (32 percent), rural housing, drinking water and early childhood care (22 percent), rural education and early childhood care (20 percent), and infrastructure and land use (19 percent).

8. The survey the PSLA Team conducted revealed that most of the 45 U.S. SMEs operating in Colombia agree social investments carried out by their companies had a positive impact on communities (56 percent), their companies have an established sustainability strategy (53 percent), and their social investments are aligned with the country's development agenda (49 percent). The survey also found some companies consider their investments are unrecognized (29 percent), that resources allocated to social actions are not proportional to the profits of the company (36 percent), and that social investments aren't a priority for their businesses (40 percent).

9. One of the primary reasons U.S. SMEs do not establish international cooperation agreements is their perception international cooperation agencies do not have suitable work mechanisms.

Some of the highlighted reasons are disparities in work agendas (16 percent), a high complexity on cooperation agreement processes (13 percent), operating processes of partner organizations are slow and not efficient (nine percent), and inconsistency in geographical focus (seven percent). The above reasons comprise 45 percent of the total results.

10. Regarding the expectations of foreign companies on the roles of the U.S. Embassy and USAID/Colombia, the PSLA collected results demonstrating that companies are interested in establishing agreements and creating alliances with these two entities. However, these companies ignore the reach and the opportunities available to create joint work agendas between the U.S. Embassy, USAID, and the private sector.

procedures required to work jointly with the Mission in the development of social projects. It is important to create a positive story and reduce the high levels of unawareness of the Mission in Colombia development.

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INTRODUCTION

This report presents the findings of the Private Sector Landscape Assessment (PSLA), the objective of which is to analyze the investments of U.S. companies in Colombia from a financial perspective and their performances in terms of sustainability and social investments. (For further details, see the Scope of

Work of the project in Annex I). USAID/Colombia has implemented a successful strategy to engage with the private sector under its Country Development Cooperation Strategy. The Mission has managed to implement a successful engagement strategy with the private sector.

The opportunities to connect the private sector with the Development Objectives of USAID/Colombia creates an environment where synergies can be developed among investors and contributions made to the sustainability of these initiatives. By having a better understanding of the interests, operations, challenges, and goals of U.S. companies operating in Colombia, USAID will have the evidence needed to inform strategies and programs to leverage these interests and provide solutions to specific concerns, creating a bigger impact in the development of the country’s economy.

The report is organized into five sections. The first section presents the objectives and the key guidance questions. The second section focuses on explaining the methodology used in terms of data collection, information processing and limitations of the analyses carried out. The third section presents the primary findings and conclusions of the exercise based on the structure of the key guidance questions.

The fourth section of the report focuses on recommendations derived from the analysis. Finally, the fifth section contains a series of annexes with complementary information collected throughout the study, such as the definition of what a U.S. company is in Colombia and its obligations, maps of private social investment in PDET municipalities, and success stories of these companies in terms of social investment.

OBJECTIVES AND KEY GUIDANCE QUESTIONS

1. OBJECTIVES AND KEY GUIDANCE QUESTIONS

The report provides an outlook of what the U.S. companies are contributing to the development priorities of Colombia, by mapping their investments associated with development and their interests in expanding such investments. By gaining a better understanding of their interests, operations, challenges, and goals for U.S. companies in Colombia, USAID will be able to develop strategies and programs that strengthen the interest of U.S. businesses and address their specific concerns.

SPECIFIC OBJECTIVES

• Define the concept of “U.S. companies” in the Colombian context.

• Create a map to identify U.S. companies operating in Colombia and create a database including the following information: employees, amount invested, annual revenue, and industry type.

• Analyze the characteristics of the private sector and the market activities developed in sectors, sub-sectors, specific industries, and key geographical areas. This mapping will highlight business areas of interest, strategies, operations, and strategic investments in social and environmental issues, challenges, and limitations.

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• Identify areas of potential joint interests for USAID/Colombia and the U.S. private sector, as well as their varied approaches to market challenges. A special emphasis will be placed on social investments and environmental strategies, including those created for specific groups of vulnerable communities, such as Afro-Colombians, indigenous people, women, children, young adults, Venezuelan migrants, and investments created in prioritized regions.

• Analyze companies with high potential which could take advantage of USAID efforts, raise private investment capital, and build networks, technical capacity, and resources (financial, operational and labor force) with the purpose of creating a greater impact on the growth of the country’s economy, or to build on the capacities for an economy driven by entrepreneurship and self-sustainable developments.

• Create documents for the media, such as dossiers and press releases, for the purpose of highlighting positive stories about direct investment of U.S. companies in Colombia.

GUIDANCE QUESTIONS

• How was the financial performance of U.S. companies operating in Colombia between 2014 and2018?

• How did U.S. companies operating in Colombia perform on social investment and sustainability in

2019?

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CONCEPTUAL FRAMEWORK

The first step in executing the analysis is to understand what defines a U.S. company in relation to the

PSLA. This information is key to understanding the context in which they operate in Colombia and will help in understanding their characteristics. The framework of this research considered two criteria to categorize companies as a U.S. company for this survey:

1. The company must have been registered in Colombia as a foreign branch and its main headquarters must be located in the U.S.

2. Companies of U.S. origin listed among the 1,000 largest companies in Colombia, although their operations are under legal protocols that differ from the establishment of foreign companies in

Colombia.

By meeting these two criteria, the research team defined the companies examined and presented in the various sections of the report.

1. FOREIGN COMPANIES

Foreign companies may choose several legal routes to develop businesses in Colombia. Two options are most common: create and operate a business in the country that is independent from its headquarters or create a foreign branch that is contingent upon the guidelines of its country of origin, in this case, the

U. S. This study selected the second option as the best criterion for identifying U.S. companies within the framework of this research based on viability and relevance.

Relevance is related to the characteristics of foreign branches and their bond with their country of origin. In accordance with Article 469 of the Commercial Code, foreign companies are incorporated under the law of another country and have their primary domicile abroad. Article 263 of the same Code establishes that, for a company incorporated and domiciled abroad to develop permanent activities and businesses in Colombia, it must establish a branch in the country. Companies in Colombia are established to carry out such activities that develop the corporate purpose of the headquarters and, therefore, there is an economic and legal relationship that sets them apart from other investment methods. The characteristics of foreign companies are: they receive the same legal treatment as that of commercial companies in Colombia; they are considered commercial establishments, and the branch and its headquarters are considered the same legal entity and, therefore, the headquarters is responsible for all the obligations of the branch.

Viability is related to the fact that foreign companies are required to register their country of origin in official documents. This makes it possible to identify the number of U.S. companies through databases.

The rules of any commercial company are applicable to all companies of foreign companies in Colombia.

This means, for example, that the company must register in the commercial register and request their registration in the Chamber of Commerce with jurisdiction in the location where the branch will operate. Information on the companies of foreign companies in Colombia is found in the registers of the

Chambers of Commerce, the Directorate of National Taxes and Customs, Banco de la República and the

Superintendency of Corporations.

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In short, the primary criterion identified in defining U.S. companies for the purposes of this research is that they operate in Colombia as foreign companies due to their relevance and viability. Relevance is related to the direct relationship between the headquarters and the company registered in Colombia.

Viability is related to the identifying of companies in administrative registrations. (For further information on the characteristics of foreign companies, see Annex IX).

2. THE LARGEST COMPANIES IN THE COUNTRY

Although the concept of foreign branches is the clearest way to identify companies of U.S. origin, it is not the only method for foreign companies to operate in the country. There are other investment vehicles through which the U.S. companies the PSLA Team identified can operate. For example, they can be incorporated as companies; this implies creating a legal entity independent from the company´s business associates and domiciled entirely in Colombia. Alternatively, companies can perform work activities through contracts of representation with legal or natural entities without a requirement of being present in the country. However, this is not a simple task, as no national administrative registry exists to demonstrate these investments and establish their bonds with the country of origin.

Therefore, and with the purpose of expanding the scope of the PSLA, the PSLA Team considered the criterion of the 1,000 largest companies in Colombia published by Semana magazine in 2019.1 This list of large companies was revised to identify which companies were of U.S. origin, although they were not registered as foreign branches. As a result, the group of companies for the development of this analysis was created.

This set of companies is especially important for the report due to their participation in the Colombian economy and their ability to manage social investment.

1 Semana Magazine (2019). The 1,000 Largest Companies in Colombia.

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METHODOLOGY

To answer the guidance questions, this analysis primarily used quantitative research methods to identify findings, conclusions, and recommendations. Additionally, the research team conducted a series of semi-structured interviews with 10 large U.S. companies: Smurfit Kappa, Drummond, Occidental de

Colombia, PepsiCo, Kimberly Clark, Cargill, DirecTV, Microsoft, General Motors, and Pfizer. The purpose was to determine the sustainability strategies of these companies and collect a series of success stories that will contribute to communication materials of the Mission in Colombia. The team collected the quantitative information through various methods:

• Based on secondary sources from the Superintendency of Corporations, Chambers of Commerce, Banco de la República, and the U.S Bureau of Economic Affairs, this study characterized financial variables and foreign direct investments from the U.S.

• The team conducted a survey with 45 U.S. companies operating in Colombia with the objective of deepening the Mission's knowledge and understanding of the private investment scenarios of these companies. (For further information, see the Data Sheet and Survey with Foreign Companies in

Annexes VI and VII)

• The team reviewed the performance of large U.S. companies in terms of social investment in the

Private Sector Social Investment Index. This information was collected between February and May

2020 and 26 companies participated. (For further information, see the Data Sheet and Private Sector

Social Investment Survey in Annexes IV and V).

• The team performed desk research regarding sustainability practices of the participating U.S.

companies.

1. DATA COLLECTION

The PSLA team conducted this assessment primarily using quantitative data. Apart from the implementation of surveys with U.S. companies (45) and large U.S. companies (26), the team analyzed the financial data reported by 328 companies through online platforms; to do this, it was necessary to review information reported to the Chambers of Commerce and the Superintendency of Corporations.

The team conducted a document review to define the concept of U.S. companies in Colombia. Finally, semi-structured interviews were conducted with 10 large U.S. companies identified by USAID on the basis of their social investment indicators.

TABLE 3: DATA COLLECTION TECHNIQUES

TECHNIQUE SCOPE

Document Review To establish the concept of U.S. companies in Colombia, a bibliographical review was performed, as well as a revision of regulations applicable to foreign investments in the

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2. DATA ANALYSIS

This study used quantitative data to approach the research questions. The analyses were based on descriptive statistics that provided insight into the current behaviors of the U.S. companies based on their financial indicators and sustainability performances. Regarding IISP, JA&A’s methodology was implemented, which reviews the performance of social investments from five dimensions: Alignment, Management, Focus, Synapse, and Recognition. This index calculates a score for each of the aspects according to each company’s responses. This score was then averaged and results are displayed in the

IISP.

2 To see the complete list of information sources used, see Annex III.

3 In Annex IV, the Data Sheet can be located; in Annex V, questions that were used in the measurement of IISP can be located.

4 Annex VI includes the Data Sheet; Annex VII includes the survey questions.

5 To see the complete list of interviews performed, see Annex VIII. The interview questions are located in Annex IX.

country. The websites of companies identified as U.S. companies in the country were also examined individually to codify their sustainability practices.2

Database Research • Based on the databases of entities and organizations, U.S. investments in

Colombia were identified and characterized as follows: the number of existent companies in the country, their financial performance between 2014 and 2018, and the FDI financial resources that have entered the country from 2007-2018.

• To account for FDI from the U.S., data from the sub-management of Monetary

Policies and Economic Information of Banco de la República was reviewed.

• To identify U.S. companies operating in the country, two methods were implemented: 1) The research team consolidated records of foreign companies from seven Chambers of Commerce: Bogotá, Medellín, Cali, Cartagena, Barranquilla, Bucaramanga and Cúcuta; and 2) the list of the 1,000 largest companies presented by Semana Magazine was taken into account

• Finally, for the identification of financial variables of U.S. companies, those registered with the Superintendency of Corporations and the EMIS Platform were taken into account.

Private Sector Social Investment

Index (IISP)

102 U.S. companies operating in Colombia were invited to participate in the IISP on account of being among the 1,000 largest companies in the country. Jaime Arteaga and Associates (JA&A), in alliance with Semana Sostenible, implemented this measurement with the support of USAID/Colombia in this PSLA. A total of 26 U.S.

companies participated and were evaluated on their management of sustainability and social investments.3

Survey The research team conducted a survey with 45 U.S. companies operating in Colombia to determine their sustainability and social investment practices. This survey was targeted at SMEs (small and medium-sized enterprises) in Colombia.4

Interviews Interviews for the complementation of information and provide items that can be used in communication pieces in the U.S. Embassy Economic Section and

USAID/Colombia, 10 U.S. companies were interviewed: Smurfit Kappa, Drummond, Occidental de Colombia, PepsiCo, Kimberly Clark, Cargill, DirecTV, Microsoft, General Motors and Pfizer.5

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The research team also recorded interviews of success stories that were then provided to USAID/

Colombia Mission. The most relevant aspects of the companies’ sustainability strategies were considered for the creation of the stories. These success stories were created based on the dimensions evaluated by the IISP.

In addition, the research team conducted desk research of the 328 U.S. enterprises to identify aspects of sustainability practices. To create a more complete analysis, the PSLA Team considered the fact that not all of the 328 companies participated in the IISP or the survey.

3. LIMITATIONS

This research discovered five limitations that affect the performance of the results presented:

• Non-Registration. Because of the registration processes, it is certain that not all of the U.S.

companies working in Colombia were included. This is due to four reasons:

i) The prioritization of only seven chambers of commerce does not necessarily imply national coverage and, therefore, registrations of many companies considered for the study were omitted.

ii) There were evident deficiencies in the structure of databases and annual updates of U.S.

companies with chambers of commerce.

iii) The non-participation of companies in initiatives such as the IISP and the survey with foreign companies.

iv) The lack of information regarding certain U.S. companies which prevented their participation in this assessment due to their lack of well-defined sustainability and social investment strategies.

• Extrapolation. Because of non-registration, extrapolation issues can affect the survey conclusions.

The results are representative for the sample data, but extrapolations cannot be made with certainty that this is the behavior of all U.S. companies in Colombia.

• The Context of COVID-19. For the corporate sector, the arrival of the pandemic in Colombia has entailed a series of organizational transformations that prevented additional companies from joining the PSLA initiative. Aspects such as remote work, actions towards the survival of businesses, the acceleration of digital transformation processes and joint efforts with the Colombian government in dealing with the crisis resulting from the pandemic have been priorities for the companies.

• Response Biases. It is likely that the responses given to the foreign companies survey or the IISP form are biased because companies consider that their responses may affect their ratings. However, the data analysis methodology and the certainty that information provided by the organizations is confidential help to minimize these risks.

• Lack of Reporting on Employability Issues: Two of the sources used for the purposes of this research, chambers of commerce and the RUES, reveal that U.S. companies operating in Colombia do not usually report the number of employees within their organizations. This fact prevented a

17 | PRIVATE SECTOR LANDSCAPE ASSESSMENT USAID.GOV

detailed FDI analysis of these companies in employment creation throughout Colombia, which is a determining variable for measuring the U.S.’s contribution to the country's development.

USAID.GOV PRIVATE SECTOR LANDSCAPE ANALYSIS | 18

FINDINGS AND CONCLUSIONS

In this section, this study presents the findings and conclusions of the two guidance questions stated for the study.

• Q1: HOW WAS THE FINANCIAL PERFORMANCE OF U.S. COMPANIES OPERATING IN

COLOMBIA BETWEEN 2014 AND 2018?6

In this section, the research team addresses the main findings of the review and analysis of financial variables of U.S. companies operating in Colombia. First, the role that U.S. Foreign Direct Investment has played in the national economy was emphasized. Next, the team characterizes the companies in terms of their size and the economic sectors in which they operate. Finally, the financial behavior of these companies, reflecting how Colombia has been a favorable country for their growth, is described.

MOST FOREIGN DIRECT INVESTMENT IN COLOMBIA ORIGINATES FROM THE UNITED STATES

According to data from Banco de la República,6 the most important country of origin of Foreign Direct

Investment (FDI) Colombia received in the period from 2007-2018 is the U.S. The amount of invested resources is only exceeded by that of the countries that make up the European Union. Additionally, the

U.S. has had the most stable investment flows compared with the investment flows of other countries with a significant participation in the national economy.

Between 2007 and 2018, USD $28.208 billion dollars arrived from U.S. companies, the equivalent to 19 percent of the total FDI between 2007 and 2018. During that period, investments from the U.S.

fluctuated between 2 and 2.9 billion dollars. 2010 was the only year in which this was not the case, when the FDI dipped to USD $1.592 billion, coinciding with the period in which the country received the least foreign investment (see Exhibit 1).

6 Banco de la República. (2020). Office of the Deputy Director of Monetary Policy and Economic Information, Direct Foreign

Investment in Colombia

Exhibit 1: Investment from foreign companies

SOURCE: BANCO DE LA REPÚBLICA OFFICE OF DEPUTY DIRECTOR OF MONETARY POLICY AND ECONOMIC INFORMATION.

19 | PRIVATE SECTOR LANDSCAPE ASSESSMENT USAID.GOV

The study highlights two aspects when analyzing the flow of investments originating from the U.S. to

Colombia:

• During the last 12 years, Colombia received additional FDI from other countries. While in 2007 30 percent of the FDI was of U.S. origin, by 2018 the FDI had fallen to 23 percent. This is primarily due to the fact that Colombia is currently receiving more FDI from the countries of the European

Union. This is reflected in the FDI investments the country received in 2007 (USD $8.886 billion) compared to the FDI it received in 2018 (USD $11.535 billion) from other countries.

• During the period analyzed, two contextual factors coincided with the reduction of FDI from the

U.S. The first was the 2008 financial crisis. The second was the drop in oil prices in 2014. These variables had a deceleration effect of investment in Colombia.

THE NUMBER OF U.S. COMPANIES IN COLOMBIA HAS STEADILY GROWN

Based on the identification criteria defined in the conceptual framework, in 2018 there were at least 328 U.S.

companies in Colombia identified:

254 were foreign companies with their headquarters in the U.S. and the remaining 74 were registered under different legal statuses and operated as branches in the country.

It is worth nothing that 10 percent of

Colombia's largest companies are of U.S. origin. This analysis also identified that, of the 1,000 largest companies operating in Colombia, 102 are U.S.-based, which is a significant aspect as it shows the importance and relevance of U.S. investments in the country.

For the review of the companies' financial data, this study examined the period between 2014 and 2018 since the research was focused on analyzing the investment flows of U.S. companies in Colombia during the last five years. As a methodological observation, the study did not consider financial data from 2019, as this information was not available at the time.

The analysis shows that in the last five years the number of U.S. companies (according to registered assets) significantly changed in Colombia (see Exhibit 2). This reveals that the number of companies has been growing steadily over time, especially smaller ones. While in 2014 smaller companies reached a total number of 21 companies, representing 13 percent of total companies, by 2018 this number represented 39 percent for a total number of 119 companies. This increase has contributed to the diversification in the industrial activities of the U.S. companies in the country.

While the largest companies are concentrated in energy-mining activities, specifically hydrocarbons and coal (37 percent), manufacturing activities (26 percent) and pharmaceutical (18 percent), small companies focus on commercial activities, repair of vehicles/motorcycles (19 percent ), professional, scientific and technical activities (17 percent ), extractive industries (16 percent), information and communications (10 percent) and other sectors (transportation and storage, real estate, manufacturing

Exhibit 2: U.S. companies per year

SOURCE: PSLA OF CHAMBERS OF COMMERCE AND THE SUPERINTENDENCY OF CORPORATIONS

USAID.GOV PRIVATE SECTOR LANDSCAPE ANALYSIS | 20

industries, financial and insurance activities, among others) which comprises close to a quarter of the companies (24 percent) (see Exhibit 3).

Although the participation of U.S. companies in the Colombian economy is primarily concentrated on five sectors (extractive, trade/repair of vehicles/motorcycles, manufacturing, information/communications, and professional, scientific and technical activities), the participation of other industries is increasingly growing in the country. While in 2014 other economic sectors represented 14 percent in Colombia's economy, this figure rose to 23 percent in 2018.

U.S. COMPANIES IN COLOMBIA HAVE GROWN

One of the primary results of the research reveals joint growth between Colombia and the U.S. through bilateral dynamics. The study reveals the economic benefits of the companies’ investments in the country and that Colombia has become a country offering high growth opportunities for U.S. companies.

In this regard, while the private sector grows and local economies are energized, all parties involved benefit.

According to the research, between 2014 and 2018 U.S.

companies operating in Colombia substantially improved their financial results. If assets, equity and profits generated by these companies are observed, they all show an overall increase over the period examined (see Exhibit 4 and

Exhibit 5).

Exhibit 3: Sectors of U.S. companies in Colombia

SOURCE: PSLA OF CHAMBERS OF COMMERCE AND SUPERINTENDENCE OF CORPORATIONS

Exhibit 4: Financial results of U.S. Companies in

Colombia

SOURCE: PSLA OF CHAMBERS OF COMMERCE AND THE

SUPERINTENDENCY OF CORPORATIONS

21 | PRIVATE SECTOR LANDSCAPE ASSESSMENT USAID.GOV

Likewise, the research revealed that financial indicators do not only show the growth of U.S.

companies’ operations in Colombia. In the survey with the 45 U.S. companies, 62 percent stated that their operations had grown during this period and

66 percent believe that they will expand during the next few years (see Exhibit 6). In other words, these companies have a positive view of Colombia as an investment country.

Additionally, this analysis did not see a clearly defined obstacle concerning the growth of companies. When companies were asked about the challenges they face regarding growth in the short and medium term, 26 percent of the companies were unable to identify a clear reason, 25 percent of the companies associated this obstacle with the possibility of scaling their businesses, 20 percent of the companies mentioned regulatory issues and 10 percent of them referred to promotion of products or brands (see Exhibit 7). This reveals that a specific barrier to growth is not perceived by most companies, but that their opportunities are primarily due to factors related to the management of their companies and the sectors they belong to.

Exhibit 6: Operational growth of U.S. companies in Colombia

SOURCE: PSLA SURVEY WITH 45 FOREIGN COMPANIES.

Exhibit 7: Operational challengs for U.S. companies in Colombia

Source: PSLA Survey with 45 foreign companies.

Exhibit 5: Financial results of U.S. Companies in

Colombia

SOURCE: PSLA OF CHAMBERS OF COMMERCE AND THE

SUPERINTENDENCY OF CORPORATIONS

USAID.GOV PRIVATE SECTOR LANDSCAPE ANALYSIS | 22

A relevant aspect in relation to the performance of U.S. investments in Colombia is the existence of a high concentration of financial indicators in two economic sectors: the extractive industry and commercial activities. The aggregate behaviors of investments are closely connected to what occurs in both sectors. Regarding assets, the extractive industry and commercial activities have consistently comprised over 65 percent of total assets in the period examined (see Exhibit 8). Although the participation of companies from other sectors has increased in the last few years, their contribution to assets is not yet significant.

CONCLUSIONS

• Between 2007 and 2018, the U.S was the country that invested the highest amount of resources in

Colombia. Its FDI has been the steadiest throughout the period studied.

• Both Colombia and U.S. investments have created a win-win relationship; that is, it has created great growth opportunities for U.S. companies in Colombia. When the financial results between 2014 and

2018 were analyzed, U.S. companies’ assets, equity and profits show growth throughout this period.

Likewise, when the representatives of U.S. companies were questioned about the growth of their operations in the country, most agreed their companies have grown and foresee that they will continue to do so in the coming years.

• One of the aspects that highlights the importance of U.S. investments in the country is the fact that

10 percent of the largest companies in Colombia are of U.S. origin.

• Large U.S. companies in Colombia are primarily present in three economic sectors: the mining-energy industry, the trade and repair of vehicles/motorcycles, and manufacturing. However, U.S.

participation in other industries has been growing throughout the last few years.

• Due to the focus of U.S. investments in the extractive industry and commerce, the financial results of the investments in the country is particularly influenced by the performance of these two sectors.

• The U.S. has been a key ally in the stimulation of the national economy. In the last nine years, according to the Bureau of Economic and Business Affairs, U.S. companies have created more than

75,000 new jobs in Colombia. This is how the U.S. contributes to the revitalization of the national economy.

Exhibit 8: Assets of U.S. Companies in Colombia

SOURCE: PSLA OF CHAMBERS OF COMMERCE AND THE SUPERINTENDENCE OF CORPORATIONS

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• Q2: HOW DID U.S. COMPANIES OPERATING IN COLOMBIA PERFORM ON

SOCIAL INVESTMENT AND SUSTAINABILITY IN 2019?

This section describes the analysis and findings regarding the management of social investments and sustainability of U.S. companies operating in Colombia. First, the results of the Private Sector Social

Investment Index (IISP for its Spanish Acronym) are presented. IISP is a measurement focused on evaluating the performances of the largest companies in the country based on their social responsibility.

Secondly, for USAID/Colombia, the support provided in the implementation of the peace agreements between the Colombian government and FARC is highly…