Colombia took a sudden turn left this year. The country, which has been dominated by right-of-center politics throughout all of its modern history, recently elected Gustavo Petro, a former guerrilla member with a left-leaning agenda, as president.
Though the headlines are dominated by hopes and fears of what will happen under Petro’s presidency, the truth is that nobody can tell just yet. Katherin Galindo, research analyst at Colombia Risk Analysis, described the next four years under Petro as a “big question mark”, underlining the high levels of uncertainty that whirl around Colombia’s economic future.
“There’s so much uncertainty right now, because we only know his proposals, but we don’t know anything about how they would be implemented, depending on his team; and we don’t know what will be his relationship with Congress. It’s like a big question mark,” said Galindo in an interview with NSAM.
“There’s so much uncertainty right now… It’s like a big question mark”–Katherin Galindo
In spite of the uncertainties, there’s enough information out there to make educated guesses. With that in mind, Nearshore Americas has come up with four possible scenarios for the business process outsourcing (BPO) and information technologies outsourcing (ITO) industries in Colombia.
The scenarios go from best case to worst case. Each one takes into account Petro’s promises and comments made during the campaign trail, his recent interactions with entrepreneurs and world leaders, possible choices for his cabinet and comments made by analysts and industry players.
What happens: Colombia’s BPO/ITO industry maintains its growth over the first few years of Petro’s presidency. By the end of his term, the sector manages to gain more traction, consolidating itself among the main sources of employment and overall economic development for the country.
How it happens: In a best case scenario, Petro’s administration recognizes the BPO industry as a source of employment, mainly for young Colombians, which would fit well with his agenda of economic development from the bottom up.
Also in the best of scenarios, his government sees ITO investment as a powerful asset to meet his goals of technological development and distancing the country’s economy from what he has described as an “extractivist model”, in which mining and oil production are main drivers.
Petro’s pick for Finance Minister, José Ocampo, has made mention of both points (equitable development and a shift in Colombia’s main economic drivers) in interviews and op-eds, though he has focused his comments mostly on renewable energy, scientific research and tech-driven agriculture.
Jose Antonio Ocampo será nuestro ministro de hacienda. Construir una economía productiva y una economía para la vida. pic.twitter.com/Hn1f0AQ9NY
— Gustavo Petro (@petrogustavo) June 30, 2022
If the best case scenario comes to fruition, the industry could be receiving a level of support similar or even greater than the one delivered by previous governments.
It must be noted also that Petro was Bogota’s mayor from 2012 to 2015. Bogotá is Colombia’s main exporter of BPO and IT services, a fact that has given it international recognition. Nevertheless, there’s little proof that Petro had a hand in that success.
That being said, the industry could face a scenario in which the new administration makes little to no changes in Colombia’s plans and strategy for the BPO/ITO industry. This could let private enterprise and the government’s promotion apparatus work as if nothing had changed.
The Not So Good
What happens: Gustavo Petro, for the most part, ignores the industry and halts the momentum of the “Orange Economy“. With no serious commitment or interest in the sector, his administration focuses resources on matters that are most relevant to the president’s agenda and to his political base.
How it happens: The new administration is too busy dealing with the execution of its ambitious agenda of change. Social programs, tax reform, the battle against mining and oil, negotiating with Congress and the new dynamics in Colombia’s relationship with the US and the rest of Latin America take precedence over the development of the BPO/ITO industry.
Finding themselves off Petro’s radar, industry players would have to step-up their lobbying efforts and advocate for the sector, appealing to the new president’s agenda of economic development.
“The authorities [of the former government] cooked up a broth of sorts that allowed the BPO, ITO and tech industries to grow,” said Fabián Saavedra, DirectTV’s Customer Care Director in Latin America, in an interview with NSAM. “If that vision, if that push coming from the central government vanishes, the dynamic will begin to lose one of its main engines.”
Colombia’s BPO Association, “BPro“, met with Ricardo Bonilla —Petro’s main economic advisor during the campaign stage— in late June, a few days after the runoff election took place. According to the Association, they spoke about the “pillars of the [president elect´s] economic proposal”.
ProColombia —the country’s main government agency for foreign investment attraction— will play a crucial role in the near future of the business and IT services export industry. The agency identifies BPO in specific as a sector with a lot of potential that has yet to be fully exploited.
According to ProColombia’s data, BPO industry exports reached more than US$353 million in 2021, making it the biggest exporter of services in the country. It is followed by the export of IT services, which reached more than US$218 million last year. Exports in both sectors grew 17% and 33%, respectively.
“If that push [to BPO] coming from the central government vanishes, the dynamic will begin to lose one of its main engines”–Fabián Saavedra
What happens: Some of the most radical aspects of Petro’s agenda dominate the first years of his administration, making foreign investors nervous. The industry stumbles and loses momentum.
How it happens: Petro built his political base on the promise of radical change. This pushes him to fight hard out of the gate to get the most crucial points in his agenda done as soon as possible.
Friction with the oil and mining industries leads to a heated fight, which has the potential to depress overall investor sentiment. Though the policies differ, the scenario could play out in a similar manner to what’s been seen in Mexico with president Andrés Manuel López Obrador.
Colombia’s relationship with the US enters a sour patch thanks to three main issues: 1) Petro’s critique of US interference in Colombia’s anti-drug policy; 2) his plans to renegotiate the FTA between both countries, which aims to protect Colombia’s agricultural and industrial production; and, most notably, 3) his hopes to restore diplomatic ties with Venezuela.
The appointment of Álvaro Leyva as foreign minister suggests that foreign policy will be paramount for Petro and indicates that negotiations with the ELN and the reactivation of the relationship with Maduro will also be key. @SergioGuzmanE a @The_Dialogue. https://t.co/wjT1KvQFc2
— Colombia Risk Analysis (@ColombiaRisk) July 1, 2022
Petro has been critical of the Maduro regime in Venezuela. But, like other leaders in the region, he envisions a more unified Latin America. Washington still maintains a hostile policy towards Venezuela. Then again, the Biden administration recently took steps to smooth things out with the Maduro regime.
The president-elect spoke with State Secretary Antony Blinken after his victory. According to the comments made publicly by both Blinken and Petro, the conversation was cordial, focused on Colombia’s peace accord and the battle against climate change.
Great to speak with Colombian President-Elect @petrogustavo to congratulate him on his election. We discussed the longstanding U.S.-Colombia partnership and how we can work together to enhance inclusive economic prosperity, combat climate change & further deepen our relationship.
— Secretary Antony Blinken (@SecBlinken) June 21, 2022
Sergio Guzmán, Director at Colombia Risk Analysis, told Bloomberg that Petro’s election would certainly harm the country’s relationship with the US. “Come what may, the relationship is going to be frayed,” he said, pointing to the president-elect’s campaign promises.
This whirlwind of potential risks makes investors and industry players even more anxious than they already are. If Petro is unable to weather that anxiety, investors could pause their plans for investment or opt for short-term projects, just in case.
What happens: Petro goes all out with his agenda of radical change, caring little for the effects it has on foreign investment. He breaks entirely with the policies and plans that the Duque administration had for BPO/ITO. The well has been emptied. The Colombia-US relationship reaches a point of high tension. Investors pack their stuff and leave in search of greener pastures.
How it happens: Petro’s administration has absolutely no interest in developing the BPO/ITO sector. No matter how hard they try, industry players are unable to get his support.
In an attempt to gather enough funds to execute his ambitious social agenda, and following his campaign promise of harder taxes on the rich, Petro launches a campaign of fiscal terror that hits foreign and national companies alike, in all major sectors of the Colombian economy.
The Biden administration (and whatever follows after 2024) sees Petro’s opening up to Venezuela as a red flag. Tensions rise between both countries, and Colombia begins to be marked in the White House as a friend of Latin American pariah regimes (Venezuela, Cuba, Bolivia).
With no support for their industry, a heavier tax burden and the threat of a political clash with the US —Colombia’s main trading partner— investors pack up their things and leave.
Other countries from the region that have been taking notice make an effort to attract all of the capital that was scared off by the Petro administration.