Colombia - Commercial Guide
Defense

This is a best prospect industry sector for this country. Includes a market overview and trade data.

Last published date: 2019-10-13

Overview
It has been over one year since President Ivan Duque Marquez became the leader of Colombia and Commander-in-Chief of the Armed Forces, and Colombia’s persistent problems continue to shape the new administration’s agenda: record-high coca production and public safety issues attributed to the ELN guerrilla group, criminal organizations (BACRIM), and the socio-economic problems from Venezuela.

President Duque lived in the United States for over a decade and is familiar with the laws in the United States that govern American companies and business ethics, such as the U.S. Foreign Corrupt Practices Act. One of Duque’s priorities is to combat corruption in public entities, which is pervasive in the Colombian government and has been the focus of the press and the Colombian public over the last few years, especially considering the Odebrecht scandal that exposed endemic corruption across Latin America. A focus on corruption could open opportunities for U.S. companies in the provision of goods and services. Colombia recently became the first Latin American partner of the North Atlantic Treaty Organization (NATO) in December 2018. The expectation is that the agreement will promote a more transparent procurement process and alignment with this organization and its member states.     

The defense sector had a sluggish year in 2019 that will most likely extend to 2021, mostly due to budget constraints. Colombia’s defense budget decreased slightly in 2019 (due to Peso depreciation) to a total of USD 10.5 billion. Of this total, USD 438 million is earmarked for purchases of equipment and hardware. For 2019, the budget continues to be focused on maintaining the operative foot of force that is needed to cover the rural zones formerly occupied by FARC guerrillas, now seeing presence of ELN and BARCIM. Additionally, Colombia’s Armed Forces continue to transform into a traditional force that protects national sovereignty from external threats, instead of solely fighting an internal conflict against armed guerrilla groups. 

The Peace Agreement with FARC and Post Conflict
The demobilized guerrilla group FARC has converted itself into a small political party that has had no official army since the peace deal was signed in 2017. There is a dissident faction of the FARC that did not demobilize, and their numbers are estimated to be from 2,500 to 3,000 members. This dissident FARC group has resumed kidnapping and drug smuggling activities, especially along the Colombia-Ecuador and Colombia-Venezuela border area. The government is investing significant resources in the reintegration process of former combatants but has also warned that FARC dissidents who do not join the formal peace process will be treated as criminals and will forfeit all benefits given by the peace treaty. President Duque stated in July that he believes the Venezuelan government is supporting and hosting FARC dissidents including some of their former leaders. Since the new administration has taken office, many key dissident leaders have been captured or killed in action.

Record Levels of Coca Production
In recent years Coca cultivation in Colombia has reached record-high levels of approximately 209,000 hectares. There are many reasons for the increase, but perhaps the largest driver of the growth in the sector is how lucrative the crop is for farmers and the lack of fumigation with glyphosate. One ton of corn sells for approximately the same price as one pound of cocaine paste. The Colombian Government banned aerial spraying in 2015 over concerns that the chemical agent used in spraying was carcinogenic, but is currently weighing a decision to re-start aerial spraying with this chemical. While this process is much faster and effective than alternative methods, most eradication is now carried out manually, which is labor-intensive, extremely dangerous, and slow. Colombia’s rugged and mountainous geography makes manual eradication difficult and the landscape is riddled with landmines, IEDs and snipers. The Colombian Armed Forces are being tasked with clearing landmines, manual eradication of coca, and the protection of the eradicators. At the start of 2019, the government promised to eradicate 100,000 hectares of coca crops by the end of 2019. The use of drones for aerial spraying is now being discussed and carried out in small, pilot projects, but has had limited success due to logistical complexities. 
 
ELN Peace Negotiations 
Peace talks have been suspended with Colombia’s largest remaining guerilla group known as the National Liberation Army, or ELN. Negotiations were taking place in Ecuador and had moved to Cuba, which is where the peace deal was reached with the FARC in 2017. During the first few months of 2018, there were bombings around the city of Barranquilla that targeted three police stations, fatally wounding five officers and injuring 41 people. This event led President Duque to end peace talks. Additionally, ELN claimed responsibility for a car bomb attack that occurred on January 17, 2019 at a Bogota police academy, killing 20 people. The Government of Colombia has requested the extradition of five heads of ELN to the Cuban government, however, there are no expectations of the Cuban government complying with the request.  
 
The Rise of “Bandas Criminales”, or “BACRIM” (Criminal Organizations)
Colombia’s criminal organizations are composed mostly of former right-wing paramilitary groups, small narco-trafficking organizations, and FARC/ELN dissidents, who have been fighting to control areas used in the cultivation and production of illicit drugs, illegal mining operations, and illegal logging. BACRIM does not espouse any ideology other than profits and personal enrichment. Some of the most notable BACRIM organizations are composed of drug traffickers and guerilla groups decedents, some of which have the support of Mexican cartels. One of the ongoing priorities of the Colombian Armed Forces is to gain control of remote parts of the country and establish a government presence to thwart further advances by the BACRIMs. Many of these areas continue to lack a stable government presence and have been under the control of criminal organizations. 
 
Security in Urban Areas
As life in rural Colombia experienced a decrease in fatalities and kidnappings, the cities have suffered a surge in violence, mostly caused by the demobilization of paramilitaries and guerilla groups. This violence is often focused on drug-related vendettas and is a major challenge for the National Police. In some cities, such as the port city of Buenaventura, violent crime has reached the point where the military has assumed many responsibilities of the police force.
 
Regional Issues: Venezuela and Nicaragua
A desperate attempt by the Government of Venezuela to shift attention from a deteriorating domestic situation, where food shortages and an autocratic regime are fomenting social unrest, street protests, and violence that have created one of Latin America’s largest refugee crises in history. The combination of Venezuela’s chaotic economy suffering from hyperinflation (which has made food and healthcare inaccessible for many) and Colombia’s criminal insurgency has led to high criminal activity within the Colombia-Venezuela border. As the crisis in Venezuela drags on, many inhabitants have fled to other countries such as Colombia, the United States, Spain, and other South American countries. Colombia’s foreign minister stated in October 2018 that there could be up to 4 million Venezuelans in Colombian by 2021. As of May 2019, there are an estimated 1.2 million Venezuelans in Colombia, which has put strains mainly on Colombia’s healthcare system. 
Nicaragua and Colombia continue to disagree over maritime boundaries in the Caribbean Sea, where Colombia exercises sovereignty over the islands of San Andres and Providencia. The International Court at The Hague has sided with Colombia’s claim of sovereignty over the San Andres Archipelago, but not with Colombia’s claim that the 82nd meridian west is the maritime border between the two nations. The issue continues to be tense but has not dominated news headlines in recent years.  
 
The Government of Colombia’s 2019 Defense and Police budget is focused on modernizing the Armed Forces. Ongoing conflicts will sustain spending of approximately 3.6 percent of the country’s annual economic output on training and equipment for the military and police. Overall, the 2019 defense budget received an annual 6.6 percent increase, which will have little impact when considering inflation and Colombian Peso devaluation. According to Colombia’s Defense Minister, the increase in the budget will prepare the country for any threat and fully support the peace process with the FARC. The budget will allow for the slow replacement and maintenance of ageing equipment, the building of new police stations (battalions and commandos), upgrades to communication equipment, and support for demining brigades. The Ministry of Defense added that part of the increase in military investment will be used to return Armed Forces to areas that have not seen troops in a long time because of the FARC. This return of more manpower has expensive logistical repercussions. 
 
The Colombian Armed Forces have a budget of approximately USD 10.5 billion, which is equivalent to roughly fifteen percent of the total Colombian budget for 2019. Most of the defense budget will be designated for operational activities, such as payroll, procurement of basic goods and services, and pensions. Only USD 437 million (about four percent) will be invested in strengthening the security and strategic capacity of the Armed Forces through the purchase of new equipment.
 
The internal and external defense and security structure is composed of the Army, Navy (includes Marines and Coast Guard), Air Force, and the National Police. Under Plan Colombia, significant U.S. funding, technical assistance, and equipment support have been provided to Colombian-led counter-narcotics programs for drug eradication and interdiction. Plan Colombia expired in 2012, but American support remains critical to Colombia’s Armed Forces, which today mostly comes from the U.S. State Department’s INL division (International Narcotics and Law Enforcement Affairs). 

Despite the peace accord with the FARC, the Colombian government continues to spend on military training and the fight against narco-terrorism, trade in contraband, and to secure at-risk areas using the National Police. Colombia is especially committed to developing security surveillance and enforcement in remote regions of the country such as La Guajira, Arauca, Choco, Putumayo, Narino, Cauca, and Meta, areas where the government has exercised little to no presence, giving leeway for criminal activity to flourish.
 
Through the Foreign Military Sales Trust Fund, the U.S. Department of Defense provides equipment and training to the Colombian military and police by means of military assistance programs. Other sources of funding include the U.S. State Department and programs that it administers, such as the INL program. INL has been the main source of funding for equipment acquisition in Colombia since 1990 through private military consulting firms. These firms operate through an open market competitive bidding system, mainly focused on supporting the police force for drug eradication/interdiction operations.

The Colombian congress approved Law 80 in 1993, under which preferential treatment is given to goods and services for security and national defense made in Colombia by local manufacturers over goods made by foreign manufacturers. However, under Chapter Nine of the National Treatment Caveat of the United States-Colombia Trade Promotion Agreement (TPA), U.S. companies must be treated as locals when they participate in public bids, eliminating the disadvantage they used to face prior to the implementation of the TPA. Typically, some non-sensitive equipment may be procured through Colombia Compra Eficiente, but most sensitive hardware, which is the majority of purchases, is acquired through private invitations, a process that is not always transparent or easily understood by many foreign companies. American companies should inform the U.S. Embassy in Bogota of their intentions to bid on an RFP and, if possible, have the Embassy advocate for a U.S. solution.
                                                                               
The United States continues to enjoy a privileged relationship with Colombia with regard to military equipment acquisitions. However, competitors from Israel, France, and Germany are also important players and are increasingly gaining market share. The Colombian military tends to use standardized equipment and values relationships, quality, warranties, interoperability, and familiarity with the equipment. According to unofficial estimates, U.S. imports generally make up close to 50 percent of Colombia’s total imports of military equipment.  
                   
The Colombian military maintains high standards for its equipment, which has historically been a great opportunity for U.S. exporters. However, the United States could lose market share in the future due to more competitive bidding from foreign manufacturers and corruption in the procurement process. U.S. manufactured fabrics are already losing market share in certain sectors such as specialized fabrics for uniforms, which are increasingly being sourced from China.

Colombia has persistent corruption issues across many different sectors which can make participating in the public procurement process difficult. It is essential for American companies to find a local representative to support in-country dealings. It is also important for American companies that are participating in public tenders with the Colombian Armed Forces to contact officials at the U.S. Department of Commerce at the American Embassy in Bogota and make them aware of their participation.     

Leading Sub-Sectors
In 2019, Colombia will continue to be a major defense equipment importer via state-owned entities; INDUMIL (arms and ammo), CIAC (aviation), CODALTEC (digital), and COTECMAR (naval). These entities can be key partners for American companies that are willing to do technology transfers. 

Like other armed forces, Colombia continues to upgrade equipment in all branches of the military, making it an attractive market for a variety of products and services:
•    Upgrades, parts and support for the Blackhawk and Huey helicopter fleets
•    Construction of Command and Control Centers in Bogota and other cities
•    All type of equipment used for demining, especially light hand-held devices to be used in rugged terrains
•    Transport trucks, including regular (troop and cargo carrier), armored and tactical
•    Upgrades to fixed-wing aircrafts
•    Artillery: modernization of existing equipment and possible purchase of additional units
•    Riverine and maritime boats
•    Tactical and survival equipment
•    Radio communication systems
•    All types of tactical equipment as well as bomb disarming gear
•    Equipment for manual eradication of illicit crops
 
American companies can also consider providing materials, equipment, and machinery to local manufacturing facilities:
•    INDUMIL (manufacturer of Galil rifles, Cordoba pistol, ammunition and explosives)
•    COTECMAR (currently manufacturing patrol vessels under Fassmer’s license and LPR 40s)
•    CIAC (Manufacturer of aircraft parts and the T-90 Calima)
•    CODALTEC (simulator manufacturer and software developer)

Opportunities
Military equipment trends have remained constant following the 2016 peace deal signed with the FARC since the government continues to fight drug trafficking groups and to conduct drug interdiction and eradication. Due to the improvement in security, the Colombian Air Force has been more involved with military and civilian rescue operations. In 2010, the Air Force created a new rescue unit that has increased purchases of rescue equipment and life support systems. The National Police is expanding its activity in civilian and urban surveillance, adapting its force and upgrading its equipment to this environment. Recent Navy purchases and investments in COTECTMAR indicate that the government’s interest is in increasing the protection of the Caribbean coast, especially around the islands of San Andres and Providencia. There has been ongoing interest from the Ministry of Defense to purchase fighter jets, with possible candidates including the F-16. However, this project has been moving very slowly, mostly due to budget constraints and the fact that the Airforce must review the pricing of every option available in the market. Cavalry continues to show considerable interest in upgrading its armored, lightly armored, and tactical vehicles to better control national territory and sensitive border areas.
 
In 1990, the United States Government provided Colombia with 18 UH-1N helicopters and Colombia has since bought 36 more. In 2010, the Colombian military had 280 helicopters and 200 fixed-wing aircraft with no new major purchases projected through 2019, except for a possible purchase of helicopters with higher capacity to transport troops and equipment. Due to this large aircraft fleet, there are continuous opportunities for training, parts, and maintenance of these aircraft, especially Blackhawk rotor blades, repair services, and erosion-resistant coating systems. Other opportunities include: parameter security protection systems (convoy security, security walls and fences, and video surveillance systems), safety and survival accessories, search and rescue equipment, protective clothing, emergency medical equipment, and trauma-life support systems.
 
Colombia’s Armed Forces personnel total 511,550, with 369,100 active personal and 142,450 reservists. In recent years, key needs have been ammunition, night vision goggles, survival equipment and kits (up to USD 400,000 per year), flight suits and footwear (up to USD 200,000 per year), personal arms (M4 rifles, M9 pistols), grenades, binoculars, and medical equipment. The Colombian Army continues to upgrade its equipment and uniforms with engineered textile solutions, smart textile materials, as well as integrated communication aircraft helmets.