Colombia free zone deal tipped to be first of many for Dubai

Reg Natarajan / Creative Commons

• Trade hub and free zone to be developed in Cartagena
• Zone will be modelled on Dubai Multi Commodities Centre
• Analysts say deal could be playbook for larger projects

Dubai Multi Commodities Centre is to develop a trade hub and free zone in Colombia, which could be the first of many as the emirate seeks to boost relations with Latin America and elevate foreign trade to AED2 trillion ($540 billion) over the next five years. 

DMCC signed a memorandum of understanding last week with investment holding company Dakia U-Ventures to develop the Cartagena International Commerce Zone in the coastal city, in collaboration with Colombian federal and national government entities.

The free-trade designated territory will be a common law district based on English common law, offering arbitration facilities, incorporated country risk insurance, global trade networks and access to capital. 

The zone, which will be modelled on the DMCC, will become Latin America’s first common law district arbitration centre.

Wes Schwalje, chief operating officer at Tahseen Consulting, told AGBI that the Colombia deal could act as a pilot for similar projects with larger trade partners.

“It is interesting that such a partnership has been pursued with Colombia as opposed to more significant South American trade partners like Brazil or Peru,” he said. “However, Colombia is a great partner to pilot the approach… This could certainly be a playbook that is borrowed by other free zones in Dubai and the United Arab Emirates to boost trade and investment.”

The memorandum of understanding “is a very promising potential tie-up to start exporting some of the UAE’s know-how in the development, operation and financing of free zones. With Colombia’s exports very commodity dependent, DMCC is a natural partner to share learnings. There is a developing trade relationship that both the United Arab Emirates and Colombia want to grow so the partnership is also timely,” Schwalje added.

The UAE’s bilateral trade relationship with South America is valued at nearly $7 billion, but Colombia represents just 5 percent of the trade volume. 

A DMCC statement said the Dubai free zone, which has more than 20,000 companies, and the Cartagena International Commerce Zone aim to offer passporting rights between the two.

The project was announced by the president of Colombia’s Senate, Juan Diego Gomez Jimenez, at a forum in the US city of Miami.

Ahmed Bin Sulayem, executive chairman and CEO of DMCC, said: “This will shape the future of trade by creating a new virtual and physical trading corridor between Colombia and Dubai, while supporting the national strategic objectives of Colombia and unlocking its enormous growth opportunities. DMCC’s regulatory trade environment and free zone model shaped over 20 years is the blueprint for global market connectivity and growth. 

“This blueprint will be instrumental as we partner to develop a new world-leading free zone that drives [foreign direct investment] between two extremely dynamic markets, while providing transformational trade opportunities for the broader Central and South Americas through Dubai.”

Marcos Casarin, chief economist for Latin America at Oxford Economics, told AGBI: “The deal to explore the free zone in Cartagena is positive. I must say I was slightly surprised with the timing, as we’re in the final months of Colombian President Iván Duque’s administration – the election is on May 29. 

“The favourite in polls to replace him, Gustavo Petro, will likely bring a less pragmatic cabinet, so I’m positively surprised they managed to get it through before the change in government.”

Casarin added that the deal could not come soon enough for the country’s economy. 

“Colombia’s economic growth model is mostly driven by domestic consumption, almost 90 percent of GDP is made of private and public consumption – and a lot of it is made of imported goods and services. The export sector is quite small and Colombia has not made any gains in global market share in any of its export categories since the late 1990s.”

He added: “There’s also the need to diversify Colombia’s exports base, both geographically and in terms of product mix, and this is something the deal to explore the free zone can have a significant contribution by opening Colombia to other markets outside its vicinity.”  

Roughly two-thirds of Colombia’s exports go to the US, Canada or the rest of Latin America, meaning it struggles to reach Asian, European and Middle Eastern markets. 

More than half of exports are minerals (crude and refined oil, coal) and less than 20 percent are manufactured goods, which provide the biggest added value. Even in services exports, over 60 percent comes from tourism alone. 

The deal comes a few weeks after Expo 2020 Dubai hosted Global Business Forum Latin America 2022, organised by Dubai Chamber, which heard that the combined GDP of Latin America reached $5 trillion in 2021, with the regional economy growing by 6 percent last year. It is expected to grow by 4.3 percent between 2021 and 2025.

Brazil and Mexico are the largest economies in the region, accounting for $1.6 trillion and $1.3 trillion in GDP respectively. They are followed by Argentina at $455 billion, Chile at $331 billion, Colombia at $301 billion and Peru at $226 billion.

Colombia’s economy at a glance

• Productivity growth has been a drag on economic growth over the past 20 years
• Exports are highly concentrated in non-renewable commodities, particularly oil, which increases the economy’s exposure to external shocks, according to the World Bank
• Colombia has some of the highest income inequality and labour market informality in Latin America
• Its economy is projected to grow 7.7 percent in 2021 and be back at 2019 levels before year-end 
• Investment is expected to rebound gradually in 2022 as major infrastructure projects such as the 4G roads network and the Bogota metro resume at full speed
• Inflation is projected to return to the central bank’s inflation target of 3 percent in 2022, driven by an increase in production costs abroad and by the depreciation of the peso
• Some 2.1 million people are estimated to have escaped poverty in 2021, based on the official poverty line. However, around 18.9 million people remain poor, up from 17.5 million before the pandemic