04 Jul ZOMAC Legal System – Agricultural projects for Investments In Colombia
In a previous article, we mentioned that with Decree 1650 of October 9, 2017, the Ministry of Finance and Public Credit of Colombia established the rules for business reorganizations by companies that decide for the tax benefits that apply in the Zones Most Affected by the Armed Conflict (ZOMAC).
The ZOMAC legal system is established to create tax incentives for those who invest in areas that historically have been affected by violence. As explained more in detail in our previous blog entry (Tax incentives for ZOMAC), the two major tax incentives are:
- Corporations may choose to pay up to 50% of their taxes through direct investment in projects of social importance or infrastructure, in the areas most affected by the armed conflict.
- New companies, whether they are micro, small, medium and large companies, that have their main domicile and develop all their economic activity in the ZOMAC, will have a reduction of the payment of income tax until the year 2027.
It is important to mention that Agricultural projects are a major bet in this decree and the investment opportunity will be greater in that area.
Agribusiness involves everything from actual agricultural production to post-harvest and processing, to national and international markets. According to the economist intelligence unit, the agro industrial sector is a major player in the national economy, generating close to 6.2% of Gross Domestic Product worldwide. In terms of exports, Colombia’s agricultural exports have increased by 32.2% within the last five years.
The Food and Agriculture Organization (FAO) from the United Nations developed an investigation of the potential for expansion of the agricultural area, without affecting the area of the natural forest among 223 countries, Colombia was classified in 25th place.
Out of the 22 million exploitable hectares in the country, only 4,8 million are occupied and in production. In other words, according to the FAO, Colombia is going to become one of the seven nations to be a world food pantry because it has enough land to expand the agricultural frontier without the need to deforest in the process.
The agro business in Colombia has been developed in six major sectors which are: Aquaculture, Bio fuels, Cocoa and Chocolate, meat industry, fruit/vegetable, and dairy.
First, the aquaculture is one of the most popular sectors in the country due to its tropical location and climate; the temperature of the water shows few variations, allowing a high productivity throughout the year. Colombia has 1,600 kilometers of coastline in the Caribbean Sea and 1,300 kilometers in the Pacific Ocean.
Colombia also has five large rivers located in the Pacific, Amazon, Orinoco, Catatumbo and Caribbean regions, that add a water extension of 9,341 km. The enormous amount of water and better practices have contributed to an increment of 100% in the fish production between 2006 and 2015, reaching 103.1 thousand tons in the last year.
Second, Colombia has about 7.4 million hectares of land that is suitable for the development of agro-fuels, and with the positive aspect that these lands do not affect natural forests.
Colombia is recognized as one of the largest Biodiesel producers in South America and fifth in the world, with more than 1,272,000 tons of biodiesel produced yearly. It has focused its production of ethanol and biodiesel on agricultural inputs with the highest energy efficiency such as sugar cane and oil palm.
Third, another significant agricultural sector is the vegetable/fruit, which occupies more than 118.000 hectares, producing about 2 million tons of vegetables, which positions the country as the fifth producer in Latin America in this segment.
Colombia is a tropical country with a variety of ecosystems, with more than 95 types of fruit trees planted, and around 42 species of vegetables. According to the Food and Agriculture Organization of the United Nations (FAO), Colombia, with a concentration of 10.9% of fruit products, is the third Latin American country with the highest number of hectares planted with fruit trees.
Last, the chocolate and cocoa industry has a potential of 2 million hectares, suitable for the development of these crops, which makes the country one of the main cocoa growers in the world.
The chocolate and confectionery sector are part of the Productive Transformation Program (PTP) of the Ministry of Commerce, Industry and Tourism, with the idea of improving sectoral competitiveness through public and private partnerships. Thanks to this program, cacao production reached 56,785 tons in 2016, which is considered a national record representing a growth of 3.6% in relation to the previous year where the production achieved the weight of 54,798 tons.
It is important to highlight that 350 municipalities of Colombia produce cocoa. The National Federation of cocoa farmers (Fedecacao) estimates that there are about 38 thousand farming families, and added to these families there are more than 100 thousand that depend on jobs associated with cocoa in the national territory.
Due to the great reliance Colombian families have on agricultural products and the low operating figures due to violence, the government was in the urge to create a legal system that would increase production and protect peasant families. For this reason, the government created the ZOMAC regulation specially for some municipalities that have been chosen due to the abundance of products and the impact of violence they had in the past.
Some examples of the previous mentioned territories are:
- Tibu located in Norte de Santander, which counts with a diversity of agricultural products such as cocoa, cassava, rice and banana;
- Fundacion in Magdalena, for its primary production is the cattle rising and dairy. The main products harvested in this region are: Corn, cassava, orange, banana, bean and tobacco.
- Apartadó in Uraba, with the banana and plantain cultivation that represent the most important economic activities of the Municipality. Apartado dedicates about 5% of its extension to plant other crops, although of less importance, as: corn, cassava, and cacao, and fruit trees such as chontaduro, avocado, and borojo.
- Orinoquia with a major agricultural production in Cacao products and exporting flowers.
To conclude, The ZOMAC areas are excellent for investment, because they have a great diversity of products and resources to be exploited and, because there are tax incentives designed to make the investment more attractive.
Jose A. Abusaid