Startups and Bitcoins in Colombia
Colombia, besides having six distinctly different geographical regions, also possesses one of the most ethnically and linguistically diverse populations in the World. This country has traditionally served as a natural gate for North to South Americas travelers as well as a road-way connecting Atlantic and Pacific Ocean costs. We, even, might go as far as stating that Colombia's geography has largely predefined an intense and controversial nature of its political and social lives.
Colombia gained its independence from Spain more than 200 years ago, in 1810. Almost immediately after that historical event took place, the major Colombian political factions, each armed with their distinct ideologies, which represented conflicting social and economic agendas of multiple population groups inhabited the country at this time, had entered into almost permanent state of armed conflicts.
For example, during its first year of independence, proclaimed on 20 July 1820, the United Provinces of New Granada (its territory is partly covered by the present-day Colombia) was engulfed into the conflict between two political parties -federalists and centralists, which both had had their roots in the anti-Spanish movement. In 1830, this initially peaceful, political conflict lead to a complete dissolution of the Union and to formation of the three new sates: New Granada, Ecuador and Venezuela.
However, it didn't pacified this region at all. In 1863 the new civil war had erupted in the New Granada, which lasted two years and led to the creating of the United States of Colombia, which, later, in 1866 was renamed to the Republic of Colombia.
The 20th century had only brought new wars to the Republic. In 1903 USA withdraw the hastily formed state of Panama out of Colombian territory paying $25 million to its government. In 1932 7-months Leticia War with Peru was fought for a small piece of Amazon's jungle. The year 1948 saw the beginning of the prolonged war, later called La Violencia, initiated by two leading Colombian parties - the Conservative and the Liberal. This war had lasted ten full years (up to 1958), and, as its name suggests, was absolutely devastating in its character and consequences. To make it even worse, in 1950, Colombian politicians decided to meddle into the three-years-long armed conflict on the Korean peninsula, which involved world's super-powers. This war, formally, is still in progress.
Against such an hostile historical background it had been to nobody's surprise that in 1960th multiple militarized political groups were born from a permanent chaos of Colombian political life. Among such groups the one - Marxists-Leninist Fuerzas Armadas Revolucionarias de Colombia—Ejército del Pueblo or FARC–EP - soon captured the front-lines of worlds mass-media. The Colombian guerrilla war, which had been started in 1964, was soon aggravated by the so-called "war on drugs". It lasts up to our days and involves multiple military and paramilitary units from at least a dozen countries.
This war, although it is fought predominantly in rural regions of the country, has brought long lasting devastations to Colombian infrastructure as well as caused non-reimbursed losses to Colombian society and its economy. The latest attempt to bring this war to the end was entertained on the public Referendum held on 2 October 2016, when voters rejected the FARC peace deal by narrow margin. However, the deal was soon reinstalled by the presidential decision to submit the revised FARC agreement to the Congress and House of Representatives review and approval.
1960th, 1970th and early 1980th had been not only the most tense periods of World's contemporary history, when the cold war, fought between USSR and U.S.A. on the territories of "proxy states", reached its climax, but also when Colombia's cocaine economy is emerged. While neighboring South and Central American states, hard-pressed by the USA administration, continued to tighten their anti-drug laws and to train their SWAT teams, Colombian government largely desisted from those efforts.
At this time local politicians proved themselves absolutely not capable to control a significant part of country's territory, which is covered by dense jungles and presents itself the ideal hideout for growing secrete coca plantations. This situation was exploited by unscrupulous individuals in both USA and Colombia to build one of the most profitable illicit enterprises in the history of capitalism. It has been reported that in a period between 1990 and 2000 Colombian drug cartels' revenues had reached the sum of more than $10 billion per year.
Colombia's rich mineral base as well as its unique geographical location both have made this country very promising for international investors. When the intensity of the civil war diminishes, Colombia tends to experience periodic economic booms, which almost immediately positions this country to a top list of World's largest private equities funds. Colombia's GDP growth rate has averaged 4% per year since the start of XXI century. Most of this growth might be attributed to the large scale mineral resources (primary those of oil) extraction projects.
Economically Colombia has always been over-dependent on its oil produces, extracting more than 800,000 barrels per day. Still oil constitutes more than 40% of Country's exports. In a past decade, with world's commodities prices slumped into the downfall, Colombian economy has been sailing the turbulent waters. In 2017 its GDP growth rate slowed to 1%.
For its government's ardent support to innovative technologies, specially in the military fields, Colombia was tagged by some reporters as "the Silicon Valley of South America." Colombian high-tech entrepreneurs have gotten to themselves promising but, at the same time, a relatively narrow internal market. In the past couple of decades, capitalizing on its low-cost labor advantage, Colombia, following Mexican foot-steps, has became one of the major producers of the consumer electronics in the region. This market now presents one of the major business opportunities for Colombian startup founders.
Because of Colombia's division to several economical regions, where level of living varies dramatically, this country still presents a major challenge for tech entrepreneurs living outside of Bogata. Additionally, Colombian population is predominantly poor and is characterized by very high level of inequality. On top of that, the major Colombian industries - mining and manufacturing - are highly concentrated. That urges B2B entrepreneurs to rely predominantly on personal contacts to grow their companies.
Despite Colombia government recent and mostly successful efforts to improve the security situation in the country, a personal safety remains one of the most serious obstacles to local startup ecosystem's growth. Colombia still occupies top positions in the world's list of most dangerous countries to visit.
In its "Comunicado Bitcoin" dated back to April 2014, the Banco de la Republica declared that the new form of digitalized, cryptographically protected money is not a legal tender in Colombia. Among other things Banco stated: "The only monetary and account unit in Colombia is the peso (bills and coins) issued by the Banco de la Republica. Bitcoin is not a currency in Colombia ... ."
Despite its relatively unobtrusive and, even, banal content this Communicado, for some mystical reason, had evoked a long-lasting confusion in local as well as world's mass-medias concerning the legality of crypto-currencies in this South American country. The state of general bafflement about crypto in Colombia was exacerbated even further, when the Superintendencia de Sociedades - a relatively obscure department of the Ministry of Commerce, Industry and Tourism - had stepped in this hotted dispute and delivered its own "clarification" of the Bitcoin "issue", dated at September 2017.
In their short but totally muddled two-pagers, which was, rather unhelpfully, named "Illigal results of the business activity conducted under the multi-level scheme for the sale and placement of virtual currency", local bureaucrats managed to utterly confuse themselves by desperately trying to draw the direct line between the subject of rising Bitcoin world-wide popularity and the proliferation of local "investment clubs", tagged as "ponzi schemes" in this memorandum, in Bogota.
As a result of those ill-informed efforts of local watchdogs to warn the public against non-existing threats, the issue of Bitcoin legality in Colombia has became even more fazed. Currently, after several additional more-or-less bedazzled statements have been made on crypto-themes by both Banco and Superintendencia, we, nonetheless, can conclude that Bitcoin is still legal in Colombia. However, this subject fully resides in a "gray" zone of local law and, taking into account totally non-friendly stance of Colombian financial regulators towards crypto (what is, of course, not so surprising), digital money issuance and usage in this country might be outlawed virtually overnight.
Business Notes for Startups Founders:
political climate: moderately friendly ;
economic climate: not friendly ;
regions to focus: local, Latin America;
industries to focus: electronics, E-commerce, entertainment, FinTech, tourism, luxury;
major limitations: slowing economy, over dependence on oil, security situation, large income disparity between different social group, low level of income for majority of population, high taxes;
opportunities: favorable geographic position, developed electronics industry, existence of very wealthy class of citizens, relatively high Internet penetration rate (growing at 5%).
Cryptocurrencies and ICOs (outlook): not regulated (negative).
The author: Svyatoslav (Svet) Sedov
Angel investor and founder of The First International Incubator for Silicon Valley Companies (FirstInternational.In) in the Bay Area, CA, USA.
Twitter: https://twitter.com/SvjatoslavSedof