Due Diligence and International Investment
Due diligence is a process by which a company or individual thoroughly investigates all aspects of a financial or business decision before committing to it. In the case of foreign or emerging markets decisions, due diligence often means an understanding of the laws, political stability, weather patterns, currency trends, and macroeconomic characteristics of the target country or region. As part of the due diligence process, companies and individuals often rely on third-party contractors or specialized internal teams to ensure an accurate and unbiased assessment of a specific project’s costs, risks, and expected benefits.
Due Diligence and International Investment
For instance, in the case of the mining or petroleum extraction industries in Colombia, foreign (and domestic) investors must understand what the legal framework for such ventures is and how said framework may vary as governments change. Furthermore, in the case of such sensitive industries, corporations must be aware of the fact that the national government imposes upon them very strict environmental and health requirements to protect valuable ecosystems and rural communities. Therefore, foreign investors must be fully aware that, at times, they are legally required to comply with a complex amount of regulations and bureaucratic paperwork, which consumes both time and resources. All of these aspects of foreign ventures are taken into account during the due diligence process and its costs are incorporated into financial projection models.
In the specific case of Colombia, one of the key elements to keep in mind is that one US dollar (USD) was valued at 2,970 Colombian Pesos (COP) on December 13, 2016. Meanwhile, on December 11, 2017, one USD equaled 3,010 COP. Likewise, it is important to remember that Colombia is currently implementing a Peace Agreement with its last major guerrilla group, which has opened large areas of the countryside to agricultural production and commodities extraction. Similarly, foreign investors should monitor the ongoing campaigns for the 2018 legislative and presidential elections. Moreover, it is important to monitor the trade patterns of the country and amount of trade agreements that the country has in order to assess the kind of international access that each market provides.
In this regard, Latin America’s Pacific Alliance, which was created in 2012 and brings together Chile, Peru, Colombia, and Mexico, is looking to expand its membership and market union now that the Trans-Pacific Partnership (TPP) initiative seems to be collapsing. As of 2017, Panama and Costa Rica are in the process of becoming full members of the Pacific Alliance. Simultaneously, Canada, New Zealand, Singapore, and Australia have joined the Pacific Alliance as Associate Member Countries, which aims to harmonize and facilitate trade and investment flows throughout the Alliance. The Pacific Alliance is an ambitious project that has the potential of becoming Latin America’s most important integration bloc with Asian and Pacific markets.