Free trade agreement with E.U. to boost Colombia and Peru’s luxury markets
The free trade agreement (FTA-TLC) between Colombia / Peru and the European Union, which goes into effect August 1st,2013, presents major opportunities for both Colombian and Peruvian companies to boost their exports to the E.U. and for E.U. member countries to gain access to the two thriving South American markets.
The free trade agreements go beyond tariffs, to include intellectual property rights and liberalisation of services, benefiting indirectly other sectors such as banking. Colombian and Peruvian companies will be challenged to improve the quality of their products to stay competitive on their domestic markets but also to make their products attractive in the E.U. highly competitive markets. According to Colombia’s Trade Minister, Sergio Díaz-Granados, business executives must adjust their plans with a new kind of buyer in mind. “Specializing in a variety of tasks will be crucial,” he said in reference to the textile and clothes manufacturing sector.
The recently approved trade deal will sectors in Europe such as automobile sector, chemicals, and luxury goods as well as reduce tariffs for suppliers of the extractive industry sector. The European Commission sees EU exports to Colombia and Peru saving at least €250m ($325m) in duties a year within a decade
Sectors where E.U. businesses can make real gains in the new FTA (Free Trade Agreement) landscape in Colombia and Peru include:
- exports in the automotive and car parts sector which will be relieved of over €33 million in tariffs
- E.U. chemical producers that export to Peru and Colombia which will save more than €16 million on duties each year
- the textiles industry which will see significant savings of over €60 million annually
- the telecoms equipment industry which alone will save €18 million annually notwithstanding the basis created for supporting the development of an EU telecommunications services industry in the region
- pharmaceuticals products which will be relieved of the current €16 million in duties that are paid annually
The new FTA agreement between the E.U. – Colombia / Peru, will be particularly beneficial for the luxury industry. The two countries already supply fine raw materials for major E.U. companies – exotic leathers, cashmere, cotton etc. Colombian and Peruvian entrepreneurs in luxury will gain easier and faster access to E.U. countries.
Colombia and Peru present exceptional opportunities for growth for E.U. luxury exports such as cars, yachts, fashion & accessories, leather-goods and watches – especially considering the current slow-down in China and stagnation in Russia and India.
In both countries, the segment of wealthy consumers has almost doubled in the past 3 years, Colombian and Peruvians boasting a huge appetite for luxury branded goods, especially those from Italy, France and Germany. The short term potential of the luxury markets development in Colombia and Peru is infinitely higher than in rich African countries such as Angola or Nigeria.
Louis Vuitton, Hermes and Valentino are expected to open mono-brand stores in Lima (Peru) in the near future, joining major luxury brands already present in Peru such as Chanel, Dolce & Gabbana, Ferragamo and Armani – according to daily newspaper El Comercio. The luxury watches sector is by far the most development sector of Peru’s luxury market, with the majority of international luxury watch brands available on the market.
According to CPP, major luxury brands such as Dolce & Gabbana, Gucci and Burberry have already signed franchising agreements for Colombia, the opening of their mono-brand stores in the capital city of Bogota expected within the next 10 months. Luxury brands already present in Colombia with mono-brand stores include: Louis Vuitton, Ermenegildo Zegna, Cartier, Loewe, Bvlgari, Montblanc, Coach, Longchamp, Paul & Shark, Hugo Boss and Emporio Armani. Outside Bogota, the cities of Medellin and Cartagena present opportunities for a second store openings.
The development of luxury will also benefit other economic sectors such as real estate, especially the development of infrastructure – shopping galleries and malls. Besides pricing, local consumers of luxury will be further motivated to make purchases locally, provided they enjoy a similar luxury lifestyle as to when they travel abroad – dining, entertainment, events, cultural life etc. – again generating opportunities for entrepreneurs to develop businesses related to lifestyle.
Overall, development of all sectors will produce more entrepreneurs and indirectly increase their buying power. Besides the top tier super rich, we are likely to witness the growth of the upper middle class, a consumer segment which is vital for the long term feasibility of luxury businesses.
CPP Luxury Industry Management Consultants Ltd has been actively covering South and Latin America for 4 years. http://es.cpp-mc.com/