ACPWP97 THE STATE OF THE INDUSTRY - COLOMBIA
April 1997 FO: ACPWP 97/2

ADVISORY COMMITTEE ON PAPER AND WOOD PRODUCTS

THIRTY-EIGHTH SESSION

Rome, 23 - 25 April 1997

THE STATE OF THE INDUSTRY


COLOMBIA

General Economic Conditions

Colombia has been through political and economic uncertainty in the last two years, which has undermined the vitality of non-extractive activities and caused a sharp drop in investment.

Demand had far outstripped supply in previous years, which caused the authorities to introduce deflationary monetary policy which, although successful, impacted negatively on growth and employment. Even though the GDP rose by 3 percent in 1996, this was lower than the 5.2 percent recorded in 1995. The extractive industry, particularly petroleum production, has increased on account of new discoveries and heavy investment in fields discovered since 1991 coming on stream. The manufacturing industry sector, however, declined by 3.4 percent.

The main economic problem for 1996 was the growing fiscal deficit, caused basically by the central government deficit, with expenditures rising to 6.4 percent of GDP but revenues amounting to only 3.9 percent of GDP. Though the overall deficit is only 1.1 percent of GDP, it will increase rapidly if this trend continues.

Inflation rose from 19.5 percent in 1995 to 21.6 percent in 1996. However, with the accumulation of foreign exchange from credit and privatization, the rate of devaluation dropped from 18.8 percent in 1995 to 1.5 percent in 1996, which translated into real revaluation and undermined competitiveness of the production sectors. The revaluation of the peso and high domestic interest rates attracted foreign investment, especially in the private sector, which further boosted international reserves.

The balance of trade continued to be in deficit despite a lower rise in imports than exports. The highest growth in exports were from the extractive sector, where activities have little impact on the economy, while coffee and industrial exports fell. This, coupled with the loss of competitiveness of local production in relation to imports helped push up unemployment.

The manufacturing industry sector declined , with only a few sectors - such as oil and tobacco - giving a good performance. One of the sectors with lower production was the paper industry but the fall was only a very modest 0.5 percent.

The Colombian economy will remain uncertain in the near future as long as there is a possibility of the United States applying sanctions following the withdrawal of certification.

Consumption, Production, Trade, Financial Situation and Investments in 1995 and 1996

Paper and paperboard consumption in 1995 amounted to 893 000 tons, while apparent consumption in the first half of 1996 amounted to 416 000 tons, which is 7.6 percent lower than in the same period in 1995. Apparent consumption for the year as a whole is estimated at 923 000 tons - down 2 percent from 1995.

Paper and paperboard production increased by 0.6 percent in 1995 reaching 677 000 tons, but fell by 10.9 percent in the first half of 1996. However, the upturn in the second semester produced an overall reduction for the year of only 0.5 percent, with a production of some 674 000 tons.

Exports in 1995 had risen by 46.8 percent over the previous year, totalling 80 000 tons. They fell by 28.9 percent as of June 1996 but improved somewhat to 15 percent as of December reaching a total of some 68 000 tons.

Imports in 1995, amounting to 296 000 tons, were 12.2 percent down from the previous year. This downward trend was maintained in the first half of 1996, falling 5.5 percent. The market recovered in the second half of the year giving an overall growth of 4 percent with a total import volume of 308 000 tons.

The paper industry which consumes little imported raw material lost competitiveness and, with it, its export and duty-free import substitution market on account of low external prices, the revalued peso and the increase in domestic inflation.

This and growing domestic competition in sectors such as tissues, linerboard and corrugated medium had a marked negative impact on corporate profitability. The sector with greatest growth was tissues, but demand turned increasingly towards the cheaper and less profitable qualities. The sectors most affected were linerboard and corrugated medium because of market loss and fall in demand because of zero or low growth in the industries using such packaging.

Political and economic uncertainty in the country has delayed investment projects although this year work will begin on a new tissues production plant by Papeles Nacionales, with an initial capacity of 30 000 tons.

Aspects of Particular Interest

Progress in Sustainable Forest Management and Certification

The Ministry of the Environment issued a new law on the felling of forests which are now designated strategic resources that require sustainable management.

The law aims to provide a regulatory framework for production, protection and mixed forests, whatever the form of ownership. Such clear-cut policy is vital for a country like Colombia which has comparative advantages in the form of rapid tree growth and extensive land availability.

All the wood used in Colombia for paper manufacture comes from plantations or sawmill waste. Of the 310 000 tons of wood used last year to produce paper, 57 percent came from land managed by the large corporations; 31 percent from small landowners and 12 percent from sawmill waste.

Most of Colombia's plantations are located on eroded land in the Andean mountains with forest potential. Pests are controlled with biological methods. The plantations grow much faster than counterparts in temperate zones and are good at protecting the soil, water and other natural resources.

Forest certification is not yet a concern as forest exports are still very limited. What little is exported goes to neighbouring countries that have no interest in the certification systems presently under discussion. Most countries in the region have adopted a "wait and see" attitude until the certification issue becomes clearer and the cost/benefit implications have been worked out.

The Socio-Economic Dimension of the Forestry Sector and Timber Processing

Forest plantations generate over 10 000 - mostly local - jobs in Colombia, raising levels of income and quality of life. They therefore help curb migration to urban areas in search of better work opportunities, this being one of the major problems of developing countries.

The forest industry based on man-made forests has set up rural schools near plantation sites, laid over 1 000 km of roads and helped provide rural public infrastructure.

The 174 000 tons of wood pulp produced in the country have saved US$ 740 million in foreign exchange. The pulp and paper industry accounts for about 4 percent of the country's GDP.

Sustainability of Fibre Supply

Fibre supply in 1995 for the Colombian paper industry was as follows:

Domestic ImportedTotal
Wood pulp174 395 64 571238 966
Bagasse and other pulp 141 204548 141 752
Recycled paper340 289 47 508387 797
Total655 888 112 627768 515

Colombia's timber harvest is estimated at 23.3 million m3 per year, of which 77.3 percent is used as fuelwood, 18.9 percent for solid wood products and only 3.8 percent for the manufacture of paper and paperboard.

All the wood used for paper production comes from plantations under corporate or small private ownership, with sawmill waste accounting for a small proportion. The preferred species are pine and eucalyptus. The country now has 80 000 ha under pine, 35 000 ha under eucalyptus and 25 000 ha under other species.

Of the 72 000 ha belonging to the paper industry, 67 percent are planted while the remaining 33 percent comprise natural protection forest.

Research to enhance forest plantation focuses mainly on forestry practices, vegetative reproduction, eucalyptus genetic mapping and micro-propagation. The aim is to obtain trees that will produce wood that is ideally suited to the production of pulp and paper. The resulting benefits extend beyond production and include lower use of chemicals in the pulp plant, less energy and less effluent to be treated before release, making it therefore an increasingly eco-efficient production cycle.


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