Mario Higino N.M. Leonel
Brazilian National Association of Paper and Celulose, Sao Paulo
General economic conditions
The performance of the Brazilian economy in 1996, though characterized by an irregular behaviour, achieved positive results.
Among these results we would like to point out the reduction in the inflation rate which, in 1994, was of 1000 percent and dropped to about 10 percent and the reduction of the primary interest to 16 percent. Both indexes are still rather high for a stabilized economy, the high interest rates are helping the government to control the consumption level.
The evolution of the fiscal policies adjustment, that occurred at a slower rhythm than it was expected, reinforced the dependency on the exchange and currency policies, with a consequent loss of the economy growth.
The fiscal policy during 1996 had a deficit in the current transactions of approximately 3.3 percent of the GNP, it was compensated by the inflow investments, that increased the international reserves to US$ 60 billion. This poor performance shows that the reforms that are necessary to improve the efficiency of the public sector, did not take place during the year.
Preliminary data on the commercial balance for 1996 indicated a negative result of US$ 5.5 billion, which was 65 percent more than that of the previous year. With regard to the commercial opening process and to the value of the Real compared to the US Dollar, the imports have grown 6.9 percent thus reaching US$ 53.2 billion. A significant part of these amounts corresponds not only to machinery and equipment which shows the refurbishing of several sectors, but also to raw material from other countries with better financing conditions. Exports presented a small increase of 2.7 percent, thus reaching US$ 47.7 billion. The small increase was due to the lack of a macro-economic adaptation and on this matter the Congress has still to vote to make the necessary Constitutional amendments which enable equivalent conditions of competitiveness in comparison with international competitors.
The government has set as its main objective the increase of exports and therefore is trying to strengthen its support to the activities by means of a wide and coherent set of measures, which aim at facilitating and dynamizing external trade. The elimination of the "Imposto de Circulação de Mercadorias" (tax on goods transactions) upon export of primary and semi-elaborated products as well as on capital goods will start showing the results as from 1997.
Preliminary data from the Instituto Brasileiro de Geografia e Estatística (IBGE) forecast for 1996 a growth of GNP of about 3.2 percent, thus maintaining the decreasing trend that began in 1994, when the growth rate reached 5.7 percent. This result is the consequence of the 3 percent growth in the agricultural and cattle breeding sector, 2.6 percent growth in the industry and 3.5 percent growth in services.
Regarding FTAA and the Business Forum of the Americas, the position of the several industrial working groups is being discussed and it will probably identify a common position of the four members of Mercosur. It is believed that the commercial opening and integration is not only desirable but also unavoidable. However, the validity of the rules must have a common position in order not to jeopardize the development - mainly the agro-industrial one - in several countries. This understanding is expanding in several countries after the creation of regional entities such as Mercosur, Pacto Andino, G-3 and others.
The economic analysts agree in relation to the estimates for the year, therefore this fact shows that the decision of the House of Representatives to permit the re-election of the President was well accepted by both the population and the financial sector; these believe that the possibility of the President to be re-elected is a guarantee that the economical plan will be maintained as well as the low inflation rate, the stability and the privatization process.
The favourable current social, political and economical conditions permit to carry out the structural modifications that are necessary for developing the economy in a healthy and moderate manner.
Pulp, paper and forest performance
Pulp and paper production and capacity utilization
In the last quarter of 1995 the quick growth of the offer and the consequent increase of stocks dropped the prices which remained at a low level until the end of the second quarter of 1996, when the prices showed a slight recovery which unfortunately could not be maintained.
The pulp sector operated at a rate of about 91 percent of its installed capacity and produced 6.2 million tons/year, which was 4.9 percent above that of 1995.
In 1996, the pulp consumption of the verticalized companies was approximately 3.1 million tons which was 2.4 percent below that of the previous year.
The internal sales were of 798 000 tons which, when compared to those of 1995, show a growth of 6.7 percent.
The paper sector operated at a rate of about 83 percent of the installed capacity and produced 5.9 million tons, a production that was 1.1 percent higher than that of 1995.
The production of wrapping paper was of 2.6 million tons and that of printing and writing paper was of 1.8 million tons. These amounts represent 44 percent and 31 percent, respectively, of the total production.
The consumption of the integrated companies was of 1.1 million tons, representing 9 percent above that of the previous year. It should be pointed out that about 95 percent of that consumption refers to the wrapping paper furnished for the manufacturing of corrugated boxes and multiwall bags.
Internal sales grew 4.4 percent, thus reaching 3.5 million tons, partially due to the stagnation of the exported amounts. In total, both wrapping paper, and printing and writing papers represent 62 percent of the internal sales.
As a consequence of the drop in the performance of the paper sector, the consumption of recycled fibres shows a reduction in volumes and prices. The rate of recovery of papers is of about 35 percent of the paper consumption and the production of the recycled paper represents about 26 percent of the total production.
Foreign trade of pulp and paper
The drop in international prices of pulp and paper, that began at the end of 1995, continued until the second quarter of the following year.
The small recuperation of prices that took place during the second half of 1996 was not enough to compensate for the losses of the export companies. It is also necessary to emphasize the loss of competitiveness which results from what has been called "Brazilian Cost Factor". This is the most proper way to define the existing difficulties which range from port infrastructure to transportation and communication, to financing problems and to the fiscal organization.
Preliminary 1996 data show that the exports of pulp and paper amounted to US$ 1.9 billion which represents a drop of 28.5 percent. The volume of pulp exports increased 12.9 percent and that of paper 0.4 percent. However, the financial results for both sectors show drops of 32.3 percent and 24.0 percent, respectively.
The imports were positively affected by the extremely favourable conditions of terms and external financing interests. The imports, mainly those of long-fibre bleached pulp and printing paper, amounted to US$ 990 million which represented a decrease of 9.8 percent when compared to that of 1996.
The commercial balance of the sector, which reflected the low prices of 1996, presented a positive result of US$ 950 million while that of 1995 was of US$ 1.6 billion.
Apparent consumption of pulp and paper
In 1996, the apparent consumption of pulp was of 4.3 million ton/year and that of paper of 5.5 million ton/year. Both represent a growth of 3.1 percent and 3.4 percent, respectively. The per caput consumption of paper, of about 35 kg/year remained at the same level of that of the previous year.
The increase in the apparent consumption of paper in 1996 was mainly due to the growth of imports which was 12.8 percent.
The Institute Brasileiro de Geografia e Estatística forecasts for 1996 that the Brazilian population would be of 158 million, this amount would represent a population increase of 1.3 percent when compared to the population in 1995.
Forest
The Brazilian pulp and paper sector moves in a scenario of increasing competition, where the institutional mechanisms to stimulate forestry are determinant to investors' decision.
As in Brazil there are no promotional instruments similar to those existing in other countries, the increase of the forest base will be performed in accordance to some expansion of the maintenance working areas and by means of participation of small and medium size producers and also by the optimization of the forest areas already existent. The implementation of new reforestry areas requires private capital for the creation of infrastructure (roads, housing, schools, communications, hospitals, water supply and so on) of about 20 percent of the total investment.
The sector increased its forest basis to a total of 1.5 million ha by means of programmes of planting and reorganizing 118 000 ha during 1996. The consumption of wood by the pulp and paper sector during this year was calculated at 34 million m3, of which 88 percent where devoted to cellulose and pulp production and 12 percent to energy production.
The Brazilian pulp industry uses exclusively wood extracted from planted forests where sustainable management criteria is followed.
The reforestation programmes implemented by the sector use modern silviculture techniques and forestry management mainly in biotechnology. Its average productivity was of 46 m3 wood/ha/year of eucalyptus and 34 m3 wood/ha/year of pinus tree. Efforts are being made to double these figures by the end of the decade.
In the industrial and forest activities, the companies of the sector have adopted standards that are higher than those required by the forest and environment legislation.
Outlook for the coming years
In 1997, the economical policy will be more steady without any sudden changes taking place. In general this policy will be characterized by the following factors:
· a gradual reduction of the nominal interest rates due to the drop in the inflation rate and to the present currency restrictions;· the fiscal policy will be more severe than in 1996, aiming at reducing the need of further financing by the government;
· the exchange policy will remain, accompanying the devaluation of the Real, following an expected average inflation rate aiming at avoiding the valuation of the currency;
· some public prices will be readjusted to allow better profitability prior to privatization of certain public services.
The combination of the different economic policies, together with the general situation influenced by internal and external factors, anticipate a scenario of a moderate economic growth.
Future expansions in capacity
The consolidation of the Real Plan, which reflects upon the stabilization of prices and the increase of the income of the lower classes, together with Social and Educational Programmes, will contribute to increase the Brazilian paper consumption to an average growth rates of about 5 percent for the 1996-2000 period and 6 percent for the 2001-2005 one.
To assure that consumption increases and that the growth of exports is maintained, the Brazilian pulp and paper industry will require additional investments of about US$ 10.1 billion during 1996-2005, excluding US$ 3.1 billion which have already been invested.
To make this Investment Programme feasible, it is necessary to create conditions such as: consolidation of the economic stabilization; reduction of the so-called "Brazilian Cost Factor", affecting investments, production, exports and infrastructure; re-establish financing costs from BNDES to make it coherent to the long-term investments in the pulp and paper sector, including its forests.
