National Association of Manufacturers
(ANDI - Asociación Nacional de Industriales)
The Colombian economy performed relatively poorly in the late 1990s, moving from modest growth in 1997 to relative stagnation in 1998, and to deep recession in 1999. The year 2000 was a year of transition and incipient economic recovery, which should be consolidated in 2001, with the groundwork laid for strong sustained future growth.
The economic recovery of the year 2000, which resulted in growth of about 3 percent over the previous year, encompassed virtually all economic sectors. With the exception of negative-growth mining and construction, the nine major sectors performed well, especially manufacturing industry which accounted for about half of the growth. Agricultural commodities, except coffee, and trade also did well, with increases of more than 5 percent.
The recent revival of Colombia's economy can be largely attributed to the strong performance of industrial activity and the lead role of industrial exports.
After a disastrous 1999 when industrial GDP fell by more than -12 percent, the industrial sector started to function in 2000 as a motor of economic growth, consolidating the early signs of industrial recovery in late 1999. Although industrial production levels are still below those of pre-crisis years, growth of more than 10 percent is satisfactory.
Unemployment remained at about 20 percent in 2000. More specifically, it stood at 19.7 percent at year end, which undoubtedly makes this a key problem for the country. The high level of unemployment is due to factors of supply and demand. On the supply side, the serious economic difficulties facing Colombian families have compelled many more people to join the labour market, the year 2000 registering the highest levels of participation in the country's history. However, the increase in supply has not been matched by demand for labour which has risen very slowly because the recent problems facing the Colombian economy.
Inflation remained at a single digit 8.75 percent, and the producer price index, which had been high in 1999, also moved downwards in 2000, closing at 11 percent.
The high rates of interest that characterized Colombia in the past decade fell substantially from 1999, and have now reached relatively moderate levels. In nominal terms, interest on loans fell from 53.4 percent in mid-1998 to 23 percent two years later, while interest on deposits fell from 38.2 percent to 11.7 percent during the same period. However, average interest on loans is still at about 20 percent in real terms, which is higher than the average for the 1990s. At the same time, divergence from the rate of interest on deposits has widened, with the latter failing to reach 5 percent despite the increase at year end.
Although it did fluctuate, the exchange rate can generally be considered as having scored moderate growth in 2000. The peso devaluation of 18.9 percent helped maintain the real exchange rate and, importantly, kept Colombian products on international markets. Exports have in fact become a central pillar of the country's economic recovery.
One of the most serious problems of the Colombian economy in the 1990s was the growing fiscal disequilibrium, with fiscal balance in 1991 turning into fiscal deficit of -3.4 percent in 1998. In 1999, contrary to expectations, the sheer scale of economic recession further aggravated the situation, with public revenue below projections and a public sector deficit of about -6.0 percent. The deficit was reduced to -3.6 percent of GDP in 2000, which met the objective that had been set with the International Monetary Fund.
What is clear is that the reduced deficit has been from increased fiscal revenue rather than from lower expenditure. The out-turn for 2001 will be positive if the reforms in public finances are strictly applied, including reforms of the State and pensions, without resorting to further taxation.
Apparent consumption of paper and paperboard rose by slightly over 3 percent from 1999. In percentage terms, the highest increases (more than 20 percent) were for sack paper, folding boxboard and paper for bags and wrapping, but highest volume increase was for printing and writing paper other than newsprint.
Production of paper and paperboard increased by 8.6 percent in the first three months of the year, but the increase for the year as a whole is expected to work out at between 6 percent and 7 percent, as the last quarter has to be set against the extremely high production level in late 1999. Higher production in the first nine months of the year applied to all packaging and wrapping materials, followed by printing and writing paper. However, the 8.7 percent production increase of corrugated medium was mainly for exports, with the local industry's market share increasing from 55 percent to 64 percent. Most of this increase was due more to client exports than to a stronger local market for packaged products, which resulted in a scarcity of materials for recycling and consequently higher prices.
Imports of paper and paperboard fell by about 5 percent in the first nine months of the year. This reduction in imports was due mainly to the return to normality of banana exports which had surged in 1999, with the result that external purchases of linerboard and corrugated medium fell by 28 percent, over 35 000 tonnes. With regards to printing and writing paper, the lower imports of newsprint (-6 percent) were more than offset by imports of other coated and uncoated paper which rose by an aggregate 26 percent.
Exports were more dynamic for the sector as a whole, up 20 percent in volume and 26 percent in dollar value, mainly due to external sales of linerboard, corrugated medium and packaging materials and, to a lesser extent, to printing and writing paper.
Although 2000 was a relatively good year for production and a year of economic recovery for certain items such as printing and writing paper, overall results were not so manifestly good for products such as packaging and tissue paper, as the excessive price increases of raw materials (especially wastepaper of local origin) reduced profit margins, as not all cost increases could be passed on to end consumers because of the sluggish market. However, corporate results due in March are expected to be healthier than last year.
The future depends largely on the performance of the United States economy and, of course, on international prices of pulp and different grades of paper. The United States economy will have an impact on the paper and paperboard market and on most of Colombia's exports, which have sustained the increase in production of packaging.
The 2001 growth expectations of 3.5 percent for GDP and 7 percent for industry also suggest growth for the paper industry and actions currently being taken by Colombian industry to improve its competitiveness should start to bear fruit in the near future.
The Kyoto Protocol was signed by Colombia last year and ratified through Law 629 of 27 December 2000.
In 2000, under the guidance of the Ministry of the Environment, Colombia began to consolidate its National Strategy for Implementation of the Clean Development Mechanism in Colombia. This is based on the premise that the national economy could competitively reduce up to 22.9 million tonnes of CO2 a year (Ministry of Environment, April 2000, Study of the National Strategy for the Implementation of the CDM in Colombia, Executive Summary).
There are expectations of high market potential for Certified Emissions Reductions (CERs). According to a study of the Ministry of the Environment, the marketing of CERs could generate as much hard currency as banana and flower exports. The CERs would be applicable in the agroforestry and energy sectors. The sale of CERs for CO2 sequestration from natural plant regeneration and reforestation could help finance programmes for the protection and conservation of watercourses, preventing and controlling erosion and generating development opportunities in marginal areas.
It is also hoped that the conversion of industrial and energy processes to cleaner technologies will reduce CO2 emissions and generate significant environmental benefits. Conversion of industrial boilers and changes in the generation of electricity should reduce the current emissions of particulates, sulphur dioxide and nitrogen oxides that are causing severe problems of pollution in Colombian cities. There is also considerable room for improvement in the transport sector which could adopt natural gas or `green diesel' as fuel, and in programmes to reduce energy consumption at industrial and municipal level.
Four sectors have led the way in drawing up CDM projects: cement, power plants, agro-industry (panels) and forestry.
Apart from constraints arising from international agreements under the Kyoto process, there are other factors that could restrict CDM development in Colombia:
_ Risk: Colombia is viewed internationally as a country of high-risk investment.
_ Information: There is a lack of information on the CDM programme, the market and the rules of project formulation.
_ Funding: There is a lack of funding for general studies, project cost analyses, and project baseline and feasibility studies.
_ Institutional factors: Procedural costs (negotiation, approval and contracting) are high, generating additional costs to potential national and/or international investors. There is also limited regional, local and sectoral capacity for the design, identification and development of CDM projects that are competitive at international level.
_ Negotiating capacity: The CDM projects will have to be negotiated at international level, which means briefing and training high-level negotiators in environmental issues.
As are many other countries of the world, Colombia is awaiting international decisions reached under the Kyoto process before redirecting its CDM management policy.
In the last three years, the country's forest sector has been affected by the general deterioration of the national economy and particularly by the crisis in the construction sector. The recession has caused a number of reforestation and timber companies to liquidate or to curtail heavily their investment programmes.
As for the underdevelopment of Colombia's forest sector, voluntary forest certification initiatives are only just emerging, despite the fact that, since 1996, a number of environmental and social NGOs have been promoting the `Task Force for Voluntary Forest Certification in Colombia' which operates according to the guidelines and principles of the Forest Stewardship Council (FSC).
The Task Force created two `Standards Committees' in 2000, which prepared draft standards of voluntary forest certification for natural forests and forest plantations, which are to be submitted to the FSC in 2001 for discussion and approval.
Some of the country's timber companies and associations have begun to look into the possibility of coming under the forest certification process but, so far, no forest or forestry project in the country has received such certification.