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3 Economic Development

Income or Gross Domestic Product (GDP) is the second major determinant of the supply and demand for wood and non-wood forest products and services. Therefore, along with population, the per capita income of a country is the other major socio-economic factor that will influence the state of forest resources and forest products production and consumption in the future.

3.1 The current level of income

The total size of the Latin American economy was US$ 1 970 billion at 1997 prices and exchange rates (World Bank, 1999b). This amounts to about 7% of total world income or, about the same as the GDP of Germany. Since Latin America has just over 7% of the world population, it has a level of income per person that is roughly equal to the global average5.

Figure 7 GDP in Latin America, 1997

Source: World Bank (1999b).

Table 1 illustrates the distribution of income in the region in 1997. Brazil has the largest income at just under US$ 840 billion (or 42% of the total for the region). Other countries with large economies in the region include: Mexico (with US$ 403 billion or 21%), Argentina (US$293 billion or 15%) and Colombia (US$ 109 billion or 6%). Together, these four countries account for just less than 84 % of the total income in the region.

In order to get a general view of the level of development of countries in the region, countries have been classified into income groups using the World Bank classification according to the countries Gross National Product (GNP)6 per capita (Appendix 3).

Table 1 Income levels in Latin America (GNP per capita 1997)

Low income

(GNP per capita of US$ 755 or less)

Lower middle income

(GNP per capita of US$ 756 to US$ 2 995)

Upper middle income

(GNP per capita of US$ 2 996 to US$ 9 265)

High income

(GNP per capita of US$ 9 265 or more)

Nicaragua

Belize

Bolivia

Colombia

Costa Rica

Ecuador

El Salvador

Guatemala

Guyana

Honduras

Paraguay

Peru

Suriname

Argentina

Brazil

Chile

Mexico

Panama

Uruguay

Venezuela

 

Source: World Bank Atlas (1999).

In terms of their per capita income, nearly all of the Latin America countries fall into the two middle income groups: the Lower middle income group and the Upper middle-income group. The only exception is Nicaragua, which is the only country in Latin America that is in the Low-income group. None of the countries can be classified in the high income group.

3.2 Trends in income

Most of the Latin American countries depend highly on export income. Up until 1960, nearly all these countries relied on the export of only one or two exports such as coffee, bananas or copper for most of their foreign income. However, today, there is a far greater balance in the export trade of these nations.

During the 1970s and early 1980s, Mexico and Brazil made the most rapid strides towards industrialization, especially in the diversification of their export trade. Currently, manufactured products now make up more than a quarter of their sales abroad. Both nations have become exporters of automobiles and Brazil now exports aluminium and iron and steel products to the United States. Since 1973, sharp increases in the price of petroleum have slowed economic progress in Latin America, particularly among the nations that have to import oil. In the early 1980s, the unstable price of petroleum and a world-wide recession, created financial crises even in the oil-rich nations of Venezuela and Mexico7.

In the beginning of the 1980’s many Latin American countries suffered from a complex period of imbalances and adjustments and many of them were obliged to undertake structural adjustment reforms, to focus on developing integrated and more stable economies and to adapt to changing international circumstances. Many governments changed the direction of their economic policies and emphasised structural reforms and the progressive stabilisation of their economies. These reforms have largely been welcomed by international financial institutions and investors and have resulted in the renewal of external financial flows into the countries of region8.

Since the 1990’s, GDP growth in Latin America has become higher and more stable, although even during this decade, growth has fallen significantly on two occasions:

The first occasion (1994) was the “Mexican Crisis”, when the very high deficit in the national current account of Mexico combined with a high level of short-term debts and political uncertainty provoked a currency crisis. Outside Mexico, this crisis extended to Argentina and Uruguay, resulting in some small capital outflows in these two countries. However, due to the size of the Mexican economy, the contraction resulted in a contraction of the region as a whole.

The second occasion was the “Asian crisis” and “Russian crisis” of 1997 and 1998. Even today, several Latin American economies have not sprung back to the levels of growth that they had enjoyed in previous years. For example, with the exception of Brazil, growth in the MERCOSUR group is still relatively low.

Out of the five largest economies, only Chile and Colombia have avoided prolonged periods of economic decline, although many of the smaller economies in the region have, on the whole, managed to achieve sustained growth as well. A few countries (such as French Guiana, Panama and Suriname) suffered from significant economic shocks between 1970 and 1990, due to difficult domestic conditions over short periods (e.g. the civil war in Suriname).

Countries such as Mexico have achieved stable growth during the last few years, due to diversification in production and exports into a range of goods and services. This has included a large expansion in exports of industrial parts and other manufactured goods, increased trade in primary products such as petroleum, plus increased income from tourism. Mexico, El Salvador and, in a minor way, Guatemala and Honduras, have also benefited from a high level of emigration, resulting in significant remittances from overseas9.

With the exception of Nicaragua, the balance of payments situation in many Central American countries has improved over the years, compared with the rest of the region, mainly because most Of them had not taken very large loans from the international lending organizations. Therefore, they started out with low levels of external debt. Today, improvements in the political and economic situation in many of these countries has led to higher levels of official overseas aid, increased private capital inflows and official debt relief. These economies are also strongly linked to the American economy and have therefore benefited from the strong growth there in recent years.

In the last few years, most of the South American countries have improved their economies in a number of different ways. Most of them have benefited from increased international trade and globalisation and also from an increase in export prices. Improvements in petroleum prices have significantly affected the external accounts of Venezuela, Ecuador, Colombia and Argentina, along with their government revenues. Also, even some of the countries that rely on petroleum imports (Brazil, Chile and Peru) have expanded their exports considerably, particularly in the case of Chile, which has benefited from improvements in the prices of some important export products. Countries such as Chile and Brazil have also improved their economies, not only in terms of developing exports, but also in terms of improving their monetary and fiscal policies.

The average annual growth rates of GDP for individual countries in South and Central America are presented in Appendix 2. These figures show that there has been a tremendous variation in economic growth between countries and between time periods. The only countries that have experienced consistently high levels of economic growth during the last three decades have been Belize, Colombia and Chile. As already noted, economic growth fell dramatically in nearly all Latin American countries during the 1980’s (compared to the 1970’s) and was, in a few cases (Argentina, Peru, Guyana and Nicaragua) negative over the whole decade. Many of the other countries in Latin America grew by less than 1% per annum over this decade.

3.3 Outlook for total income in Latin America

The trend in total income (GDP) in Latin America and the projections to 2020 are presented in Figures 8, 9 and 10. Total income in 1997 (measured at 1997 prices and exchange rates) has more than doubled since the year 1970, from US$ 770 billion to US$ 2 000 billion (an increase of 160% in total or just under 4% per year on average). The total size of the Latin American economy is projected to increase by 4,1% per year on average over the next 20 years, to reach a level of US$ 5300 billion by the year 2020 (or 165% higher than the present).

However, these trends are somewhat misleading for the region as a whole, because they largely reflect the performance of the five largest economies in the region (Brazil, Mexico, Colombia, Argentina and Chile) and some of these countries have experienced significant periods of economic decline since 1970. For example, the Brazilian economy actually shrank from 1980 to 1983, resulting in average growth of only 1,5% per annum during the decade 1980 to 1990. This contrasts with an average and consistent rate of growth of 8,5% in the previous decade (1970 – 1980). Similarly, the size of Mexico’s economy increased consistently by 6,6% on average every year from 1970 to 1980. During the 1980’s however, growth was much more erratic and the size of the economy did not increase at all from 1981 to 1988, resulting in average growth for the decade 1980 – 1990 of only 1,7% per annum. Also, these trends will definitively vary due to the recent Argentinean crisis which is not reflected in the projections.

The countries that have shown consistently poor in average economic growth during the whole periods analysed, including the projected ones (2000-2010 and 2010-2020) compared to the rest of the region are: Nicaragua, Guatemala and Venezuela.

Figure 8 Latin American GDP 1970-1997, with projections to 2020

Source: World Bank (1994, 1999a and 1999b), IMF (2000) CIA and IADB.

Figure 9 Historical and projected average annual growth in real GDP from 1970 to 2020-Central America

Source: World Bank (1994, 1999a and 1999b), IMF (2000) and CIA)

Figure 10 Historical and projected average annual growth in real GDP from 1970 to 2020-South America

Source: World Bank (1994, 1999a and 1999b), IMF (2000) and CIA.

3.4 Outlook of per capita income

Although Latin America is a developing region, it has advanced further economically than either Africa or Asia. It is more highly urbanized and industrialized and the well-being of its people, measured by the per capita distribution of the gross national product, is far greater than in other developing areas of Africa and Asia.

A better indicator of the likely future impact of economic growth on the demand for forest goods and services and pressure on forest resources can be obtained by examining growth in per capita income. Figure 11 shows the historical trend and projection for average GDP per capita in Latin America from 1970 to 2020. As the figure shows, average GDP per capita has increased from just under US$ 3 000 (measured at 1997 prices and exchange rates) in 1970 to nearly US$ 5 000 in 2000 and it is expected to increase to around US$ 8 700 per person by 2020. The expected increase in GDP per capita over the next 20 years is an increase of over 50%. This is a marked contrast to the last two decades where GDP has increased by only 15% and reflects the expectation that Latin American economies will return to the levels of growth experienced in the 1970’s.

This improvement in per capita income will arise because of the combination of relatively high economic growth combined with low to moderate expected increases in population. Most countries in the region will follow this pattern. The exceptions will be Guatemala, Nicaragua, Paraguay and Venezuela where economic growth is not expected to be much higher than population growth and per capita income is not likely to increase (Appendix 3).

Figure 11 Historical and projected GDP per capita for Latin America

Source: World Bank and FAO.

It is important to note that the average income in the region hides the very large difference in per capita income between individual countries in Latin America. This is best exemplified by the difference between the GDP per capita in Argentina (US$ 8 100 in 2000), which is over 16 times higher than the GDP per capita in Honduras (US$ 485 in 2000).

The development of GDP per capita from 1970 to 2000 and the projections to 2020 are shown in Figure 11. The income categories used here are slightly different to those presented earlier, but the table shows that currently more than a half of the countries in Latin America have per capita incomes of more than US$ 2 500 per year.

It is predicted that by 2020, a number of countries will have moved into higher income groups: Argentina, Brazil, Chile and Uruguay will move into the highest income group; Peru, Panama and Belize will move into the second highest group; and only Ecuador will move from the lowest group to the group above. Guatemala, Honduras, Nicaragua, Bolivia, Guyana, Paraguay and Suriname will remain in the lowest income group. (See Table 2 for country specific information).

The countries that will tend to have the highest levels of per capita income in the future are likely to be those which have rich natural resources, a highly literate population and a diversified industrial base. For example Argentina, Uruguay and Brazil have also an export-oriented agri-industrial sector and are expanding their presence in world markets. Chile has a market-oriented economy characterised by a high level of foreign trade.

Table 2 GDP per capita in Latin America, 1970 to 2020

Per capita GDP US$

1970

1980

1990

2000

2010

2020

over 10 000

 

    French Guiana

     

    Argentinaa

    Brazil

    Chile

    Uruguay

5 001 to 10 000

    Argentina

    Argentina

    Brazil

    Uruguay

    French Guiana

    Argentina

    Uruguay

    French Guiana

    Argentina

    Brazil

    Chile

    Uruguay

    French Guiana

    Mexico

    Argentina

    Brazil

    Chile

    Uruguay

    Belize

    Mexico

    Panama

    French Guiana

    Peru

2 501 to 5 000

    Mexico

    Brazil

    French Guiana

    Peru

    Venezuela

    Chile

    Uruguay

    Costa Rica

    Mexico

    Panama

    Peru

    Venezuela

    Chile

    Belize

    Mexico

    Brazil

    Venezuela

    Chile

    Belize

    Costa Rica

    El Salvador

    Mexico

    Panama

    Colombia

    Peru

    Venezuela

    Belize

    Costa Rica

    El Salvador

    Panama

    Colombia

    Peru

    Venezuela

    Costa Rica

    El Salvador

    Colombia

    Venezuela

    Ecuador

under 2 501

    Belize

    Costa Rica

    El Salvador

    Guatemala

    Honduras

    Nicaragua

    Panama

    Bolivia

    Colombia

    Ecuador

    Guyana

    Paraguay

    Suriname

    Belize

    El Salvador

    Guatemala

    Honduras

    Nicaragua

    Bolivia

    Colombia

    Ecuador

    Guyana

    Paraguay

    Suriname

    Costa Rica

    El Salvador

    Guatemala

    Panama

    Honduras

    Nicaragua

    Bolivia

    Colombia

    Ecuador

    Guyana

    Paraguay

    Suriname

    Peru

    Guatemala

    Honduras

    Nicaragua

    Bolivia

    Ecuador

    Guyana

    Paraguay

    Suriname

    Guatemala

    Honduras

    Nicaragua

    Bolivia

    Ecuador

    Guyana

    Paraguay

    Suriname

    Guatemala

    Honduras

    Nicaragua

    Bolivia

    Guyana

    Paraguay

    Suriname

Note: per capita GDP is presented in US$ at 1997 prices and exchange rates.
aProjections were done before the Argentinean crisis.

3.5 Outlook of population density and GDP per capita

One final way to assess the effect that changes in income might have on the forest resources is to examine how per capita income and population density might change together in the future. In very general terms, increasing population density might put greater pressure on forest resources in the future, but increasing per capita incomes may reduce or even reverse this effect.

Figure 12 shows the current per capita income and population density in each of the individual Latin American countries in 1997 and the situation in 202010. This figure attempts to show how income and population density might, in combination, place pressure on the forest resource in some countries.

In order to interpret this figure, the Latin American countries appear to fall into four main groups.

The first group includes: Argentina; Uruguay; Chile; Brazil; Panama; Mexico; Belize; and Peru. Countries in this group are projected to have high growth in GDP per capita and low growth in their population density, due to low population growth overall and strong economic growth. In particular, some countries, such as Chile and Brazil, are projected to have a very high increase in their GDP per capita. During the next two decades, countries in this group will probably not experience a great increase in pressure on their forest resources and pressure on their forests may actually decline (a more detailed analysis of land-use change will be presented in section 6).

The second group includes: Suriname; Bolivia; and Guyana. Both GDP per capita and population density are likely to remain low in these countries by 2020.These countries will remain at a low level of economic development, but population density will remain low and will not put a lot of pressure on the forest resource.

Figure 12 GDP per capital and population density in Latin America, 1997

The third group includes: Paraguay, Venezuela and Colombia. The projection for population density and per capita income in this group suggests that population pressure may increase by the year 2020, because these countries will continue to have relatively low GDP per capita and significant growth in population density. However, these countries will not suffer from the pressures that countries in the fourth group may face, because they have generally large land areas.

The fourth group includes: Ecuador; Honduras; Costa Rica; Guatemala; Nicaragua and El Salvador. These countries currently have the highest levels of population pressure in the region, because of their low incomes and small areas. By 2020, population pressure in these countries is expected to increase substantially, because they are expected to have a large population increase combined with relatively low economic growth. Given the fact that agriculture is still a major activity in many of these countries, these changes are likely to have a significant impact on forest resources. In particular, forest resources may come under a lot of pressure in Nicaragua and Honduras, which will have the lowest GDP per capita in the region by 2020.

3.6 Economic structure in Latin America

The main economic sector in Latin America is services. The economic sectors11 are referred to as its share of GDP for each country (Figure 13 and Appendix 6) and for the total of Latin American countries.

Figure 13 Economic structure of Latin American economies, 2000

Source: World Development Indicators, 2002.

Figure 13 shows how the different economies in Latin America compare in terms of their structure. The proportion of the economy accounted for by agriculture, industry and the service sector is shown on the left-hand, right-hand and bottom axes respectively. For example, the structure of the economy in Suriname (10% agriculture, 20% industry and 70% services) is shown at the intersection of the three black lines in the figure.

This figure shows that countries in Latin America fall into three broad groups in terms of their structure.

The first six countries listed at the right-hand side of the diagram are countries where agriculture is still a major component (over 20%) of the economy. In terms of economic development, economies with this structure are often referred to as primary economies, where a large proportion of the population is engaged in the production of food crops and, possibly, other natural resources.

The countries numbered from seven to fourteen are secondary economies. In secondary economies, agriculture accounts for a much smaller share of economic activity and industry accounts for a much larger share. In all of these Latin American countries, industry accounts for more than 30% of the total economy.

The last group are the tertiary economies, where services account for a significant share of the economy, followed by industry then agriculture. In all of these countries listed above, the service sector accounts for more than 60% of the economy.

Historically, as economies developed their structures changed from primary to secondary to tertiary. However, with the predominance of the service sector all over the World now, it is possible for countries to develop a significant service sector without industrialising first (e.g. Panama). Furthermore, the structure of economies is not necessarily an indication of their relative wealth or may not be a good indicator of their overall level of economic development. For example, some of the secondary economies listed above (e.g. Costa Rica, Chile, Brazil) would be considered as more developed than some of the tertiary economies (e.g. Suriname).

In a regional scale, services represent more than 60% and industry 32.5%. Agriculture share is the lowest for the region with 6,7% (World Bank, 2002).

Figure 14 Economic structure of Latin America, 2000

Source: World Development Indicators Database 2002

These results do not differ greatly from the aggregate of Latin American and the Caribbean (LAC) economies which are also services oriented as this sector represents 59% of their current GDP (US$ 2000 billion). Industry is the second economic sector for LAC, followed by agriculture with 33.8% and 7.2% of GDP respectively (World Bank, 2002).

3.7 Importance of forestry sector

There are no clear statistics of the significance of the forest sector for Latin America countries. However, a study conducted by FAO based on national sources shows that forestry represents a small part of the structure of the Latin American economies. If these results are compared to the exports and imports of forest goods, it is clear that forestry in Latin America is mainly based on domestic markets and it is not export-oriented with the notable exception of Chile. Statistics on domestic production of forest products are mostly presented in Kg or m3 and not in monetary units. Efforts for translating these values into uniform monetary units are being done in the specific country Forestry Outlook study.

Table 3 Importance of the forest sector in Latin America

Country

Forest Exports/GDPd
%

Forest Imports/GDPd
%

GDP/For
%

Argentina

0.1

0.1

1.66a

Bolivia

0.4

0.1

na

Brazil

0.5

0.1

2.20

Chile

2.7

0.1

2.75 b

Colombia

0.0

0.1

2.00

Costa Rica

na

na

5.49

Ecuador

0.5

0.1

1.90 c

Guatemala

na

na

2.70

Honduras

na

na

9.00e

Mexico

0.0

0.2

1.00

Nicaragua

na

na

3.12

Paraguay

0.9

0.0

3.10

Peru

0.1

0.1

1.00

Uruguay

0.2

0.2

na

Venezuela

0.0

0.1

na

Source: FAO, a value for 1999; b INFOR, 2002; cvalue for 2000; dALADI; e1999: FAO, COHDEFOR

5 Or in other words, in terms of average personal income, the people of Latin America have an income level that is approximately half-way between the income levels in developed countries and the income levels in other less developed countries.
6 GNP or Gross National Product is another way of measuring a income in a country. GNP is equal to GDP plus income coming into the country from abroad (e.g. repatriated profits from foreign investments and income sent home by people working abroad) less income earned in the country but sent abroad (e.g. profited from foreign direct investment).
7 Copyright © 1997 The Latin American Alliance: http://www.latinsynergy.org/
8 Quince años de desempeño económico. América Latina y el Caribe, 1980-1995 Comisión Económica para América Latina y el Caribe (CEPAL).
9 Estudios Estadísticos y Prospectivos. Proyecciones latinoamericanas 2000-2001 (CEPAL) página 8
10 For the purposes of this comparison, the axes on the chart have been limited to US$ 12 000 annual per capita income and a population density 1,2 persons per hectare. El Salvador is not shown because its population density is more than 2,8 persons per hectare in 1997 and by 2020 it is projected to increase to 4,15 persons per hectare (equivalent to 415 persons per square kilometre). Also, French Guiana is not included, because the projections for this country are uncertain.
11 Agriculture — the net output of agriculture (International Standard Industrial Classification divisions 1-5 including forestry and fishing) after adding up all outputs and subtracting intermediate inputs. (WB, OECD, UN).
Industry — the net output of industry (International Standard Industrial Classification divisions 10-45, which include mining, manufacturing, construction, electricity, water, and gas) after adding up all outputs and subtracting intermediate inputs. (WB, OECD, UN).
Services — the net output of services (International Standard Industrial Classification divisions 50-99) after adding up all outputs and subtracting intermediate inputs. This sector is derived as a residual and may not properly reflect the sum of service output, including banking and financial services. (WB, OECD, UN). (World Bank, 2002)

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