The Forest Industries Investment and Financing Forum followed the successful model of the private sector events organized at the XIII World Forestry Congress, held in Buenos Aires in October 2009. The event aimed to increase the cooperation among stakeholders including forest producers, industry, timberland investors, financing community and police makers, to improve the investment climate and promote the development of the forestry sector of Argentina.
The specific objectives established for the event were:
Analyze Argentina’s opportunities and challenges in developing forest industry and attracting direct investors, both from Latin-America and overseas;
Identify measures of the Argentinean government in contributing to the promotion of the local and foreign investments;
Explain and network on the business potential in the forest-based production chain;
Prepare and endorse an investment roadmap for Argentina’s forest industries sector with a balance between the economic, environmental and social dimensions of sustainability.;
Direct investments in Latin America
Following the international trend total direct investments in Latin America increased along the last decade, but decreased in 2009. Most of the direct investments in Latin America (around 80%) are domestic, and concentrated in Argentina, Brazil, Mexico, Chile and Colombia.
The information presented at the Forum pointed out that Latin America direct investment in the forestry sector followed the general trend for the total direct investments. It was also shown that direct investments in the forestry sector are relatively small, and over the past decade represented less than 1% of the total direct investment of the region. Most of the investments were concentrated mainly in Brazil and Chile.
Investment climate in Argentina
Argentina is generally considered by investors as a non-stable country, and this is a result of several factors including the political instability and image resulting from the 2001- 2002 default.
The Inter American Development Bank index- the IAIF- to measure the investment climate in the forest sector was discussed at the Forum. The Index was calculated for Latin America and Caribbean countries.
The results of the IAIF calculations for the region pointed out that Argentina is in a similar position of Brazil and Chile, the best positioned countries in terms of the attractiveness of investments for the forestry sector. The studies also pointed out that Argentina has conditions to further develop the forestry sector and that the country has a potential to increase significantly the Index.
Forest sector of Argentina and its potential
Argentina is a large country and has extensive forested areas. Information presented at the Forum points out that there are around 33 million ha of natural forests and 1.1 million ha of planted forests. Planted forests are mainly based on Pines and Eucalyptus, with smaller areas with other species.
A large portion of the planted forests were established along the last 2-3 decades in the Provinces of Misiones, Corrientes and Entre Rios. The Government of Argentina has developed an incentive program to support the expansion of planted forests, and at moment the program focus is on the support of the establishment of planted forests in small and medium size properties.
Existing planted forests have an estimated sustainable production capacity of 20-25 million cubic meters per year, while the current annual consumption of plantation timber is 8 million cubic meters (90% of the Argentina industrial wood consumption). This indicates that the plantation production capacity has a surplus of more than 10 million cubic meters per year.
The wood surplus is a result of the high productivity of the planted forests and a relatively small demand, mainly due to lack of investments in the industrial developments. The imports of forest products are larger than exports, and the county faces a trade deficit.
Pulp and paper industry is small and needs to be modernized and enlarged. The solid wood industry also needs to gain scale and move into value added products, developing, for example, the furniture industry to replace imports. Other local demands for wood are limited. The consumption of wood for industrial energy or charcoal production, as happens in Brazil, is not significant.
As a result of the current wood surplus, market prices for logs are quite low. Prices of logs in Argentina are around half the price of similar logs in Brazil and Chile, and are also lower than prices in Uruguay.
Factors limiting the forest sector development
The wood surplus and the resulting low wood prices should be a good reason to attract new investors and to develop the forest industries in Argentina, or at least to develop log export operations.
It is also important to recognize that the planted forests have a good productivity, the country has a relatively good infrastructure and land is available to increase planted forests area.
During the Forum it became clear that the lack of investments in the forestry sector, particularly in the development of the forestry industry, is a result of a conjunction of factors that are creating limitations for the development of a profitable forest business and particularly a profitable industry in Argentina.
Argentina political instability is an important factor limiting foreign and domestic investments, but some other factors restricting investments were identified during the discussions, among them are:
Permits required for the establishment of planted forests in areas 150 km from the boarder;
Export taxes (retenciones) applied over timber exports;
Public perception against on pulp mills (created as a result of the dispute with Uruguay);
Limited volumes of short fiber for the development of a competitive pulp mill (most of the planted forests are based on pines);
Transportation, logistical and energy limitations of some regions;
Inexistence of an appropriated local funding mechanisms;
Lack of political will to develop the forestry sector.
This list is not exhaustive and a detailed study is needed to measure the relevance of each factor and also to identify other factors that are affecting the development of the forestry sector.
Conclusions and recommendations to promote the development of the Argentina forestry sector
The summary of the discussions presented at the closing session of the Forum covers the main conclusions and recommendations to be considered, by local authorities, private sector and other stakeholders, to improve the business climate and create conditions to attract investments to promote the development of the forestry sector in Argentina.
First of all it is recognized that Argentina is a country with a large potential to develop a global competitive the forestry industry. The country has a significant forested area, planted forests are quite productive, and there is land and appropriated technology to expand the planted forests.
Also it has to be recognized that the existing potential remains to be developed, and this will require attracting new investments. The current timber surplus and the low prices of logs are important factors to attract investors, but these factors alone seems not be sufficient at the current situation, and investments are not happening. It seems that there is no political will to develop the forestry sector and no coordination to promote actions to facilitate the development process.
Finally it was identified to be fundamental to create and implement a forestry development program, at national or at province level, which could improve business climate and attract new investments.
This will require:
A direct and strong commitment of the higher authorities to consider the forest sector as an important element for the socio-economic development of selected provinces/ regions;
Mobilize stakeholder and identify critical factors limiting the development of the forestry sector;
To create a program to implement actions to remove restrictions, create facilities and conditions to attract new investments.
This can be done at national level, but in many cases to work at province level may be more efficient. Local stakeholders need to create and manage the program, but at an initial stage external support from an international organization might be important.