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8 Conclusions: Implications for Forestry

Latin American forests have global importance due to their size: one fourth of the world’s total forests and one half of the tropical forests lie in the region. They provide important global and national environmental services. The forestry sector has economic potential in many countries in Latin America. But first changes must take place within the forestry sector which could be conducive to economic growth. These changes can only be achieved through the active participation of the local community, the traditional inhabitants and forest producers, for example. Traditionally, there has been a lack of consensus among different interest groups in Latin America. But recently with the democratization processes moving forward, there has been an improvement in the relations between various sectors of civil society. This will hopefully facilitate dialogue between the different groups for sustainable forestry development.

A coordinated effort needs to be made to formulate policies which can help achieve sustainable uses of forest resources. Many countries in the region possess significant forest resources which should be utilized and managed not only for their development potential, but also for the environmental benefits they generate for the entire global community.

In Latin America, the utilization of forest resources has focused mainly on the extraction of wood and non-timber forest products, with little attention to the potential income from environmental services (stabilization of climate, watershed protection, carbon sequestration, necessary to create both national and international policies and instruments that will permit key actors to capture income and the society in general to benefit from the environmental services provided by forests and recreation, among others).

The implications of the socio economic driving forces for forestry towards to 2020 are presented in this section. In general terms, the driving forces analysed for each country are: Population, trade, investment, aid, land issues and government. The main general conclusions for the region are:

• As countries get richer and more urbanized, they tend to put less pressure on land; countries in Central America will have more land pressure than the ones in South America. It is also reasonable to believe that demand for forest products will grow in South America.

• Latin America in general is highly dependant on the US for trade with the exception of MERCOSUR countries that depend on each other and the EU.

• Latin America is rapidly integrated through trade. Also, new trade associations are foreseen, but poor economies have less chance to take advantage of these agreements, particularly of the FTAA.

• Most of the economies are service-oriented. This would make us reevaluate forestry as a secondary activity and turn it into a tertiary one, producer of environmental services, especially for countries with less industrial and technical advantages. Therefore, it is important to know which forestry services are available and which is the value of these services.

• Forestry normally is faced with inefficient government administration and unsolved land issues that block the development of forestry.

The main conclusions and implications for the forestry for each country of the study are as follows:

8.1 Argentina

Argentina is a service-oriented economy that had high per -capita income levels and good prospects for forestry -before the economic crisis of 2001- due to its skilled human resources, industry and infrastructure development, and development of forest plantations (0.8 million ha).

The economic crisis has deeply affected FDI and many foreign firms have gone bankrupt and caused high levels of unemployment (20%). The trade of forest products has decreased and also affected its main trade partner, Brazil.

If the current situation is not reverted, forestry will be faced with an oversized bureaucracy, lack of confidence on the legal system, uncertainty surrounding the government’s policy towards banking assets / deposits and an inefficient tax system. Since labor costs are still relatively high, they will affect efficiency, competitiveness and the unemployment level. If forestry is to grow in this difficult situation, it will have to develop projects according to the most likely government policy orientation and actions related to its debt obligations.

8.2 Belize

Belize is one of two Commonwealth countries in Latin America. It has a primary economy and high proportion of rural population. Although income levels are likely to increase according to the projections to 2020, natural disasters, such as the hurricanes Keith and Iris, have devastated the banana and citrus industries as well as the food productions systems. This may slow down economic development. Infrastructure reconstruction and diversification, rather than forestry, are the main priorities for this country and until these goals are attained, the development of the forestry sector may not be possible. Since eco-tourism is rapidly expanding, forest protection and natural resource conservation will play a greater role if present trends persist.

Belize has an open economy and the necessary legal framework to promote foreign investments. It also has strong ties with the Caribbean (CARICOM), the US, Mexico, the UK and the rest of Central American countries. Belize has average regional levels of foreign direct investment (FDI) stock but the inflows are among the lowest in the region. As for the whole region, FTAA represents an opportunity to increase trade and therefore income for this country.

8.3 Bolivia

Bolivia is an agriculture-based and low income economy which is not likely to improve much by 2020. It is also expected to have high levels of urbanization (74%) and a politically strong indigenous community as today.

Bolivia’s FDI stock represents 61% of its GDP. Although the scale of corruption was reduced significantly, there is a severe lack of transparency in the country’s judicial system, a large bureaucracy and lack of strong rule of law. These factors have undermined economic growth and foreign and domestic investments. The government’s foreign policy is based on trade expansion with the US (its main trade partner) and reducing coca production and drug trafficking. Successful eradication of coca will depend on how attractive it becomes to grow alternative crops, a very serious challenge for any production activity.

Forest certification promoted by the US has not increased its exports but is helping to keep low levels of deforestation. Currently, forestry is affected by conflicting uses of land with indigenous people, small peasants and colonizers. Its indigenous population has preferential access to land and receives support from internal and international NGOs and agencies. Community forest projects are the ones likely to receive funding.

8.4 Colombia

Colombia is an industry-based country which is expected to increase its urban population by 2020, to 81.3%. Current high rate of urban unemployment (more than 20%) mirrors the growing number of persons displaced by guerilla and paramilitary violence which have taken rural issues to urban centers. Colombia’s main trade partner is the US, followed by Venezuela.

FDI stocks and total investment are below the regional indicator. High number of civilian kidnapping, terrorism and corruption generates a negative general security situation that distorts everyday life and seriously undermines business and investor confidence.

Forest conversion to arable lands through slash and burn and livestock grazing is trying to be avoided through peasants enterprises (Zonas de reserva campesina). However, INCORA, the government land reform agency has a shortage of tools and staff. Forest plantations through outgrower schemes (partnerships between small land owners and big companies) have begun in 1986 and represent an interesting opportunity for forestry development. Also, Colombia has high potential to take advantage of the CDM mechanism of Kyoto Protocol.

8.5 Brazil

Brazil is the largest economy in Latin America. It is industry - oriented and highly dependent on the US and Argentine economy. Brazil maintains relatively low trade barriers with the MERCOSUR members but applies high ones to non-members. Brazil’s highly developed and efficient banking system, research and development, high-skilled professionals and infrastructure are the key to success of forestry in the country. Its main competitive advantages are plantations for pulp and paper industry. 

High levels of urbanization (87%) and medium land pressure for agriculture is projected. The size of both domestic and external markets and their integration with other countries in the region and future integration prospects make Brazil the most promising country in Latin America for forestry development, however, unsolved land tenure issues and corruption could represent threats for the sector. As for the rest of Latin American countries, the FTAA may represent an increase in income level. 

8.6 Costa Rica

Costa Rica’s industry-based economy offers one of the Central America’s best investment climates. Regulations and practices are generally transparent and foster competition. Costa Rica is likely to have an increase in population density (but will maintain low total levels of population); an increase in its urbanization levels up to 63%; and will maintain a medium income per capita. Therefore, low pressure for land is expected for 2020.

Costa Rica has taken advantage of debt-for-nature swaps and is the regional leader of ecotourism in protected areas (50% of its forests). It receives foreign inflows for these services mainly from its main trade partner, the US. Outside the protected areas, high deforestation rates have been observed before the 1990s, however, recent financial incentives have brought an increase in the areas under plantation. These incentives have motivated indirectly the formation of small-holder forestry organizations in order to take advantage of them.

8.7 Chile

Chile has the appropriate conditions for private and foreign investment; its banking system is very competitive; opening a business is relatively easy; the investment regime is transparent; and most sectors are unrestricted to foreigners. Chile represents a forest cluster based on plantations established in the 1970s. A few internationally competitive enterprises own 80% of total plantation area of the country. Although it has a small domestic market, it is big enough to test their products.

Land pressure is not an issue as its population is expected to maintain a high-income level, low density and high urban proportion (88%) by 2020. Its industrial plantations size is ranked second in Latin America, 78% of them are Pinus. Its forest sector and production sector in general are export market - oriented. Chile exports are oriented towards the US and Japan as well as the UK and China. Imports are mainly from the US and Argentina as well as some from Brazil and China. It has the best tariff regime in the region. Economic prospects for Chile are positive as it has recently signed a free trade agreement with the EU.

Chile has a strong and developed forest industry and with expertise and qualified human resources it will improve them through its plan to develop human capital for the knowledge economy (Iniciativa Cientifica del Milenio) financed by the World Bank (1999).

8.8 Ecuador

Ecuador economy depends mainly on oil and dollar remittances from abroad. The oil sector is the main priority for foreign investment which is already high in the country (FDI stock represents 50% of GDP). Urban population is likely to increase up to 73%, there by resulting in low land pressure. Forest projects for oil companies’ environmental remediation plans are more likely to get funding in the future.

The customs unions with the Andean Community have expanded the market for Ecuador’s forest products. The foreseen free trade area for the end of 2003 with MERCOSUR may give Ecuador an opportunity to increase its income, not necessarily through the exports of forest products but oil. Ecuador production of forest products is directed mainly for the domestic market and is likely to remain the same in the future. As for the whole region, FTAA represents an opportunity to increase trade and therefore income for this country.

8.9 El Salvador

The trends and projections for land use change, population density and economic growth indexes in El Salvador indicate that land pressure will be a main issue in 2020. Therefore, the forestry sector is not likely to develop in this country as the government’s focus and main priority is likely to be on food security. The main market for its forest products will be domestic (small and low-income market). Urbanization levels are also expected to be low in comparison to other countries in the region. The rural population, as a consequence, will put more pressure on forest areas for agriculture development. Intensive land use systems may create opportunities for forestry through agroforestry and trees out of the forest as well as the greater demand for water shed protection and environmental services.

Subsistence agriculture will continue to be an important part of the economy, but this will put more pressure on its forests. However, if the CAFTA agreement with the US goes through, this would mean a boost for El Salvador’s economy, especially the maquiladora industry which in the past has lost business due to US economic downturn post September 11th. Foreign direct investment stocks are likely to remain low (15% of GDP) as well as internal investment (17% of GDP) because of the absence of sound intellectual property rights. Trade agreements within the region, specifically with Guatemala, Nicaragua and Mexico, as well as the rest of Central America and the Caribbean would improve El Salvador’s economic situation. The current level of ODA is 1.36% of GDP and it is likely to remain low if no other strong crisis (as civil war) is to occur.

8.10 Guatemala

Guatemala, a primary economy, is likely to remain a low– income country but will still be the largest economy in Central America, with a high proportion of rural population by 2020. If these factors are combined with high deforestation and medium agriculture land pressure projected for 2020, then the panorama for forest industry development is not promising. However, forest conservation projects which are currently receiving external funding initiatives, e.g. the Central American biodiversity corridor, may influence the trend of forestry for the future. Therefore, the emphasis for forestry development should be oriented towards conservation and the search of markets for forest environmental services rather than production of forest products. A major barrier to develop these markets outside the region and for FDI in general is the country’s bureaucratic complexity.

Guatemala has strong links with Central America and the US. As for the rest of the Central American countries, the CAFTA and FTAA may represent an increase in income levels or at least as means of promoting forest services as carbon sequestration and eco-tourism.

8.11 Mexico

Mexico is the second largest economy in Latin America. It is service-oriented and highly dependant on the US economy. Mexican imports of forest products from the US represent 80% of total imports of forest products and exports to the US represent 96% of total forest exports. Through NAFTA, Mexico has increased tremendously its exports and imports to and from the US and Canada since 1995. However, the initial boost is likely to slow down due to the current US recession. NAFTA is Mexico’s main advantage and threat for forestry.

High levels of urbanization and relatively low land pressure for agriculture is projected. Although Mexico has a great potential for forest industry development based on, interalia, the sizes of both domestic and external market; advanced technical skills and infrastructure; land tenure is the main barrier for forest industry development in this country since the most of forest are community owned natural forests. Projects which involve community forestry with medium to small scale operations represent the future of forestry for Mexico.

8.12 Guyana

Although Guyana, another Commonwealth country in Latin America, is an agriculture-based economy, it is expected to maintain a high level of rural population by 2020 and low income levels, no significant land pressure for pastures and crops is expected as its population size and population density will remain low.

Its economy is currently under pressure and climatic problems have affected the production of sugar and rice. Its banking systems remain underdeveloped and within the state-owned industries bureaucracy is extensive. The investment regime is still undeveloped and its judicial system is often slow and inefficient. Guyana presents complicated customs procedures for imports. The country is linked with the US, Canada and the UK for its exports. Imports are mainly from the US, Netherlands Antilles and Trinidad and Tobago. FDI stock in the country is high as 93% of its GDP but the size of the economy is very small, one of the poorest countries in the region. The aforementioned socio-economic conditions do not represent a promising panorama for forestry development in Guyana, where agriculture is likely to be the focus of government policies rather than forestry. The FTAA could not represent significant income increase for this country as it does not have the capacity to take advantage of it.

8.13 Honduras

Honduras has been a stable democracy for the past 20 years. It has taken active steps to expand tourism and manufacturing for export. The US is its main trade partner. Low income levels and a high proportion of rural population (40%) are expected for 2020 and may cause land pressure.

Honduras law makes no difference between foreign and domestic investor, however, it lacks transparency in the judicial system. Its FDI stocks are under the regional indicator (25% of GDP) but total investment is high 35% of GDP.

Honduras is rich in forest resources (40% of territory) but 46% of its territory are pastures which are suitable for forestry. It has a complicated structure of land access and suffers from land ownership concentration (53% by 4% of land owners). Claims of afro-indigenous have been recently taken into account into the newly Land Access Program (PACTA). In general, agroforestry systems in Honduras are the way forward for forestry in this country. Honduras should give priority to land tenure and infrastructure project ahead of forest products trade, debt swaps and timber pricing.

8.14 Nicaragua

Nicaragua has a primary economy and is likely to have high pressure on land since an important part of its population will stay in the rural areas, with low income levels. Nicaragua also presents high levels of corruption that may retard further economic development. Nicaragua needs to diversify its economy into other sectors such as tourism and light manufacturing in order to attain sustainable progress. However, attracting new investment for these sectors will not be easy.

Although FDI inflows have been very low for the last decade, the current level of FDI stock is as high as 66%. Foreign companies are not investing but maintaining their current levels of investment in the country. This is does not bode well for the forestry sector, where new capital is needed. Nicaragua receives high levels of ODA (27.18% of GDP) mostly as emergency aid and aid for social sectors. If forest projects are to develop in the country, they need to direct their objectives towards these areas. As for El Salvador, CAFTA represents an opportunity to boost Nicaragua’s trade but this might not be significant for forestry as the focus of the government policies are likely to favor the agriculture sector.

8.15 Panama

Although deforestation is likely to be high in Panama, no significant pressure on forests for agriculture or livestock production is expected due to a high proportion of urban population and economic growth which are expected for 2020. The forest sector could benefit from the openness of the economy for foreign investment and also from the high levels of internal investment (30% of GDP) mainly for ecotourism development or other service -oriented forestry development in accordance to its economic structure, based on services.

Panama has strong trading links with the US and other South and Central American countries. As for the rest of Latin American countries, the FTAA may represent an increase in income level.

8.16 Paraguay

Currently, Paraguay’s depressed economy has also suffered from the Argentine crisis. To make matters worse, it has to increase its tariffs in order to harmonize them with the MERCORSUR Common External Tariff by 2006. By 2020, Paraguay is likely to have low income levels, but a high urban population proportion (67%) which probably will turn its economy from a primary to a secondary economy. The MERCOSUR agreement with the EU gives the group the chance to increase their trade and therefore their income. The new free trade area with the Andean Community (for 2004) also gives the chance to do so with the closest neighbors. Paraguay has a relatively low level of FDI compared with other Latin American countries; corruption is recognized as a barrier for investment. These two factors represent obstacles for the forestry sector development.

8.17 Peru

Peru is a service-oriented economy and is projected to improve its income levels by 2020. Urban population is likely to increase up to 79% and in general, low population density is expected. These factors may represent relatively low land pressure for forests and an increase in the demand of forest products. However, forestry development is not a priority for Peru, where mining and services sectors are by far more profitable and therefore favored by government policies.

Other conflicting areas for forestry in Peru are the annual increase of protected areas, bad infrastructure and unsolved land tenure issues (there is no private property for forestry). Moreover, recent long-term forest concessions are faced with an inefficient bureaucracy and corruption. Peru needs urgent modernization of its forest products industry and a transparent and efficient forest concession system. If this is not possible, forestry in Peru should opt for a service-oriented forestry and explore its chances in this area.

Peru’s forest exports represent only 1% of total exports and. It is a net exporter of forest products, the US is its main trade partner. Imports of forest products come from the ALADI/LAIA countries and the US. FDI is welcomed and encouraged in Peru, but information on necessary business establishment procedures are difficult to obtain.

8.18 Suriname

Suriname, a former Dutch colony, has a large natural endowment, especially in timber and minerals (aluminum). However, it is one of the poorest countries in South America, 85% of the half million households in the country are living below the official poverty line which has caused a high fiscal deficit. Unemployment is high and the government remains the country’s largest employer. Its main trade exports partners are the US, Norway and the Netherlands, and its main import partners are the US, the Netherlands and Trinidad and Tobago.

Suriname FDI has been negative during the last 20 years. Suriname’s state-owned sector plays a considerable role in the economy and impedes private enterprise development. The regulatory regime lacks transparency. Suriname presents the worst prospect for any kind of forestry out of all the Latin America countries analysed in this document. In despite of this, progress in liberalizing the economy has attracted foreign investments in gold, oil and forestry.

8.19 Uruguay

Uruguay is a service-based economy which economic fortune depends mostly on the markets of its immediate neighbours and trade partners in MERCOSUR, especially Brazil and Argentina. The economy was growing steadily till1999 when Brazil devaluated the real and began to buy fewer foreign goods. Uruguay’s performance continues to decline in the shadow of Argentina’s economic crisis.

Uruguay is open to foreign investment but its level of FDI stock is medium, compared to the regional level (10%). Private property is generally secure and expropriation is unlikely. Land pressure is not an issue as its population is expected to maintain a high-income level, low density and high urban proportion (94%) towards 2020. Moreover, Uruguay is the only country where forests are expected to increase in Latin America. Together with Brazil and Peru it has the greatest potential for non-industrial plantations in the region, especially of Eucalyptus (80% of the 23% (non-industrial) of plantations in 1995). A possible barrier for forestry development is its large public sector.

8.20 Venezuela

Venezuela is an industry-oriented economy which depends mainly on the oil sector. Urban population is likely to increase up to 91% and in general, low density of population is expected for 2020. These factors may represent low land pressure. Forestry development is not a priority for Venezuela. It is a net importer of forest products, mainly from the US (1,9% of imports) who is also its main trading partner. The very low exports of forest products are directed towards ALADI/LAIA countries.

Although its current levels of FDI (22% of GDP) are under the regional indicator and there is high uncertainty for the private sector as a result of the current government crisis, several sectors continue to attract FDI, specifically, telecommunications, electrical generation and distribution, and oil and gas. Consequently, forestry development related to these sectors e.g. environmental remediation plans, are more likely to get funding in the future.

The free trade area of the Andean Community and MERCOSUR (end of 2003) may give Venezuela chances to increase its income through the exports of oil. As for the whole region, FTAA represents an opportunity to increase trade and therefore income for this country. However, Venezuela’s centralized authority, corrupt administration, state intervention, and populist economics will have to change it the country is to retreat from possible collapse.

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