COLOMBIA'S PACIFIC COAST: CAN THE PRIVATE SECTOR

UNCLAS BOGOTA 002156 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON SOCI EFIS EAID EIND ELAB EWWT EAGR CO SUBJECT: COLOMBIA'S PACIFIC COAST: CAN THE PRIVATE SECTOR SPUR DEVELOPMENT? REF: A. BOGOTA 540 ¶B. 07 BOGOTA 2533 ¶C. 07 BOGOTA 2274 ¶1. (U) SUMMARY. Colombia's largely Afro-Colombian Pacific coast suffers from high unemployment, isolation and poverty. Poor infrastructure and lack of human capital hobble development. The coast's three most important cities, Buenaventura, Tumaco and Quibdo, generate the majority of its economic activity but differ substantially in their level of infrastructure. Buenaventura's port, currently undergoing a USD 450 million renovation, acts as the engine for its economic development and the reason behind a new USD 1.5 billion highway. Tumaco relies increasingly on African palm oil production, but decrepit infrastructure remains a problem. Quibdo's isolation from the rest of Colombia complicates efforts to take full advantage of its rich natural resources. The region boasts tremendous natural resource potential that can be developed by small and mid-sized firms if transport issues can be resolved, but it is as Colombia's gateway to the Pacific Basin that the region should aim to make its mark. END SUMMARY. Historically Poor and Isolated -------------- ¶2. (SBU) Colombia's Pacific coast (the area west of the Cordillera Occidental mountain range) covers five hundred miles of rugged landscape between Panama and Ecuador. The coast is isolated from the rest of the country by difficult terrain, poor roads, bad weather, and suffers from an historical lack of interest from the central government. While mountains create a barrier to Colombia's interior, dense jungle and a plethora of rivers remain the greatest obstacle to the development of reliable transportation networks. Some of the highest levels of rainfall in the world, up to 500 inches per year, deluge the region and combine with poor soil to make large-scale agricultural production complicated. ¶3. (SBU) Afro-Colombians, most of whose ancestors migrated to the area after Colombia abolished slavery 150 years ago, comprise 80 percent of the coast's 1.5 million population. Juan de Dios Mosquera, the director of one of Colombia's oldest Afro-Colombian NGOs, said the high concentration of Afro-Colombians on the Pacific coast makes it easy for the central government, which only formally recognized Afro-Colombians as a distinct ethnic group in 1991, to ignore the region (ref B). ¶4. (U) During the first few decades of the 20th century Choco experienced a brief period of prosperity from mining, particularly gold and platinum. However, the wealth generated did not remain in the Department. Outsiders owned and ran the mines and when the mines ran out they left. Government is the chief employer in the region, but mining still generates more income than any other licit private sector activity. Locals still insist that they see few benefits. (Note: in Colombia subsurface resources are considered property of the state not the landowner). ¶5. (U) The Pacific coast has some of the poorest quality-of-life indicators in all Colombia. Poverty levels of 65 percent exceed the national average by 30 percent. Extreme poverty levels of 30 percent and illiteracy rates of 20 percent are double the national average. The level of Unsatisfied Basic Needs (potable water, electricity, safe wastewater facilities, etc.) also averages double national figures. Virtually all of the urban population concentrates in three cities: land-locked Quibdo in Choco Department, the busy port town of Buenaventura in Valle del Cauca Department, and Tumaco, Colombia's southernmost port in Narino Department. These three cities generate virtually all of the region's formal, non-mining, economic activity. Deluged by Unemployment, Exploited Resources, and Brain Drain -------------- -------------- ¶5. (SBU) Chamber of Commerce representatives told Econoff that unemployment rates reach 30 percent in Buenaventura, 60 percent in Tumaco, and 80 percent in Quibdo. USAID has earmarked USD 15 million to help spur employment in the Buenaventura and Tumaco as well as the Pacific coast department of Cauca. Lack of access to credit for small businesses throughout the region exacerbates unemployment. Rural "communal Afro-Colombian territories" cover close to 70 percent of the region but the communities are unable to use the land (their major asset) as collateral since it is legally inalienable. Econoff met with local banks in the region who said they made credit readily available to small businesses but Chamber representatives scoffed at this, telling Econoff that banks focus credit on high-interest consumer loans. ¶7. (SBU) The collapse of the region's fishing industry, traditionally the biggest employer in Buenaventura and Tumaco, significantly contributes to unemployment. Buenaventura Chamber of Commerce fishing representative Henry Lopez said depleted stocks and rising fuel costs reduced fishing income and employment by over 40 percent since 2000. Lopez pointed to an abandoned Japanese fish processing plant and explained that Japanese boats fished local waters until a few years ago when they simply pulled up and left. Tumaco fishing company owners told Econoff that catch has dropped by 80 percent since 2000 and they laid off most of their workers as a result. Admitting that overfishing led to the problem, one owner called increased narcotrafficking on local rivers, rising fuel costs, and the dollar devaluation the "final straws." ¶8. (SBU) The region has largely failed to take advantage of its rich natural resources according to Quibdo Chamber of Commerce President Martin Sanchez. Sanchez said much of the lumber used throughout Colombia comes from the extensive rainforests of Choco, but that limited value added restricts local benefit. Lumbermill owners in Quibdo described the process to Econoff: individuals cut down trees and bring the logs to small 3-5 person mills; the mills sell the cut lumber to river boats that ship it to the coast; and the product is then shipped to larger cities (e.g. Cali or Cartagena) where manufacturers ultimately turn it into furniture or other finished products. Sanchez said the loggers and sawmill operators receive a minute fraction of the ultimate value of the wood product because the region lacks the infrastructure and human capital to create high-quality wood products. ¶9. (SBU) The region also suffers from a severe brain drain. Sanchez, a Chocoan who went to medical school in Bogota and returned to Quibdo to open up the largest private medical clinic in the region, said the absence of good universities drives ambitious and able students to migrate to the interior for school where they often end up staying for employment opportunities and quality of life. Even those who return sometimes do so on a limited basis. Buenaventura Port Commercial Director Andres Rodriguez told Econoff that although he had a good job in Buenaventura, his family lives in Cali where he spends the weekends. Rodriguez showed Econoff abandoned and decrepit areas the government had set aside as "duty-free" manufacturing zones where companies could import raw materials, create their products with local labor, and export them -- all duty free. Rodriguez explained that one international jean company had opened a duty-free factory a few years ago, but soon gave up due to a lack of skilled employees. Rays of Sunshine: Aphrodisiac Jam, African Palm and Ecotourism -------------- -------------- ¶10. (SBU) Former mayor of Quibdo Arnobio Cordoba said that while mining generates most of the Choco's income, renewable resources such as timber and agricultural products have greater long-term potential. However, Cordoba added that for such products to become financially viable, particularly in the absence of reliable roads, manufacturers need to add local value. Jorge Toro Moreno thinks he has figured out how to just that. Toro's company specializes in making products from "borojo," a nutritious tropical fruit traditionally considered to have aphrodisiac properties. Toro told Econoff that while it would be economically inefficient to simply export raw borojo, he can employ over 100 workers directly and indirectly by producing borojo jam, juice, and wine. USAID similarly supports value-added agribusiness efforts in Quibdo focused on processing and packaging locally grown organic spices. Cordoba has begun developing a project to link local businessmen with investors and manufacturers to help create greater value locally. ¶11. (SBU) Palm oil represents the most significant growth sector for the Tumaco region (ref C). Tumaco Chamber of Commerce Board member Santiago Correa explained that the area produces ten percent of Colombia's palm oil, the value of which has increased by 50 percent over the last five years. Palm oil production currently employs over 10,000 workers in the area, over half on small and medium sized family-owned plantations. Correa said the 35,000 total hectares under cultivation around Tumaco could double, or even triple, given the amount of unused land suitable for African palm in the area. Correa himself recently moved from selling appliances to growing African palm. Correa said his 200 hectares generate an annual 30 percent return on his investment. He cautioned, however, that bud root fungus has started to take its toll on African palm around Tumaco, and that production and employment gains could reverse. ¶12. (SBU) The rainforests of Choco are internationally recognized as some of the most biologically diverse and fecund on the planet. A nascent ecotourism market shows potential although security and difficult transportation logistics create vulnerabilities. Quibdo Chamber President Sanchez said the kidnapping of six Colombian tourists (one with dual Norwegian citizenship) from a beach in Choco in January will hurt tourism this year. Still, he noted that if security continues its general upward trend and Choco's reputation as an ecotourist destination hits a critical mass, the market has the potential to dramatically increase. Critical Needs: Security, Infrastructure and Credit -------------- -------------- ¶13. (SBU) Buenaventura Chamber of Commerce Executive Director Suleyma Banol called security and infrastructure the region's principal challenges. He noted that since the city began pulling itself out from a wave of crime that peaked in 2006, there has been a ten percent increase in new companies, construction permits and tourists. Banol called a USD 1.5 billion highway between the port and Cali the key development for Buenaventura over the next decade (ref A). The road should lower transportation costs significantly as the current road often has waits of 12-18 hours for cargo vehicles. Tourism in Buenaventura, virtually an oxymoron until recent security gains, now employs 5-10 percent of local workers according to Buenaventura Tourism Executive Director Oscar Gomez. Gomez said he expects that number to grow significantly upon completion of the highway to Cali. The city plans to build a waterside promenade with restaurants and shops as an anchor activity for visitors. ¶14. (SBU) Buenaventura's port will also expand significantly over the next five years. Port Commercial Director Andres Rodriguez said the port hopes to utilize its comparative advantage of direct access to Asian markets (which the main Atlantic ports of Cartagena, Barranquilla and Santa Marta lack). The port currently handles one-half of Colombia's non-coal imports and exports, employs 1,000 workers, pays the city USD 4.5 million per year in profits (the city owns 15 percent of the port),and puts USD 3 million per year into employment-related education and micro-credit loans. Rodriguez said the port recently obtained a 20-year concession extension and started a USD 450 million investment program to improve cargo handling and maximize space usage. Rodriguez expects cargo to increase by 75 percent over the next five years. ¶15. (SBU) Tumaco Chamber of Commerce President Juan Escruceria said rising crime rates, largely linked to narcotrafficking in Narino's southern rivers, have made it extremely difficult to attract new businesses to the area. Noting that all the major infrastructure in Tumaco, the port, airport and causeway into the city, are over fifty years old, he said Tumaco's economy desperately needs investment in infrastructure. Since Tumaco already has good transportation routes into the interior, Port Director Diego Calonge thinks the port has the potential to expand from its current focus on exporting African palm oil to handling container shipments -- but only if it can attract investment. Like Buenaventura, Tumaco hopes to take advantage of its proximity to Asian markets. ¶16. (SBU) Quibdo Chamber President Martin Sanchez said improved access to credit was critical for Choco's development. Sanchez noted that some banks in Quibdo had started offering microcredit, but more needed to be done to help small businesses. He admitted it was unlikely banks would make loans on Afro-Colombian communal territories, but said the government needed to think creatively about ways to help communal territories leverage the value of their lands to access credit that they could use for development. ¶17. (SBU) Even though 70-80 percent of the city's 125,000 residents suffer from Unsatisfied Basic Needs, Sanchez considers the lack of reliable paved roads to Colombia's interior a greater problem. He said that if the government, or a private concessionaire, built a reliable road it would open up myriad opportunities for private investment if various sectors. Sanchez called the development of a port on Choco's coast (less than 50 miles from Quibdo) his "dream," noting that it would reduce the cost of imported goods, open a market for international exports, and most importantly ensure that the GOC maintained a road between the coast, Quibdo, and Colombia's interior. COMMENT: Can the Private Sector Rescue the Pacific? -------------- -------------- 18, (SBU) While a magnet for development aid, Colombia's Pacific remains virgin territory for major investors. Although transaction costs and obstacles to development abound, this long stretch of undeveloped coastline offers significant opportunities for the small and mid-sized firm. Value-added timber products, ecotourism, aquaculture, sport fishing, and handicrafts all have potential if systems of transportation can be improved. Afro-Colombian communities will need to find a response to the credit albatross if they are to attract sufficient capital to significantly raise living standards. But it is the window to the Pacific Basin that represents the region's most solid comparative advantage. GOC officials--in close cooperation with the private sector--would be wise to accelerate infrastructure improvements, augment training of local workers, and explore greater incentives to bring value-added businesses to the region with the lure of trade throughout the Pacific. End Comment. BROWNFIELD