Forestry Sector - Proexport

September 2009 Forestry Sector

1. Colombia: An Improved Business Environment 2. Reasons for investment: Forestry Sector in Colombia 3. Services to Investors

The country has been growing steadier and faster than the Latin American average GDP Growth: Colombia (2000 – 2008) % Source: DANE (National Accounts), DNP, EIU (Market Indicators & Forecasts) Note: Last update March 26 President Uribe Forecasts 2009 2010 Col L.A. Col L.A. Latin Focus 2.1 1.1 3.0 2.9 EIU -1.0 -1.2 1.5 1.7 IMF 3.5 3.2 5.0 4.1

933 President Uribe Source: DNP, Central Bank (Banco de la República) Note: * Forecast 2002/2008 Increases 214% Exports FDI Tourism 355% 120% US Million US Million Million of visitors Striking performance in FDI, Exports and foreign visitors

March 22 de 2007 Security has improved along with sustained economic growth The recipe is simple: Democratic Security = Confidence = Investment = Growth
In 2008
Investment as proportion of GDP went to 30%
GDP grew 3,5%
Murders continue to go down

Market Confidence

Two years in a row as the first reformer in Latin America (2009) Colombia improved 26 positions in two years! Second most “business friendly” country in Latin America Doing Business 2007-2009 Source: Top reformers report. World Bank Country Ranking 2007 Ranking 2009 Chile 28 40 Colombia 79 53 México 43 56 Perú 65 62 El Salvador 71 72 Panamá 81 81 República Dominicana 117 97 Argentina 101 113 Costa Rica 105 117 Brazil 121 125 Ecuador 123 136 Venezuela 164 174

Trade agenda: Preferential access to 1.2 billion consumers From preferential access to 233 million consumers in 2002 to access to 1,200 million consumers in 2010 2002 2010

4:30 Mexico City 3:00 Miami 5:45 São Paulo 6:10 Buenos Aires 2:30 Lima 1:40 Caracas 5:30 New York Colombia, a strategic location Bogotá, only 3 hours of flight to Miami and 5 hours to São Paulo… 5:00 Santiago

17 Million Hectares (42 M acres) Suited for Timberland Source: CONIF 2008 * In the Valle del Cauca Department the potential area is estimated in 200.000 ha. The Department has experience in timberland and has one of the most important ports of the Country: Buenaventura. Total Areas Suited for Timberland 17.313.006 hectares Department No restrictions ( Ha) With lower restrictions (Ha) Antioquia 1.477.221 2.137.309 Atlántico(*) 35.820 40.152 Bolívar(*) 355.475 94.177 Caldas 22.420 146.284 Cauca (Cuenca alta río) 90.227 182.036 Cesar 376.935 392.104 Córdoba 189.753 233.770 Cundinamarca 150.116 150.887 Huila 50.022 163.283 Magdalena(*) 500.166 194.942 Nariño 365.621 295.872 Santander 281.353 451.824 Sucre 136.263 167.934 Tolima 229.705 145.193 Quindío 32.130 17.846 Department No restrictions (Ha) With Lower Restrictions (Ha) CORPORINOQUIA (Jurisdiction) Arauca 930.025 Boyacá (jurisdic.) 2.892 2.877 Casanare 24.295 1.705.973 Meta 339.403 2.604.763 Vichada 467.834 2.128.105 Total 5.127.650 12.185.356

The Industry is Only Using 1.5% of the Forestry Potential in Colombia Colombia has 17 million hectares (42 million acres) with soil suited for forests, but today 1.5% of that potential (253.066 hectares – 625.326 acres) is in use. Source: CONIF.- MADR

A Strategic View of the sector:
The development of the forestry sector is a long term national plan. The goal is to have 1.2 million hectares planted and support the creation of new forestry companies.
To 2025 the sector will incorporate significant involvement from the farming sector, employment generation by incorporating sustainable use practices and the management of native and planted forest.
2019 Agenda and The National Forestry Development Plan (PNDF)

Three Potential Regions for Forestry Development in Colombia Caribbean and Upper Magdalena: Altitudes 300-2500 ft Species: Teak, Melina, Ceiba, Acacia and Eucalyptus Orinoquia Region: Altitudes 300 – 1600 ft Species: Eucalyptus and Pine. Eje Cafetero and South West Region : Altitudes 3500–7000 ft Species: Nogal, Eucalyptus and Pine . Pacific Ocean Priority Departments Municipal Districts with the largest planted area Source: MADR

More than 10 High Value Added Commercial Timber Species Source: MADR In Colombia commercial timber species need less time to grow. Thus, operations can be more productive than in other countries. For example, the Eucalyptus has a yield of 25-40 m 3 /ha per year in an 8 years turnover. Scientific Name Commun Name Yield ( m3/ha/year) Turnover (years) Eucalyptus grandis Eucalyptus 25-40 8 Acacia magnium Acacia 26 – 30 12 Bombacopsis quinata Ceiba Tolua < 18 >20 Cordia alliadora Nogal Cafetero 8-20 20 Eucalyptus globulus Eucalyptus 15 – 35 8 – 12 Gmela arborea Melina 20 – 25 14 Eucalytus pellita Eucalyptus 15-20 12 Eucalytus tereticornis Eucalyptus 20 8 -12 Schizolobium parahybum Brazilian Firetree 13 16 Tectona grandis Teak 7 – 10 25 – 28 Cariniana pyriformis Colombian Mahogany 7 20

High Yields in Softwood and Hardwood Timber In Colombia, it is possible to obtain high yield in hardwood and softwood . In hardwood timber, Colombia followed Brazil with the second highest yield with 30 m 3 /ha per year for a 7 year turnover. Source: CONIF 2002, CENPAPEL 2003 Species Country Turnover (years) Yield- IMA (M3/ha/year) Softwood P. tecunumannii Colombia 16 30 – 40 P. radiate Chile 20-25 10 – 25 Pinus spp. Uruguay 20 16 – 23 P. patula Colombia 16 12 - 22 Pinus spp. Brasil 15 – 20 16 Pinus spp. E.U.A (sureste) 25 10 – 15 Hardwood E. híbridos Brasil 7 45 E. grandis Colombia 7 30 – 40 Eucalyptus spp. Uruguay 8 – 10 27 – 30 E. globulus Chile 10 – 12 20 – 30 E. globulus Portugal 8 – 10 12

In Colombia, Consumption of Raw Timber Has Increased, Supplied for the Most Part by Imports Source: FAO. Cálculos - Proexport Between 2006 and 2007, consumption of lumber, wood board and paneling, and chips rose 7%. For the same period, pulp consumption rose 3%. This increase has been fueled, in large part, by imports of these materials. Colombia - Consumption [ M3 ] Colombia- Trade Balance (Exports - Imports ) [ M 3 ]

Higher Yield in Four Species than in Competing Countries As a result of climatic conditions, biotechnology and genetic enhancement, several species produce higher yields in Colombia. Source: CONIF FAO Species Yield Colombia (m3/ha/año) Yield other countries (m3/ha/year) Countries Acacia 26 – 30 8 – 19 Philippines, Malaysia, Haiti, India, Thailand, Indonesia, Panama Teak 7 -13 10 – 12 Philippines, India, Indonesia, Malaysia, Myanmar, Nigeria, Thailand Eucalyptus 15 -40 16 – 30 Argentina, Chile, Uruguay Melina 20 – 25 12 – 19 Bolivia, Brazil, Costa Rica, Philippines,

Industry in Colombia Source: CONIF Company Hectares Species Uses Smurfit Kappa Cartón de Colombia 60.000 P. patula - E. grandis Pulp Pizano S.A. 12.000 Gmelina arborea Plywood Refocosta S.A. 7.000 Tectona grandis Pino caribea Lumber Finagro 8.000 . Gmelina arborea Lumber

Leading Foreing Companies trust to invest in COLOMBIA Cartón de Colombia is the leading producer of pulp, paper and packaging in the country. Is a vertical integrated company from forestry and recycling operations to converting ( corrugated and sacks). Kimberly- Clark Corporation, American company decide to invest in 2009 in the construction of a new tissue plant in Barbosa, Antioquia

Income tax exemption
Forest Incentive Certificate (CIF)
Agribusiness Free Trade Zone
Legal Stability Agreements
Special Import-Export System: “Plan Vallejo”
Other Incentives
Incentives for Forestry

Legal Incentives for Sector Investors Permanent Income Tax Exemption New forestry fields will be income tax exempt. This exemption has no term . Additionally, sawmills related to new forestry projects will be income tax exempt.

Forest Incentive Certificate (CIF)
The CIF is the monetary subsidy that recognizes 50% of the investment for an introduced species and 75% for an investment in autochthonous species to finance the establishment and maintenance (from the second to the fifth year) of new forest plantations.
The CIF is neither compatible with the tax benefits nor with other subsidies from the government. For 2009, the government has $15 billion COP ($6.8 million USD) to subsidize reforestation in Colombia.
Legal Incentives for Sector Investors

The most competitive FTZ’s in Latin America: 15% income tax and allows sales to the local market
Single 15% income tax rate for 30 years extendable for an equal period of time.
No customs taxes (VAT or CUSTOMS DUTIES).
Exports made from Free Trade Zones to foreign countries benefit from international trade agreements. (Except Peru).
No customs duties for any machinery directly related with the business’ operation.
Quick and simplified customs procedures.
Two different types of FTZs are available: Permanent FTZ and Single Enterprise FTZ.

A company can benefit from a free trade zone by establishing in any location of Colombia. 2. SINGLE ENTERPRISE FREE TRADE ZONE (SEFTZ) Two types of Free Trade Zones Exchange rate used: USD 1 = COP 2,500. Minimum Monthly Legal Wage for 2009 is COP 496,900. The M.M.L.W, as well as the exchange rate is subject to variations. Agro-Industry Projects May Install Processing Plants in a Single-Enterprise Free Trade Zone Whenever the Company Fulfills the Following Requirements : Type of SEFTZ Investment (USD Million) And direct jobs Goods 33.89 150

Investments over US$1,780,000 Investor considered must pay a premium to the Government equivalent to 1% of the investment made .
The requirement are established in Tax Units and are subject to variations. USD $1,78 Millions is an aproximation to 150000 TU
Reference exchange rate is USD 1 = COP 2.000. Tax Unit for 2009 is equivalent to COP $ 23.763 o USD $ 11,8.
Term Admission Technical evaluation Evaluation and approval by the committee Final evaluation Objective Guarantees the legislation and its interpretation that is determining for the investment. Conditions From 3 to 20 years Legal Stability Agreements

Special Import-Export System: “Plan Vallejo”
Tariff and VAT Free Capital Goods Imports:
Plan Vallejo for Capital Goods is a special import-export system in which a company may request a program for the importation of capital goods free from tariffs and VAT.
Tariff and VAT exemption for inputs and raw materials:
Imports of raw materials and inputs for the production of goods, which may be partially exported, provided that they are used to produce goods whose importation, are tariff exempt. Exports must represent consumption of at least sixty per cent (60%) of the imported inputs.

Deductions include among others the following:
40% of the amount invested in fixed real productive assets acquired.
125% of investments made in scientific projects, technology, innovation and professional training (must be approved by Colciencias)
100% of local municipal taxes as long as they are directly related to the taxpayer’s economic activity.
Expenses deductible from income taxes

Tailor made information request.
Contacts with public and private sectors.
Set up of agendas when investors decide to visit to Colombia.
Aftercare services for investors that are already established in the country.
Assessment and improvement of business climate.
Proexport: Investment Promotion Agency offers world class services to foreign investors

Proexport’s overseas offices

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Forestry Sector - Proexport

by Invest in Colombia - Proexport Colombia on Mar 24, 2009

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Forestry Sector - Proexport — Presentation Transcript