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Cablegate: Colombia's Pacific Coast: Can the Private Sector

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RR RUEHWEB

DE RUEHBO #2156/01 1681915
ZNR UUUUU ZZH
R 161915Z JUN 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 3170
INFO RUEHCV/AMEMBASSY CARACAS 0535
RUEHPE/AMEMBASSY LIMA 6263
RUEHLP/AMEMBASSY LA PAZ JUN QUITO 6931
RUEHZP/AMEMBASSY PANAMA 1856
RUEHBR/AMEMBASSY BRASILIA 8238

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

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