Environmental Technologies Industries

Environmental Technologies Industries

Market Plans

Colombia Environmental Export Market Plan

Chapter 1 - The Market for Environmental Technologies

Colombia constitutes one of the largest environmental technology markets in Latin America. Environmental investment has more than doubled during the past few years, with sales of services, including environmental consulting, increasing greatly. The consulting market alone was worth nearly $70 million during 1996–1997.

In addition, the market for environmental technologies in Colombia is far from saturated. Considerable growth is expected in the following areas, listed in order of importance:

drinking water treatment,
wastewater treatment,
solid-waste disposal,
solid- and hazardous-waste management, and
pollution prevention.

Air pollution control and ISO (International Standards Organization) 14000 - compliance are potentially large markets, but are still in the very early stages of development. The main market drivers are (1) basic cleanup and remediation operations and (2) compliance with environmental regulations.

The Current and Potential Markets

Reliable data on the true size of the environmental products market are lacking. Industries are generally reluctant to share this information, and neither regulatory nor other government agencies collect data on environmental spending. As a result, estimates of spending vary widely.

For example, in 1992 the U.S. Department of Commerce estimated that between 1990 and 1994 the Colombian environmental market had increased from $33 million to $44 million and predicted that it would reach $60 million in 1995.
In 1994, Ernesto Sánchez (writing in Instrumentos Financieros y Económicos para la Protección Ambiental en Colombia) put the market for water pollution control, hazardous-waste management, and environmental studies at $140 million.
In 1995 the National Association of Industrialists (ANDI) surveyed companies and estimated that private environmental spending between 1985 and 1995 amounted to about $1 billion; of that, about half was spent in 1995.
ANDI estimates that in 1996, spending on pollution control was about $560 million, of which $400 million came from the oil industry and most of the remainder came from the government. In fact, between 1992 and 1995 British Petroleum alone invested $325 million in oil spill equipment, pollution treatment systems, reforestation, environmental assessments, monitoring, training, and environmental oversight.
The 1998 Country Commercial Guide for Colombia, prepared by the U.S. Embassy at Bogotá, the U.S. & Foreign Commercial Service, and other government agencies, estimated the country's market for pollution control equipment in 1998 to be about $146.7 million, of which $80 million might be imported from the United States.
In early 1998, a draft document discussing a 1997 market of $193.6 million was circulated at the Ministry of Environment. This document can probably best be interpreted as an estimate of investments in pollution control performed under the Agreements of Clean Production (Acuerdos de Produccion Limpia), and personal communications with employees at the Ministerio del Medio Ambiento.
Finally, ANDI has provided more specific estimates of private environmental spending in the Department of Antioquia, which contains the city of Medellín with about 1.5 million residents. The firms represented in the tables 1 and 2 are thought to employ about 50,000 people.

Between 1985 and 1994, these companies invested nearly $30 million, while in 1995 investment reached $12 million - 40 percent of the total invested in the previous 10 years.

Tables 1 and 2 show ANDI’s breakdowns by type of pollution and control approach. According to ANDI, its respondents account for about $4.3 billion in sales each year, or about 77 percent of the region's manufacturing total.

Table 1: Environmental Investment by Sector in Antioquia, 1985 to 1994 (Cumulative)

Resource	End-of-Pipe	Reduction & Prevention
Air & Noise Pollution	$8,000,000	$10,600,000
Water Pollution	$2,900,000	$4,400,000
Solid Waste	$1,000,000	$2,500,000
Total	$11,900,000	$17,500,000

Source: A. Gómez, 1997

Table 2: Environmental Investment by Industries in Antioquia, 1995

Resource	End-of-Pipe	Reduction & Prevention
Air & Noise Pollution	$2,700,000	$3,400,000
Water Pollution	$2,900,000	$1,300,000
Solid Waste	$450,000	$1,600,000
Total	$6,050,000	$6,300,000

Source: A. Gómez, 1997

Overall, the Colombian market for environmental products, technologies, and services is valued between $250 million and $300 million, a comparatively low amount for a nation of Colombia's size - and for a nation with Colombia's long-stated concern for its environment. But the country has no hazardous-waste regulations, no (currently valid) solid-waste regulations, inadequate stationary-source air pollution regulations, and mobile-source air pollution regulations that will not take effect until 1999. Municipal water and sanitation services, where they exist, are generally inadequate, and many areas are without them.

The Colombian demand for environmental products, technologies, and services will increase significantly in the coming years; however, two very important caveats must be tied to this statement.

First, in the case of private investment, Colombian industries - like those in many nations - have lobbied strongly (and not unsuccessfully) to weaken statutory requirements or delay their promulgation. Corporate representatives have generally justified this resistance on the basis of cost. Compromise positions are being reached in some cases, but the long-term total demand for pollution control and remediation activities cannot yet be predicted. The industrial demand for environmental products, technologies, and services is, and will continue to be, focused in the existing industrial corridors: Bogotá-Soacha, Cali-Yumbo, Medellín-Valle de Aburra, Barranquilla-Soledad, and Cartagena-Mamonal, as well as in Barrancabermeja and Sogamoso.

Second, progress in public environmental works is severely hindered by a lack of public funds. Thus, while Colombians recognize the traditional responsibility of governments to protect public health and safety, actual spending has been low in large areas of the country. For example, a lack of even the most basic sanitation operations in the large rural zones around the major industrial corridors has led to serious and recurring public health problems. Potentially large market opportunities exist in these regions for designing, installing, operating, and maintaining wastewater treatment plants and municipal solid-waste management and disposal systems. In the cities as well, the effects of inadequate pollution control and sanitation infrastructure are evident. The question is when (and from where) funds will become available to match the government's philosophical commitment to a cleaner and safer Colombia.

Table 3 shows the subsectors of the Colombian environmental technologies market, valued at $250 million to $300 million.

Table 3: Estimate of Colombia's Environmental Technologies Markets, 1998

Environmental Technologies Market	U.S. Dollars (millions)
Municipal Water Supply and Wastewater Treatment	90
Industrial Wastewater Treatment	60
Air Pollution Control	25
Solid-Waste Management	20
Hazardous and Medical Waste Management	15
Consulting, Laboratory, and Monitoring Services	75

Factors Driving the Market

Several forces shape the environmental technologies markets in Colombia. The most important of these are:

the country's need to deal with the severe levels of pollution already caused by urbanization and industrialization;
the government's responsibility in the areas of public health, sanitation, and safety - particularly in the areas of drinking water and sanitation services;
the government's commitment to promulgate and enforce environmental regulations;
industry's interest in avoiding the costs associated with pollution taxes, water discharge fees, air pollutant fees, and the like;
an awakening of public concern about the effects and realities of pollution; and
Colombia's desire to meet international environmental standards, together with policy decisions by some multinationals to bring their facilities in Colombia up to the same standards they use elsewhere.

The following table summarizes the effects of each of these factors on the market in general.

Driving Factor	Effect
Severe pollution problems caused by urbanization and industrialization	Creates today's remediation and expansion projects; heightens awareness of the need to prevent or reduce new pollution; motivates some types of recycling ventures.
Governmental responsibility for public health and safety	Justifies spending on municipal and regional public works projects.
Drinking water and sanitation services	Government responsibility is acknowledged, and the size of the problem is recognized. This is the area of greatest growth over the coming years.
Promulgation of environmental regulations and associated legislation	Creates a demand for in-process and end-of-pipe products, technologies, and services; increased resources for enforcement fuel demand even more.
Pollution taxes and other fees	Can create demand by making the alternative too costly.
Rising public concern about the effects and realities of pollution	Has led to government pledges to increase investments in environmental protection and enforcement.
International standards	Can be a factor in financing remediation as well as pollution control particularly when the World Bank or Inter-American Development Bank is involved; also, multinationals are applying standards such as ISO 14000 to their Colombian subsidiaries and facilities.
Opening the Colombian economy	Creating a more favorable climate for foreign banks and foreign firms.

At present, the most important of these factors is the first, the remediation of decades of severe pollution caused by rapid and unplanned industrialization and housing development. Approximately 70 percent of Colombians now live in urban areas. By law and tradition, municipal authorities are responsible for providing basic sanitation services, including clean drinking water, sewers, wastewater treatment, and solid-waste handling. Most of the efforts of federal, departmental, and municipal governments along these lines have been focused on developing infrastructure as urban growth and industrialization increase.

Despite these efforts, not enough has been done. Critical public health crises have repeatedly occurred because of shortcomings in municipal waste handling and water treatment. The death rate due to gastrointestinal diseases between 1983 and 1991 fluctuated between 16 and 50 deaths per 100,000 people. According to Ministry of Health figures made available in 1996, cholera, typhoid fever, salmonellosis, shigellosis, amebeasis, and enteritis were responsible for the deaths of more than 2,600 Colombians in 1991.

A Case Study: Costs Associated with Bogotá River Pollution
The Bogotá River is Colombia's most intensively used waterway, yet untreated household and industrial wastes from 28 municipalities, the capital city of Santafé de Bogotá, and some 5,000 industrial sources are dumped directly into it. Two types of costs are associated with this.

First, there is an unacceptably high level of morbidity and mortality among locals that can be directly attributed to pollution in the river. Many of Bogota's poorest residents use water taken from the river without treating it in any way, and the same source water is used to irrigate lettuce and other crops grown to supply regional demand. The overall consequences of pollution in the Bogotá River are dire. For example, a 1988 study found that 400 Bogotáns had died of enteritis and other water-carried diseases in a single year. Another study, conducted at the University of the Andes, attributed 6,000 cases of clinical illness to pollution of the Bogotá River. These illnesses included enteric infections, parasitosis, and skin diseases. It would be impossible to measure the total costs - economic as well as medical - of the
Bogota's pollution.

Second, upstream pollution has added significantly to the cost of operating the capital's water utilities. In the case of the Tibito Plant, which processes about a third of Bogota's water supply, the incremental cost is $400,000 per year.

The second major factor driving environmental markets in Colombia is environmental legislation. As in the United States, the Colombian environmental technology market grows as environmental authorities design and implement environmental regulations. Federal, regional, and local authorities are involved in this effort, and their jobs do not stop once regulations are in place. For example, the Ministry of Environment and its regional and local counterparts recently began a new offensive aimed at bringing industries into compliance with environmental impact assessment (EIA) regulations that have been on the books for some time.

It should be noted that along with new environmental bills, the Colombian Congress has shown a tendency to allocate greater resources to help local authorities enforce environmental standards.

Beyond new legislation, as funds become available, existing obligations lead to new spending by the national, regional, and municipal governments in the construction of sanitary landfills, wastewater treatment facilities, and so forth. This new spending is the third major factor driving environmental technologies markets in Colombia.

Another force driving Colombian environmental technologies markets is the imposition of pollution taxes. The Ministry of Environment has already levied taxes on water use and wastewater discharge through the new polluter-pays law; although there are currently biological-oxygen-demand and total-suspended-solids fees in force, fees on additional water pollutants (as well as on air emissions and solid and hazardous waste production) are quite possible in the future.

To a lesser degree, the demands of multilateral banks and the establishment of ISO 14000 regulations in industrial sectors are prompting the introduction of environmental programs. These demands are made by multilateral development banks, particularly the World Bank and the Inter-American Development Bank (IDB), which lend to the Colombian public sector. Some multinational corporations such as Hocol and Rohm & Haas are implementing ISO 14000 regulations in order to comply with corporate policies.

Factors Restricting the Market

The main factor restricting Colombia's environmental technologies market has been intense lobbying by corporations and industry associations. Colombian industry associations in particular have long opposed the promulgation and enforcement of environmental regulations. In fact, the Constitutional Assembly of 1991 established a national constitution with a strong environmental bent, and the National Planning Department quickly settled on the outlines of an environmental policy. It drafted legislation creating the Ministry of Environment. In response, industry associations formed powerful lobbying groups that argued that voluntary pollution control codes would be preferable to fixed legislation.

The following associations are among those that have had broad success in anti-regulatory lobbying campaigns, leading to less environmental legislation overall and laxer enforcement of pollution prevention and control regulations:

ANDI, the National Association of Industrialists (Asociación Nacional de Industriales);
ASOGRAVAS, the Gravel Association (Asociación de gravas), made up of construction materials mining firms;
ACP, the Colombian Oil Association (Asociación Colombiana de Petróleos) made up of oil industrialists; and
SAC, the Colombian Farmers Society (Sociedad de Agricultores de Colombia), a coalition of farmers and ranchers.

A second major factor constraining the size of Colombia's environmental technologies markets is the nation's lack of funds for public works. In 1996, Colombia's average per capita gross domestic product, interpreted as purchasing-power parity, was estimated at a mere $5,400; at the same time, the opportunity costs of capital are extremely high. As a result, public remediation and pollution control projects must compete for funding against a long list of other projects to which the government is equally committed: health, education, infrastructure, defense, and so forth.

A Case Study: ANDI’s Environmental Office
In 1992, ANDI established an environmental office with a brief of defending the interests of major industries against environmental regulations. The association was opposed to the promulgation of Law 99 (1993), which established the Ministry of Environment. Although unable to block the agency's formation entirely, ANDI’s environmental office was able to ensure three industry association seats on the Ministry's powerful Technical Advisory Board (Consejo Técnico Asesor, CTA) - the body responsible for drafting Ministry recommendations for national environmental regulations.

As a result, since 1994, ANDI, ACP, and SAC representatives have sat with the committee that formulates environmental policies and regulations that will eventually regulate their members.

The lack of funds had been partially (and temporarily) ameliorated by the many international loans granted to Colombia. For example, during the past 30 years, the World Bank alone came up with funds in excess of $550 million for water and sewerage projects in Colombia.

Nevertheless, increasing pollution is clearly becoming more and more costly to the nation, not only in the obvious areas of medical costs, missed employment, and the like, but also in less direct ways. For example, consider the decreased agricultural output caused by poor-quality irrigation water, loss of ecosystems (particularly in the Caribbean basin), and a rather staggering fall in tourism in the attractive, beachside colonial cities of Cartagena and Santa Marta. In these two cities alone it has been estimated that about $10 million is lost per year as a result of “widespread recognition” that their beaches are inundated with municipal and industrial wastes.

Projects Financed Through Multilateral Development Banks

Despite reductions in employment and growth during the presidency of Ernesto Samper, Colombia’s economy is among the strongest in Latin America. Over the long term, it has been robust and stable, and it has grown consistently for more than a quarter century. Colombia is the only major Latin American country that did not have to reschedule its external debt during the debt crisis of the 1980s. It paid both principal and interest to all its foreign creditors, and today enjoys one of the highest credit ratings in the region. In fact, among all Latin American nations, only Chile and Colombia have investment-grade credit ratings. These countries are therefore unusual in the developing world because their municipal bonds are a very plausible source of funding for environmental projects.

Colombia's stability and reliability have put the country on good footing for new loans, and both the World Bank and the IDB have backed many ventures in Colombia. These projects, which generally exceed $2 million, are normally awarded through an international public bidding process. They therefore represent significant opportunities for U.S. companies. Naturally, the larger and better-established U.S. environmental firms have advantages in getting contracts or subcontracts in many of these projects; however, significant opportunities exist for small companies with specific expertise.

On March 1, 1996, U.S. President Clinton did not certify Colombia as fully cooperating with the United States (or taking adequate steps on its own) to meet the objectives of the 1988 United Nations Convention on drugs. Under certification legislation, the U.S. Government was required to halt nonhumanitarian and noncounter-narcotics aid to Colombia and to vote against loans to Colombia by certain multilateral development banks. Although the United States did not impose economic sanctions, which its certification laws allow, the decertification process seriously damaged commercial relations between the two countries. For example, as a consequence of decertification, the Export- Import (Ex-Im) Bank canceled loans of $1.5 billion for U.S. suppliers in Colombia. Decertification also generated uncertainty and insecurity in U.S. companies interested in taking part in Colombian environmental markets. Certification was again withheld in 1997, but in 1998 (as in 1995) U.S. national security concerns were cited and certification was given. Despite the problem of certification, the United States has remained Colombia's main trading partner, and Colombia is the fifth-largest market for U.S. exports in Latin America.

Business confidence was also damaged by a crisis stemming from allegations that President Samper had solicited and received contributions from drug traffickers during the presidential election of 1994.

The 1998 election of Andres Pastrana, with the support of many business leaders, may signal an end to some of this tension and may also lead to a resolution of the economic trouble that beset Colombia during the last months of Samper’s rule.

Indeed, there are early signs of new cooperation between the United States and Colombia on a wide range of issues. By late 1998, Mr. Pastrana had met twice with President Clinton, and a number of other high-level contacts were established. During President Pastrana’s state visit in October 1998, the White House issued a joint communiqué recognizing “a comprehensive partnership between the two governments designed to promote democracy and economic growth, fight illicit drugs, strengthen respect for human rights, extend the rule of law, and help bring an end to Colombia's armed conflict.” The United States pledged more than $280 million in new assistance to Colombia.

The IDB has financed - and is considering financing - a number of projects in Colombia with environmental components. Some of these are shown in the table 4. The World Bank has also financed environmental projects in Colombia. Table 5 lists several of them.

Table 4: Inter-American Development Bank Projects

Inter-American Development Bank Reference	Title
1000/OC-CO	Cali-Candelaria Toll Road
1007/OC-CO	Rio Bogotá Wastewater Treatment Project
1035/OC-CO	Energy Efficiency Program
1089/OC-CO	Cartagena’s Sewer System
792/OC-CO	Porce II Hydroelectric Power Plant
800/OC-CO	Medellín River Sanitation Project
863/OC-CO	National Land Improvement Program (PRONAT)
910/SF-CO	Environmental Program
927/OC-CO	Support of Privatization and Concessions in Infrastructure
959/OC-CO	Termovalle
987/OC-CO	Transmetano Gas Pipeline
987/OC-CO	Gasoducto Transmetano
ATN/MT-5022-CO	Strengthening for the Water and Basic Sanitation Service Regulatory Commission
ATN/SF-4588-CO	Pacific Coast Sustainable Development Program
ATN/SF-4816-CO	Wayuu Economic Development Project
CO-0058	Programa de Carreteras Departamentales
CO-0138	Programa de Desarrollo Territorial II
CO-0142	Fortalecimiento de la Gestión Educativa
CO-0157	Formalización Propiedad y Titulación Predial
CO-0165	Apoyo Congreso República
CO-0177	Gasoducto Transmetano
CO-0182	Programa de Agua Potable y Saneamiento de Pereira
CO-0185	Planta Termoeléctrica Termovalle
CO-0190	Programa de Tecnología y Sanidad Agropecuaria
CO-0192	Integrated Rural Development
CO-0200	Carretera Peaje Cali-Candelaria-Florida
CO-0202	Rationalization of Distribution Entities
CO-0208	Tratamiento de Aguas Residuales para Santafé de Bogotá
CO-0227	Cartagena Sewerage System
CO-0228	Energía Gasoducto Termo Candelaria
CO-0229	Apoyo a la Participación Económica de la Mujer
CO-0231	Tibitoc Water Treatment Facility
TC-9601338-CO	Technical Training for the Paper Industry
TC-9706344-CO	Campo Geotérmico Azufral

Note: EIA = environmental impact assessment

Table 5: World Bank Projects

Bank	Project
World Bank	Cartagena Water Supply, Sewage and Environmental Cleanup Project
	Urban Environmental Management Project
	Colombia Natural Resource Management Program

The Colombia Urban Environment Technical Assistance Project is designed to strengthen municipal environmental management agencies in Cali, Medellín, and Barranquilla; formulate pollution standards; and establish pollution charging and monitoring systems for industry.

Several other multilateral funding projects, while not wholly environmental, still contain environmental components. For example, the World Bank Colombia Santafé Project includes a component to protect the wetlands in Bogotá and the surrounding areas. These wetlands, now almost completely destroyed, were once rich in endemic birds, fish, and other wildlife.

Memoranda of Understanding Between the United States and Colombia

The United States and Colombia have recently signed three environmental memoranda of understanding. The first - agreed to in March 1996 - committed the two nations to identifying and helping address the major concerns of businesses with regard to environmental standards. Included is an effort to share technologies and information and to foster planning, training, and implementation events to benefit both countries. The nations agreed to cooperate in defining appropriate environmental objectives (including remediation objectives) for heavily contaminated or highly populated areas. The city of Cartagena, which has been declared a “Heritage of Humanity” site by the United Nations, was specifically mentioned as an area deserving attention from the two nations.

On October 30, 1998, in conjunction with President Pastrana’s state visit to the United States, the Ministry of Environment hosted a meeting on the environment that brought governmental, nongovernmental, private, scientific, and academic leaders to Washington, D.C. to promote cooperation between the United States and Colombia on environmental matters. Two new environmental memoranda of understanding were signed at the time.

Both of these memoranda stressed Colombia's commitment to sustainable development and the environment. The first, between the U.S. Department of the Interior and the Colombian Ministry of Environment, acknowledged the nations’ mutual interest in promoting concrete actions in favor of sustainable development, and committed them to collaborating on environmental issues with an eye toward increasing protection and conservation. This memorandum was signed by President Pastrana and Interior Secretary Bruce Babbitt.

The second memorandum of understanding - between U.S. Ex-Im Bank and the Ministry of Environment - committed Ex-Im Bank to work the Ministry to finance purchases of U.S. goods and services that are environmentally beneficial or can aid in remediation. The Ex-Im Bank agreed to offer very attractive financing terms for imports of such products and services, and Colombia agreed to support them through an environmental fund financed with wastewater treatment fees and polluter-pays fines. This important memorandum should give U.S. firms greater ability to participate in environmental infrastructure projects and to qualify for Ex-Im Bank's preferential financing status. Ex-Im Bank Chairman James A. Harmon and Juan Mayr, Minister of Environment, signed this memorandum.

U.S. Market Share

Although 70 percent of Colombia's demand for environmental services is addressed by domestic firms, a high percentage of its demand for equipment and technologies is met with imports. The U.S. share of Colombia's combined environmental markets is estimated at 10 percent to 15 percent of the total market, or between $25 million and $45 million. Other key international players are from France, Germany, Japan, the United Kingdom, Canada, and (recently) Brazil and Argentina.

The situation with EIAs illustrates the role of Colombian firms in meeting the domestic environmental services market. EIAs must be submitted to the Ministry of Environment before environmental permits are granted, and in 1997 about 90 percent of these studies were being carried out by Colombian companies. It is noteworthy, however, that the studies prepared by Colombian firms were generally associated with projects of low complexity; EIAs for large or very complex projects are still prepared predominantly by foreign firms.

Examples of Environmental Consulting Projects Involving U.S. Firms
Study of Environmental Alternatives Relating to the Terrestrial Connection Between Colombia and Panama. Ecology & Environment in collaboration with Hidromecanicas. Cost: $1.2 million.

Study of Environmental Alternatives Relating to the Pacific - Yumbo Pipeline and a Terminal at the Pacific Ocean. ICF Kaiser and Consultoria Colombiana. Cost: $1.3 million.

Among the U.S. entities that have participated in Colombian environmental consulting projects are Ecology & Environment, ICF Kaiser, Greeley and Hansen, and Dames & Moore. However, they have obtained consulting contracts only in association with domestic Colombian consulting firms.

In terms of environmental technology transfers, joint ventures between Colombian and foreign firms are common. They are often created with a single project in mind.

In fact, except for some small or very limited projects, most environmental projects to date have been neither solely Colombian nor solely foreign. Many companies, particularly large and medium ones, have made use of technology licensing, the sharing of expertise, and so forth, with foreign partners. As mentioned above, joint ventures are frequently created for the manufacture of specific products or for solving specific environmental problems.

The example of wastewater treatment illustrates this well, for while it is estimated that about 80 percent of the wastewater treatment and pretreatment systems proposed by industry name Colombian firms as sources, many - if not most - of these systems do include pieces of equipment that have been imported.

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