The outlook remains speculative for the paints and coatings sector on the Free Trade Agreement between Colombia and the United States. Professionals in the sector are still cautious with the results that this agreement can bring to our industry.
by Duván Chaverra Agudelo
A little more than 100 days ago, Colombia and the United States put into force the Free Trade Agreement (FTA) which meant for the South American nation an important negotiation in the search to improve its economy and encourage the export of national products to North American territory.
After these three months of development, the Ministry of Commerce has highlighted the agreement as positive, based on statistics that indicate that local manufactures have evolved in exports with a growth of more than 20%.
Colombia also confirmed that the FTA will be signed in 2013 with the European Union and Japan, with which the National Government assures that it will give greater dynamism to the economy bilaterally.
However, and going into the subject that interests us as a sector, for the paints and coatings industry the panorama and expectations are uncertain and diverse. Even many of the companies refrain from commenting on this economic event, as they still prefer to be prudent when issuing opinions on the convenience or not of the FTA for their particular interests.
The previous year, Ernesto Fajardo, current president of the World Group, owner of the Global Paint Company (Pintuco) and a conglomerate of companies in the chemical sector, issued a concept based on competition and the business opportunity that is presented for his firm with the arrival of the FTA. Fajardo said that companies must know who their new competition will be from now on and reach agreements. "We are understanding the strategy in order to find the opportunities in several of our businesses. The good thing about FTAs is that the benefits work for both sides," said the businessman.
Last August, entrepreneurs, merchants and suppliers of the paints and coatings sector discussed the issue of the FTA during the first business meeting convened by the National Federation of Merchants (Fenalco). There they expressed their concern about the impact that the approval of the FTA with the United States may have on the industry, because most of the products used for chemical reactions and the elaboration of paints and their derivatives are imported from the North American country.
Within this meeting, Fenalco said that on the subject of paintings, Colombia has open negotiations with the countries of the European Free Trade Association (EFTA), with Canada, and with the European Union. This means that the Government seeks to encourage entrepreneurs in our industry to generate beneficial businesses for both sides.
Industry Opinions
Given this, manufacturers, formulators and traders alike have mixed opinions as to what the formal arrival of NAFTA means. For some this agreement becomes positive, for others it does not happen at a good time.
For example, Felipe Uribe, marketing and sales manager of Pinturas Sapolín (Invesa S.A.), considers on this subject that "it seems to us that it came at a time of frank disadvantage for the Colombian industry, with energy costs, logistics and a non-competitive exchange rate. This will make it easier and cheaper to import finished products, which will affect many types of industries in Colombia."
The guest assures that his company is ready for what is coming, but the Colombian market in general does not: "We are prepared to compete, but we are extremely concerned that the FTA is used to import expired or out-of-specification paint balances and this is already happening, which increasingly increases informality in the paint market, due to the emergence of companies that do not comply with environmental, occupational safety, tax standards, among others."
Similar is the opinion of Luis Ernesto Cañas, project advisor for the chemical industry, who assures that this treaty could generate the birth of informal trade. "The FTA instead of being an advantage for Colombia is a disadvantage, we get used to using low quality products to obtain low prices, hence the proliferation of cheap paint factories."
Luis Ernesto adds that his own experience within the industry gives him the endorsement to speak properly on the subject: "Some time ago I manufactured paints, but I found myself in the need to close because the paintings came cheaper from the United States, for that reason I dedicated myself to import and change the category for industrial paints, with which it becomes a little more difficult to import because of its short life time."
However, Juan Esteban Saldarriaga, manager of Insucolor, from his vision as an importer of paints, sees this bilateral agreement as positive. "I think all FTAs are beneficial in the long run. These agreements make companies specialize in what is really competitive, allowing the best products to reach the markets and with the lowest possible prices. Although in the short and medium term these treaties can be hard for some sectors, once the economy is reorganized, it becomes more competitive and productive."
The manager of the Colombian firm believes that real competition will not occur with low-capital companies, so he does not consider that with nafta they will disappear from the market. "I believe that small businesses will continue to be present. Most of them are in particular niches or in very low-end products (garage operations), which means that they are not the main focus of imports originating from an FTA."
On this point, Felipe Uribe assures that in the end small companies will be maintained, but insists that they must reach informality to help themselves a little. While Luis Ernesto Cañas says that "Companies, with the exception of the World Group and those that manufacture industrial products, can survive because of the above."
Finally, the interviewees again have different points of view regarding the price factor and its modification because of the FTA. The representative of Insucolor commented that "TCL will not necessarily affect the marketing prices of paints. Colombia already had several trade agreements with the United States and had local exemptions for imported raw materials. What NAFTA does is it gives a more permanent legal framework to these exemptions."
For his part, who represents Pintura Sapolín, indicated that the prices of the industry will be modified: "This will logically be due to the reduction of tariffs on many raw materials, for the products that arrive and for the pressures of the market."
In short, it seems that it will be necessary to give the FTA much more time to know for sure how the market for paints and coatings will develop. Attention should also be paid to the other negotiations with the European Union, Japan, Panama, Canada, among other nations that are betting on a successful agreement in which the government is optimistic, but as our guests showed, opinions still do not coincide among the direct actors of the industry.
To highlight
The evolution of the Colombian market
According to recent figures provided by the National Federation of Merchants (Fenalco), the Colombian market for paints and coatings has shown remarkable growth and even its location in the Latin American panorama is more relevant.
In 2005, the size of the global coatings market was estimated at US$85.7 billion or a volume equivalent of 26 billion liters. According to Euromonitor studies, projections between 2005 and 2010 estimate a growth rate of 5.4% (annual average) in real terms and a rate of 5.6% in volume. Latin America participates with 4% of the world market and its growth rate is calculated at 17% per year depending on gdp growth, GDP per. capita and the development of the construction sector of each country.
The study also indicates that Colombia is the fifth country in consumption in Latin America. In 2006 the value of the sales of the paint market in that nation, including production and marketing, approached 2 billion pesos (about US $ 1,097 million), which is equivalent to 1% of GDP, of this figure 48% corresponds to manufacturing and 52% to marketing.
