Paraguay - Economic position and prospects (Vol. 5 of 5) : Annex 4 : transportation in the Paraguayan economy

RESTRICTED RETURN TO Re REPORTS DESK WH153 WITHIN Vol. 5 __1QE WEECK This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION ECONOMIC ]?OSITION AND PROSPECTS OF PARAGUAY (In five volumes) VOLUME V Annex IV: Transportation in the Paraguayan Economy December. 27, 1965 estern Hemisphere Department  CURRENCY EQUIVALENTS Unit Guarani (a7') US$1 r= 126 a$ 1 = US $0. 008 (I 1, 000 = US $7. 94 (I 1, OOt), 000 = US $7, 936.50  TRANSPORTATION IN THE PARAGUAYAN ECONOMY ANNEX IV: ECONOMIC POSITION AND PROSPECTS OF PARAGUAY TABLE OF CONTENTS Page N 0 STJiMARY AND CONCLUSIONS . ............................... i I. INTRODUCTION ........................................ 1 II. RIVER TRANSPORT ........................................ 5 A. The Navigability of Paraguay's Rivers ..... ......... 6 B. River Ports ........................................ 8 C. River Fleet ........................................ 10 D. Flota Mercante del Estado ........ .................. 11 III. HIGHWAY TRANSPORT ...................................... 15 IV. THE PARAGUAYAN STATE RAILROAD . ......................... 24 LIST OF TEXT TABLES AND 1MAPS Following Page No. Section I: Table 1 Exports of Paraguay by Product and Country of Destination, 1963 and Projection by Product to 1970 1 Map 1 Population of Paraguay 2 Map 2 Mapa de la Republica del Paraguay, II;.O.P.C. 3 Section II: Table 1 Identified Passes on the Paraguay River Between Confluencia and Asuncion 7 Map Rio Paraguay, Entre Asuncion y Confluencia 7 Table 2 Duration of Water Levels in the Paraguay River 7 Table 3 Increase in Navigability of the Paraguay River from Deepening Channel 8 Table 4 Ships of the Flota Mercante del Estado, 1964 11 Table 5 Participation of F.M.E. in Transport of Paraguay's Foreign Trade 12 Table 6 Exchange Earnings of F.M.E., 1964 12 Table 7 Financial Results of F.M.E. Vessel Operations, 1963 13  TABLE OF CONTENTS (Continued) LIST OF TEXT TABLES AND MS Continued) Followig Pe Noo, Section III: Table 1 Highway Distances in Paraguay 15 Table 2 Road Network by Type of Construction 15 Table 3 Days Miajor 'Routes Closed from Rain, 1964 19 Table 4 Revenue from Gasoline Taxes and Similar Duties, 1964 20 Section IV: Map 1 Ferrocarril Central del Paraguay 24 Table 1 Personnel of the FCAL Railroad 25 Table 2 Traffic of the PCAL Railway 26 Table 3 Annual Profit and Loss 26 Table 4 Balances of the Ferrocarril Presidente - Carlos Antonio Lopez 26 Table 5 Average Monthly Train-Kilometers, 1964 26 Table 6 Development of Railroad Costs, 1962-64 27 Table 7 Railroad Freight Traffic With Argentina and Total Commerce 30 Table 8 Tons of Railroad Freight Received and Originated 30 Table 9 Projected Railway Revenues and Expenditures 31  SUNN ARY AID CONCLUSIONS 1. Transport in recent years has absorbed the largest share of the resources available to the public sector for investment. Within transport, road construction has been given first priority. To judge the efficacy of past investments, the viability of the present trans- port system, and to indicate guidelines for future transport investments and policy, it is necessary to keep in mind a number of the salient characteristics of Paraguay's geography and economy: (a) Paraguay is a land-locked country linked to the Atlantic Ocean by the Parana-Paraguay River. The great bulk of the country's imports and exports overseas are transhipped at Buenos Aires. The cost of the transhipment plus freight rates between Beunos Aires and Asuncion make total transport costs for these goods high. The Paraguay River is subject to sharp seasonal and cyclical fluctuations in depth, at times requiring a second transhipment below Asuncion when the water level is low. It may well be, however, that significant improvements are possible in the navigability of the river. (b) To the west of the Paraguay River the country is nearly perfectly flat, while to the east the land is flat or rolling. Iuch of the land is poorly drained and heavy rainfall makes road maintenance difficult and costly because most roads have not been built to all- weather standards. Construction materials are scarce and no petroleum has been found. (c) Total population is only about 2 million and is poorly distributed. While the immense Chaco to the west of the Paraguay River is literally empty, population is concentrated around Asuncion and in a narrow corridor stretching southeast from Asuncion toward Encarnacion, characterized by minifundia. (d) The economy is based primarily on agricultural, livestock, and forestry production, both for domestic consumption and for the critically important exports. These sectors are also the key to the future growth of the economy, especially livestock and agricultural exports. (e) Distances among the populated centers, especially to the east of the Paraguay River, are relatively short.  - ii - 2. Taking into account these characteristics, it is immediately evident that trucks and buses will provide nearly all the internal trans- port that Paraguay requires. W4hile river transport filled this role in the past, the distances are far too short and the traffic volumes too light for river craft to be able to compete with trucks once adequate roads exist. 3. The roads which have been selected in recent years for con- struction and improvement are intended to open up new lands for. coloni- zation and to provide land routes for exports and imports to reduce dependence on river transport through Argentina. The choice of routes has in general been good. It is recommended, however, that efforts be made to consolidate the advances already made and to obtain as much benefit as possible from the roads which have been constructed. This implies: (a) An adequat;e maintenance program to protect present roads and a rigid enforcement of vehicle axle-weights. (b) Dedication of most resources to the construction and improvement of feeder roads to important main trunk roads rather than concentrating on costly new long penetration routes. 4. Because of the presently low traffic volumes on most of the country's roads, road improvement, leading eventually to paving, should 'be coordinated closely with traffic increases. Stage construction is especially appropriate in Paraguay, but for this to be successful it is essential that all work be concentrated on what will eventually be the definitive routes. 5. The selection of future roads to be constructed and the timing of progressive road improvement are no longer intuitively obvious. For this reason an adequate planning mechanism is required which at present does not exist. Paraguay must continue to spend large sums on roads for the itdOfitite future and planning'is essential if a high economic return on these investments is to be obtained. 6. Although there is a railroad line between Asuncion and Encarnacion, it is desirable that this mode of transport be phased out over the next three to five years and that railroad traffic be absorbed by trucks and buses. Despite the intelligent management of the railroad since it was bought from the British, it is clear that the railway is uneconomical and that attempts to keep it in service would become increasingly burdensome for the government. 7. The basic mode of transport for Paraguay's exports and imports will continue to be river transport for some time to come. Steps should be taken, however, to increase the efficiency of this mode so as to permit regular service at a lower total cost. The most important areas in this regard are the following:  - iii - (a) A study will shortly start to determine if improvements in the navigability of the Paraguay River are technically and economically feasible. Should the results of this study be positive, a program shculLd immediateLy be prepared to make maximum use of the potential of the river. UJntil the study is completed, care should be taken to assure that any investments made are compatible with the possibility of an unfavorable result. (b) The capacity of the port of Azuncion should be increased. (c) The causes of the high cost of transhipment at Buenos Aires should be investigated and appropriate measures adopted. An alternative transhipment port in Uruguay should be developed. (d) Measures are necessary to reduce the presently onerous requirements for the use of the Parana-Paraguay River. (e) Future acquisitions of vessels for use on the rivers should take carefully into account the economic trade-off between the advantages of using ships of large capacity and the cost of transhipment up-river during low water. All ship purchases for the Paraguay River should be postponed until the study on the possibility of navigational improvement is finished. 8. While most of the country's exports and imports will be trans- ported on the rivers, the highway from Asuncion through Puerto Presidente Stroessner which terminates in the Brazilian port of Paranagua, on the Atlantic Ocean, offers a promising alternate for a few products, especially perishable items, provided the road is improved on the Brazilian side.  I. I'TRODUCTION 1. There is surprising unanimity among the many economists who have studied Paraguayis economic development and have recommended poli- cies to hasten it as to the strategy which is appropriate at this time to break the prolonged period of near stagnation. The strategy which is recommended concentrates primarily on the expansion of agricultural ex- ports as being that sector of the economy capable of exercising a sig- nificant impact on growth throughout the entire nation. This unanimity of opinion is a considerable help to the transport planner because it provides him with a good base on which to evaluate the adequacy of the present transport system as well as the areas where the return on new transport investments would be high. Unfortunately, however, while agricultural exports have been projected product by product, so that estimates of the tonnages to be moved are available for various years in the future, practically no work has been done to determine the geographical regions within Paraguay from which this increased production must come. Without this information, it is extremely difficult to determine which of the internal roads should be given priority because of the contribu- tion which they could make to facilitating exports. 2., Table 1 shows the tonnage exports of different products in 1963 as well as the destination of these goods. In the same Table are shown the projected tonnages of these products in 1970. These, however, have not been distributed by country of destination, as no detailed market s-tudies have been carried out. As can be seen in this Table, total ex- ports were 311,000 tons in 1963 and increased to 39S,000 tons in 1964X The major part of this increase was the sharp jump in log and lumber exports to Argentina between the two years. 3. Projected exports for 1970 are estimated at 539,000 tons, an increase of 73 percent over total 1963 exports and of 36 percent over 1964 exports. The relative importance of log and lumber exports falls from around 50 percent of total exports in 1963 and 55 percent of exports in 1964 to about 45 percent of the projected exports for 1970. Of the total projected increase in tonnage exports of 143,000 tons between 1964 and 1970, only 27,000 tons is due to increases in logs and lumber, with the remainder of the increase distributed among a wide range of agricul- tural products. 4. These significant changes in the composition of exports imply that the relative importance of Argentina as a market for Paraguay's products will fall while that of Europe and the United States will  Annex IV, Section I TABLE, 1 EXPORTS OF PARAGUAY BY PRODUCT AND COUNTRY OF DESTINATION. 1963 AND PROJECTION BY PRODUCT TO 1970 (Tons) France Argentina Uruguay Brazil Chile United England Holland Germany Belgium Other Total 1964 Projeetion States Spain, Italy Countries 1963 1970 Switzerland 1/ Sawn lumber 12,377 7,335 - - - 5 6 - _ 1 19,724 26,964 33,000 Logs 116,546 9,952 8,010 - - - - - - - 134,508 189,110 210,000 Meat products 349 - 323 10 10,348 8,670 916 877 958 1,053 23,504 23,046 39,000 Cow ^ides 308 - 8 - 879 177 2,704 1,390 802 1,3-4 7,572 7,355 11,000 Livestock by-products 33 - - - 863 - 68 106 99 799 1,968 3,601 Other skins and hides - - - - - - - - - - - 205 1,100 2/ Tobacco 25 349 - - 40 - 1,720 580 2,657 4,666 10,037 12,658 19,500 Industrial seeds 104 - - _ _ _ 5,196 1,000 1,929 2,590 10,819 11,775 18,000 Corn - - - - 1,646 3,190 4,836 9,144 26,000 Mate 6,730 858 - - - - - 1 4 115 7,708 10,275 12,000 Fresh Fruit 7,228 - - - - 443 - 183 - - 7,854 6,926 16,000 Coffee 2,950 413 - - 1,134 - 210 - 1,478 44 6,229 4,952 5,630 Cotton fibers 1,432 1,025 - - izO1 372 353 927 1,735 2,920 8,865 9,655 20,000 Sugar - - - - - - 600 3,708 7,000 11,308 2,400 3,000 Alcohol, liquors 83 - - 1 - - - 84 173 180 Coconut oil 2,101 415 881 544 - - - 648 - 3,170 7,759 5,793) Tung oil - 11 - 16 1,110 225 398 200 741 1,754 4,455 5,876 19,000 Ricino oil 5 57 - - - - - - - - 62 144) Essential oils 42 - 21 - 127 36 45 31 53 24 379 434 650 Oil seed cakes - - - 200 - - 2,559 1,987 1,238 8,164 14,148 22,036 52,000 Extract of quebracho - 50 - - 21,831 - 766 - 1,835 - 24,482 33,797 35,000 Hearts of oalm 96 - - - - -- - - - 96 104 160 Wild animal pelts 123 - - - 64 4 1 4 - 4 200 246 - Other products 1,00 33 - 14 6 907 13 1522 9.386 17,870 Total 1963 151,532 20,498 9,252 771 36,511 9,932 15,563 9,41 18,896 38,723 311,119 Total 1964 234,471 23,487 S/ S/ 46,786 8,895 15,507 5,912 14,269 A/ 46,728 396,055 Pj^oj. 1970 539,290 a/ No exrorts were registered to Bolivia or Peru in 1963. Exports to Mexico were 2 tons. 2/ Includes Projection of 'Wild animal pelts." S/ Included in "Other Countries." 41 Switzerland i%cluded in "Other countries." Source: Central Bank of Paraguay. Projections for 1970 prepared by the World Bank Mission staff.  - 2 - increase. This, from the point of view of transport necessities, implies in turn that emphasis should be given to improving Paraguay's maritime transport to these continents: river ports, especially Asuncion, will need additional capacity; river channels should be improved (wyhere this is feasible) to permit year-round operation of larger ships; direct service between Paraguay and the United States and Europe should be used whenever it is more economical than the costly delays occasioned by t:cans- shipment in Argentina. Fortunately, the sharp increase which is foreseen in Paraguayts tonnage exports will necessitate better maritime transport and the increased tra.fic density will Justify the establIshment of more economical direct service overseas. To the extent that it proves possible to reduce costs and cargo losses in transhipment in Bienos Aires and M4onte- video, this should also reduce transport charges and improve the position of Paraguayan exports. 5. For these important increases in agricultural exports, improve- ments in internal transport within Paraguay will also be needed.. Agri- cultural output can be increased both by increasing yields on presently cultivated land and by bringing new land into production. For both5 more and better roads are essential: to increase yields it is necessary to be able to bring technical assistance, fertilizers, better seeds, etc,.. to the farms; to exploit new land, penetration roads must be constructed. And obviously enough, roads are also a prerequisite to be able to transport the output which is produced to the export ports on the rivers.. b. While agricultural exports represent the mnost promisi-ng area to spark eccnomic development in Paraguay, transport investments and policies must also consider a number of other important national objec- tives. As can be seen in Map 1, present population in Paraguay is con- centrated immediately around Asuncion and in a narrow band extending from the capital to-the southeast to the city of Encarnacion. This densely populated region is characterized by minifundia on worn-out soils, re- sulting in severe rural poverty and a migratolry flow toward Asuncion. Yet Paraguay is blessed with excellent virgin soils along the Parana Riirer and in the northern frontier region with Brazil to the east of the Paraguay River. To the west, the literally unpopulated Chaeo offers cpportunities for livestock development while to the south, along the northern shore of the Parana River significant increases in cattle pro- ductioni are also possible0 7. Under these circumstances, it is clear that efforts must be made to resettle the rural population by offering land to colonists willi-ng to leave the presently overpopulated regions around Asuncionl For this colonization effort to be successful, and for rural income to be increased, the colonists will need considerable support and must be assured f road communications to permit them to market their cash crops. This, in part, was the motive behind the investments made in the roads between AsuIncion and Puerto Presidente Stroessner, on the Parana River; betw:een Asuncion and Encarnacion; between Concepcion, on the Paraguay River to the n.orthl  PARAGUAY POPULATION I.-~~~~~~~~~~18 1 '-\____s S~~~~~~~~1 26% 40 PARAGUAY 3.0% V c' 86 ', ,5 348 2.7% _ \ ~ ~ ~~/ ~ / J 31 9 2.4 2.8% 306 , _ '25 la~~r,L,AI 7 4 .X .['\ 1 89, 12 5 19G2 poDulatiom iil thousands 2.2% J 4.5% 208 DV Ge).artbent (Dasec on samoile V O? f4 '/ u stimates) 5'--3-1-6 -v?L 25%