English | French | Home

Economic, Political and Legal Framework

Economic, Political and Legal Framework

Part II

Trade, national economies and the Asian economic crisis

Significance of Malaysia and Malaysian companies in international tropical timber trade

The most significant components of world tropical timber production are

1) raw logs, which are either processed and/or consumed locally, or exported for further processing,

2) sawn wood and

3) plywood.

The total production figures world-wide for 1995 were14:

tropical log production: 293 million cu m
tropical sawn wood production: 108 million cu m
plywood production: 49 million cu m


MALAYSIA is the world's largest tropical log producer. It increasingly uses its logs as raw material in its own downstream-processing facilities, but is nonetheless still the world's largest exporter of tropical logs. Of the other top five country producers of tropical logs, only one other, Papua New Guinea, is also a major exporter. The remaining top five producers (Indonesia Brazil and India) process the logs and then export or consume the products domestically. The state of Sarawak produces the largest volume of Malaysia's logs and, although the amount of timber processed within the state has been increasing over recent years, much of it is still exported.

Table 3: Top Exporters and Importers of Tropical Logs, 1995.

Top 5 exporters of tropical logs: 1995
Malaysia 7,864,000 cu m
Papua New Guinea *1,546,000 cu m
Gabon 1,100,000 cu m
Cameroon 1,092,000 cu m
Myanmar 979,000 cu m
Top 5 importers of tropical logs: 1995
Japan 6,821,000 cu m
China (inc. Taiwan) 2,902,000 cu m
South Korea 1,701,000 cu m
Thailand 1,334,000 cu m
Philippines 530,000 cu m
* FAO estimate
Source: FAO Forest Products Yearbook 1995 (published 1997)
NB: These figures differ from those figures quoted in other sources, including official sources—FAO statistics are usually an underestimate

The South-East Asian trade in tropical logs and processed products has historically been huge. It encompasses some of the world's largest exporters, such as Indonesia (the largest tropical plywood exporter, producing around 80% of the total) and Malaysia (the largest tropical log and sawn wood exporter) and some of the world's largest importers of tropical logs and forest products (see Table 3). China has increased its imports from the South-East Asian region and from Congo Basin countries in recent years.15 It imported 4 million cu m of tropical logs in 1997.16 A further surge in demand for timber imports is predicted17 for several reasons: the stepping up of forestry law enforcement will result in a reduction in domestic production by 13,000,000 cu m—43% of its 1997 total;18 there is a growing domestic demand for wood products;19 China has so far escaped the effects of the currency crisis affecting many of its neighbours.20 These factors will have a significant impact on the world's forests and are unlikely to go unnoticed by the major exporters.

Malaysian companies have come to dominate the forestry sectors in Papua New Guinea (PNG) and the Solomon Islands during the last decade. The majority of log production is exported, primarily to Japan and Korea. Papua New Guinea has become the second largest log exporter in the world after Malaysia, whilst the Solomon Islands, with its relatively small amount of forest, became one of the world's top 10 exporters.21 In 1995, official figures put Papua New Guinea exports at 2.4 million cu m22 and Solomon Island exports at 748,000 cu m.23 Actual log production in Papua New Guinea is estimated to be between 600,000 and 1 million cu m higher than this, accounting for downstream processing and domestic consumption. In the Solomons, the 1995 production figure was estimated to be almost 850,000 cu m. In Guyana too, log production has increased dramatically since 1992, when the Malaysian-controlled Barama company's operations began.24

Figure 2: African log exports to Asia (m3).

In Central Africa, those countries which have experienced an increase in the presence of Asian forestry companies have seen export levels to Asia increase dramatically over the past five years, in particular Cameroon, Equatorial Guinea and Gabon (see Figure 2). As a result, the traditionally dominant flows to Europe have now been challenged, (see Figures 3, 4 and 5 below), although Malaysian operators are reportedly trying to expand sales to European markets as well.25 At the same time, total volumes of logs exported have increased in each of these three countries over the last few years. The export figures for January to September 1997 were higher than for the whole of 1996 for both Equatorial Guinea and Cameroon.26 The Societe Nationale des Bois du Gabon (SNBG), responsible for the commercial aspects of the export trade in okoume and ozigo logs, reports that log exports to the Asia region increased 10-fold from 70,000 cu m in 1990 to over 700,000 cu m in 1995.27 In contrast, neighbouring Congo Basin countries such as the Central African Republic and Congo had relatively stable export levels over the same period.

Figure 3: Cameroon log exports 1996
Figure 4: Equatorial Guinea lof exports 1996
Figure 5: Gabon log exports 1996

Consumption levels, especially in the North, should be brought into line if traded volumes are to reflect the estimated sustainable yields from tropical forests once social and ecological concerns have been resolved. Consumers should also be prepared to pay the full costs of timber production, eliminating the 'subsidy' to the logging industry currently borne by forest dwelling peoples and the environment.

The impacts of the Asian economic crisis

The global trade in tropical logs and plywood has been seriously affected by the financial turmoil in South-East Asia. The crash in demand from Japan, South Korea, Philippines, Thailand and other importing countries in the region is having a world-wide impact on the trade patterns and prices of tropical logs and plywood. One major consumer, China, does not appear to have been affected by the turmoil, however, and internal factors suggest that demand could well increase significantly in the coming few years, leading to increased imports (see above).

Changing demand and price patterns for plywood over the last year or so have led to closures of high-cost (usually smaller) producers in Japan and South Korea. Whilst analysts believe that the Malaysian plywood sector may benefit from these closures in the longer term, at the moment Malaysia is seeing its own high-cost non-integrated producers either curtailing production or closing down, both in the face of reduced demand and the more competitive (i.e. cheaper) Indonesian plywood industry.28 In an effort to increase its competitiveness, Malaysia announced in April that it was to lift export taxes on plywood and 23 other timber products.29 There may also be efforts to push into EU and North American markets.30

Both Papua New Guinea and the Solomon Islands have been particularly hard hit by the Asian economic crisis. The logging industry has virtually ceased operating and companies are believed to be pulling out of the countries. Rimbunan Hijau, a Malaysian logger and the largest operator in Papua New Guinea, which normally produces around 1.2 million cu m per year, has cut production to about 5% of this level.31 Papua New Guinea is reported to have over 300,000 cu m of stockpiled logs still waiting for buyers. The situation is expected to worsen if the World Bank and the International Monetary Fund allow Indonesia to sell log exports at low rates of duty.32 The Solomon Islands reportedly has log stockpiles as well, and overseas buyers 'looking for bargains'.33

The effects of the Asian crisis began to be felt in other timber-producing countries by the end of 1997. Timber exports to Asia (except China) started to decrease at the end of 1997 from Cameroon and Gabon.34 In Cameroon, exports to Asia fell in the last quarter of 1997, although up until then they had been considerably higher than in 1996 (50.6% for the whole of 1997, compared to 40% for 1996).35 The greatest impact in Central Africa has been felt in 1998, with many operators ceasing production. It is not known if this is a temporary measure whilst the markets are still volatile or indicates a longer term cessation of the recent expansion by Malaysian companies in the region.

Impacts on Forests, Forest Peoples and National Forest Policy

The slump in economic activity in South-East Asia has clearly affected a number of export-dependent countries around the world. Sooner or later, however, the demand for logs and timber products will probably pick up again, pushing up prices and making logging a profitable business once more. Whether the consequences for forests and forest peoples will be the same as they have been over the last ten years will depend largely on the various forces influencing government policy changes over the next few years.

What happens when the price of a globally-traded commodity - upon which a country or local people depend - crashes, is a familiar story in many developing countries. The rapid and unsustainable exploitation of timber resources by foreign-controlled operators has created a number of 'timber republics'. The extent to which some countries, for example Papua New Guinea and the Solomon Islands, are dependent on income from log exports for their export earnings has been detrimental to the long-term sustainable development goals which would protect forest resources and provide lasting benefits to citizens. In times of high prices and high demand, such as in the early 1990s, windfall profits were exported and central government and local communities lost out through illegal transfer pricing, often facilitated by corrupt officials.36 In times of low prices and low demand, however, companies shut down operations and log stockpiles deteriorate in value, resulting in lost royalty payments to landowners/communities and lost export tax revenue for governments. If governments accede to industry calls for zero export tax, they will be giving away a national asset, acquiring only the costs of environmental degradation and possible social upheaval.

Many of the communities in Papua New Guinea and the Solomon Islands have become dependent on a cash income as a direct result of logging activities. The impact of the crash in log prices on local communities in the short term is that many have lost what may be their major, if not their sole, source of cash income. In the Solomon Islands, shipping agents have reported reduced volumes of goods going to the outer Islands, where logging concessions were operating, because local traders and island residents no longer have a weekly pay packet.37

The downturn in economic activity may offer opportunities to develop small-scale, high-value timber operations which are integrated into comprehensive resource management strategies designed to meet local needs and which give much greater stability of total income to both national governments and local communities. There is an opportunity to rediscover the importance of local economies to the well-being of local communities, to the sustainable management of natural resources and to the overall benefit of the national economy. This certainly appears to be the conclusion drawn by the new Solomon Islands government, where large-scale, foreign-controlled logging has had perhaps the most far-reaching detrimental impacts on the national economy, environment and social fabric of any country anywhere in the world ( see later). An employee of one community forestry operation in the Solomon Islands said he did not feel bad about the fall-out from the Asian economic crisis: "They have resulted in the companies leaving our countries and the reduction in the destruction of our forests".38

Consumption levels, especially in the North, should be brought into line if traded volumes are to reflect the estimated sustainable harvest levels from tropical forests once social and ecological concerns have been resolved. Hardwood logs being transported from docks, Khaosiung, Taiwan.