Forestry
Where's PNG's Forest Industry Heading?
More job losses and plant closures expected
Papua New Guinea's ongoing search for a feasible policy for its most contentious economic sector, its forest industry, has reached a critical stage.
The door is now open to the Papua New Guinea Government to choose whether to increase its support for the existing large-scale log export industry, or let it die a natural death, by shifting the focus to the new forest management and conservation campaign, now initiated by the World Bank. The export log industry, which has provided millions of kina for the country over the years, is on the brink of total collapse. But the government appears to have been bounded by certain outside forces not to act accordingly. It is understood the government has to act within the boundaries set by the World Bank under its structural adjustment programme, used to frame the 2002 budget. Among other requirements, the programme carries specific conditions for the forestry sector.
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The Papua New Guinea Forest Industry Association has said that the government's reinstatement of the forestry export tax regime in August 1999, as demanded by the World Bank, had proven severe for an industry which was still reeling from the impacts of the 1996 low world timber prices.
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The association said this contributed directly to the loss of 6000 jobs in the export-logging sector. Sawmilling losses were worse, it added. The proposed World Bank processing tax and the lack of resolution of issues contributed to the closure of D Scan and the Galley Reach processing plants and the loss of 700 jobs.
The association also said the impact of the moratorium demanded by the World Bank has meant that no new forestry projects had been developed in the past two years, and that people losing their jobs were unable to find alternative forestry employment.
The association also noted that logging was the only rural industry that was taxed on operating loss, and together with the World Bank¹s proposed processing tax, have scared off new investors and reinvestment by current investors.
However, the World Bank has denied suggestions that the moratorium and high export taxes were designed to wipe out the logging and wood processing industry.
The bank's Melbourne-based spokesperson, Graham Barret, told a local newspaper, that the bank was not anti-industry. It "wholeheartedly supports the government¹s intention to ensure that each sector of the industry contributes to benefit Papua New Guinea".
There appeared to be some relief in the 2002 Budget. According to the budget documents, a tax burden of more than Kina 13 million will be removed from the forestry sector.
The government will also exempt export tax on all plantation logs and decrease export tax by five percentage points across all tax bands. It will also continue to improve forestry revenue and taxation to bring about a fairer distribution of the benefits to resource owners, community, industry and government.
However, this effort by the government appears to reveal its hidden weakness in succumbing once again to the economic muscle of the World Bank.
The association cited this when responding to the new forestry budget measures. Executive officer, Robert Tate said Prime Minister Sir Mekere Morauta's speech in Parliament had been "blatantly misleading" because the average export tax had increased by one percent to 34 percent, following a further fall in the exchange rate of the Kina to 26 US cents.
Tate said the collapse of the industry, one of the most profitable sectors of the economy, had been due to the failure of the government to restore the value of the Kina.
Another four logging operations were expected to close in the next two months, taking job losses during the past four years to around 8000. Despite denials by World Bank of its involvement in government decisions regarding the industry, records of the bank's past dealings were ample proof of the claims.
