“The economy is a basket case up here,” lamented Papua New Guinea Forest Industries Association CEO Bob Tate, who has spent decades championing the forest industry.
Tate and sector stakeholders will meet with PNG Prime Minister James Marape and members of the nationalist Pangu Party this Thursday to again address serious issues “dragging down” both in-forest operations and wood processing.
The delegation will call on the government to seriously consider the economic benefits to PNG from a quick return to pre-crisis levels of operations in the forest sector.
“The years 2022-23 have been a disaster, followed by restrictions by the PNG Forest Authority in an attempt to end all exporting activities,” Tate said.
“These measures are unnecessary and demonstrate the complete lack of understanding by the authority of the disastrous economic outlook facing the country.
“So far this year, we have seen a fall in production of 30% compared to the same period last year with extreme concern for the 4000 people who have lost their jobs.”
Tate said the Asian Development Bank and the International Monetary Fund had cautioned the government about the need to maintain and increase PNG’s export earnings and foreign investment.
The forest industry earns more than AU $407 million a year in foreign exchange, unlike other sectors of the economy where money exchange stays offshore.
“If the government’s intention is to move away from log exports, they should conduct this in a responsible manner and give investors ample opportunity to either move into domestic processing if it’s viable or shut their operations with ample lead time rather than simply increasing export tax and wiping the industry out,” Tate said.
“This takes us back to the very darkest days 12-18 months ago when we urged the government to support exports.”
He said these problems had been exacerbated by significant changes in forest policy and direction.
“We’re doomed if the government repeats the same mistakes made over the last 40 years, such as threatening to re-negotiate project agreements already in place.
“This stupid policy has seen the world’s top five gold mining operations exit PNG, including the largest, the Canada-owned Pogera gold and silver mine in the Enga province, which argued against the government’s reversal on previously approved project agreements after which it lost its mining licence.”
Tate adds: “We better watch out. Forestry could be next.”
He said the government seemed to have no concept of economics, totally reliant on misguided donors in Australia and the EU to bail them out every time it got into trouble.
“And well, we recall, not so long ago, the EU’s recommendation that the best thing for PNG was free trade. Their trade reform program to abolish import protection for domestic forest producers would have shut down sawmills and plywood factories overnight.”
Not helping, Tate said, were the Port Moresby bureaucrats who wouldn’t know a stick of timber if they were hit on the head with it.
“They have no concept of quarantine and treatment requirements, their ignorance extending even to an understanding of Australian standards just across the Torres Strait.
Tate said sadly, the big forest harvesting companies had gone, replaced by a few locals “pissing around” with walk-about sawmills that cut one log a month and then move on to cut another log somewhere else.
“They are a curse, unable to produce anything to the required standard.”
Turning to domestic housing, Tate said production was at a slow pace, almost a standstill.
“‘We rely very much on import tariff protection to maintain our local markets,” Tate said. “We can’t compete effectively against plywood imports from China or sawn timber imports from New Zealand.”
Tate, however, says that there has been little consultation with the industry.
“The shift to downstream processing has been a long-standing objective of the PNG government, even back in the 1980s,” he said.
“Unfortunately, it ignores reality; this has never materialised because of the high cost of doing business in PNG. It makes PNG’s industry comparatively uncompetitive in export markets.
“Even in the domestic market, we rely very much on import tariffs to maintain our local markets. We can’t compete effectively against plywood imports from China or sawn timber imports from New Zealand.”
Tate does, nevertheless, point to successful examples of downstream processing.
“There have been large investments in operations in the western provinces, such as at the PNG Forest Products plywood and veneer mill at Bulolo on the north coast, which is more than holding its own and not dependant on export markets.
“The company has enjoyed niche opportunities and capitalised on them.
It’s into everything – engineered wood products, pre-fabricated housing and even the furniture to go into those houses. They are also a significant producer of plywood.
“And it’s all fully certified by Responsible Wood, the Australia-PNG arm of PEFC.
Bob Tate said the industry delegation to the government would seek assurances on stable long-term fiscal policies to attract Industry Investment.
Up for review are appropriate financial/investment incentives – tax exemption on all processed product exports, up to 10 years; tax exemption for new export products and markets; import tax exemptions for plant and machinery; import tariff protection for new export products and market destinations; and corporate and workers tax relief.
The peak body will also seek access to specialist skilled manpower and a review of labour and employment laws to allow the intake of timber processing skills for sawyers, technicians, saw doctors, wood machinists and technologists in wood preservation, engineered wood and seasoning.
Ahead of the meeting, Bob Tate said he was cognisant of the fact that James Marape was voted in as prime minister unopposed, with unanimous support from all MPs present in the first parliamentary sitting following the country’s controversial, and at times violent, national election in May 2019.
Industry snapshot: Papua New Guinea’s forestry sector has moved from a small domestic processing industry in the 1950s to an export-oriented industry. More than 60% of PNG’s total land area (about 30 million ha) is covered by forests and owned by landowners.
About 10 million hectares produce high-quality tropical hardwoods, which are considered suitable for forestry development. The forests are under pressure from small-scale agriculture and commercial agriculture, which may result in deforestation.
PNG has the world’s largest expanse of tropical rainforest. Forestry products include raw log exports, sawn timber, veneer sheets, domestic log sales, plantation logs, plywood, processed timber exports and woodchips.
All commercial timber production is controlled by private companies, with Malaysian multinational companies dominating the industry.