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UBC Theses and Dissertations

Tropical hardwood exports and economic development Roberts, David Hugh 1976

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TROPICAL HARDWOOD EXPORTS AND ECONOMIC DEVELOPMENT by DAVID HUGH ROBERTS B.Sc. (Hons.), University of Wales, 1974 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF FORESTRY i n the Faculty of Forestry We accept t h i s t h e s i s as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA April,1976 (cT) D a v i d Hugh R o b e r t s , 1976 In p r e s e n t i n g t h i s t h e s i s in p a r t i a l f u l f i l m e n t o f the r e q u i r e m e n t s f o r an advanced degree at the U n i v e r s i t y o f B r i t i s h Co lumb ia , I a g ree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s tudy . I f u r t h e r ag ree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y pu rpo se s may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s . It i s unde r s t ood that c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . Department o f The U n i v e r s i t y o f B r i t i s h Co lumbia Vancouver 8, Canada Date .-» -> f" -y 7—*r ABSTRACT Three countries i n Southeast Asia, Indonesia, Malaysia and the P h i l i p p i n e s were chosen and the capacity of the f o r e s t sector to contribute to the process of indigenous growth and development was analysed. D i r e c t action i n the r u r a l sector i s v i t a l to help a l l e v i a t e poverty and unemployment i n the Third World. Although there i s a lack of a general, substantiated strategy for the r u r a l sector, small scale, labour intensive i n d u s t r i a l i z a t i o n would be a useful part of such a strategy. Export s u b s t i t u t i o n has been successful i n several Asian countries." Any r o l e that the f o r e s t sector could have i n promoting r u r a l development would depend upon the c a p a c i t y f o f the f o r e s t i n d u s t r i e s to increase l o c a l retained income, l o c a l value added and employment opportunities. The nature of t h e i r production functions would be"hlghly s i g n i f i c a n t . Economies of scale and i n t e g r a t i o n were recognised as common features. The extent to which i n d u s t r i a l p o l i c y can influence labour intensive i n d u s t r i a l i z a t i o n and technological innovation seemed c r u c i a l . Conventional views of the r o l e of the f o r e s t i n d u s t r i e s i n the development process were judged to be p a r t i a l . Examination of the supply and demand r e l a t i o n s h i p of the f o r e s t sector i n each of the three countries showed that the r a p i d expansion of i n t e r n a t i o n a l trade i n f o r e s t products and the growing proportion of t r o p i c a l hardwood exports from Southeast Asian producers r e f l e c t e d the dominance of log exports from the countries studied. The importance of foreign exchange earnings as a proportion of each country's export b i l l was the prime consideration. In Indonesia, the f o r e s t sector's fortunes were found to be determined by the r o l e of foreign investment. The p i c t u r e was slightly-d i f f e r e n t i n Malaysia.In Peninsular Malaysia the f o r e s t sector has been integrated with a g r i c u l t u r e through land-clearing schemes1 for a g r i c u l t u r a l development. The growth of processed f o r e s t products was noted. In Sabah, in d i g e n i s a t i o n measures have a f f e c t e d the c o n t r o l of the resource with the state government playing an a c t i v e part. The mixed fortunes of the P h i l i p -pines which has l o s t prominence as a log exporter and:is s u f f e r i n g -competition from the i n - t r a n s i t processors, r e f l e c t e d that, most of the growth i n processed f o r e s t products was c l o s e l y r e l i a n t upon import dependent i n d u s t r i a l i z a t i o n p o l i c i e s . Log exports are e s p e c i a l l y dominant i n the remoter areas of each country and heavy investment i n i n f r a s t r u c t u r e would be needed to e s t a b l i s h f o r e s t i n d u s t r i e s . Measures taken to reduce or ban log exports have been applied to ensure a supply of logs to the e x i s t i n g i n d u s t r i e s i n Peninsular Malaysia and the P h i l i p p i n e s . The analysis of the f o r e s t sector i n these countries used a framework which emphasised the importance of employment, l o c a l income and value added. Adopting the c r i t e r i a of past national development objectives the sector has made a substantial c o n t r i b u t i o n : the main c r i t e r i o n being that of foreign exchange earnings. I t was contended that the expressed aims of achieving employment and s o c i a l j u s t i c e could not be met by a furtherance of the present pattern of resource e x p l o i t a t i o n or by the development of the forest sector f o r large scale,-export oriented operations. Instead, a subordination of t h i s r o l e was recommended and p o l i c i e s which would involve the multi-faceted nature of r u r a l development should recognise the p o t e n t i a l of the e x i s t i n g f o r e s t .industries. P o l i c i e s ought to favour l o c a l entrepreneurs,local s k i l l s and indigenous f o r e s t i n d u s t r i e s . The country s p e c i f i c nature of the f o r e s t sector's contribution to economic i i i d e v e l o p m e n t may o n l y be r e a l i s e d where t h e needs o f t h e r u r a l s e c t o r t a k e n t o be p a r a m o u n t . i v TABLE OF CONTENTS Page ABSTRACT . i TABLE OF CONTENTS i v L I S T OF TABLES . v i i L I S T OF ILLUSTRATIONS i x L I S T OF MAPS x L I S T OF APPENDICES x i ACKNOWLEDGMENT x i i i INTRODUCTION 1 CHAPTER ONE - THE IMPORTANCE OF RURAL DEVELOPMENT . . • 4 1 .1 INTRODUCTION . . . . . . 4 1.2 LABOUR INTENSIVE MANUFACTURED EXPORTS . . 7 1 .3 SMALL SCALE INDUSTRIES . . . . 11 1.4 CONCLUSION . 13 CHAPTER TWO - FOREST INDUSTRIES AND RURAL DEVELOPMENT . 15 2 . 1 INTRODUCTION 15 2 . 2 FOREST INDUSTRIES AND ECONOMIC DEVELOPMENT . 16 2 . 2 . 1 L o g g i n g 20 2 . 2 . 2 S a w m i l l i n g 21 2 . 2 . 3 Wood-based P a n e l s 22 2 . 2 . 4 P u l p and P a p e r 22 2 . 2 . 5 Common F e a t u r e s . . . . . . 23 2 . 3 CONCLUSION 24 CHAPTER THREE - THE FOREST SECTOR I N INDONESIA, MALAYSIA AND THE P H I L I P P I N E S . . . 28 3 . 1 FOREST RESOURCES OF SOUTHEAST A S I A . . 28 3 . 1 . 1 Hardwood E x p o r t s . . . . . . 31 3 . 1 . 2 J a p a n ' s F o r e s t P r o d u c t s I m p o r t s . . . 32 3 . 1 . 3 F u t u r e D e v e l o p m e n t s . . . . . 38 3 . 1 . 4 T a r i f f P r o t e c t i o n 41 V Page 3 . 2 THE FOREST RESOURCE OF INDONESIA . . . 43 3 . 2 . 1 F o r e s t D e v e l o p m e n t . . . . . 43 3 . 2 . 2 F o r e s t I n d u s t r i e s . . . . . . 46 3 . 2 . 3 Hardwood E x p o r t s . . . . . . 47 3 . 3 THE FOREST RESOURCE OF MALAYSIA . . . 50 3 . 3 . 1 P e n i n s u l a r M a l a y s i a . . . . . 53 3 . 3 . 1 . 1 F o r e s t D e v e l o p m e n t . . . . . 53 3 . 3 . 1 . 2 F o r e s t I n d u s t r i e s . . . . . 54 3 . 3 . 1 . 3 Hardwood E x p o r t s . . . . . 56 3 . 3 . 2 Sabah 60 3 . 3 . 2 . 1 F o r e s t D e v e l o p m e n t . . . . . 60 3 . 3 . 2 . 2 F o r e s t I n d u s t r i e s . . . . . 61 3 . 3 . 2 . 3 Hardwood E x p o r t s 62 3 . 3 . 3 Sarawak . . . . . . . . 65 3 . 3 . 3 . 1 F o r e s t D e v e l o p m e n t . . . . . 65 3 . 3 . 3 . 2 Hardwood E x p o r t s . . . . . 66 3 . 4 THE FOREST RESOURCE OF THE P H I L I P P I N E S . 68 3 . 4 . 1 F o r e s t D e v e l o p m e n t . . . . . 71 3 . 4 . 2 F o r e s t I n d u s t r i e s . . . . . . 73 3 . 4 . 3 Hardwood E x p o r t s . . . . . . 74 CHAPTER FOUR - TROPICAL HARD WOOD EXPORTS AND ECONOMIC DEVELOPMENT . . . . 77 4 . 1 THE INDONESIAN ECONOMY 77 4 . 1 . 1 F o r e i g n E x c h a n g e E a r n i n g s . . . . 79 4 . 1 . 2 R e g i o n a l Income . . . . . . 84 4 . 1 . 3 F o r e i g n I n v e s t m e n t . . . . . 85 4 . 1 . 4 Employment . . . . . . . 90 4 . 1 . 5 D i s c u s s i o n . . . . . . . 95 4 . 2 THE MALAYSIAN ECONOMY . . . . . 98 4 . 2 . 1 F o r e i g n E x c h a n g e E a r n i n g s . . . . 101 4 . 2 . 2 R e g i o n a l Income . . . . . . 104 4 . 2 . 3 F o r e i g n I n v e s t m e n t . . . . . 105 4 . 2 . 4 Employment . . . . . . . 107 4 . 2 . 5 D i s c u s s i o n . . . . . . . 110 v i Page 4 . 3 THE P H I L I P P I N E ECONOMY 112 4 . 3 . 1 F o r e i g n E x c h a n g e E a r n i n g s . . . . 114 4 . 3 . 2 R e g i o n a l Income . . . . . . 118 4 . 3 . 3 F o r e i g n I n v e s t m e n t . . . . . 118 4 . 3 . 4 Employment . . . . . . . 121 4 . 3 . 5 D i s c u s s i o n . . . . . . . 124 127 133 141 CHAPTER F I V E - CONCLUSIONS BIBLIOGRAPHY APPENDICES . . v i i LIST OF TABLES TABLE Page 1 Insular Southeast Asia: Estimated Land Use 1970 . 29 2 Forest Products Exports from Indonesia, Malaysia and the Philippines, 1962-1974 . . . . 33 3 Changes of Southsea Log Imports 1963-1974 . . 37 4 Indonesia: Distribution of Forest Land by Region . 45 5 Indonesia: Primary Mechanical Wood-Using Industries 47 6 Indonesia: Tropical Hardwood Log Exports 1962-1974. 48 7 Malaysia:. Tropical Hardwood Log Exports 1962-1974 . 57 8 Peninsular Malaysia: Tropical Hardwood Log Exports 1962-1974 58 9 Sabah: Tropical Hardwood Log Exports 1962-1974 . 63 10 Sarawak: Tropical Hardwood Log Exports 1962-1974 . 67 11 Philippines: Public Forest under Authorized Exploitation i n 1970 . . . . . . 6 9 12 Philippines: Tropical Hardwood Log Exports 1962-1974 75 13 Indonesia: Tropical Hardwoods share of the Export B i l l 1962-1974 81 14 Indonesia: Foreign Investment Projects Approved, 1962-1974 87 TABLE v i i i Page 15 Indonesia: Growth i n Manufacturing Employment and Value-added 1961-1971 . . . . 92 16 D i s t r i b u t i o n of S k i l l e d Labour by Type of Wood Processing i n Various Asian Countries . . . 93 17 Indonesia: Structure of Small Scale Industry, 1972. 94 18 Indonesia: Investment App l i c a t i o n s , 1968-1972 . 94 19 Malaysia: Exports of "Pioneer Industries" (Peninsular Malaysia only) . . . . . . 99 20 Malaysia: T r o p i c a l Hardwoods Share of the Export B i l l 1962-1974 . . . . . . 102 21 Peninsular Malaysia: Employment i n Forestry and Primary Forest Industries i n 1970 . . . . 108 22 P h i l i p p i n e s : T r o p i c a l Hardwoods share of the Export B i l l , 1962-1974 . . . . . . 115 23 P h i l i p p i n e s : Capital-Labour Ratios and D i s t r i b u t i o n of D i r e c t Foreign Investment i n Manufacturing, 1970 119 24 P h i l i p p i n e s : Necessary Investment i f Proposed Log Export Ban Occurs . . . . . . . 120 25 P h i l i p p i n e s : Major Exports (Excluding Labour Intensive Exports) Ranked According to Export Earnings and Generated Employment . . . . 123 i x LIST OF ILLUSTRATIONS FIGURE 1 World Trade i n T r o p i c a l Hardwood Logs by Volume, 1962-1973 2 Changes of FOB Prices of Southsea Logs . 3 Peninsular Malaysia: A l t e r n a t i v e Employment Opportunities i n the Forest Industries, 1970-1990 X MAP 1 Southeast A s i a 2 Indonesia 3 Malaysia 4 Peninsular Malaysia 5 P h i l i p p i n e s LIST OF MAPS Page 52 70 x i LIST OF APPENDICES Page APPENDIX 1 Table 1 World Trade i n Forest Products, 1962-1973 . . . . . . 141 Table 2 The Southeast Asian Log Trade, 1962-1974 142 Table 3 Forest Products Exports from the In-Tr a n s i t Processing Nations, 1962-1973 . 143 Table 4 Plywood Exports from Selected Countries i n Asia, 1962-1973 . . . . . 1 4 4 Table 5 Selected Countries' Log Exports by Destination, 1972-1973 . . . . • 145 Table 6 Selected Countries' Plywood Exports: by Destination, 1972-1973 . . . 146 Table 7 Selected Countries Sawnwood Exports: by Destination, 1972-1973 . . . 147. APPENDIX 2 Table 1 Trade and Trade Prospects i n . T r o p i c a l Broad Leaved Woods . . . . 148 Table 2 Projected Demand f o r T r o p i c a l Hardwood, by Major Areas, up to 1985 Table 3 Estimated Growth of Timber Exports from the P h i l i p p i n e s , Malaysia, and Indonesia, 1968 and 1990 149 150 APPENDIX 3 Table 1 T a r i f f s . . . . . . . 1 5- L APPENDIX 4 Table 1 Table 2 Southsea Log P r i c e s , 1974-1975 Plywood and Log P r i c e s , 1963-1974 152 153 x i i Page APPENDIX 4 Table 3 Table 4 Indonesia: Log Export Check Pr i c e s 1970-1974 Estimated T y p i c a l Costs of Logs f or the P h i l i p p i n e s and Indonesia . 154 155 APPENDIX 5 Table Table 1 Indonesia: The Recent Export Picture 2 Indonesia: Timber Exports by Regional O r i g i n , 1970 Table 3 Indonesia: Timber Exports by Regional O r i g i n , 1972 . . . . . . Table 4 Indonesia: Structure of Forest Taxes Table 5 Indonesia: Employment by Major Economic Sector, 1971 . . . . . . Table 6 Malaysia: The Recent Export P i c t u r e , 1972-1974 Table 7 Peninsular Malaysia: Processed Forest Products Exports 1962-1974 Table 8 Malaysia: I n d u s t r i a l Production: Survey of Manufacturing Industries, 1970 Table 9 P h i l i p p i n e s : The Recent Export P i c t u r e , 1972-1974 Table 10 P h i l i p p i n e s : Plywood and Veneer Table 11 P h i l i p p i n e s : Sawnwood Exports, 1962-1974. 156 157 158 159 160 161. 162 163 164 165 166 x i i i ACKNOWLEDGMENT I would l i k e to thank a number of people f o r t h e i r assistance and advice throughout my studies . In p a r t i c u l a r , Dr. D.Haley , my supervisor f o r h i s help and guidance within the Faculty of Forestry and f o r h i s h o s p i t a l i t y outside of Dr. R.W.Wellwood aided my search f o r material and h i s comments on the d r a f t of t h i s t h e s i s greatly improved i t s organization and s t y l e of expression. The constructive c r i t i c i s m and advice of Dr. G.B.Hainsworth, Department of Economics, was most valuable i n helping me to organize my thoughts to some degree. N e i l Byron and Ephraim Enabor,-,valued colleagues and fr i e n d s , " withstood a v a r i e t y of questions and contributed to t h i s t h e s i s i n no small way as a r e s u l t . F i n a n c i a l assistance from the Faculty of Forestry, U n i v e r s i t y of B r i t i s h Columbia, made i t possible f o r me to undertake research and i s g r a t e f u l l y acknowledged. x i v "The teaching of Buddha, on the other hand, enjoins a reverent and non-violent a t t i t u d e not only to a l l sentient beings but also , with great emphasis, to tr e e s . Every follower of Buddha ought to plant a tree every few years and look a f t e r i t u n t i l i t i s s a f e l y established, and the Buddhist economist can demonstrate without d i f f i c u l t y that the u n i v e r s a l observation of t h i s r u l e would r e s u l t i n a high rate of genuine economic development, independent of foreign a i d . Much of the economic decay of Southeast A s i a (as of many other parts o f the world) i s undoubtedly due to a heedless and shameful neglect of trees." (Schumacher,1974) " I f we look back over two decades of e f f o r t i n the f o r e s t r y sector i n the underdeveloped countries, then we must admit, i f we are honest with ourselves, that although there has been some growth, i t has been much l e s s than we had hoped; and the contribution of f o r e s t r y towards improving the l o t of the common people has been n e g l i g i b l e so f a r . I t i s a black and discouraging p i c t u r e . " (Westoby,1975) - 1 -INTRODUCTION In the T h i r d World, the f o r e s t resource can be a valuable r u r a l asset, and an important form of land-use and i t s u t i l i z a t i o n i s thus i n e x t r i c a b l y involved with the common features of underdevelopment; r u r a l poverty and unemployment. Therefore i t i s not s u r p r i s i n g that the capacity of the f o r e s t sector to a i d the process of economic development has stimulated a c e r t a i n amount of i n t e r e s t . With the renewed at t e n t i o n now being centred on the prospects of the a g r i c u l t u r a l sector to a l l e v i a t e the poverty of much of the r u r a l population, e f f o r t s to explain t h i s p o t e n t i a l need to be dire c t e d at i n d i v i d u a l countries and s p e c i f i c areas. The objective of t h i s study i s to analyze the con t r i b u t i o n that the f o r e s t sector has to o f f e r the process of indigenous economic growth and development. For t h i s purpose three countries i n Southeast Asia were chosen. Indonesia, Malaysia and the P h i l i p p i n e s c u r r e n t l y supply 80% of the world's t r o p i c a l hardwood requirements; each country possesses a s i z a b l e f o r e s t resource. The relevance of the f o r e s t sector l i e s i n i t s capacity to serve the needs of national development objectives and to t h i s end i t s a b i l i t y to serve a r u r a l i n d u s t r i a l base which could be a v e h i c l e f o r employment creation and income generation i s s i g n i f i c a n t . How t h i s i s shaped and influenced by the p r e v a i l i n g condi-tions or underlying nature of the development process w i l l c l e a r l y - 2 -determine the extent to which i t can be r e a l i s e d . Forest resource e x p l o i t a t i o n for the Southsea log trade i s the dominant pattern of resource u t i l i s a t i o n i n Indonesia, Malaysia and the P h i l i p p i n e s . I t i s the nature of t h i s trade which w i l l determine any propulsive impact that the f o r e s t sector has to o f f e r to the r e g i o n a l economy. Whilst the volume of processed exports from these countries has increased, e s p e c i a l l y , i n Malaysia and the P h i l i p p i n e s , the growth of domestic f o r e s t i n d u s t r i e s has occurred i n the log importing countries" rather than i n the log producing nations. The type of i n d u s t r i a l i z a t i o n that has taken place can be i d e n t i f i e d with large-scale, export-oriented operations. Given the importance of foreign exchange earnings and the high opportunity cost of log exports, the p o t e n t i a l r o l e of r u r a l f o r e s t i n d u s t r i e s would be an important consideration i n a r u r a l development strategy. In the absence of such a c l e a r l y a r t i c u l a t e d and comprehensive strategy,' emphasis i n t h i s t h e s i s w i l l be placed on the creation of employment opportunities, the generation of l o c a l , retained income and value-added, as a framework within which to analyse t h i s p o t e n t i a l function. Thus, at t e n t i o n i s focussed upon the constraints and issues of t h i s form of i n d u s t r i a l growth and on the capacity i t may have to further national development objectives. This t h e s i s i s divided i n t o five'chapters. Chapter one stresses the importance of r u r a l development to the economy';! In" chapter two the r o l e of the f o r e s t i n d u s t r i e s , t h e i r t e c h n i c a l and l o c a t i o n a l c h a r a c t e r i s -t i c s are examined, with s p e c i a l reference to primary processing i n sawnwood and plywood production. The following chapter i l l u s t r a t e s the past trends and future prospects of i n t e r n a t i o n a l trade i n t r o p i c a l hardwoods, i n the - 3 -context of Indonesia, Malaysia and the P h i l i p p i n e s . The main feature's of the f o r e s t sector i n each country are i l l u s t r a t e d . The next chapter analyses the contribution which t r o p i c a l hardwood exports have made to the development process i n the three countries and depicts the main constraints and issues surrounding the domestic processing of log exports. The summary and conclusion are presented i n the f i n a l chapter. - 4 -CHAPTER ONE THE IMPORTANCE OF RURAL DEVELOPMENT 1.1 INTRODUCTION The pervasive increase of poverty and unemployment throughout the Third World leads one to sharply question conventional and current assumptions concerning economic development. In recent years i t has been recognised that modern i n d u s t r i a l centres have f a i l e d to generate income and employment throughout the poor countries' economies. But acceptance of the implication that continuing r e l i a n c e on conventional growth s t r a t e g i e s w i l l not n e c e s s a r i l y spread b e n e f i t s beyond the modern sector has only l a t t e r l y reached the f o r e f r o n t of discussion. By f a r the greatest mass of the poor l i v e i n the r u r a l sector and modern i n d u s t r i a l expansion has often been held responsible, not only f o r r u r a l - 5 -neglect and stagnation, but also f o r "forcing large parts of the economy int o decline rather than modernization and growth". (Myrdal, 1968) Disenchantment with orthodox i n d u s t r i a l expansion as a primum mobile of economic development, associated with a number of prominent authors including Baran (1957), F e i and Ranis (1964), and Lewis (1955), has gained increasing momentum. However, the concern i s not d i r e c t e d s p e c i f i c a l l y at i n d u s t r i a l i z a t i o n as a development strategy; rather, i t i s focussed on the uneven or d u a l i s t i c nature inherent i n c a p i t a l i s t development or the ' t r i c k l e down' approach. Unemployment i s one aspect of p r e v a i l i n g growth st r a t e g i e s which finds h o s t i l e c r i t i c s . I n d u s t r i a l employment" has had hardly any e f f e c t on reducing unemployment l e v e l s a t ' a l l , because employment creation lags well behind production increases of Jup'to'7-• or 8% at l e v e l s s i m i l a r to population growth rates of 3% (Singer, 1971). Open unemployment, now a f f e c t s 15-25% of the labour force i n most LDCs, e s p e c i a l l y the 15-24 age group, with even larger groups s u f f e r i n g from underemployment (I.L.O., 1970).. Therefore, percentage gains i n employment are not" only l e s s than the corresponding rates of growth i n the urban work force but they also f a l l short of the absolute number of jobs required (Friedman and S u l l i v a n , 1974). While unemployment i n i t s various forms i s r e a d i l y accepted as a major area r e q u i r i n g attention, the s t r u c t u r a l causes of the phenomenon should f i r s t be dealt with. I t i s contended here that modern i n d u s t r i a l centres, embodying large scale, c a p i t a l intensive processing techniques are, i n the main, the basis to the unemployment c r i s i s . Lacking c a p i t a l goods i n d u s t r i e s of t h e i r own, LDCs are forced to import these'inputs from advanced countries. This "technological dependence" means that imported - 6 -technology i s frequently "inappropriate", being developed under conditions very d i f f e r e n t from those i n which i t was applied (Merhav, 1969). Employment opportunities are often r e s t r i c t e d to a small, highly-paid workforce, operating a plant requiring'a c e r t a i n t e c h n o l o g i c a l l y acceptable minimum scale, often established for a small, fragmented domestic market. The l i m i t e d prospects f o r expansion and employment e l a s t i c i t i e s i n the modern manufacturing sector also i n d i c a t e t h a t " t h i s sector i s u n l i k e l y to accommodate the projected increase i n the labour force i n these countries (Chenery et a l . , 1974). This conclusion s p o t l i g h t s the necessity of' f i n d i n g a l t e r n a t i v e s t r a t e g i e s e s p e c i a l l y f o r r u r a l development. For i t i s due to the low p r i o r i t y accorded to t h i s sector that the urban and r u r a l 'informal' sectors' employment d i f f i c u l t i e s are m u l t i p l i e d . Instead of looking at growth and development with a crude agriculture-versus-industry model, emphasis should now l i e with r u r a l s t r a t e g i e s which could d i r e c t l y involve the r u r a l majority, whereas the a g r i c u l t u r a l sector has i n the past generally been seen as a service sector for the urban centres, i t has to be viewed i n a new l i g h t as the sector on which to b u i l d a broader-based approach to development. I t i s now'generally accepted that urban employment and poverty w i l l not be s u b s t a n t i a l l y reduced by current i n d u s t r i a l s t r a t e g i e s . Renewed r e l i a n c e on the r u r a l sector, therefore, appears to be the only f e a s i b l e a l t e r n a t i v e . Once the necessity f o r urgent action i n the r u r a l sector i s appreciated, the f i r s t question which a r i s e s i s "the need for a v i a b l e and proven strategy f o r a g r i c u l t u r e . Lack of any such strategy however, should temper any hasty b e l i e f i n i n s t a n t s o l u t i o n s . One component, aimed at b u i l d i n g a broader base f o r development, would be the e s t a b l i s h -ment of r u r a l i n d u s t r i e s . The demand i s for rapi d , cheap, and numerous opportunities i n the r u r a l sector, employing methods of production which are simple and d i r e c t l y a ccessible to the mass of the u n s k i l l e d workforce. They should concentrate on using l o c a l materials with minimal demands on c a p i t a l (Staley and Morse, 1965). Indeed t h i s has been argued to be the only answer to "the twin e v i l s of mass unemployment"and mass migration into towns'-' (Schumacher, 1971).. 1.2 LABOUR INTENSIVE MANUFACTURED EXPORTS The concept of the open dual economy conjures up a country which i s s p e c i a l i z e d i n production, exports a small range of primary products, and imports a wide range of consumer goods and almost a l l i t s c a p i t a l goods (Hicks and MacNicoli, 1971). The main exogenous stimulus to growth i s thus external trade and without i t , countries i n t h i s category could hardly e x i s t i n t h e i r present form and the prospects for furt h e r growth would be dim. Southeast Asian countries can be c l a s s i f i e d i n t h i s fashion: as economies with modern sectors which were enabled to grow r a p i d l y because of a r i s i n g a b i l i t y to import' c a p i t a l goods but d i s p l a y l i t t l e evidence of progress i n reducing dependence on these imports, with Singapore as a p o s s i b l e exception. The foreign exchange necessary to finance c a p i t a l goods imports i s generated by the t r a d i t i o n a l export trade and by the resource;intensive e x t r a c t i v e i n d u s t r i e s while manufactured goods play a r e l a t i v e l y minor r o l e . As the modern manufacturing sector cannot grow without a d d i t i o n a l c a p i t a l goods imports, i t i s r e l i a n t upon the a g r i c u l t u r a l ' a n d extractive sectors of the economy. Many non-extractive, t r a d i t i o n a l exports appear to face l i m i t e d prospects as major sources of a d d i t i o n a l foreign exchange earnings. - 8 -Export dependence on the extractive sector i s heavy, therefore, because i t provides the major source of output which i s transformable i n t o c a p i t a l goods through trade. The importance of the export base i n regional development theory has been examined by many write r s , and'North '(1955) has argued that i t has frequently been the c r i t i c a l f a ctor i n a region's rate of growth. Not only has the export base been responsible f o r r a i s i n g the l e v e l of l o c a l income, and therefore the extent of secondary and service a c t i v i t i e s , but i t also has the e f f e c t of widening the economic base of the region as i t develops. Most s i g n i f i c a n t l y , t h i s approach h i g h l i g h t s the importance of the export industry's production function. The production function can be viewed i n terms of whether i t i s labour i n t e n s i v e and increases l o c a l income with l i m i t e d s k i l l t r a n s f e r , or whether a more c a p i t a l intensive production'function w i l l a i d i n t r a i n i n g labour but w i l l have l i t t l e impact"upon l o c a l incomes and employment. This i s a key feature because i t i l l u s t r a t e s the r e l a t i o n s h i p of the production function to the domestic economy as :the'main determinant of the impact of trade on economic development. In t h i s way, the r o l e of the export' industry i n a region of an economy can be analysed f o r the extent to 1 which i t s production function can evolve i n a dynamic sense: c o n t i n u a l l y pushing the production p o s s i b i l i t y f r o n t i e r further outwards. The influence on'the region would be assessed by the e f f e c t of t h i s external trade on regional economic growth as measured by i) increasing l o c a l retained income i i ) increasing l o c a l value added i i i ) increasing employment opportunities. - 9 -The interdependence of the two r u r a l sectors, t r a d i t i o n a l a g r i c u l t u r e and small scale industry, suggests that e f f o r t s to a t t a i n f u l l employment w i l l accelerate: the growth of income, but the reverse has not been experienced i n Southeast A s i a , (Oshima, 1 9 7 1 ) . In the vent for surplus model, discussed above, where resources are f i n i t e and the production function s t a t i c , the l i m i t s to growth from the extractive sector soon become evident. The t r a n s i t i o n to modern economic growth i n t h i s type of economy can occur i f the country moves from import s u b s t i t u t i o n to export s u b s t i t u t i o n , or from land or raw material intensive to a labour intensive manufacturing phase. However, the "switching point" i s defined i n terms of the timeworn r o l e of a g r i c u l t u r e whose p o t e n t i a l i s c o n t i n u a l l y seen to be l i m i t e d , i n the sense that the land surplus w i l l only remain an o u t l e t f o r areas such as Malaysia and the outer islands of Indonesia. The p o s s i b i l i t y of creating a s h i f t i n comparative advantage to the manufacture of labour intensive goods for export, on the other hand, finds s u b s t a n t i a l support i n the experience of South Korea and Taiwan. In the l a t t e r country, export earnings grew by 20% per annum i n the 1 9 6 0 's with n o n - t r a d i t i o n a l products increasing t h e i r share from 5-69% of the export b i l l . For South Korea, where the o r i g i n a l trade o r i e n t a t i o n was much l e s s , there was a rapid move towards export s u b s t i t u t i o n with the labour intensive sector supplying 77% of a l l exports by 1968 (Fei and Ranis, 1 9 7 1 ) . P r i o r to t h i s , exports of labour intensive manufactures had been growing f a s t , about 13% annually, but they remained a small proportion of t o t a l exports (Lary, 1 9 6 8 ) . The high income e l a s t i c i t y , i n world markets for manufactures (and services) r e l a t i v e to food and other primary products points to increasing resources - l O -i n industry. However, the v i t a l part of t h i s argument hinges upon the. alleged contribution which trade has to o f f e r the development process. K r a v i s 1 review of the contribution of trade to economic progress concludes that, "...what the recent experience of the LDC's shows i s not a f a i l u r e of export demand but that i n t e r n a l problems of supply, inherent i n underdevelopment, p a r t i c u l a r l y when biased against trade by p o l i c y measures, cannot be automatically resolved by extra-ordinary favourable demand conditions"" (Kravis, 1970). This suggests that supply conditions have not received s u f f i c i e n t consideration i n the l i t e r a t u r e r e l a t i n g i n t e r n a t i o n a l trade to economic growth. Trade, instead of being the 'engine of growth' i s perhaps more r e a l i s t i c a l l y regarded as a 'handmaiden of growth 1 (Krayiis' term). The problems facing LDC's wishing to generate foreign exchange earnings (rather than simply to save them) can be seen as much the r e s u l t of maladaptation of t h e i r i n d u s t r i a l structures as they are the outcome of a d v e r s i t i e s presented by l i m i t e d markets i n the developed world. While revenues from the export of t r a d i t i o n a l goods can at best be expanded only slowly, there seem to be serious d i f f i c u l t i e s i n developing new exports. Export i n d u s t r i e s i n Southeast A s i a face the same problems of i n e l a s t i c foreign demand, resource exhaustion and the d i f f i c u l t i e s of r a i s i n g a g r i c u l t u r a l production (Kojima et al., 1971). The notable export s u b s t i t u t i o n performance of selected Asian countries could be argued to i n d i c a t e that external demand need not be as l i m i t i n g a factor as some would argue. E f f o r t s to promote export s u b s t i t u t i o n are l i k e l y to f i n d greater d i f f i c u l t i e s so long as e x i s t i n g p r i o r i t i e s i n favour of c a p i t a l intensive i n d u s t r i a l i z a t i o n remain. In turn, labour intensive i n d u s t r i a l i z a t i o n f or export s u b s t i t u t i o n w i l l - 11 -face a much harder task i n improving employment, l o c a l value added, and l o c a l retained income, quite aside from i t s prospects for maximization of these objectives. As F e i and Ranis (1971) comment, the labour intensive sector w i l l have to be pushed even harder "to drag" the r e s t of the economy with i t and they c i t e the growing use of export subsidies i n South Korea as an example. 1.3 SMALL SCALE INDUSTRIES There i s a growing awareness of the need for an integrated approach, to r u r a l development inv o l v i n g t e c h n i c a l and i n s t i t u t i o n a l reforms to promote f u l l e r u t i l i z a t i o n of productive capacity, and thus to mobilise surplus manpower. Emphasis has been l a i d on measures to expand f u l l - t i m e and part-time, no n - a g r i c u l t u r a l , employment opportunities. Examples are the establishment of r u r a l i n d u s t r i a l centres, r u r a l i n f r a s t r u c t u r e extensions and improvement, and a wider focus on r u r a l employment as a whole. The causes of present n o n - u t i l i z a t i o n or under-u t i l i z a t i o n of productive capacity, and means for making f u l l e r and more intensive use of i t , i n a l l sectors, also bear i n v e s t i g a t i o n . They po s s i b l y o f f e r immediate prospects for increasing output and employment with l i t t l e or no a d d i t i o n a l f i x e d c a p i t a l investment. E x i s t i n g small scale i n d u s t r i a l sectors, whether measured by employment or output, are important i n Asian countries. In the 1960's the small i n d u s t r i e s of the P h i l i p p i n e s , Taiwan, Singapore and South Korea, defined as firms which engaged fewer than 50 people, employed approximately7575%}6ftthe people who worked i n the p r i v a t e , n o n - a g r i c u l t u r a l sector. More s u r p r i s i n g l y , Japan's small firms with le s s than 10 employees encompass 28% of t o t a l employment and h a l f the working - 12 -population i s employed in' operations i n v o l v i n g l e s s than 50 people. In the P h i l i p p i n e s , about 25% of the small i n d u s t r i e s are located i n metropolitan areas and the l a r g e s t proportion are found i n small towns (Oshima, 1970). When the s i z e of the small industry sector i s considered, i t ought to present scope for using the structure to f u l l e r advantage. The idea of "progressive" technologies f o r poor countries was well-expressed by Marsden (1970). To be progressive, technological innovation has to be widely accessible to the r u r a l majority; has to be an improvement on e x i s t i n g methods and has to be dynamic. The provisions f o r t h i s technology have to be found i n indigenous sources, using l o c a l materials, l o c a l c a p i t a l funds and l o c a l l e v e l s of s k i l l . These points are r e i n f o r c e d by those who argue that u n t i l poor countries have co n t r o l over the pace and d i r e c t i o n of technological change, i n d u s t r i a l growth with s i g n i f i c a n t labour absorption w i l l be i l l u s o r y (Schumacher, 1971, S u t c l i f f e , 1971). Lockwood (1954) concluded that the s i n g l e most important lesson to be drawn from the Japanese development experience for the r e s t of Asia i s the process of successive simple improvements i n technology, "...which does not depart r a d i c a l l y from t r a d i t i o n or require large units of new investment". The i n i t i a t i o n of a domestic c a p i t a l goods industry to f a c i l i t a t e t h i s sort of technological innovation i s not without d i f f i c u l t i e s (Pack and Todaro, 1969). The current dominance of the more developed countries i n the Third World's i n d u s t r i a l centres i s indisputable, but the relevant question here i s : to what extent has t h i s m i l i t a t e d against on-going, labour intensive technological innovation? Whether c a p i t a l i n t e n s i t y i s a function of t e c h n i c a l and i n s t i t u t i o n a l considerations (such as i n t e r n a l economies, i n d i v i s i b i l i t i e s , and i n t e r n a t i o n a l company strategy drawn from the i n d u s t r i a l nations), or whether i t i s i n part the outcome of f i s c a l incentives (such as tax - 13 -write-offs, p r o f i t r e p a t r i a t i o n , r o y a l t i e s and tr a n s f e r payments) i s a question of c e n t r a l importance. I t has been argued, f o r example, that labour intensive technological innovation and, "... small scale production u n i t s are discouraged by s p e c i a l incentives to c a p i t a l which make labour intensive production methods unprofitable; the very incentives which d i s t o r t market p r i c e s i n favour of the large, c a p i t a l intensive i n d u s t r i e s discriminate against small scale production. I t i s not s u r p r i s i n g that there i s l i t t l e adaptation and innovation." (Hughes, 1973). At the same time, technological determinism has been exaggerated, i n that i t ignores several aspects of i n d u s t r i a l operations which do permit choice, namely, scale, product and process (Morawetz, 1974, Stewart, 1972). Some sectors, l i k e some products, are labour intensive per se (Hughes, 1973, Kojima et aL, 1971, Morawetz, 1974). A g r i c u l t u r e , construction and f o r e s t r y o f f e r f l e x i b i l i t y and scope f o r t e c h n i c a l innovation. Within industry, goods f or mass consumption and some processing of raw materials for export instead of luxury goods-and import s u b s t i t u t i o n have greater labour absorption capacity. Location near the resource base would d i v e r s i f y the i n d u s t r i a l base, geographically and economically. 1.4 CONCLUSION Empbyment i s c l o s e l y r e l a t e d to income d i s t r i b u t i o n and poverty. Small scale, r u r a l i n d u s t r i e s are a sui t a b l e v e h i c l e to help ameliorate each of them. Rural i n d u s t r i a l i z a t i o n , p a r t i c u l a r l y for export s u b s t i t u -t i o n , i s an a t t r a c t i v e option. The open dual economy i s heavily dependent upon the extractive sector. Processing of raw materials f o r export would a i d the p r i o r i t y objective of most independent s o c i e t i e s , which i s to b u i l d up the manufacturing sector. A move away from import dependent, import s u b s t i t u t i o n , i n addition to d i v e r s i f y i n g the i n d u s t r i a l base, has more promising long-term growth prospects through the generation - 14 -of foreign exchange, employment, income, value added and linkage e f f e c t s . The regional share of income accruing from the export sector i s obviously the most important factor i n measuring the s e c t o r 1 s t o t a l developmental impact. Income d i s t r i b u t i o n within the region i s also an e s s e n t i a l element when assessing the legacy of the t r a d i t i o n a l export sector. Current p r i o r i t i e s which discriminate to the advantage of c a p i t a l intensive operations, located i n urban centres, should recognise the scope which does e x i s t within the small industry sector. A low l e v e l technology, such as that suggested by Marsden, could have greater back-ward linkage p o t e n t i a l , both to the resource base and to a basic c a p i t a l goods industry. I t i s these very p r i o r i t i e s , which are l i a b l e to be the main influences on the d i r e c t i o n of technological innovation i n the poor countries. Although there i s no general strategy f o r the r u r a l sector, the contribution of r u r a l i n d u s t r i e s can be assessed f o r t h e i r predicted e f f e c t s on l o c a l income, l o c a l value added and employment. P o l i c i e s which e x p l i c i t l y encourage the option of developing the 'informal' sector as a component of a r u r a l development strategy appear more relevant to these objectives than e x i s t i n g p r i o r i t i e s which have had l i t t l e p o s i t i v e e f f e c t on unemployment and r u r a l poverty. CHAPTER TWO FOREST INDUSTRIES AND.RURAL DEVELOPMENT 2 . 1 INTRODUCTION In Indonesia, Malaysia and the P h i l i p p i n e s , e x p l o i t a t i o n of f o r e s t resources plays an important r o l e i n the economy. Foreign exchange earnings from an export trade dominated by logs are very s u b s t a n t i a l . Me'a'su'ressare currently being implemented to increase the proportion of processed f o r e s t products exports. To assess the r o l e of the f o r e s t i n d u s t r i e s i n these countries i t i s necessary to look b r i e f l y at the nature of the contribution of the f o r e s t sector to economic development, with s p e c i a l reference to SoutheasttAsia: - 16 -2.2 FOREST INDUSTRIES AND ECONOMIC DEVELOPMENT Forestry and f o r e s t i n d u s t r i e s may o f f e r p a r t i c u l a r advantages to planners i n that governments should be able to influence the pace and d i r e c t i o n of f o r e s t development. Some of the domestic demand f o r wood products a r i s e s i n the p u b l i c sector and i n Southeast Asia the resource i s also often p u b l i c l y owned. The customary method of assessing the f o r e s t resource and i t s r e l a t i o n s h i p with the r e s t of the economy i s to stress the sector's s p e c i a l features. For example, Sartorius and Henle (1968) suggest that, "...the existence of adequate f o r e s t resources means a weighty p o t e n t i a l asset that has the further advantage of being n a t u r a l l y renewable t h e i r f o r e s t economies should therefore be given i n t e r s e c t o r a l p r i o r i t y i n the r u r a l development plan"." Much, i f not a l l , of the l i t e r a t u r e on t h i s subject owes a debt to Westoby's comprehensive study which analysed i n some depth the c h a r a c t e r i s t i c s of the f o r e s t i n d u s t r i e s and t h e i r connection with the f o r e s t resource and the i n t e r n a t i o n a l market for f o r e s t products. Westoby (1962) c o n t i n u a l l y emphasised the scope for f o r e s t r y i n an integrated development plan. The f o r e s t i n d u s t r i e s ' production functions were studied while the v a r i a t i o n and f l e x i b i l i t y amongst and between them at various stages were high-l i g h t e d . The wider and more integrated the sector becomes the easier i t becomes to use d i f f e r e n t techniques at d i f f e r e n t l e v e l s of production. Production functions of poor countries and i n d u s t r i a l i s e d nations were contrasted and i t was admitted that not enough thought had yetfbeen given to devising technologies more sui t a b l e to the d i f f e r i n g conditions i n LDC's. Logging appeared to be one f o r e s t operation p a r t i c u l a r l y well geared to the developi'ngccouhtrybbyvvi'r.tueoof i i t s ^ s e a s o n a l : nature * i n that i t s labour requirements can usually be made complementary those of a g r i c u l t u r e . - 17 -Westoby suggested that production processes i n v o l v i n g the manufacture of a v e r s a t i l e number of products suited f o r use i n construc-t i o n , joinery, veneer, f u r n i t u r e , wood-based panel boards, pulp and paper products and general u t i l i t y have a high degree of interdependence with other sectors. Each f o r e s t industry was followed i n turn through the various stages of s o p h i s t i c a t i o n from logging to pulp and paper production and t h e i r s p e c i a l features i l l u s t r a t e d . The capacity f o r i n t e g r a t i o n amongst these i n d u s t r i e s was stressed. While i t was recognised that backward linkages are generally weak, the propulsive nature of the f o r e s t i n d u s t r i e s was advocated as a major f a c t o r which " i s l i a b l e to induce spontaneous investment i n other branches of production" because of i t s strong forward linkages with other sectors. This case was reinforced by the further use of Hirschman's concept that a high degree of linkage endows a sector with favourable conditions f o r investment. At the same time investment opportunities are widened i n the economy through m u l t i p l i e r effectsffr.omii i i terTi i>ridus.try demands. However Westoby cautioned against wholesale acceptance of the theory that untapped f o r e s t resources have i n t r i n s i c development p o t e n t i a l and warned that t h i s expectation had been the source of much disappointment (Westoby, 1962). Several years l a t e r a more c r i t i c a l a p p r a i sal found the function of the f o r e s t sector to be more s i g n i f i c a n t within a regional perspective (Nautiyal, 1967). Nautiyal contended that there was probably ho one propulsive sector of unique importance i n the l e s s developed economy and suggested instead that f o r e s t r y may have c e r t a i n propulsive e f f e c t s from a regional viewpoint which he summarised as: i ) i t can u t i l i z e r u r a l resources e a s i l y i i ) i t s main product, wood, i s v e r s a t i l e - 18 -i i i ) i t i s a supplier of raw material for paper which i s a very important item i n human investments i n a developing country iv) i t can save foreign exchange by import s u b s t i t u t i o n and export promotion i n many areas v) i n some countries by providing cheap f u e l i t can release cow dung for use as manure i n a g r i c u l t u r e v i ) i t can play a s u b s t a n t i a l r o l e i n regional development where large f o r e s t areas e x i s t . .. There may be elements of t r u t h i n a l l these statements but the actual r e s u l t s of these claims have not been substantiated. The f i r s t two points are c l e a r i n that i t would be an advantage to mobilise the resource i n t h i s way. Pulp and paper imports are by f a r the l a r g e s t component of poor countries' f o r e s t products imports, c l o s e l y aligned with educational expenditure and growth of G.N.P.. HowfevSr^hitt jjgs n§; ttclear rthai' import s u b s t i t u t i o n f or these products would prove to be any more successful than other ventures, and indeed Westoby found no evidence to support the case for import s u b s t i t u t i o n i n t h i s industry. The foreign exchange const r a i n t (which i s often made the basis of many export programs) remains v a l i d , as does the l a r g e s t single purpose f o r which wood i s used f u e l demand. Nautiyal's f i n a l point constitutes the c e n t r a l part of t h i s study. By i m p l i c a t i o n , the r u r a l or regional impact of the f o r e s t sector i s of greater relevance than previous claims for i t s national impetus. This view was further elaborated by Steenberg (1972), who concluded that there were four d i f f e r e n t aspects of the f o r e s t sector which made i t well-suited f or aiding r u r a l development. These were, i ) the wide range of scales of operation that are p o s s i b l e i n the f o r e s t i n d u s t r i e s - 19 -i i ) the varying i n t e n s i t i e s of c a p i t a l and labour inputs that are required i i i ) the d i f f e r e n t degrees of s k i l l s that are demanded iv) the p o s s i b i l i t y of growth by stages i n t h i s sector These points summarize the generally held conception of the promising r o l e of the f o r e s t sector i n a poor country's economic development. General reviews of the subject are also to be found i n the respective d i s s e r t a t i o n s of Nautiyal (1967) and Warfvinge (1970). . : T h e assumptions underlying the claim that the f o r e s t i n d u s t r i e s have a 'propulsive' function r e s t most heavily on Hirschman's concept of backward and forward linkages and upon the f a c t o r s which ensure that the p o s i t i v e e f f e c t s of linkages are r e a l i s e d . Primary i n d u s t r i e s , by d e f i n i t i o n , have few backward linkages within an economy, e s p e c i a l l y where t h e i r c a p i t a l goods requirements have to be l a r g e l y imported. Their impetus i s f e l t mostly through forward linkages leading i n t o other i n d u s t r i a l sectors and f i n a l demand. Forward linkages i n the f o r e s t i n d u s t r i e s would be expected to l i e c h i e f l y i n construction and general u t i l i t y which are among the most important consumers of t h e i r products. Where the domestic market i s small and fragmented the impact of these i n d u s t r i e s on other sectors w i l l be accordingly reduced. The d i r e c t e f f e c t s on employment and l o c a l income, plus any s p i l l o v e r e f f e c t s , remain the chief benefits of t h i s sort of i n d u s t r i a l development. As a r e s u l t , i n t e r - i n d u s t r y dependence, ((&cg.. with other manufacturing), f o r which the f o r e s t i n d u s t r i e s have been rated highly, i s of l e s s e r ]:~ importance. I t seems l i k e l y that the most important consideration from the 'propulsive' viewpoint i s , instead, the i n t r a - i n d u s t r y dependence. One common theme running throughout the l i t e r a t u r e on the r o l e - 20 -of the f o r e s t i n d u s t r i e s i n promoting economic development may be termed the 'growth by stages theory'. Operating or evolving from a simple processing base such as sawmilling or veneer production, i t i s suggested that there i s a strong a s s o c i a t i o n providing an impetus f o r the growth of other f o r e s t i n d u s t r i e s . This theory finds i t s o r i g i n s i n Westoby (1962) where the 'propulsive' impact of the f o r e s t i n d u s t r i e s was defined by t h e i r strong forward linkages with other sectors and by t h e i r own i n t r a - i n d u s t r y dependence. However, the growth by stages theory focusses on the surplus generated from one f o r e s t industry being channelled i n t o another form of wood processing. This i s commonly i n i t i a t e d from sawmilling "upwards" i n t o pulp aiieh.paper production (Nelson, 1972, Stacey, 1972). But, the reverse sequence of events can occur and may even be more favourable (Smith, 1972). I t i s u s e f u l to look separately at the main f o r e s t i n d u s t r i e s to see i f the theory finds support. These can be distinguished as logging, sawmilling, wood-based panel boards (including veneer), and pulp and paper. 2.2.1 Logging The basic f o r e s t industry i s , of course, logging. In Southeast Asia i t i s the l a r g e s t of a l l the f o r e s t i n d u s t r i e s and e x h i b i t s the greatest employment absorption and v a r i e t y of methods, as w e l l as being seasonal and geographically d i v e r s i f i e d . Non-mechanized operations such as .eiephants; i n Thailand and Burma, and the bandjir kap r i v e r loggers of Indonesia contrast with highly mechanized harvesting operations i n parts of Kalimantan, the P h i l i p p i n e s and Sabah. Very l i t t l e i s known about 3 the industry, yet i n 1973 46 m i l l i o n m (73%) out of a t o t a l of 64 m i l l i o n 3 m were exported i n roundwood form. One implication of the growing shortage of c u r r e n t l y sought a f t e r - 21 -species i n the more accessible areas i s that higher harvesting and transport costs are incurred f o r the remaining f o r e s t operations (Segerstrom, 1 9 6 9 ) . T a u t o l o g i c a l l y , i t i s because of the f a c t that very few of the large number of species present i n the f o r e s t are c u r r e n t l y u t i l i s e d that logging and transport costs make up such a high proportion of f.o.b. p r i c e s (Appendix 14/)).. As a c o r o l l a r y to t h i s , processing near the f o r e s t base would enable many presently non-commercial species to be used f o r the domestic market or for export. Corestock for export and the domestic construction market are examples of t h i s . I t i s often argued that only by pursuing integrated u t i l i z a t i o n of the raw material, and by increasing the number of species that can be s u c c e s s f u l l y harvested, w i l l major development i n domestic f o r e s t i n d u s t r i e s occur (Richardson, 1 9 7 0 ) . Equally, i t i s notable that f o r e s t i n d u s t r i e s i n Southeast Asia have so f a r been based on a r e l a t i v e l y homogenous resource of high economic d e s i r a b i l i t y . 2 . 2 . 2 Sawmilling The world's sawmilling industry uses more than h a l f the t o t a l labour force employed, and approximately two-thirds of the raw material consumed by the primary f o r e s t i n d u s t r i e s (F.A.O., 1 9 6 7 , Plumptre, 1 9 7 4 ) . Page (1972) examined the t r o p i c a l hardwood sawmilling industry i n several countries and his data show that sawmills, i n contrast to pulp and paper m i l l s , do not achieve very s i g n i f i c a n t economies of scale, e s p e c i a l l y a f t e r a c e r t a i n minimum scale of operations i s reached. Page defines sawmilling to be most su i t a b l e for LDCss because of i t s technological f l e x i b i l i t y , whereby i t can be adapted to d i f f e r e n t l o c a l conditions. The industry i s also envisaged as the basis for further f o r e s t i n d u s t r i e s development, p a r t i c u l a r l y i n t o large scale, integrated - 22 -operations. Sawmilling o f f e r s the greatest choice of a l l the primary f o r e s t i n d u s t r i e s , f o r l o c a t i o n , scale and product (Duerr, 1960). Malaysia and Singapore possess the l a r g e s t sawnwood i n d u s t r i e s , f o r export markets, i n Southeast A s i a . 2 . 2 . 3 Wood^Based Panels., Production of wood-based panels i n the region under study i s dominated by plywood (and veneer) production. Plywood production i s s i m i l a r to sawmilling i n that i t uses a r e l a t i v e l y expensive raw material with comparatively l i t t l e value added. On the other hand, reconstituted wood-based panels embody a higher degree of value added and may require s i g n i f i c a n t inputs such as r e s i n and water. (This l a t t e r requirement i s decreasing due to technological change). The plywood industry has stringent requirements for high q u a l i t y logs. Economies of scale have become more pronounced and, i n consequence, the need for larger volumes of s uitable logs has increased (F.A.O., 1966). Plywood production, i n our countries, i s concentrated i n Peninsular Malaysia and the P h i l i p p i n e s . In t r a n s i t processing nations such as Singapore, South Korea, Taiwan and Hong Kong have larger plywood m i l l s , based on logs from the three log exporting nations. 2.2.4 Pulp and Paper The pulp and paper industry i s the most c a p i t a l intensive of the primary f o r e s t i n d u s t r i e s . I t accounts for 75% of the t o t a l c a p i t a l employed i n these i n d u s t r i e s as compared with 17% for sawmilling (F.A.O., 1967). The r e l a t i v e factor requirements c l e a r l y d i f f e r widely; they can be presented as a spectrum, with c a p i t a l intensive pulp and paper f a l l i n g at one end and labour intensive sawmilling at the other. The remaining board i n d u s t r i e s f a l l i n the middle. Economies of scale - 23 -i n pulp and paper production are s u b s t a n t i a l . Technical constraints such as the need f o r power and water are important influences on the s i t i n g of pulp and paper operations. Added to market s i z e these have l i m i t e d the number of countries i n which the pulp and paper industry i s i n t e r n a t i o n a l l y competitive. Smith (1972) contended that labour intensive i n d u s t r i e s i n h i b i t continuing economic growth and submitted that, " c a p i t a l intensive i n d u s t r i e s such as pulp and paper r e s u l t i n high p r o d u c t i v i t y from labour and generate high s p i n - o f f of external economies which stimulate an expanding economy". He i s convinced of the s u i t a b i l i t y of c a p i t a l intensive i n d u s t r i e s and believes a l l e f f o r t s should be concentrated on the sophisticated techniques of highly mechanized processing i n d u s t r i e s i n the LDC's. The three countries i n t h i s study produce less than 1% of the Asia and Far East region's pulp and paper t o t a l production (Stacey, 1972). 2.2.5 Common Features Although i t i s convenient to separate the main f o r e s t i n d u s t r i e s , t h e i r intra-dependence i s the main topic under discussion. n - tx-Na-turaljLyc^ integrated wood u t i l i z a t i o n has improved the f e a s i b i l i t y of c e r t a i n types of wood processing. The use of sawmill and plywood m i l l residues by the pulp and wood-based panel i n d u s t r i e s i s one example. This, i n turn, has drawn the i n d u s t r i e s c l o s e r together and along with transportation economies and other external economies has made them les s dependent on t h e i r distance from the resource base. Wood i s bulky, which not only makes i t d i f f i c u l t to transport but also means i t s value r e l a t i v e to weight i s often low. Moreover most of the f o r e s t i n d u s t r i e s have low material conversion r a t e s . Consequently, simple l o c a t i o n theory d i c t a t e s that wood processing, wherever possible should be s i t e d near the source of the raw material. - 24 -In the i n d u s t r i a l i s e d countries the'.'.trend towards integrated f o r e s t companies i s well advanced; with many sawmills and plywood m i l l s supplying pulp m i l l s and p a r t i c l e board m i l l s with the residues from t h e i r conversion processes. The expansion of these i n d u s t r i e s , i n f a c t , has been inc r e a s i n g l y affected by t h e i r a b i l i t y to f i n d commercial outlets f o r the large amount of processing residues. However, i n the LDC's these i n d u s t r i e s , i f present at a l l , are only l i k e l y to be able to absorb a small amount of large, export-oriented sawmilling or veneer and plywood production residues (Pringle, 1969). Some large mu l t i n a t i o n a l f o r e s t companies are able to capture these economies of scale through several s p e c i f i c advantages. They can employ j o i n t services and processing at c e r t a i n stages, integrated u t i l i z a t i o n of residues, v e r t i c a l product i n t e g r a t i o n by combining several stages i n conversion and f i n a l l y , h o r i z o n t a l i n t e g r a t i o n by producing a number of v a r i e t i e s of a basic product. The varying economies of scale associated with these forms of inte g r a t i o n where several manufacturing processes may be located together and those economies obtained from marketing arrangements (where cooperation i s reached through j o i n t sales and the pooling of overseas shipments), are s i g n i f i c a n t i n any discussion of technological a l t e r n a t i v e s . 2.3. CONCLUSION The growth by stages theory can be examined, supported and c r i t i c i s e d on a number of grounds. F i r s t l y , i t i s implied that there i s a causal r e l a t i o n s h i p between one f o r e s t industry's expansion and that of another. The f i r s t industry's growth w i l l provide the impetus f or growth i n the second - 25 -industry. As f a r as the f o r e s t i n d u s t r i e s i n the LDCs are concerned t h e i r predominant behaviour has been f o r foreign companies to "cream" the resource to obtain a handful of t r a d i t i o n a l l y approved species. Countries formerly established i n t h e i r colonies, expatriate firms•, , whose task was to extract the raw material but reserve i t s conversion to / in d u s t r i e s i n MDC's. Often where domestic processing occurs to a s i g n i f i c a n t degree, i t i s being undertaken by i n t e r n a t i o n a l f o r e s t companies operating as extensions of the MDCs'a economies. Dominance of the log export trade i n Malaysia, Indonesia and the P h i l i p p i n e s leads i n t u i t i v e l y to the idea that the gains from the f o r e s t i n d u s t r i e s have been absorbed by .importing countries possessing the necessary conditions to f a c i l i t a t e the growth of these i n d u s t r i e s . A cursory look at Japan, Singapore, South Korea, Taiwan and Western Europe drives home t h i s pronounced phenomenon. This growth, of course, supports the theory under discussion. What i s open to question, however, i s whether t h i s growth resulted from access to a cheap source of raw material (that frequently can be a high proportion of t o t a l costs i n the f o r e s t industries) or whether (and t h i s seems more l i k e l y ) , i n the face of strong world markets, these log importing nations had the c a p i t a l , o r ganizational s k i l l s , d i s t r i b u t i o n channels and i n d u s t r i a l p o l i c i e s to secure i t ? In the context of the f o r e s t i n d u s t r i e s and r u r a l i n d u s t r i a l i z a -t i o n , growth and development prospects w i l l hinge strongly on the nature of these i n d u s t r i e s ' production functions. The global trend of f o r e s t i n d u s t r i e s development i s towards large scale, high-capacity, integrated complexes that become more labour saving. In the past, t h i s i n d u s t r i a l growth occurred i n log importing nations, while i n Southeast A s i a foreign c a p i t a l has been centred on the log export industry. Economies of scale - 26 -and i n t e g r a t i o n seem t o have more than outweighed the e x t r a c o s t o f l o g t r a n s p o r t a t i o n (as opposed t o l o c a l p r o c e s s i n g ) and the p o l i c i e s o f i n -t r a n s i t p r o c e s s o r s n a t u r a l l y f a v o u r e d the r e - e x p o r t o f e x p o r t p r o d u c t s . F o r i n d u s t r i e s l i k e .sawmilling> and:plywood p r o d u c t i o n such t e c h n i c a l c o n s t r a i n t s and economies appear t o have l e s s i n f l u e n c e . E s t a b l i s h i n g f o r e s t i n d u s t r i e s i n LDCs<~ would n o t n e c e s s a r i l y r e q u i r e such l a r g e i n v e s t m e n t s and o r g a n i z a t i o n a l e x p e r t i s e as a r e needed f o r the l a r g e r o p e r a t i o n s . These o p e r a t i o n s r e q u i r e e x p e n s i v e , imported i n p u t s , a h i g h e r p r o p o r t i o n o f s k i l l e d l a b o u r , and e f f i c i e n t d i s t r i b u t i o n c h a n n e l s t o r e a l i s e t h e i r p o t e n t i a l h i g h - c a p a c i t y . The d i f f i c u l t y i n a s s e s s i n g the s u i t a b i l i t y o f a p a r t i c u l a r i n d u s t r i a l s t r u c t u r e has t o be b a l a n c e d a g a i n s t the r e g i o n a l development o b j e c t i v e s o f i n c r e a s i n g l o c a l income, l o c a l v a l u e added and employment. I f the growth by s t a g e s t h e o r y i s t o be c r i t i c i s e d t h e n i t must be f o r i t s m e c h a n i s t i c i n t e r p r e t a t i o n o f i n d u s t r i a l growth which i s a b s t r a c t e d from l o c a l c o n d i t i o n s . There seems t o be a t r a d e - o f f between the p r e s s u r e s o f t e c h n o l o g i c a l d e t e r m i n i s m - where the f o r e s t i n d u s t r i e s t e n d " i n e v i t a b l y " t o become l a r g e i n t e g r a t e d complexes because o f t e c h n o l o g i c a l f o r c e s and economies o f s c a l e - and the d e s i r a b i l i t y o f p r o moting a c e r t a i n form o f i n d u s t r i a l i z a t i o n more s u i t e d t o r e g i o n a l development o b j e c t i v e s . I t i s t o o s i m p l i s t i c t o see i n d u s t r i a l d e v e l o p -ment s i m p l y as a t r a d e - o f f between t e c h n o l o g y and i n d u s t r i a l p o l i c y , b u t u n t i l the l a t t e r can i n f l u e n c e t h e former,, the p r o s p e c t s f o r v i g o r o u s change i n i n d u s t r i a l s t r u c t u r e and the s m a l l i n d u s t r y s e c t o r would seem t o be r a t h e r l i m i t e d . , Southeast A s i a Map 1 - 28 -CHAPTER THREE THE FOREST SECTOR IN INDONESIA, MALAYSIA AND THE PHILIPPINES 3.1 FOREST RESOURCES OF SOUTHEAST ASIA The f o r e s t resources of Southeast Asia constitute a major form of land use i n the region (Table 1). This area under study i s c l a s s i f i e d as Insular Southeast Asia, (Map 1) and includes Brunei, Indonesia, Malaysia, the P h i l i p p i n e s and Singapore (F.A.O., 1975a). In the absence of comprehensive inventories of the resource, with the exception of Peninsular Malaysia, the t o t a l area, standing volume and species composition are at best i n t e l l i g e n t estimates. D i f f e r e n t sources suggest wide v a r i a t i o n i n operable f o r e s t area and the estimates are based l a r g e l y upon small samples or from concessions i n i n d i v i d u a l countries. This i s further complicated by the reduction of the f o r e s t land base through the widespread p r a c t i c e of s h i f t i n g c u l t i v a t i o n . One - 29 Table 1. Insular Southeast Asia: Estimated Land Use 1970 Area of Closed A g r i c u l t u r a l other T o t a l Land £2£est^ Land Land A r e a M i l l i o n Per Capita M i l l i o n M i l l i o n Per Capita H a H a % Ha Ha Ha Ha Brunei 0.4 Indonesia 85 Malaysia 23.6 - Sabah 6.0 - Sarawak 9.2 - P.Malaysia 8 . 4 P h i l i p p i n e s 11.7 Singapore 0 Total 120.7 Source: F.A.O. 1975a. 3 . 3 6 6 . 6 0 . 1 0 . 7 4 4 . 6 1 5 . 4 2 . 2 7 1 . 4 3 . 6 9 . 1 7 8 . 9 0 . 2 9 . 4 7 4 . 2 0 .7 0 . 9 6 4 . 1 2 . 7 0 . 3 3 9 . 4 1 2 . 2 0 0 0 0 .7 4 7 . 6 3 1 . 3 0 . 1 0 . 6 5 . 0 90 1 9 0 . 4 1 .6 5 . 9 3 3 . 1 3 . 0 1 .4 7 . 6 1 1 . 5 2 . 5 1 2 . 4 1 2 . 6 2 . 0 1 3 . 1 1.4 5 . 8 2 9 . 7 0 .8 0 . 1 0 . 1 0 . 1 2 5 3 . 9 2 5 3 . 9 1.6 estimate has suggested that i n Indonesia alone, around two m i l l i o n hectares per year are cleared by s l a s h and burn for purposes of temporary c u l t i v a t i o n known as ladang. In s p i t e of imprecision in the assessment of the f o r e s t resources, they have several important features or advantages i n comparison to the other main t r o p i c a l f o r e s t resources i n West A f r i c a and L a t i n America. From a commercial viewpoint, the f o r e s t resources of Insular Southeast Asia possess considerable p o t e n t i a l and a c t u a l economic return. - 30 -These forest areas consist, f i r s t l y , of homogenous stands of timber of desirable quality in large volumes per hectare, readily accessible by rivers, located f a i r l y near ports and geographically well situated for the major markets of Japan and the U.S.A.. The dominant species in this region are medium and light weight dipterocarps of the genera Shorea, Parashorea and Pentacme which are known in the trade, collectively as lauan, meranti, Philippine mahogany or seraya depending upon the exporting country.^" The genera Dipterocarpus and Hopea, a commonly heavier and darker group of timbers, are next in commercial importance. These genera make up a large percentage of the commercial forests in Indonesia (especially Kalimantan), Malaysia (especially Sabah and Sarawak) and the Philippines (especially Mindanao). To a considerable extent this militates in their favour, in contrast to the growing shortage of currently commercial species from the traditional suppliers of West • Africa, and the enormous but very heterogenous stands of the Amazonian forests. The importance of the so-called Wallace Line cannot be over-stressed in this context. The dipterocarp area of Southeast Asia which includes Indochina, Malaysia, the Philippines and a l l of Indonesia except the Malukus, Lesser Sanva and Irian Jaya, i s the preponderant -source of supply for tropical hardwood exports. Species composition exhibits a good deal of heterogeneity in Irian Jaya and Papua New Guinea which in turn reduces their resources' potential in relation to the rest of Insular Southeast Asia. Logging operations are more attractive where there is a greater proportion of commercially valuable species present and this, combined with earlier comments on accessibility, encourages a pattern of international trade based on a few species of historic Whilst. ¥n:rs terminology i s correct i t 11', i n fact; more r e a l i s t i c to U'se'commerciai' names1 afsbthfesei f requently cover' more ' than one species at a time. importance. Thus, the s i m p l i c i t y i n marketing these few timbers has been a v i t a l f actor i n the spectacular increase i n t r o p i c a l hardwood exports from Southeast Asia i n the past f i f t e e n years, which contrasts sharply with the l i m i t e d or poor performance of most primary products. 3.1.1 Hardwood Exports International trade i n f o r e s t products has expanded r a p i d l y during the past f i f t e e n years. Between 1962 and31-973: global trade i n a l l f o r e s t products grew, i n current p r i c e s , by 11% per annum, from $6.1 2 b i l l i o n to $21.7 b i l l i o n . The performance of LDCs as a whole was an improvement on t h i s with earnings increasing by 16.5% per year, although t h i s growth rate was exaggerated by the commodity p r i c e boom of 1973, and for 1962-1972 reg i s t e r e d 12% per year. This expansion was p a r t i c u l a r l y notable i n the chief t r o p i c a l hardwood supply area of Southeast A s i a . I f the Far East region, less Japan, i s considered as a whole, earnings from timber exports experienced an annual growth of 20% f o r the 1962-1973 period. At the same time Asia's share i n the world log trade grew from 49% to 66% and Asian producing nations supplied 80% of the world's t r o p i c a l hardwood log requirements by 1973. Furthermore, the region's share of the t o t a l world trade i n f o r e s t products increased to 13% from 6% i n the same period. (Appendix 1). In 1960 the Southsea log trade absorbed 18% of the region's t o t a l hardwood log production; by 1973 t h i s had increased to 42% while log production i t s e l f grew at 6.4% per annum. Therefore log exports have grown a good deal f a s t e r than the export of processed f o r e s t products. This i s only p a r t i a l l y true when i t i s noted that the Asian region I n c l u d e s the i n - t r a n s i t processors, Singapore, South Korea and Taiwan as 2 Unless otherwise indicated a l l values are U.S. $, expressed i n current p r i c e s . - 32 -w e l l as the log exporting nations of Malaysia, the P h i l i p p i n e s and Indonesia. There i s a marked d i f f e r e n t i a t i o n i n the composition of i n d i v i d u a l countries' f o r e s t products exports. Malaysia and the P h i l i p p i n e s became si z a b l e log exporters during the 1950's and are now taking measures to increase processing and export t h e i r logs i n sawnwood and plywood form. In the l a t e 1960's, or more p r e c i s e l y 1967, Indonesia entered the world log market i n a s i g n i f i c a n t fashion and i s now the l a r g e s t log exporter, r e g i o n a l l y and g l o b a l l y . Each of these countries finds i t s major market i n Japan, e s p e c i a l l y f o r log exports. They also supply the i n - t r a n s i t processors with raw material for t h e i r export i n d u s t r i e s . (Appendix 1). At the same time, i n t e r n a t i o n a l trade i n t r o p i c a l hardwoods has tended to include a larger volume of processed wood products, such as veneer, plywood and lumber. This trend has emerged i n A s i a and i s most apparent i n the predominantly plywood producing countries, Taiwan and South Korea; i n addition, Singapore i s a growing lumber and veneer.producer!^ t-;.\n z. :eas of devel'- ' region havThusethehmainoareasfofndevelopment i n the region have been the growth of Indonesia, surpassing Malaysia and the P h i l i p p i n e s as Japan's ch i e f hardwood supplier; the expansion of plywood exports concentrated i n the re-exporting countries, and the general move towards increasing domestic processing i n each of the producer countries. The past decade has seen marked r i s e s i n foreign exchange earnings f o r each of the exporting nations involved (Table 2). Figure 2 i l l u s t r a t e s the corres-ponding growth i n volume of log exports. 3.1.2 Japan's Forest Products Imports As the l a r g e s t market for the three main hardwood exporters of Southeast A s i a , Japan deserves s p e c i a l attention. Between 1965-1970 t h i s - 33 -T a b l e 2 . F o r e s t Products. E x p o r t s From I n d o n e s i a , • M a l a y s i a and t h e P h i l i p p i n e s ; 1 9 6 2 - 7 4 ~~ Indonesia Malaysia The P h i l i p p i n e s $ m i l l i o n s 1962 1.4 67.7 123.9 1963 1.9 89.9 165.0 1964 2.1 99.6 153.4 1965 3.0 117.8 164.9 1966 4.1 156.8 173.9 1967 8.1 196.2 187.5 1968 30.1 218.8 270.0 1969 49.0 269.1 287.0 1970 111.5 302.6 290.5 1971 196.4 342.3 271.2 1972 254.3 382.6 240.3 1973 633.2 642.0 405.6 1974 750.0 598.0 264.2 Source: F.E.E.R. 1975a, F.A.O. 1975d, and P h i l i p p i n e s , Bureau of Forest Development, 1975 •JJSVS LopiV.ant r 1 2 7 5 . market grew by 7.8% per year a r i s i n g out of a change i n the pattern of wood use i n construction, during a period of rapid economic growth. The Japanese government added a further stimulant by the i n i t i a t i o n of a housing development programme which contributed to the 11.7% growth of demand between 1966-1967. Domestic supply sources f a i l e d to:-meet the demand and grew by only 1.7% during that year. Thus the import volume of - 34 -1,000 1 World 2 As i a 3 Indonesia 4 Malaysia 5 P h i l i p p i n e s T— — i i 1 r— 1 1 r — — r 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 Figure 1. World Trade i n T r o p i c a l Hardwood Logs, by Volume, 1962- 1973 - 35 -3 f o r e s t products grew by 32% with some 6 m i l l i o n m of t h i s increase being logs (World Wood, 1967). Japanese timber consumption i n the second h a l f of t h i s decade showed an impressive growth rate of 7.8% per'year, p a r t of which can again be a t t r i b u t e d to a move away from t r a d i t i o n a l b u i l d i n g p r a c t i c e s . The importance of t h i s end-use was underlined during the mild recession of 1971 and i n the resurgence of demand i n the following year. Housing construction, amid the economic recovery, accounted for the greater part of timber consumption and brought about the unprecedented p r i c e l e v e l s f o r f o r e s t products which were reinfo r c e d by the s i m i l a r construc-t i o n boom i n the United States and the growing wood f i b r e d e f i c i t i n 3 Western Europe. T o t a l demand i n 1972 reached 106.5 m i l l i o n m , up 5% on the previous year,-with logs accounting for 60%, pulpwood 25%, plywood 13% and others 2% of t h i s upswing. Domestic consumption of p l y -22 wood reached 1,470 m i l l i o n square metres ;r(m7) and imports from South Korea and Taiwan increased by 90% causing the demand for peeler logs to grow by 7.3%. In the same year domestic supplies of timber a c t u a l l y * declined by 4.4% i n comparison to 1971. The proportion of imported timber stood at 59% of t o t a l supply as compared to 54% i n 1967 (World Wood, 1974). Consequently the import volumes grew by 13% reaching a 3 3 t o t a l of 62.56 m i l l i o n m . Of t h i s , logs comprised 47.7 m i l l i o n m and sawnwood some 15%, i n d i c a t i n g a marked increase. A breakdown by o r i g i n of the log imports shows that 44% was derived from the Southsea log trade, 15% came from S i b e r i a , 31% from North America and 4% from New Zealand. Log imports from the P h i l i p p i n e s comprised the major p o r t i o n of t r o p i c a l hardwood imports u n t i l 1969, now superpeded by the r a p i d l y gained importance of Indonesia, the l a r g e s t supplier of a l l to Japan. -- 36 -The primary cause of a l l the problems encountered by the South-east Asian producing countries i n the period since the 1973 commodity p r i c e boom, was the heavy drop i n demand from Japan. For the f i r s t time since the Second World War Japan 1s demand for logs f e l l i n 1974, to the extent of 12.8%. The country's log imports, which account for over h a l f the world trade i n t r o p i c a l hardwoods, f e l l even more sharply i n the l a t t e r p art of 1974, with an estimated drop of 30% i n her imports from Southeast A s i a (F.A.O., 1975b). High p r i c e s i n the early months of that year tend to obscure the decline i n export u n i t values f e l t i n l a t e r months (Appendix 3). The aggregate future demand for wood f i b r e , based on the average 3 of 1969-1971, was expected to grow to 134 m i l l i o n m by 1981 at an annual increase of 2.8%. Recent reassessment of t h i s p r o j e c t i o n has r a i s e d the 3 f i g u r e , and estimates now suggest a t o t a l demand of 147.3 m i l l i o n m by 1991. This w i l l have to be met l a r g e l y by overseas suppliers: i t appears u n l i k e l y that the gradual growth of domestic supply w i l l reach 50 m i l l i o n 3 3 m by 1981 and 59 m i l l i o n m by 1991. As a r e s u l t there w i l l be a widening gap between aggregate demand and domestic supply and, i n f a c t , the l a t t e r declined by 7.8% i n 1974 (World Wood, 1974). Logs produced from Japanese domestic sources account for only about one-third of the logs sawn i n Japanese sawmills. Since 1965 imports have supplied increasing q u a n t i t i e s to o f f s e t the s h o r t f a l l r e s u l t i n g from the d i v e r s i o n of domestic logs to the pulp industry and the increased demand for Lumber, (Table 3). Apart from the expected future shortage due to producer country l e g i s l a t i o n phasing out log exports from Southeast Asia, other log suppliers do not o f f e r promising prospects f o r the next ten years. I t i s foreseen that U.S. log exports w i l l not r i s e above the l e v e l of 1973 and may decline; Russian log exports are expected to grow i n l i n e - 37 -Table 3. Changes of Southsea Log Imports 1963-1974. (1,000 m3) 1974 1973 1972 1971 1970 1969 1968 1963 GRAND TOTAL 24,288 26,625 21,725 20,257 20,237 17,190 12,752 8,125 Loading Area: Ph i l i p p i n e s ^ 4,072 5,877 5,136 5,701 7,542 7,855 7,062 5,443 Malaysia 106 8,605 6,874 5,750 6,019 6,153 4,698 2,552 Sabah 6,993 7,298 5,409 4,130 3,960 4,042 2,989 2,296 Sarawak 950 1,213 1,377 1,472 1,872 1,911 1,606 371 Indonesia 12,167 11,158 8,977 8,181 6,090 2,814 787 8 ^Kalimantan n.a 8,124 6,158 5,916 4,931 2,294 489 8 Others n.a. 3,034 2,819 2,265 1,159 520 298 -Solomons n.a. 237 232 222 202 195 146 -P. New Guinea n.a. 461 383 405 339 104 2 55 S. Vietnam n.a. 219 123 - - - - -Others n.a. 68 — _ 45 69 56 59 Source: J.L.J., 1975b. Sou.rcs • J 7 "/ • ' l J 7 5 b . with recent years at 10%, but other exporting areas, namely Alaska and New Zealand, are u n l i k e l y to expand t h e i r present commitments. Therefore the supply of logs i n the future w i l l not keep pace with the forecasted increase i n demand (Angus et al., 1975) . The issue as to whether the present b u i l d i n g regulations w i l l be adapted to accommodate modern techniques, and the growth of a world trade i n wood chips, w i l l influence the composition of f i n a l demand. Lumber, of - 38 -which 20% i s currently made up of hardwood, i s expected to become a main item i n future import b i l l s , although t h i s has been a f a i r l y s t a t i c component u n t i l the trends of the past few years (J.L.J., 1975a). In conclusion, the Japanese market w i l l be a v i t a l one for future Southeast Asian suppliers, p a r t i c u l a r l y i f some measure of trade l i b e r a l i z a t i o n occurs. Characterised by a growing domestic imbalance of supply, increasing domestic consumption, and well-established as a large consumer of hardwoods, Japan's influence w i l l remain paramount. I t w i l l have to r e l y on the i n t e r n a t i o n a l market f o r considerable q u a n t i t i e s of Jits future supplies. Recent developments i n the producer nations of Southeast A s i a a r i s i n g from e f f o r t s to increase domestic processing i n d i c a t e that the previous pattern of f o r e s t products i s l i k e l y to change i n the near future. 3.1.3 Future Developments This section w i l l deal b r i e f l y with the most important features of external demand l i k e l y to a f f e c t the Asian exporters. Past trends are commonly taken as s u i t a b l e i n d i c a t o r s f o r future projections where trade"is under examination. However i n the case of the future demand for t r o p i c a l hardwoods caution should be exercised. As Towler comments, i n a review of several forecasts, there i s a need to be aware, f i r s t l y , of inaccuracies i n a v a i l a b l e data which can be greater than future changes i n demand and, secondly, conclusions a r r i v e d at from an analysis of factors which a f f e c t consumption may w e l l be exposed to exogenous influences which most c e r t a i n l y have l i m i t e d the v a l i d i t y of, say, p r e d i c t i o n s made i n 1971 for 1975. Towler concludes that, " i t may w e l l be true to say that the only thing we can say about long range predictions i s that they have a l l been wrong", (Towler,- 1974). With t h i s J - 39 -i n mind i t i s not po s s i b l e to deny the p i c t u r e drawn up of a growing s c a r c i t y i n temperate regions of su i t a b l e raw material f o r plywood manufac-tu r i n g , and the ever expanding wood supply d e f i c i t i n general, i n some parts of the developed world (Pringle, 1973). The reason to suppose that future supply requirements'will continue to i n c r e a s e , ^ e s p e c i a l l y i n the form of t r o p i c a l hardwoods i s that rapid growth i n demand i n the i n d u s t r i a l i s e d countries has outstripped t h e i r domestic supply capacity which i s also facing continual demands to meet non-wood f i b r e requirements and environmental pressures. For Southeast Asia, the U.S.A. and Japan, which provide the l a r g e s t markets and receive most of t h e i r t r o p i c a l hardwood imports from Indonesia, Malaysia, the P h i l i p p i n e s , South Korea and Taiwan, w i l l be the future markets of greatest s i g n i f i c a n c e . Projec-tions made i n 1974 suggest the s i t u a t i o n shown below. The Future Hardwood Log Supply and Demand Capacity of Indonesia, Malaysia and the P h i l i p p i n e s . Export Capacity of Indonesia, the P h i l i p p i n e s and Malaysia: Projected T o t a l Import Requirements of Japan and the U.S.A. P o t e n t i a l Import Demand by Japan and the U.S.A. for T r o p i c a l Hardwood Produced by the P h i l i p p i n e s , Malaysia and Indonesia, i f the present shares of these suppliers i n these markets were maintained. M i l l i o n m (r) 1975 40.7 39.0 1985 43.0 63.0 36.0 52.2 Source: Takeuchi, 1974. I t i s expected that the demand of other countries i s l i k e l y to be 4 m i l l i o n 3 m (r) i n 1975 and s u b s t a n t i a l l y larger i n 1985. Thus the projected needs of Japan and the U.S.A. w i l l have to be met from other sources than South-- 40 -east^Asian countries a f t e r 1975. This set of projections i s modified by P r i n g l e , whose figures are considerably more conservative i n terms of the Japanese import demand. He predicts that Japanese demand w i l l have only reached 30 3 m i l l i o n m (r) by 1989 compared with the previous estimate of 37.5 3 m i l l i o n m ( r ) ; i n f a c t , t h i s f i g u r e w i l l not be reached before 1990 (Pringle, 1973). As a general conclusion to be made from these p r o j e c t i o n s , the demand for t r o p i c a l hardwoods w i l l continue to grow f a i r l y r a p i d l y i n the next ten years, p a r t i c u l a r l y i n Japan and the U.S.A., which w i l l account for almost 75% of the developed world's consumption. The world import demand has been estimated'to; g'ro'w ?at 76.-7.6.5% .per. annum for t h i s decade, and earnings could increase by 10-12% per annum, which compares favourably with the 4% growth i n earnings for a g r i c u l t u r a l products (Takeuchi, 1974). D i f f i c u l t i e s i n estimating thei>.exactxconsump;tion-figures are m u l t i p l i e d by the lack of current data. One of the most important issues surrounds the composition of f i n a l demand. I t has been argued that the strongest influence on the Asian wood products industry i n recent years has been the increase i n domestic processing by the log exporting nations. This can be expected to have immediate e f f e c t on the very large Japanese industry which w i l l always be heavily dependent on imported raw material. The impact w i l l be f e l t i n a d i f f e r e n t way by the U.S.A. which imports an increasing proportion of veneer and plywood and a correspondingly smaller amount of logs. T r o p i c a l hardwood plywood has s t e a d i l y increased i t s share of hardwood plywood imports to 96% i n 1973 and t h i s market segment i s expected to provide the main source of future growth, expanding at a rate of 10% per year (Rola, 1974). - 41 -In the P h i l i p p i n e s , log exports have been gradually phased out and were due to h a l t completely i n January 1976. Peninsular Malaysia banned the export of selected woods i n 1972 and Indonesia has attempted to increase domestic processing v i a controls i n concession agreements. Each of these countries' p o l i c i e s must ulti m a t e l y change the nature of t r o p i c a l hardwood exports from Southeast A s i a . 3.1.4 T a r i f f Protection The importance of market access f o r processed primary products, i s frequently stressed. Where the fortunes of t r o p i c a l hardwood exports are c l o s e l y linked to t h e i r composition and degree of processing, b a r r i e r s to trade could be c r i t i c a l . T a r i f f e s c a l a t i o n on the part of the developed nations i l l u s t r a t e s the d i s t i n c t i o n between products which go to a market f or f i n a l use and those which undergo further processing. The d i s t i n c t i o n i s an important one as i t r e l a t e d to problems of access to foreign markets f or manufactured goods and to competition i n the marketing of these goods. A necessary p r e r e q u i s i t e f o r successful f o r e s t i n d u s t r i e s i n the producing countries would be the a c c e s s i b i l i t y of markets i n the i n d u s t r i a l i z e d nations. Kerdipibule (1974) has shown that A.S.E.A.N. countries are l i k e l y to f i n d that the supply of exportable labour-3 intensive manufactured goods w i l l grow f a s t e r than the demand. He believed that the present l e v e l of demand i s i n h i b i t i n g and pointed out that unless new demand i s created or e x i s t i n g demand expanded through trade p o l i c i e s , i n d u s t r i a l growth of these countries could be adversely affected. Yet, more o p t i m i s t i c a l l y , it,may be dangerous to generalise i n t h i s fashion across a l l manufactured goods while, "there are few The Association"of ""Southeast Asian Nations, A.S.E.A.N., consists of Indonesia, Malaysia, the P h i l i p p i n e s , Thailand and Singapore. - 42 -prospects f o r s u b s t a n t i a l exports of manufactured exports (but) processing of minerals, foodstuffs and timber can be pursued p r o f i t a b l y " . (Kojima et a_L, 1971) . C l e a r l y the success of the i n - t r a n s i t f o r e s t i n d u s t r i e s of South Korea and Taiwan, leaving aside the current ban on Taiwanese plywood imports i n t o the U.S.A., gives some encouragement to countries promoting l o c a l processing. Although a comparison of shipping costs from most producing areas i s very d i f f i c u l t because of the varying rate structures i t has been shown that i t i s nearly 50% more expensive to ship logs than to ship the same volume of veneer (Evensen, 1975). There i s no duty on logs imported into Japan but there i s a 10% duty on Dipteroearp sawnwood, a 15% duty on veneer sheets of t r o p i c a l o r i g i n , a 20% duty on hardwood plywood and a 15-20% duty on v a r i e t i e s of reconstituted wood (Appendix 3). The e f f e c t i v e p rotection on imported plywood i s at l e a s t double the nominal t a r i f f rate because imported logs account for 50-60% of plywood manufacturing costs i n Japan. The U.S.A.'s t a r i f f structure i s s i m i l a r l y f i x e d at 20% for plywood from a l l countries although the P h i l i p p i n e s received p r e f e r e n t i a l treatment u n t i l the L a u r e l -4 Langley agreement expired i n 1974. The protection e f f e c t of i n t e r n a l , t i o n a l transport costs r e l a t i v e to t a r i f f s , both on a nominal and e f f e c -t i v e basis, indicates that excluding transport costs from consideration underestimates the l e v e l of protection (Waters,-1970). Ultimately, LDCs reach a recursive dilemma when t h e i r e f f o r t s to stimulate domestic processing of raw materials are f r u s t r a t e d because the importing nations r e s t r i c t t h e i r importation i n a more f i n i s h e d form. 4 The Kennedy round reductions have meant that G.A.T.T. members reduced t a r i f f s - o n - c e r t a i n timbers7 to~7.5-10%. - 43 -The perplexing facet of t h i s f r u s t r a t i o n i s the success of the i n - t r a n s i t processors who import logs, manufacture wood products and then re-export them. At the same time these countries, Singapore, Taiwan and South Korea and to a lesser extent Japan, are t o t a l l y r e l i a n t upon the log exporting nations for t h e i r necessary raw material requirements. 3.2 THE FOREST RESOURCE OF INDONESIA Although the t o t a l forested area of Indonesia i s assumed to be 120 m i l l i o n hectares, of t h i s , 35 m i l l i o n hectares can be withdrawn as land not co n s i s t i n g of f o r e s t cover with commercial p o t e n t i a l . This would include the r e l a t i v e l y high proportion of the resource found i n the mountainous regions of Kalimantan, Sumatra and I r i a n Jaya (F.A.O., 1975a) (Map 2). As i t stands the resource dominates the Insular South-east Asia forested area. In the absence of nat i o n a l inventories, the 3 a v a i l a b l e data on standing volumes are 100-185 m per hectare, increasing 3 to a maximum of 200 m per hectare i n some areas (U.N.E.S.C.O., 1974). Due to the lack of information i t has been estimated that the large growing stock i n Kalimantan i S ' T G o m p r i s e ' d i c a b o u t 66.%;cdf - G s p e c i e s of Shorea and thereg.o»ve2?nmenfe hasnarbitriariikya^^^^ and .yields on which to base annual allowable cut c a l c u l a t i o n s . In the outer islands 3 an average gross,standing volume of 100 m per hectare, or 6-8 trees, i s assumed. Of t h i s , 50% i s presently assumed merchantable volume. The mainssources of information, the companies involved i n f o r e s t e x p l o i t a t i o n , 3 ind i c a t e volumes of between 45-160 m for a l l merchantable timbers and 3 30-130 m per hectare for Shorea (I.B.R.D., 1972) (Table 4). 3.2.1 ForestjDey'elop'mentent • In 1962 a State Forest Enterprise, Perhutani, was set up and made responsible to the Director General of Forestry. I t s a c t i v i t i e s Map 2 - 45 -Table 4. Indonesia: D i s t r i b u t i o n Of Forest Land By Region. T o t a l Land T o t a l Forest % Of T o t a l Area Area Land Area • M i l l i o n -TJa ... Kalimantan 54 41 76 Sumatra 47 28 60 Sulawesi 19 10 53 Java & Madura 13 3 23 Maluku 8 6 75 Nusa Tenggara 7 2 29 I r i a n Jaya 42 30 71 To t a l 190 Source: I.B.R.D. 1972. Sources 7. ~ R. D. l S " ' ? o were to be c h i e f l y concerned with the management and u t i l i z a t i o n of the teak f o r e s t i n Java. Perhutani was also made responsible f o r the stimulation, production and marketing of f o r e s t products i n selected areas i n the outer i s l a n d s . At that time, as now, e x p l o i t a t i o n of the f o r e s t resource was c a r r i e d out by p r i v a t e entrepreneurs under the supervision of the regional f o r e s t o f f i c e r i n the form of concessions or cut t i n g permits of which there were three types: a) Cutting Permits - comprised areas up to 200 hectares f o r a period of not more than two years. 120 63 - 46 -b) Small concessions - comprised areas not greater than 10,000 hectares for a:period of not more than two years. c) Large concessions - comprised areas of more than 10,000 hectares. The l a s t c l a s s i f i c a t i o n was not extended by the l o c a l governments but, instead, was dealt with by the Director General of Forestry i n order that foreign operations would be encouraged at a nationa l l e v e l to speed up the development of the f o r e s t resource i n Indonesia. Forest develop-ment received a sub s t a n t i a l boost i n 1967-1968, when two foreign invest-ment laws were introduced which incorporated several a t t r a c t i v e incentives to encourage foreign investors. These and the e f f e c t s of foreign investment are discussed in'Chapter Four. This impetus had the intended c a t a l y t i c e f f e c t on the f o r e s t sector. By January 1972, 15 wholly-owned and 40 j o i n t enterprises and foreign projects had been approved by the government with an expected t o t a l investment of $380 m i l l i o n s . 3.2.2 Forest Industries Indonesia's f o r e s t i n d u s t r i e s are characterised by a small number of conversion units operating at low l e v e l s of output (Table 5). A large number of non-mechanized, pit-sawing operations e x i s t . The industry i s currently unable to meet the domestic demand f o r f o r e s t products. More recently, concessionaires have been required to invest i n f u l l y integrated f o r e s t i n d u s t r i e s unless they can show that i t would not be economically f e a s i b l e to do so i n t h e i r concession. In 1971, wood consumption i n the pulp and paper industry was judged to be about 3 20,000 m ( r ) / u t i l i s e d i n the production of approximately 15% of the nation's t o t a l paper needs. At t h i s time i t was also suggested that the seven small pulp and paper m i l l s were operating under t e c h n i c a l and - 47 -Table 5. Indonesia: Primary Mechanical Wood-Using Industries. T y P e 1. Sawmills with power equipment other (pitsawyers, etc) 2. Plywood m i l l s : Java Sumatra Sulawesi 3 „ Matches 4. P e n c i l s : Java 5. Wood boxes Unit m cases gross m (r) Number Estimated Annual Production Estimated Average Operation Annual Capacity Prod/Unit % m (r) 412 9 0 0 , 0 0 0 3 , 6 0 0 2,200 50 2 very small 2 18,000 1 not i n prod-uction. 11 50,000 1 12,000 27 37,000 operating occasionally 9,000 5,000 12,000 1,370 60 50 40 60 Source: I.B.R.D., 1972. Source T .2 ••: D.. ' ' 9 7 5 , fifAnancialocohsfcraintsaresultingiiin aereductionfofrproductive ^ capacity to 40% (I.B.R.D., 1972). 3.2.3 Hardwood Exports Between 1967-1971 some 12 m i l l i o n hectares of f o r e s t land were al l o c a t e d to various concessionaires. This resulted i n the spectacular growth of log exports and foreign exchange earnings on behalf of the p r o v i n c i a l and nation a l governments. In 1967, log exports were 0.5 m i l l i o n 3 3 m , valued at $6 m i l l i o n . By 1970 these had become 7.8 m i l l i o n m , valued 3 at $86.1 m i l l i o n and, i n 1973, exports of 18.6 m i l l i o n m earned $574 m i l l i o n i n foreign exchange (F.A.O., 1975d) (Table 6) Discrepancies recorded between sources f or these figures can be explained by the use of 'check p r i c e s ' to estimate the recorded export - 48 -Table 6> Indonesia: T r o p i c a l Hardwood Log Exports, 1 9 6 2 - 7 4 . V Production Exports % Production Exported Value "'000 m3 $ '000 1962 4023 77.7 2 672 1963 4023 114.5 3 1103* 1964 4100 135 3 1488 1965 4150 150 4 1618 1966 4300 295 7 2840 1967 4800 531 11 6079 1968 5500 1,333 24 10340 1969 7000 3,685 53 28337 1970 10,700 7,834 73 86181 1971 13,705 10,822 79 163560 1972 16,84 13,891 83 220915^ F 1973 25,197 18,447 73 574000 1974 n.a. 18,600 n.a. 750,000 * U n o f f i c i a l Figures. F. F.A. 0. Estimate XX . This Value i s for a l l of Indonesia 's Forest Products Exports. Source: Compiled from: F.E.E.R. 1975a, F.A. 0. 1975c and F.A.O. 1975d. a - 49 -value for logs. Check p r i c e s are f l o o r p r i c e s determined by the Minister of Trade for the purpose of levying export taxes. Since 1969 they have been increased s u b s t a n t i a l l y every year. Along with the large volume increases t h i s has contributed to the dramatic growth i n log export earnings. With the wide v a r i a t i o n experienced i n f.o.b. p r i c e s t h i s measure of log export value becomes very i n f l u e n t i a l although there are d i f f i c u l t i e s when the v a r i e t y of species and log q u a l i t y from d i f f e r e n t regions are considered. In the early years of the timber boom check p r i c e s were set far below the actual f.o.b. p r i c e s and so u n i t values were underestimated. The check p r i c e s employed by Indonesia imply - - ' 3 d i f f e r e n t u n i t values when compared to F.A.O. sources: $7.23 per m 3 versus $30.9 per m i n 1969, but t h i s d i s p a r i t y has been reduced by the increases i n f l o o r p r i c e s since then (Appendix 4). Japanese c a p i t a l i n one form or other dominates the f o r e s t sector and Indonesia's exports have been very d e f i n i t e l y oriented towards the Japanese market. Japan took 57% of Indonesia's timber exports i n 1973 and the growth of Japanese demand has been a key f a c t o r i n the growth of these exports. The country's leading p o s i t i o n as the world's l a r g e s t log exporter has also been stimulated by the a c t i v i t i e s of her competitors. As a r e s u l t of the log export ban from Peninsular Malaysia, Sabah f u l f i l l e d the previous commitment to Singapore and, s i m i l a r l y , the e f f o r t s to i?ncj?.ea?s:ei domestic processing i n the P h i l i p p i n e s have made Japanese buyers look elsewhere. Despite increases i n the production of sawnwood and wood—based panels, they constitute a very small part of t o t a l log production. ; Along with Burma and Thailand, Indonesia has been an important supplier of teak (Tectona grandis L.f.) which has u n r i v a l l e d status i n - 50 -world markets. Indonesia i s the only supplying country which has shown steady growth i n world markets from 7 to 16 % between 1967-1970, but present exports account for le s s than 10% of t o t a l production and much of the teak i s used f o r fuelwood (I.B.R.D., 1972). Projections of future trends for Indonesia's t r o p i c a l hardwood exports are frequently c o n f l i c t i n g and hinge on the extent to which a domestic processing industry i s established i n the next few years. One of the a t t r a c t i o n s to investors i n Indonesia has been the unregulated nature of the resource development r e l a t i v e to the neighbouring supply countries and so the future w i l l be s i m i l a r l y affected by the implementa-t i o n of p o l i c i e s to encourage or enforce a degree of domestic processing. 3.3 THE FOREST RESOURCE OF MALAYSIA Malaysia's f o r e s t resource can be divided i n t o two d i s t i n c t geographical areas: Peninsular Malaysia and the two eastern states, Sabah and Sarawak which are administered by two separate Forest Departments (Maps 3 and 4). About 70% of Malaysia's land use i s categorised as f o r e s t land although there are some differences i n estimates of the nature of the resource. D i s p a r i t i e s amongst information are apparent i n Peninsular Malaysia where an inventory has j u s t been completed. The 3 average growing stock i s estimated to c o n s i s t of 150 m per hectare of which some 43% i s of Dipterocarp composition and another 26% consists of cu r r e n t l y commercial species. In contrast, r e l i a b l e f igures f or Sabah and Sarawak are considerably more d i f f i c u l t to obtain. Although the ac t u a l species composition seems to resemble that of the P h i l i p p i n e s , 3 standing volume may be 100 m i n both states with 50% of t h i s being Dipterocarp i n Sarawak and a corresponding 80% i n Sabah (F.A.O., 1975a). Map 3 - 52 -Map 4 - 53 -3 A l t e r n a t i v e l y , another set of estimates postulate an average of 226 m 3 per hectare of which 135 m i s commercially usable timber (U.N.E.S.C.O., 1974). This unusually high fi g u r e may be the r e s u l t of l i m i t e d data at the time of c a l c u l a t i o n f o r i t finds no other support. In Sarawak the species composition of comparable volumes other than ramin (Gonystylus  bancanus B a i l l ) for which the state was renowned i s made up of three species groups: red meranti (Shorea spp.), Kapur. (Dryobalanops spp.), and Keruing (Dipterocarpus spp.). I t has been reported that the Sarawak h i l l Dipterocarp f o r e s t reserves have good commercial p o t e n t i a l , with these species making up 60% of the net commercial volume (Towler, 1974). A g r i c u l t u r a l develop-ment through land-clearing w i l l reduce Peninsular Malaysia's f o r e s t land base and l i t t l e i s known about the h i l l Dipterocarp f o r e s t which w i l l become the bulk of the future f o r e s t resource. 3.3.1 Peninsular Malaysia 3.3.1.1 Forest Development The t o t a l area of permanent f o r e s t i s expected to decline over the next 15 years by about 30%, to one of 5.8 m i l l i o n hectares. Although large areas have been c l a s s i f i e d as p o t e n t i a l a g r i c u l t u r a l land and are being, or w i l l be, cleared for t h i s purpose the f o r e s t resource w i l l remain an important revenue earner. As land i s a state matter i n Malaysia the administration of a l l f o r e s t reserves comes under the c o n t r o l of the i n d i v i d u a l states so that differences are to be found amongst the states. Pahang i s the l a r g e s t timber producing state. I t has accounted for approximately two-thirds of the growth i n t o t a l log production over the past ten years. A large part of t h i s increase has come from land - 54 -c l e a r i n g projects f o r a g r i c u l t u r a l development. U n t i l i t i s shown that f o r e s t r y provides national benefits commensurate with a g r i c u l t u r e , i t appears that p r i o r i t y w i l l continue to be given to the rapid l i q u i d a t i o n of the f o r e s t resource and conversion of land to a g r i c u l t u r e . Much of the lowland f o r e s t w i l l be cleared i n the near future. This has been c r i t i c i s e d due to the lack of time and attention spent on the tr a n s f e r of land use, r e s u l t i n g i n revenue losses from incomplete harvesting p r i o r to c l e a r i n g (Mohammed, 1972). 3.3.1.2 Forest Industries Forest i n d u s t r i e s i n Peninsular Malaysia originated with small, hand-sawing operations, a l l of which had been replaced by mechanized sawmills by the end of the 1930's. In 1931 there were 16 sawmills i n what i s now Peninsular Malaysia which contrasts with the present 485 sawmills and 33 plywood m i l l s . There also e x i s t s a growing number of operations such as wood preservation, blockboard, p a r t i c l e board and moulding m i l l s as well as one wood chip m i l l . I t was estimated i n 1971 that within two to three years log-consumption-by the wood based 3 in d u s t r i e s would equal the t o t a l domestic log production of 9 m i l l i o n m (I.B.R.D., 1973a). A few long term timber c u t t i n g l i c e n s e s have been issued and i t i s only i n the past few years that these have been made a v a i l a b l e to f o r e s t companies as a means of obtaining a continuous wood supply. The majority of timber c u t t i n g l i c e n s e s were held by logging contractors who sold logs to the various companies. The sawmilling industry, a growing consumer, has developed around small, family operations with l i m i t e d c a p i t a l investment. These were the basis f o r the sawnwood export trade which grew r a p i d l y i n the 1960's. Thus the structure of the industry i s - 55 -one of many sawmills, of l i m i t e d capacity due to constraints such as poor machinery, lack of power, r e s t r i c t e d m i l l layout and l i t t l e managerial t a l e n t (Haji, 1974). However, the bulk of the sawnwood production now comes from the larger m i l l s which are more modern and often geared to the export market. The smaller u n i t s serve the u s e f u l function of processing lower grade timbers to be sold on the domestic market. Only 104 sawmills have 3 a log intake capacity i n excess of 71 m per eight hour s h i f t . In fact, 49% of a l l sawmills produce 80% of t o t a l lumber production which i s v i r t u a l l y a l l for export, and the remaining 51%, m i l l s that are not a f f e c t e d by g l o b a l economic conditions, are small and serve the r u r a l areas and small towns. Veneer and plywood m i l l s have been the most r a p i d l y expanding f o r e s t industry i n Peninsular Malaysia. The f i r s t m i l l , 2 b u i l t i n 1948 produced 4-5 m i l l i o n f t ; by the end of 1968 there were 2 15 m i l l s producing 200 m i l l i o n f t and by 1972 t o t a l output was 480 2 m i l l i o n f t . The primary processing of q u a l i t y logs has been concentrated i n sawmills found scattered throughout the country, e s p e c i a l l y i n the comparatively more developed west coast states of Selangor, Perak, Jahore and Negari Sembilan. I n d u s t r i a l expansion i n t h i s sector of the economy has undergone d i s t i n c t l o c a t i o n a l and s t r u c t u r a l changes. New sawmills i n Pahang, Perak, Jahore and Trengganu have accompanied modernization and have been aided by the p l e n t i f u l supply of logs r e s u l t i n g from large-scale land c l e a r i n g schemes. The new growth of integrated complexes such as the Jengka Triangle p r o j e c t i n Pahang i s one example of t h i s trend (Map 4). Emphasis i s now being placed on l o c a t i o n with respect to the major log producing areas: whereas the sawmilling industry was much - 56 -smaller thar i n Jahore and the west coast states, most of the recent pro-ductive capacity has been i n s t a l l e d i n the east coast states, p a r t i c u l a r l y i n Pahang. A s c a r c i t y of logs r e s u l t i n g from overcapacity i n the west encouraged an i n t e r - s t a t e log trade which i s now expected to diminish. The integrated complex i n Pahang includes a sawmill, veneer and plywood m i l l , wood preservation plant, dry k i l n s and moulding p l a n t . ^ Several smaller operations of t h i s type are planned f o r concession areas elsewhere on the east coast and w i l l involve the p a r t i c i p a t i o n of the state government, a l o c a l group and a foreign partner. Interest i n these ventures has been stimulated by the Federal Industries Development Authority which has pushed f o r the establishment of new i n d u s t r i e s to upgrade the q u a l i t y of output. For example, k i l n - d r i e d , planed lumber as opposed to a i r - d r i e d , rough sawn lumber can be processed by a d d i t i o n a l equipment and e x i s t i n g sawmills and i s the f i r s t major target. Primary processing i n d u s t r i e s i n Peninsular Malaysia commonly produce unsophisticated products of low u n i t value i n the form of rough sawnwood and urea-bonded plywood. Secondary i n d u s t r i e s that have emerged over the past few years have been based on an abundance of i n d u s t r i a l residues to be reprocessed and have benefited from the growth of l o c a l and overseas demand (Wah, 1972). 3.3.1.3 Hardwood Exports The growing world demand f o r t r o p i c a l hardwoods coincided with the i n i t i a t i o n of large-scale land c l e a r i n g i n Peninsular Malaysia and with national pressure to maximize foreign exchange earnings. In the period 1962-1973 export earnings f o r t h i s commodity rose by an average of 21.5% per year, from a small base to reach $168 m i l l i o n . Processed f o r e s t products have increased t h e i r share i n the export b i l l (Tables 7 & 8). 5 This has not been i n operation since 1973, for other than short periods. See Wellwood (1976) for d e t a i l s . - 57 -Table 7. Malaysia: T r o p i c a l Hardwood Log Exports, 1962-74. Production - Export ' 0 00 irf % Production Value $ 1,000 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 6852 8283 8982 1024F 1254F 14404 16227 16943 18699 18458 20713 27490 n.a. 3169 3941 5139 6046 8190 9035 10575 11355 11352 11147 11594 12881 n.a. 46 48 57 59 65 63 65 67 61 60 56 47 n.a. 46,880 56,816 66,766 85,829 125,241 155,122 160,922 196,835 210,208 209,339 233,458 399,558 356,000 Source: Compiled from, F.A.O. 1975c, F.A.O. 1975d and Letourneau, 1975. - 58 -Table 8. Peninsular Malaysia: T r o p i c a l Hardwood Log Exports 1962-74. Log Production Log Exports % Production Exported Value 3 000 m $'000 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 2700 3130 3570 3780 4360 5130 6100 6430 7420 7600 9040 10163 E n. a. 5. 60.6 889 1036 1406 1471 1730 1862 2075 2041 1888 843 F n.a. 2 25 27 32 34 28 29 28 27 21 8 n.a. 63 940 8743 10469 14112 19211 24850 2-7698 32418 32993 32215 18000 22420 Source: Compiled from F.A.O. 1975c, F.A.O. 1975d, and Letourneau, 1975. - 59 -In the l a t e 1960's an export tax of 10% was imposed on logs because of a rough balance between domestic log production and i n d u s t r i a l capacity. As the sawmills were not working at f u l l capacity, a domestic supply constraint was envisaged at the n a t i o n a l l e v e l , yet i n 1968, 28% of t o t a l log production was exported i n that form. F.A.O. (1970) gave three reasons f o r t h i s , with reference to the Singapore market, and suggests that the l a t t e r ' s industry i s prepared to pay premium p r i c e s which the domestic industry cannot meet because of: a) government incentives through low i n t e r e s t loans and subsidised i n d u s t r i a l estates as w e l l as a strong i n t e r n a l market f o r r e j e c t export grades, b) e x c e l l e n t harbour f a c i l i t i e s and Singapore's p o s i t i o n on the i n t e r n a t i o n a l trade routes r e s u l t i n lower costs, c) existence of organised log brokerage which allows purchases of mixed logs with r e d i s t r i b u t i o n as required. These are a l l factors which leave the domestic industry at a disadvantage. By 1973 only 12% of t o t a l log production was being exported unprocessed and i n the interim log production had increased by 8.8% (Table 8). The export duty on round logs from Peninsular Malaysia was increased early i n 1972 to stimulate more domestic processing. The l o c a l veneer and plywood m i l l s s t i l l found i t d i f f i c u l t to obtain s u i t a b l e raw material i n s u f f i c i e n t quantity, so that a 'temporary' log ban of the ten main commercial species was imposed l a t e i n that year to ensure adequate supply for the domestic industry. For Malaysia as a whole, the 3 volume of sawnwood exports increased by 20.7% to 2.2. m i l l i o n m i n 1973. Export earnings rose much more s i g n i f i c a n t l y (by 94.5%) on account of steep increases i n export p r i c e s . Exports of lumber from Peninsular - 60 -Malaysia rose by 28% to 1.9 m i l l i o n m^  to account for nearly 88% of the t o t a l volume of sawnwood exported from Malaysia. Unlike the markets for logs, markets for sawnwood are more d i v e r s i f i e d . The E.E.C. and Singapore continued to be the leading markets for Malaysian sawnwood: r a i s i n g t h e i r demand to absorb 42% and 28%, r e s p e c t i v e l y , of t o t a l sawn-wood exports during 1973. Exports to the U.S.A. declined due to a slowdown i n r e s i d e n t i a l construction i n the l a t t e r part of the year (Appendix 1). 3.3.2 Sabah (Map 3) 3.3.2.1 Forest Development Timber e x p l o i t a t i o n i n Sabah i s dir e c t e d towards the log export market centred i n Japan, Hong Kong, South Korea and Taiwan. The f o r e s t resource base i s perhaps the most valuable i n terms of commercially des i r a b l e timbers i n a l l of the Malaysian states. I t has been estimated that some 3.1 m i l l i o n hectares of the Dipterocarp f o r e s t are exploitable under present operating conditions, most of t h i s being located i n the eastern part of the state. The areas of s h i f t i n g c u l t i v a t i o n and land development which provided a considerable spur to log exports l i e i n the western part of the state. Large areas of forested state land and alienated land were cleared f o r purposes of a g r i c u l t u r a l "-.development. The timber assets r e a l i s e d from t h i s were used / in-.part, to finance land development schemes (Udarbe, 1972). Most of the commercial f o r e s t harvesting takes place on the east coast where logs are hauled up to 60 miles to the nearest r i v e r s or s a l t water. These are towed as f a r as 160 miles downriver to ports along the coast. As a consequence, up to 500-600 miles of logging roads are b u i l t i n Sabah each year (Canada: D.I.T.C., 1973). - 61 -3.3.2.2 Forest Industries The f o r e s t i n d u s t r i e s i n Sabah are a c l a s s i c representation of c o l o n i a l t i e s and t h e i r legacy. I n i t i a l f o r e s t development was undertaken by the B r i t i s h Borneo Timber Company (now the Sabah Timber Company) which h e l d a monopoly over timber extraction i n the state u n t i l 1952. In the period immediately following, long-term concession agreements were obtained from the c o l o n i a l government. A f t e r federation, Sabah retained autonomy to a substantial degree. As i n Sarawak, the f o r e s t resource i s administered by a state f o r e s t department which i s not responsible to the n a t i o n a l Forest Department. Thus, i n 1969, the state government indicated to concessionaires operating under 21-year f e l l i n g agreements that these w o u l d not be extended beyond t h e i r expiry i n the years 1978-1984. The government decreed the newly formed Sabah Foundation w o u l d take over about 1 m i l l i o n hectares of fo r e s t land that was previously h e l d by c o n c e s s i o n a i ' r e s a a r i d h h o l d J ituurideraajnnew'1 lOOyyearcconcession agreement. With the process of in d i g e n i s a t i o n underway, the remainder of the land withdrawn from foreign operators was to be held and r e d i s t r i b u t e d to Sabahan entrepreneur.s-.CoiConcessi6naires"wereeithemseilives permitted to operate timber harvesting operations on an annual permit b a s i s . The extent and nature of the domestic processing i n d u s t r i e s i s very d i f f e r e n t from that i n Peninsular Malaysia. During the 1950's concession agreements contained a clause which required logging companies to convert 30% of t h e i r t o t a l log output i n t o sawnwood. A l l of the large operators s et up sawmills and by 1960 there were 59 small and medium-sized m i l l s producing f o r the l o c a l market. Further dominance of the trade i n logs occurred i n the early part of the 1960's when t h i s clause was su c c e s s f u l l y omitted - 62 -during renegotiation of concessions. The domestic processing industry i s minimal i n r e l a t i o n to annual log production: i n 1973 less than 1% of t o t a l production was processed.6 Some 150 sawmills, spread throughout the state, are small-scaled a c t i v i t i e s with. inadequate; equipment. For_,example, 132 have no powered resaws which makes sawing for export q u a l i t y d i f f i c u l t and, out of t h i s t o t a l , 10 m i l l s produce 75% of the t o t a l output (World Wood, 1975). Those m i l l s on the west coast manufacture sawnwood f o r the l o c a l market and obtain t h e i r raw material from farmers and small, indigenous logging contractors. The majority of the m i l l s are located on the east coast around Sand'ekanaandTTawau. On the other hand, the small veneer and plywood industry exports 100% of i t s output from a handful of m i l l s . The Federal I n d u s t r i a l Development Authority has recommended that further domestic i n d u s t r i e s should be set up to process 50% of log production by 1980. These should include 9 plywood m i l l s , 2 veneer plants and 9 saw-m i l l s of varying capacity and ought to be the basis for secondary industry development on the l i n e s of wood-based panel boards, f u r n i t u r e and prefabricated housing u n i t s . 3.3.2.3 Hardwood Exports Sabah i s a well-established log exporting "country" and during the 1960's became the world's l a r g e s t log exporter u n t i l surpassed by Indonesia. Between 1962-1973, annual foreign exchange earnings increased by 19.4%. In the timber boom years of 1972-1973 earnings almost doubled f o r a volume increase of 28%. Log exports from Sabah as i l l u s t r a t e d i n Table 9, constituted 59% of the combined f o r e s t products trade b i l l f o r Malaysia i n 1973, or $330.7 m i l l i o n . In the same year Sabah accounted f o r The figures i n Table .9"i, f o r 1973, seem erroneous. - 63 -Table 9. Sabah: T r o p i c a l Hardwood Log; Exports. }i i 1962-74. Production .... - Export „„m3 000 % Production Exported Value $ 000 1962 2783 2468 89 39216 1963 3447 3000 87 48922 1964 3562 3384 95 48149 1965 4153 3796 92 59999 1966 5,200 4855 93 84282 1967 5,674 4321 90 103335 1968 5,892 5796 98 109135 1969 6,189 6187 100 122324 1970 6,546 6150 94 129310 1971 6,941 6558 94 136888 1972 8,496 7708 91 171616 1973 14,072 10,144 72 330,791 F 1974 n.a. n.a. n.a. 328.0 F.: FAO Estimate. * : Includes Sarawak Source: Compiled from F.A.O. 1975c, F.A.O. 1975d, and Letourneau, 1975. - 64 -81.8% by value and 78.8% by volume of Malaysian log exports. Of t h i s t o t a l volume, 70% was exported to Japan, with the balance being imported by South Korea. This was an absolute increase of 38% on the 5.6 3 millxon m exported i n 1972. The lack of growth i n processed wood products from Sabah suggests that log exports w i l l continue to dominate the export trade f o r some time to come. The timber industry, such as i t i s , i s geared towards the log export trade and takes advantage of the strong, i f c y c l i c a l demand for i t s product. Foreign exchange earnings have been su b s t a n t i a l from log exports. The p r o f i t of t h i s trade has m i l i t a t e d against the extra investment and r i s k involved i n i n s t a l l i n g sawmills to enter the r e l a t i v e l y l i m i t e d market f or sawnwood through t r a d i t i o n a l o u t l e t s . Sawmill recovery rates of 40-50% mean that the large logging companies can obtain a higher return through the export of high q u a l i t y logs and, as a r e s u l t , the industry only receives the lower grade logs which further reduces the a t t r a c t i o n of producing f o r export. Around 700 ships are loaded with logs each year from the east coast of Sabah. Since 70% of the logs go to Japan, and Japanese trading companies prefer to handle t h e i r own shipping arrangements, the trade network i s f a i r l y w e ll closed. As i n Indonesia, marketing contracts are drawn up between concessionaires and the large trading firms, to handle the d i s t r i b u t i o n of logs and plywood. These firms also are connected to logging contractors from whom they receive a l l t h e i r l og production, on a long-term basis , i n return f o r a large stake i n the financing of these operations. I t i s understood that a p o l i c y of i n s i s t -ing on processing f a c i l i t i e s as a condition f o r obtaining a s p e c i a l l i c e n s e or concession agreement i s to be enforced (Canada: D.I.T.C., 1973). - 65 -3.3.3 Sarawak (Map 3) 3.3.3jl Forest Development Sarawak's f o r e s t resource i s quite s i m i l a r to the r e s t of Malaysia i n most, but not a l l , respects. One important d i f f e r e n c e i s the si z e and r e l a t i v e s i g n i f i c a n c e of the lowland peat swamp f o r e s t as opposed to the other f o r e s t types. The resource base, covering 9.4 m i l l i o n hectares, takes up 77% of the t o t a l land area. Of the remainder, 18% i s estimated to be under one form of c u l t i v a t i o n or another. Although a g r i c u l t u r a l land use i s expected to grow, due to the small population of one m i l l i o n , large inroads on the resource base are not foreseen I n i t i a l l y , the f o r e s t economy i n Sarawak was based on the a v a i l a b i l i t y from the peat swamp f o r e s t of the l i g h t weight species, ramin which provided the f o r e s t industry with a large part of i t s raw material and remains the p r i n c i p a l timber i n the state. Local processing by approximately 125 sawmills has been concentrated i n the Sibu and Kuching areas. Production of sawn timber has been s t a t i c i n the l a s t few years and accounted f o r 20% of t o t a l log production i n 1973. U n t i l t h i s period l o c a l processing centred on the conversion of ramin logs had increased s t e a d i l y , c o i n c i d i n g with the very favourable p o s i t i o n enjoyed by t h i s timber on the i n t e r n a t i o n a l market. V i r t u a l l y t o t a l r e l i a n c e on t h i s timber f o r manufactured exports i s now causing the industry to d i v e r s i f y i t s production. The h i l l f o r e s t s i n the-^east of the state are judged to be the main future source of supply. Location of the industry around the towns of Sibu and Kuching r e f l e c t s the u t i l i z a t i o n of the peat swamp fore s t s which have now yielded most of t h e i r p o t e n t i a l . Processing e f f i c i e n c y has been encouraged i n the established m i l l s by allowing them preference i n granting cutt i n g licenses and permits. Also, m i l l modernization has been used as a condition for - 66 -l i c e n s e renewal. As the government, through the auspices of the Sarawak Forest Industries Developing Corporation, i s seeking to reduce the dependency upon the diminishing supply of ramin, concession a p p l i c a t i o n s have been halted. Negotiations were underway i n 1974 to develop s i x ,3 j o i n t ventures using 283,000 m per year from the h i l l f o r e s t resource. Each of these was planned to comprise of a sawmill, a plywood m i l l and a d d i t i o n a l production. As i n Sabah i t has been suggested by the F.A.O. that the state should expand i t s industry to the point where i t w i l l process 50% of i t s log production by 1980 (F.A.O., 1974a). 3.3.3.2 Hardwood Exports As shown i n Table 10, log production grew 13.5% annually during the 1960's but since 1970 has been s t a t i c or d e c l i n i n g . Local consumption i s very small thus the export o r i e n t a t i o n i s pronounced. Log export earnings have continually increased by 17% annually i n the same period. In 1973 t o t a l log exports continued to decline as a r e s u l t of the f a l l i n production but of course enjoyed the high p r i c e s of that year. Ramin mouldings and boards, as well as other sawnwood, has performed w e l l and earned $20 m i l l i o n i n 1973. Export earnings from a Japanese owned mangrove chip m i l l p r oject, operating under a long-term l i c e n s e , are presently unavailable. To a very great extent, future prospects for f o r e s t products depend on how well the industry can cope with a larger number of commercial species and whether i t w i l l expand to increase the proportion of sawn products exported. The conversion of the ex i s t i n g ; i n d u s t r y w i l l not e n t a i l the sort of s t r u c t u r a l changes underway i n Peninsular Malaysia as the h i l l f o r e s t s l i e adjacent to present sources of supply. An F.A.O. proj e c t i s i n v e s t i g a t i n g various transportation a l t e r n a t i v e s based on the network of r i v e r s on the east side of the state. - 67 -Table lot),. Sarawak: T r o p i c a l Hardwood Log Exports, 1962-74 Production Exports % Production Exported Value ' o O O m 3 $ ' 0 0 ° 1962 1963 1964 1965 1966 1967 1968 1969 1970 171 1972 1973 1974 1364 1706 1850 2314 2987 3600 42-35 4333 4693 3917 3177 3255 n.a. 696 880 866 1224 1933 2243 2989 3063 3127 2548 1998 1894 n.a. 51 52 47 52 65 62 71 71 67 65 63 58 n.a 7601 9955 9874 15361 26847 32576 45279 46813 48480 39458 29627 50767 40000* * Author's Estimate from Combined Sabah and Sarawak Figures. Source: Compiled from, F.A.O. 1975c, F.A.O. 1975d, and Letourneau, 1975. - 68 -3.4 THE FOREST RESOURCE OF THE PHILIPPINES The volume and growth of f o r e s t products exports from the P h i l i p p i n e s , coupled with a high population growth rate of 3% during the 1960's and the widespread p r a c t i c e of kaingin or s h i f t i n g c u l t i v a t i o n , exerted strong pressures on the f o r e s t resource base. The t o t a l forested area covers approximately 16 m i l l i o n hectares but not a l l of t h i s has been ;classifiediase'fores.toreserves^i(Table 3tfs)i3 S6meo96% of the l l . l I m i l l i o n hec-tarestsoo.categorisedvisecoveredDwith-.Dipterocarpcforest. - Mindanao possesses the l a r g e s t commercial f o r e s t area and has the l a r g e s t proportion of the high q u a l i t y Dipterocarp f o r e s t with Luzon accounting f o r over h a l f the balance. Commercially recoverable volumes per hectare of desirable species markedtthe<rmainceonc.er-n^aridc©verb.earing sa-dViantage jof the P h i l i p p i n e f o r e s t resource. This has been estimated as shown below. (Map 5) P h i l i p p i n e s : Vdlume of Commercially Desirable Species T'o.il ip-o_nesJ Volume of (m per ha) Desirable £ -Luzon 81 Palawan 15 Visayas 57 Mindanao 124 P h i l i p p i n e s Average 89 Source: I.B.R.D., 1972. The importance of Mindanao's resource i s r e f l e c t e d by i t s majority share of t o t a l log production which stands at 74%. Between 1952-.and.^ 19.6-3 fin-•Mindanachtthfe.:-forest--area diminished from 7.3 to 6.3 m i l l i o n hectares, or an average annual decline of 92,000 - 69 -Table 11. .'Philippines Public Forest Under Authorized E x p l o i t a t i o n i n 1970. Region Productive Forest Ordinary Timber 1,000 Hectares License T o t a l Forest Agreement Reserves Ilocos 1178 Cagayan V a l l e y 1140 Central Luzon 460 Southern Tagalog 1933 B i c o l 332 Western Visayas 279 Eastern Visayas 1156 Northern Mindanao 1955 South Western Mindanao 2687 26 756 256 726 225 104 856 1211 1301 134 337 391 134 143 1119 1175 160 1093 257 1117 225 238 999 2330 2476 Ph i l i p p i n e s 11120 5462 3431 8893 Source: P h i l i p p i n e s : The P h i l i p p i n e Association For permanent Forests (Permafor), 1972. - 70 -Map 5 - 71 -hectares (a standing volume of 20.1 m i l l i o n m^) of which-24% (or 4.8 m i l l i o n m^ ) was a consequence of authorised logging (Hicks and MacNicoll, 1971) . The la r g e s t part of t h i s area was i n f a c t removed from the fo r e s t base by i l l e g a l logging or by kaigineros. Apparently the extent to which the f o r e s t i s destroyed through s h i f t i n g c u l t i v a t i o n i s an active guessing game. The r e s u l t s vary from 30,000 hectares to over 500.000 hectares per year or, more dramatically one hectare every minute (Serna, 1972). However, the c l e a r i n g of fo r e s t s i s only i l l e g a l i f i t occurs within the p u b l i c f o r e s t zone. I t i s a l e g a l r i g h t f o r landless F i l i p i n o s to s e t t l e on p u b l i c land suitable for farming and r e g i s t e r an area not exceeding 24 hectares i n t h e i r name. That t h i s happens quite commonly i s c l e a r , but the scale on which i t takes place i s speculative and so i t i s d i f f i c u l t to declare the permanent f o r e s t base as such. In recent years concern has been expressed about environ-mental degradation i n logged over areas which has adversely affected the progress of i r r i g a t i o n , h y d r o - e l e c t r i c schemes and, i n c e r t a i n areas, threatened a g r i c u l t u r a l p r o d u c t i v i t y . The r e l a t i v e uniformity of the fore s t ' s species composition, and the high proportion of timbers that are grouped between the lauans and keruing, has contributed to the growth of the domestic f o r e s t industry with much of t h i s being based i n Mindanao. Although less than 50% of the annual allowable cut was harvested i n 1974, future growth of log supplies i s forecast to be almost e n t i r e l y from logs c u r r e n t l y exported (Philippines: P.L.P.M.A., 1974). 3.4.1 Forest Development There are over 700 firms engaged i n harvesting and processing timber i n the P h i l i p p i n e s of which about h a l f hold timber l i c e n s e s i n three forms, each a. function of m i l l s i z e : - 72 -a) License agreement: a long-term l i c e n s e f o r 10-25 years, p a r t i c u l a r l y aimed at supplying large wood i n d u s t r i e s . b) Ordinary timber l i c e n s e : 4-10 years and offered to small or medium-sized logging operations. c) Special timber l i c e n s e : almost redundant and t i e d to s p e c i f i c volumes of timber rather than to any one area. In 1971 about 75% of the commercial f o r e s t area was under l i c e n s e (I.B.R.D., 1973b). Of the three countries under study, the P h i l i p p i n e s has had the longest and most su b s t a n t i a l r o l e as an exporter of f o r e s t products. The Republic has also been t r y i n g to decrease the proportion of log production that i s currently exported. Originally, l i c e n s e agreements on concessions greater than 20,000 hectares stated that firms had to set up a wood processing plant. This r e s u l t e d i n a large number of producing plants, many of which were set up as a front f or compliance with f o r e s t r y regulations i n order that the concessionaire* could continue with log exports. Since 1968 there have been p o l i c i e s to phase out"log exports and the most recent one, announced i n 1973, planned a progressive phase-out under a programme c a l l i n g f o r a t o t a l ban by 1976. The Marcos administration had intended to reduce the volume of logs exported by 20% per year u n t i l January 1, 1976. In the l i g h t of a weak market t h i s deadline has been postponed and currently firms are permitted to export 25% of t h e i r log production. 3 This amounts to roughly 4 m i l l i o n m (J.L.J., 1976). Much of future development i s therefore focussed on how the industry w i l l meet the demand placed on i t by the projected l o c a l processing of several m i l l i o n logs s t i l l being exported. As log production has declined over the past few - 73 -years (Table 12) the export ban w i l l provide the a d d i t i o n a l source of supply for the industry. 3.4.2 Forest Industries In the l a s t two decades the P h i l i p p i n e f o r e s t i n d u s t r i e s have shown a c l e a r preference for short-term gains through the export of logs. Due to the demand conditions for logs and the apparent u n p r o f i t a -b i l i t y of wood processing, t h i s i s to be expected. The structure of the industry, however, does not p a r a l l e l that of a log export oriented f o r e s t industry. In part t h i s i s a heritage of the p o l i c y which d i c t a t e d i n d u s t r i a l growth by s i z e of f o r e s t concession and not n e c e s s a r i l y by any l o c a t i o n a l advantage or economies of scale. For example, i t i s argued that export markets are i n a c c e s s i b l e to some of the small plywood m i l l s because of t h e i r i n a b i l i t y to capture economies of scale (Sanvictores, 1975). At the present time there are 421 processing plants with a 3 capacity of 11.5 m i l l i o n m or two-thirds of the t o t a l allowable cut. This includes the lumber industry c o n s i s t i n g of 370 sawmills, 18 veneer plants and 31 plywood m i l l s . A l l of these i n d u s t r i e s have a h i s t o r y of disappointing performance. Studies of the P h i l i p p i n e f o r e s t i n d u s t r i e s based on d i f f e r e n t sizes and rated c a p a c i t i e s between 1964-1966 show the following: Sawmilling: losses of 32"-rT33%ling: losses of 32-33% Veneer and Plywood: 196T4<=averagedprofi'todl4.7%964 average p^.<i', {: 1965 average loss 1% 1966 average loss 8.7% (Stadelman, 1969, Sanvictores, 1975) - . r e S f 1975) . In 1973 sawm In 1973 sawmills were operating at about 25% of rated capacity, veneer plants at 84% and plywood plants at 59% (Stadelman, 1969, Sanvictores, 1975). - 74 -By way of contrast, logging o f f e r s a much wider margin for p r o f i t . Taking 1972 figures f o r the P h i l i p p i n e s , average harvesting and transporta-3 t i o n costs varied from $13-$17.90 per m , depending on the scale of operations. These costs include a l l expenses incurred from f e l l i n g to loading on ship at a time when the average f.o.b. p r i c e was $30-35 per 3 m (I.B.R.D., 1973b). Of the 18 veneer and 31 plywood-mills operating, 10 are i n Luzon, 1 i n Visayas and 38 are i n Mindanao. Due to the lack of P h i l i p p i n e bottoms i t i s cheaper to transport logs from Indonesia to Mindanao, where most of the processing capacity i s i n s t a l l e d , than to ship the logs from Luzon or Visayas. 3.4.3 Hardwood Exports Forest products exports from the P h i l i p p i n e s experienced an annual growth rate of 10.3% between 1962-1973 and t h i s f i g u r e was boosted when the 1973 export b i l l grew by 30% over the previous year. Despite a w e l l established domestic processing industry and growing i n t e r n a l market, the P h i l i p p i n e s has c o n s i s t e n t l y exported a high propor-t i o n of i t s log production. Throughout the 1960's when log exports were growing at 9% annually, the proportion exported remained f a i r l y constant but reached a peak of 83% i n 1974 (Table 12) (a year of much reduced volumes). In 1967, before Indonesia began to make serious inroads on the Southsea log trade, the P h i l i p p i n e s supplied 64% of Japan's imported hardwood log requirements. S i m i l a r l y , South Korea received 80% of her t o t a l needs from the P h i l i p p i n e s . More recent l y , i n 1974, 81% of a l l l og exports went to Japan, once again emphasizing that country's dominance i n the Southsea log trade. Paradoxically, the f a s t e s t growth rates exhibited by f o r e s t products exports have been plywood and sawnwood. In the period 1962-1973, plywood and veneer exports grew by 12.7% per annum, admittedly from a T a b l e 12. P h i l i p p i n e s : .Tropical Hardwood Log - Exports, 1962 - 1974. Production Exports 3 m % Production Exported Value $1,000 1962 7,115 4,794 67 101,719 1963 9,415 6,520 69 136,906 1964 9,130 6,140* 67 122,800 1965 lo,015 6,700* 67 134,000* 1966 8,105 6,800p 84 138,971 1967 8,975 7,200F 80 155,341 1968 11,950 8,790 74 219,640 1969 13,020 9,421 72 235,701 1970 13,015 9,606 74 244,489 1971 10,950 8,443 77 223,617 1972 10,940 6,858p 63 173,253 F 1973: 11,425 7,752 68 303,426 1974 * 6,238 5,151 83 237,500 * U n o f f i c i a l Figures.^. F r . F.A.O. Estimate Source: Compiled From F.A.O. 1975d, P h i l i p p i n e s : P h i l i p p i n e Lumber and Plywood Manufacturers' Association, 1974. - 76 -small base (Appendix 5). The expanded veneer and plywood industry which has developed i n the P h i l i p p i n e s , based on the lauans and located i n Mindanao, i s dir e c t e d c h i e f l y towards the U.S. market with almost 90% of plywood exports going to t h i s market i n 1973. T r a d i t i o n a l l y , the lumber industry was oriented predominantly toward the domestic market but i n the past ten years the volume of sawnwood exported has grown to 30% c£ t o t a l production. The P h i l i p p i n e s has experienced steady growth i n her f o r e s t products exports while processed exports have also been responsible for a f a i r share of the export b i l l . In each of the Republic's markets, other countries such as Indonesia i n the log trade and South Korea i n the plywood market, have proven to be strong competitors and, as a r e s u l t , the country's share i n world markets has declined. - 77 -CHAPTER FOUR TROPICAL HARDWOOD EXPORTS AND ECONOMIC DEVELOPMENT 4 . 1 THE INDONESIAN ECONOMY Indonesia i s endowed with many of the conditions generally considered desirable for promoting economic growth. The country has an abundant supply of labour with a population of 130 m i l l i o n ; a wealth of natural resources including some of the most f e r t i l e s o i l i n Asia; and r i c h mineral resources such as t i n and o i l . In f a c t f o r several years now the economy has maintained a high growth rate: gross national product has more than doubled between 1973-1975 while over the same period per capita income has r i s e n from $163 to $ 1 9 0 . Much of t h i s growth has been from the o i l p r i c e upsurge but, due to the large popula-t i o n , the o i l bonanza increased per capita income by only $ 6 , a f t e r the e f f e c t s of i n f l a t i o n are taken i n t o account. As a measure of the govern-- 78 -merit's e f f o r t s to canvass foreign investors, $4,000 m i l l i o n were invested between 1967-1975 (F.E.E.R., 1975d). The terms 'reconstruction' and ' r e h a b i l i t a t i o n ' were often used to describe Indonesia's progress a f t e r the 1964 coup d'etat, during the years when the government's c e n t r a l objective was the growth of aggregate output. However, 'imbalance' i s now most frequently applied to the state of the nation. This takes a number of forms: s o c i a l , economic, demographic and p o l i t i c a l : a) between the i n c r e a s i n g l y monopolistic r o l e of foreign a i d and investment v i s a v i s the loss of Indonesian sovereignty; b) between development on Java, with 70% of the population and 7% of the land area, and the outer is l a n d s ; c) between consumer goods and the pattern of fo r e i g n investment; d) between the d e t e r i o r a t i n g p o s i t i o n of indigenous entrepreneurs (the pribumi), and foreign competition; and e) between the skewed d i s t r i b u t i o n of income i n favour of Java, e s p e c i a l l y Jakarta, and the conspicuous consumption of the r u l i n g e l i t e (Arndt, 1972, Soemardjan, 1972, Wallace, 1974). Public c r i t i c i s m , most vehemently expressed by the Tanaka r i o t s i n e a r l y 1974, was l e v e l l e d at the unsatisfactory performance of the F i r s t Development Plan, P e l i t a 1, as f a r as poverty, i n e q u a l i t y and unemployed are concerned. The Second Five Year Development Plan, R e p i l i t a 11, was launched i n 1974 with the expressed aims of ensuring: a) the supply of food and c l o t h i n g within the purchasing power of the people; b) the supply of materials f o r housing and other f a c i l i t i e s f o r the people; - 79 -c) s o c i a l welfare; d) expanded employment opportunities; and e) improved i n f r a s t r u c t u r e , accompanied by a s u b s t a n t i a l increase i n defence and s e c u r i t y expenditure (Wallace, 1974). I n d u s t r i a l development would be d i r e c t e d towards e x p l o i t a t i o n of raw materials from a g r i c u l t u r e and mining: plywood and sawnwood from logs, aluminium from bauxite and f l i n t gas from natural gas. So, R e p i l i t a 11 endorsed a r e d i r e c t i o n of the Indonesian economy to incorporate some measure of s o c i a l j u s t i c e with economic growth. 4.1.1 Foreign Exchange Earnings T r o p i c a l hardwood exports from Indonesia now provide the second la r g e s t source of foreign exchange earnings, superceded only by o i l exports. Indeed the 'timber boom' has brought many be n e f i t s to the economy at a time when i t s suffered from serious foreign exchange shortages and while the aggregate value of the t r a d i t i o n a l a g r i c u l t u r a l exports hardly grew at a l l . Government revenue has been increased through r o y a l t i e s from timber development and employment seems s u b s t a n t i a l i n the large producing areas, p a r t i c u l a r l y those of Kalimantan which has supplied over 70% of timber exports since the e a r l y part of t h i s decade. The export performance of o i l and timber became in c r e a s i n g l y prominent only i n the l a s t ten years with t h e i r combined share i n t o t a l exports growing from 24% to 54% between 1966-1971. Whilst the s e l f -evident dominance of o i l has been more dramatic than that of timber i n the past three years, the most recent figures show that the two now account f o r over f o u r - f i f t h s of the export b i l l . Growth of petroleum gross earnings between 1972-1974 has been l i t t l e short of staggering: from $913 m i l l i o n to over $5 b i l l i o n . Over the same three years, exports of f o r e s t products have t r i p l e d i n value (Table 6). Although forecasts of - 80 -the increase i n export earnings from f o r e s t products e x p l i c i t l y assume that rapid progress w i l l be made immediately to ensure processed products obtain a growing share of the b i l l , the predicted earnings have been achieved much e a r l i e r than these would i n d i c a t e , i n f l a t i o n notwith-standing (Appendix 2). Apart from petroleum exports, timber exports have been the mainstay of trade growth during the past decade. When t h i s trend i s examined more c l o s e l y , the p i c t u r e becomes considerably less a t t r a c t i v e than the figures portend (Table 13). Whereas the income from o i l has been invaluable i n swelling Indonesia's foreign exchange reserves, i t has been f a r from a panacea for her many other i l l s . Despite the cushion provided by high o i l p r i c e s , Indonesia i s by no means insulated from such problems as high costs f o r imported materials, e s p e c i a l l y c a p i t a l goods and f e r t i l i s e r , and the d e t e r i o r a t i n g i n t e r n a t i o n a l market for her t r a d i t i o n a l exports. Part of the explanation for t h i s i s emphasized by what has been termed "the f r u s t r a t i n g dualism" of the Indonesian economy (Booth and Glassburner, 1975). Most of Indonesia's t r a d i t i o n a l exports, t i n , palm o i l , and palm kernel s u f f e r from adverse trends i n world markets notably s u b s t i t u t i o n , competition from synthetics, t a r i f f e s calation and low income e l a s t i c i t i e s of demand. Thus the benefits from foreign exchange earnings, at l e a s t i n the case of o i l , are o f f s e t by the serious problems facing other exports. The outstanding c o l l e c t i v e performance of o i l and timber exports has thus not been the source of optimism that might be expected. This i s not only due to the concentration of exports around o i l and timber, but also i s r e l a t e d to t h e i r convergence i n a single market. Japan's share of Indonesia's export b i l l i s currently 40%, and whereas some d i v e r s i f i c a -t i o n of commodity exports i s underway, the r o l e of Japan as a market i s Table 13. Indonesia: Tropical Hardwoods' Share Of The Export Bill,1962-74. T o t a l Export Earnings T o t a l Exports T r o p i c a l Hardwood $ M i l l i o n s Less o i l Share % 1962 681.7 -1963 696.9 -1964 724.2 -1965 707.7 395.3 (1) * 1966 678.5 463.6 1 (1) 1967 665.4 422.7 1 (2) 1968 750.8 451.2 4 (7) 1969 848.8 465.9 6 (11) 1970 1,121.1 674.1 10 (17) 1971 1,252.2 774.3 16 (25) 1972 1,764.5 851.4 14 (30) 1973 3,154.1 1,555.4 20 (41) 1974 7,093.5 2,054.9 11 (36) *Share Of Export B i l l Excluding Oil Source: Compiled From: F.A.O., 1975d, and I.M.F., 1975. - 82'^-:' • l i k e l y to increase i n the future. This market i s a l s o the best prospect for some of the new exports such as minerals, coarse grains, and f i s h e r y products. The advanced concentration of Indonesian exports on 'two commodities and one country' has introduced an obvious danger of dependence both'on i n t e r n a t i o n a l market conditions f o r these two commodi-t i e s and on the economy of the importing nation (Booth and Glassburner, 1975). To some extent, good prospects f o r o i l and timber and the mutual r e l i a n c e of the exporter and importer on these commodities may mitigate t h i s s u s c e p t i b i l i t y . One other important f a c t o r which shows how the two commodities are not at a l l d i s s o c i a t e d i n t h i s context i s that the predominance of these exports and t h e i r success may induce complacency about stagnation and decline of the t r a d i t i o n a l ones. Although earnings from the f o r e s t sector's exports have increased every year since 1962, p r i c e i n s t a b i l i t y i s a marked feature of the l og export trade, as I l l u s t r a t e d i n Figure 2.;, 70 r 1 9 7 ? I 1973 | " " J ^975 Figure .2. Changes of F.O.B. p r i c e s of Southsea Logs •Source: J.L.J., 1975c. - 83 -This i n s t a b i l i t y can have a double-edged e f f e c t on the economy and on the manner of resource e x p l o i t a t i o n . Indonesian p o l i c y towards the concessionaires has been to encourage domestic processing by imposing a log export tax of 10% and to include an 'establish when f e a s i b l e ' clause i n the concession agreement. The small amount of empirical work a v a i l a b l e has shown that the logging industry i s considerably more p r o f i t a b l e than processing a c t i v i t i e s such as sawmilling or plywood manufacturing (Hicks and MacNicoll, 1971, Koehler, 1972, Manning, 1971). Yet the 'establish when f e a s i b l e ' clause means that processing industries w i l l only be a t t r a c t i v e from a p r i v a t e viewpoint, when the market i s strong for a l l f o r e s t products. At the same time t h i s w i l l be the most l u c r a t i v e market f o r log exports. A comparison between the 1973 earnings of $574 m i l l i o n and $750 m i l l i o n i n 1974 c l e a r l y does not r e f l e c t the slump i n that year (Table 6). In January 1974, Indonesia's best month, log exports were 3 3 over 2 m i l l i o n m at p r i c e s around $69-65 per m , f.o.b./ by November 3 these had dropped to $25 per m . By t h i s time inventories i n Japan stood 3 3 at 7 m i l l i o n m and an estimated 2.5 m i l l i o n m of logs lay i n Indonesian pox-t's^candMlogging ccamps. ~>-A • survey.;:af9:5yrlogging •'companies- i l l u s t r a t e d . .sqme-lofclt'he limpa-ct jtthite Ihadinom+East Kalimantan: 30 companies kept producing at f u l l capacity 16 slackened production more than 50% 29 turned to b u i l d i n g i n f r a s t r u c t u r e to r e t a i n s k i l l e d crews 20 stopped altogether. Those communities e n t i r e l y r e l i a n t upon the logging i n d u s t r i e s were the f i r s t victims of the reduced employment and income (F.E.E.R., 1975). Indonesian and Japanese shippers have monopoly power from a c a r t e l formed i n 1975. Only an approved l i s t of ships can carry logs to Japan and the c . i . f . rate has increased from $8 to $15 per m3 since that year. As the Tokyo c . i . f . price has remained static during this period, Indonesian producers have been coerced into accepting a lower f.o.b. price for their logs. This effect has not gone unnoticed in the Philippines and Malaysia, who supply 16% and 32% of Southsea logs, respectively, and has undercut the strong position of Indonesia, supplying 46% of these exports (F.E.E.R., 1975d). In this sense, the dependence of Indonesian log exports upon the Southsea trade attains some measure of significance. The timber boom has been based almost i n i t s entirety on the export of logs to Japan which is in direct proportion to the vulnerability of these regions whose existence was initiated by forest development for log exports. Macbean has argued that, "the adverse influence of short-term i n s t a b i l i t y of export earnings on the prospects for growth in the underdeveloped countries gives us no grounds for believing that export i n s t a b i l i t y i s in fact so harmful" (Macbean, 1966). Admittedly, i t i s d i f f i c u l t to generalise on the effects of instability on economic growth, but in areas where the major source of state and personal income i s largely dictated by exogenous forces and is subject to wide, c y c l i c a l fluctuation, i t may introduce a degree of uncertainty into the prospects for sustained indigenous growth for those regions. 4.1.2 Regional Income Indonesia's extensive forest resources are stretched across the archipelago in Sumatra, Java, Kalimantan, Sulawesi and Irian Jaya: the five largest land areas. However, the most substantial development of the resource in recent years has occurred in Kalimantan. For example, in East Kalimantan, where timber production dominates the economy as i t - 85 does nowhere else in Indonesia, i t provided over 95% of the province's non-oil exports in 1970 (Manning, 1971). Kalimantan in general, and East Kalimantan i n particular, enjoys a high proportion of excellent stands of homogenous Dipterocarps and a well developed river transport system. Until 1971 provincial governments retained control over the allocation of concession areas to 10,000 hectares. Also, 70% of a l l royalties and the more recent log export tax accrue to the provincial governments (Appendix 5). This explains the rapidity with which many of the early concessions were granted, and resulted in a threefold increase in royalties from around $7 million in 1970-1971 to an estimated $22 million in 1972-1973, with Kalimantan accounting for almost 70% of a l l royalties collected (I.B.R.D., 1972). When the tax holidays granted under the 1967 Investment Act come to an end this revenue w i l l rise considerably. Short-term revenue and foreign exchange earnings are not insubstantial. Logging operations geared to the log export trade involve the export of a valuable rural asset which brings lucrative returns to the exporter and sizable, i f lesser, revenue to the economy. Whether such operations can provide the basis to a more diversified and permanent rural/small town industry is another matter. 4.1.3 Foreign Investment Indonesia's efforts to stimulate the development of the forest sector resulted in a substantial inflow of foreign capital which provided the motive force behind the growth of timber exports. Between 1967-1974 planned investment in the forestry sector reached $506 million, much of which had been presented to the government for approval by 1972 after which a large shift occurred towards manufacturing, away from forestry - 86 -and mining (Table 14). Underlying the quantitative representation of foreign capital's influence on the forest sector, there are a number of serious considerations which caused the sector to be closed to foreign investors along with that of construction and real estate. Criticism of foreign investors behaviour is based on the apparent lack of commitment on their part, to establish local processing industries. However, i t i s necessary to see why this has been the case. Foreign investment in forestry can be divided into three parts: a) experienced logging companies, frequently of Malaysian or Philippine origin, backed by Japanese capital; b) less experienced operators seeking assured log supplies for their domestic industries in Japan and South Korea; and c) large, multinational companies, such as Georgia-Pacific, Sorianoy and Weyerhaeuser, who have long-term interests in the forest sector. These companies were encouraged by a package of incentives, the main aspects of which were: a) the right to employ foreign nationals; b) the right to repatriate capital and profits; c) exemption from import duty on machinery and equipment. Anticipated investment of non-indigenous operators quickly gained momentum but, due to the small, understaffed nature of the Forest Depart-ment and the minimal, i f not non-existent, supervision of logging a c t i v i t i e s , concession allocation was temporarily suspended in 1971. A decree was issued which halted the concession negotiations at a time when 75 had been granted for an area totalling 11.8 million hectares, 139 further ventures covering 10.3 million hectares were under negotiation and application had been made to secure rights to another 35 million - 87 -Table 14. Indonesia: Foreign Investment Projects Approved, 1967-74. 1967-73 1974 1967-74 Number Intended Number Intended Number Intended Investment Investment Investment $ m $ m $ m By Sector A g r i c u l t u r e 66 113 5 12.5 71 125.5 Forestry 82 495.5 4 10.9 86 506.4 Mining 19 860.5 - - 19 860.5 Manufacturing 407 1,045,1 55 813.9 462 1,859 T e x t i l e s (56) (436.8) (12) (250.4) (68) (687.2) Chemicals (81) (101.7) (12) (190) (93) (291.7) E l e c t r o n i c s etc (35) (58.7) (4) (11;5) (39) (70.2) Other (235) (447.9) (27) (362) (262) (809.9 Construction 44 51.9 10 10.3 54 62.2 Hotels, tourism 12 101.8 13 71.4 15 173.2 Real estate 13 94.1 11 129.3 24 223.4 Other services 43 66.4 4 3.2 47 69.6 To t a l 686 2,828.3 92 1,051.5 778 3,879.8 By country USA/Canada 118 959.6 6 14.4 124 974 Europe 158 230.6 18 319.7 176 550.3 Germany(F.R) (27) (33.5) (2) (132.9) (29) (166.4) United Kingdom (38) (46.5) (4) (18.4) (42) (64.9) Netherlands (40) (72.9) (8) (98) (48) (170.9) Other (53) (77.7) (4) (70.4) (57) (148.1) Asia 374 1,486.6 61 694.3 435 2,180.9 Japan (149) (633.4) (32) (450) (181) (1,083.4) Hongkong (94) (267.4) (18) (178.8) (112) (446.2) Singapore (42) (100.0) (3) (25.6) (45) (126.1) Other (89) (485.3) (8) (39.9) (97) (525.2) A u s t r a l i a 35 151 7 23.1 42 174.1 A f r i c a 1 0.5 - - 1 0.5 686 2,828.3 Source: Arndt, 1975. 92 1,051.5 778 3,879.8 - 88 -hectares (I.B.R.D., 1972). The scramble f o r Indonesia's f o r e s t resources was well underway. The scale of operations planned by some of the larger concession holders can be judged by investment plans which vary from $1 m i l l i o n to $238 m i l l i o n , i n concessions covering areas from 10,000 to 1.2 m i l l i o n hectares. A l l f o r e i g n operators must invest i n sawnmilling and pursue a stage by stage expansion into one or more of the chip, hardboard, p a r t i c l e board, p r e f a b r i c a t e d housing and pulp and paper i n d u s t r i e s (Koehler, 1972). International lumber markets are considered to be very competitive and the e x i s t i n g mechanical power sawmills have c a p a c i t i e s f a r below that 3 of 20,000 m annual input which i s the minimum economic s i z e necessary to compete i n these markets (Koehler, 1972). This f a c t o r , along with the very large number of small, independent, pit-sawing m i l l s , mean that the present industry i s u n l i k e l y to be the main supplier of processed exports. The highly dispersed nature of the industry, and i t s i n a b i l i t y to produce high q u a l i t y lumber at competitive p r i c e s , thus points to the r o l e of foreign investment. In the most a t t r a c t i v e extraction regions such as Maluku, East Kalimantan, and Riau, there i s a common pattern of e x p l o i t a t i o n : f o r log exports. Koehler i s r i g h t to focus on the behaviour of f o r e i g n investors and to question t h e i r motivation. Despite high transportation costs which can form as much 25% of the c . i . f . p r i c e , logging operations are highly p r o f i t a b l e . Figures i n the range of 30%-40% gross p r o f i t are l a r g e l y responsible for the 500 companies engaged i n negotiations or operating i n the f o r e s t r y sector (Koehler, 1972, Meijer, 1975). I f t h i s sort of p r o f i t expectation motivates the f o r e i g n investors i n t h e i r investment a p p r a i s a l , then i t explains t h e i r extreme reluctance to e s t a b l i s h domestic processing i n d u s t r i e s . - 89 -The complete lack of very basic i n f r a s t r u c t u r e from water and power to harbours and roads throughout the outer i s l a n d s , or the state of d i s r e p a i r of any of the remainder of the Dutch legacy, i s frequently brought forward as the c r i t i c a l constraint upon outer i s l a n d growth prospects. One measure of t h i s obstacle i s r e f l e c t e d by the a d d i t i o n a l 20% often added to the cost of any investment i n the f o r e s t i n d u s t r i e s . 3 An investment projected for 1973 i n a 25,000 m annual input sawmill i n East Kalimantan required that 50% of the t o t a l investment of $330,000 would be for i n f r a s t r u c t u r e , mainly for two generators (Koehler, 1972). Coupled with high labour and transportation costs, t h i s o f f e r s investors l i t t l e incentive to commit investment funds beyond those for logging operations. Transportation costs loom large where firms cannot provide s u f f i c i e n t volumes for Conference rates which are also unavailable at the p r i v a t e harbours constructed by concessionaires, hence export ship-67 ments are subject to surcharge. Transportation costs are a strong argument for large-scale operations p a r t i c u l a r l y f or plywood m i l l s which need large inputs of logs that are currently exported to the i n - t r a n s i t processors. Economies of i n t e g r a t i o n are apparent i n Taiwan for instance, where a plywood m i l l would often be accompanied by a sawmill and p a r t i c l e board m i l l and also miscellaneous secondary, export oriented i n d u s t r i e s . This sort of i n d u s t r i a l cohesion contributes to lowering the u n i t cost for a large residue producing industry such as plywood where conversion losses may be 50%. These economies of scale r e l a t e to l o c a t i o n , i n f r a s t r u c t u r e , i n d u s t r i a l structure and export markets. One of the main a t t r i b u t e s of This option i s of course now unavailable because of the j o i n t c a r t e l between Indonesian and Japanese shippers. - 90 -the foreign investor i s that he has the necessary c a p i t a l to finance such a c t i v i t i e s , the technology to r e a l i s e the economies of scale and the marketing expertise to s u c c e s s f u l l y export the processed products. The present industry, such as i t i s , i s oriented very l a r g e l y i n favour of the domestic market which has undoubted p o t e n t i a l and scope given the growing economy and population. But, unless a very sharp r e d i r e c t i o n of government p o l i c y was to occur, and the administration became involved i n i n d u s t r i a l development i n the f o r e s t sector once again, as with Perhutani, the growth of an export oriented f o r e s t products industry w i l l have to r e l y upon foreign investors. When concessions were a l l o c a t e d i n i t i a l l y the objective and p r i o r i t y was to stimulate f o r e s t development and earn badly needed foreign exchange. To t h i s extent the generous terms given to the conces-sionaires on the understanding that they provide i n f r a s t r u c t u r e , s o c i a l overhead c a p i t a l , and investment i n processing i n d u s t r i e s , have been, i n part, very successful. The issues surrounding the r e s o l u t i o n of the c o n f l i c t between foreign investment and the new objectives espoused i n R e p i l i t a 11 w i l l be analysed i n a future section of t h i s t h e s i s . 4.1.4 Employment Employment figures i n Indonesia have to be treated with some scepticism. The percentage of the labour force employed i n manufacturing rose from 5.7% to 7.5% between 1961 andl 19r7d -and^this^accounted for 17% of the increase i n the labour force. Yet the urban areas of Java and Indonesia as a whole showed an absolute decline i n manufacturing employ-ment. These figures should be interpreted with care as they suggest that with 85% of the labour force l i v i n g i n r u r a l areas and 60% of employment i n industry being i n the same areas, there has been a trend towards non-- 91 -a g r i c u l t u r a l r u r a l employment to account for most of the growth i n manufacturing employment (I.B.R.D., 1972, Sundrum, 1975) (Table 15). Whether t h i s phenomenon has continued i n the l a s t f i v e years i s open to question but the rapid growth of the manufacturing sector implies that not a l l , and perhaps most, employment has come from the small' industry sector: a r e v e r s a l of the h i s t o r i c pattern which has seen large-scale, c a p i t a l intensive manufacturing employment grow at the expense of reduced employment i n small-scale, t r a d i t i o n a l , r u r a l i n d u s t r i e s . S i g n i f i c a n t l y , workers i n t h i s sector earned s i m i l a r incomes to wage earners i n the medium-sized establishments u s u a l l y found i n the urban and adjoining areas (Sundrum, 1975). Employment opportunities i n the f o r e s t sector are not only a function of the technology used or of the l e v e l of processing but also are a function of the o r i g i n and nature of much of the sector's c a p i t a l . The Japanese 'package deal' u s u a l l y involves an advance payment which enables the logging company to pay r o y a l t i e s to concession holders and to meet t h e i r other operational expenses. This arrangement i s sometimes extended by the supply of heavy equipment f o r which domestic finance i s very l i m i t e d . In return, the investor receives a guaranteed supply of logs at f.o.b. p r i c e s which conveys considerable economic power to the Japanese trading companies. One estimate has placed over 50% of the Indonesian contractors within t h i s system (F.E.E.R., 1974). On the other hand, those outside t h i s network are frequently barred from the Japanese market. The r e f u s a l of Japanese buyers to continue to purchase logs from non-mechanised production displaced several thousand bandjir kap producers from t h e i r l i v e l i h o o d . Coupled with the p r o h i b i t i o n of r i v e r logging i n 1972, and the r e f u s a l of the Japanese trading companies to deal with the small operators or to ship t h e i r logs, t h i s usurped employment - 92 -Table 15. Indonesia: Growth i n Manufacturing Employment and Value Added, 1961-71 Percentage 1961 1971 Increase Employment (000) Urban and adjoining 684 1,000 46 Other r u r a l 1,172 1,953 67 T o t a l 1,856 2,953 59 Value Added (Rp b i l l i o n ) Large and medium 24.5 40.9 67 Small scale 12.1 15.5 28 T o t a l 36.6 56.4 54 Source: Sundrum, 1975. and a cheap source of logs. Although loggers i n Kalimantan can earn $80-$90 per month, only the u n s k i l l e d labour i s l o c a l as the s k i l l e d workers are Malaysian and F i l i p i n o contractors b e n e f i t i n g from t h e i r experience i n logging operations (F.E.E.R. , 1975b),. Companies usually r e c r u i t t h e i r s k i l l e d labour from outside sources e s p e c i a l l y i n areas such as Maluku and Kalimantan where there i s a severe shortage. In t h i s way the independent operators, the pribumi, and the Indonesian labour force emerge as the l o s i n g side. The lack of any serious attempts to set up job t r a i n i n g programmes and the r e v i s i o n , by foreign companies of t h e i r investment plans i n answer to indi'genisa t i o n ^ move's tiby. K^Kes government 'are-serious - 93 -causes for concern. Employment opportunities and s k i l l t r a n s f e r have been accorded p r i o r i t y status as demonstrated by the order banning a l l foreign labour i n the industry a f t e r 1977, therefore, i t would seem that the necessary s k i l l e d labour force for a future domestic industry w i l l have to be trained (Table 16). Table 16. D i s t r i b u t i o n of S k i l l e d Labour by Type of Wood Processing i n Various Asian Countries Supervisory & S k i l l e d : Semi-skilled: U n s k i l l e d : Sawmilling 35 15 50 Plywood 40 40 20 Paper and Pulp 45 40 15 Source: Koehler, 1972. The 1972 small-scale industry census discovered 363,000 workers i n the wood i n d u s t r i e s which ranked second to food but was second lowest i n terms of value added per worker (Table 17). T o t a l employment i n the f o r e s t industry i n East Kalimantan was estimated at 50,000 i n 1972, s p l i t between 20,000 workers i n mechanized logging and over 25,000 i n bandjir kap production. Planned employment i n July 1972 for the nation as a whole was over 50,000 but i t i s unknown how much of t h i s was r e a l i s e d (Table 18). Certain wood in d u s t r i e s have been c l a s s i f i e d as the most labour intensive form of manufacturing which w i l l of course depend e n t i r e l y on the nature of the projects within that sector. In the Indonesian case f o r e s t r y projects seem s i m i l a r l y c a p i t a l intensive to general manufacturing, - 9 4 -Table 17. Indonesia: Structure of Small-Scale Industry, 1972. Commodity Annual Value-added Group Employment per Worker (000) (Rp 000) Urban Rural T o t a l Urban Rural T o t a l Food 75 617 692 70.9 37.7 41.3 T e x t i l e s 34 110 144 21.7 12.6 14.8 Leather 2 2 4 54.2 32.8 44.5 Wood 15 348 363 75.5 13.9 16.4 Paper, p r i n t i n g 3 5 8 68.6 4.6 29.9 Other 42 490 532 77.5 27.2 31.1 T o t a l 172 1,572 1,744 63.0 27.3 30.8 Source: Sundrum, 1975. Table 18. Indonesia: Investment A p p l i c a t i o n s , 1968-1972. No. of Nov. '68-Dec. '71 Jan. 72-JuIy '72 Capital Sector No. of Labour Projects Planned Projects Planned Ratio' Investment Employment Investment Employment (Rpm) (000) (Rpm) (000) (Rp m) Agriculture 37 7-2 4-7 9 11 0-5 1-6 Estates 104 44-1 21-7 19 22-2 23-1 1-3 Forestry 125 96-4 49-4 17 12-5 1-5 2-1 Fisheries 13 5-5 2-4 8 7-7 2-3 2-8 Livestock 7 1-8 1-1 5 1-2 0-2 2-3 Mining 7 19-2 1-7 3 1-0 0-6 8-9 Manufacturing. 668 244-0 111-2 222 101-1 72-8 1-9 Communications 58 36-6 14-9 15 35-1 4-7 3-7 Tourism 89 67-2 20-0 14 12-0 4-4 3-3 Construction 5 51-2 2-5 3 2-3 0-5 17-8 Infrastructure 10 3-6 0-3 ' 2 2-0 6-2 0-9 Other 5 1-8 0-5 — — 3-2 Total 1,128 578-5 230-5 317 198-0 123-7 2-2 * Data should be treated with caution since there are unexplained discrepancies between :his tabic and other relevant data, notably in the Estates and Construction Sectors. . ''Includes rupiah equivalent of forcipn exchange involved. 'Total Planned Investment for period Nov. '68-July 72 divided by total planned job creation. Source: McCawley, 1972. - 95 -each job costing around $5,000 per worker, and the p o t e n t i a l comparative advantage w i l l be reduced where labour i s a small part of t o t a l costs. The Southeast Asian average for sawmilling costs a t t r i b u t a b l e to labour i s 5% and i n East Kalimantan t h i s reaches 15% due to the high cost of imported labour (Koehler, 1972, Kojima et al*, 1971). There are two dimensions to the employment opportunities offered by the f o r e s t i n d u s t r i e s . One would be the employment generated by processing i n d u s t r i e s and the other i s d i r e c t e d at the indigenous entrepreneurs. Where i n f r a s t r u c t u r e and transportation constraints are obstacles for large companies, they are magnified and m u l t i p l i e d by c r e d i t a v a i l a b i l i t y and market access d i f f i c u l t i e s through which the small firm i s d i s c r i m i -nated against. J o i n t ventures were seen as one a l t e r n a t i v e to t h i s and they were to provide for a t r a n s f e r of majority holding and c o n t r o l to the Indonesian partner within a f i x e d number of years. In p r a c t i c e , a number of problems have beset the idea, namely c a p i t a l a v a i l a b i l i t y and dependence upon the partner's commitment to Indonesia. There i s the danger that the pribumi w i l l end up as fronts for f o r e i g n investors while the r e a l c o n t r o l i s vested outside the country. Thus the opportunity f o r the development of the n a t i o n a l partner i s f r u s t r a t e d . 4.1.5 Discussion The capacity of the f o r e s t sector to stimulate Indonesia's economic development can be defined by the r o l e of foreign investment i n that country. The sector's prospects for future growth through a domestic f o r e s t industry are dependent upon the part played by f o r e i g n investors. In an accounting sense the t o t a l impact of f o r e i g n investment on foreign exchange earnings and the balance of payments may be p o s i t i v e i f the d i r e c t contribution of investment to net exports more than counter-- 9 6 -balances the net outflows of c a p i t a l , i n t e r e s t and p r o f i t s . Figures f o r the f o r e s t sector are unknown and must be si z a b l e i n terms of outflows but the o v e r a l l e f f e c t of increased foreign exchange earnings can a i d economic growth. Nevertheless t h i s approach confuses an assessment of the o v e r a l l impact of foreign investment on the host country's economy. I t i s p a r t i c u l a r l y d i f f i c u l t to assess e f f e c t s on income d i s t r i b u t i o n , wage structures, the type of employment ( s k i l l e d or u n s k i l l e d ) , the domestic industry, the pribumi and general i n d u s t r i a l development. Yet these are important considerations i n Indonesia where the strategy of development i s surrounded by much debate. The c o n t r a d i c t i o n between Indonesia's need for fo r e i g n invest-ment and the short-term p r o f i t expectations of foreign investors i s the key to the f o r e s t sector's future. I t i s c l e a r that employment and income objectives cannot be r e a l i s e d without steady growth i n a g r i c u l t u r e , even where t h i s means a move away from t r a d i t i o n a l commodities facing d e c l i n i n g world markets, and i n other labour intensive economic a c t i v i t i e s . New opportunities i n a g r i c u l t u r e w i l l l i e i n c r e a s i n g l y i n areas outside Java. Meanwhile i n f r a s t r u c t u r a l requirements for accelerated a g r i c u l t u r a l development i n the outer islands would l i m i t the pace of transmigration which would need to be of f a r larger scale than previous schemes to have much e f f e c t on unemployment and poverty i n Java. In the small industry sector the f o r e s t i n d u s t r i e s are the second l a r g e s t s i n g l e source of employment. Yet i t appears that indigenous operators s u f f e r from several disadvantages. I n f r a s t r u c t u r a l expenditure spread across a r u r a l development strategy combined with foreign investment could f o s t e r a domestic industry. But the c r u c i a l point i s that i n f r a s t r u c t u r e plays a permissive - 97 -function. For example, improved i n t e r - i s l a n d shipping could make log transport to Java an economic prop o s i t i o n : the power of t h i s on the d e c i s i o n making of f o r e i g n investors i n quite separate. The powers of the government to influence foreign investors to commit* themselves to long-term investment i n processing seem to be weak. Blanket regulations such as r o y a l t i e s and export taxes', i n d i g e n i s a t i o n and s e c t o r a l c l o s e -down seem to be the only e f f e c t i v e c o n t r o l mechanisms a v a i l a b l e . Logging p r o f i t s are not being invested i n t o i n d u s t r i a l capacity i n any appreciable degree and t r a i n i n g programmes are s i m i l a r l y evident. I t -is a c e n t r a l question as to whether foreign investors can be induced'to commit them-selves to l o c a l processing. As yet very l i t t l e d i r e c t pressure has been brought to bear upon f o r e s t companies, measures such as r e s t r i c t i n g log exports to include a percentage of processed material have not been introduced. C l e a r l y , the gains from processing have to be weighed against interim losses i n foreign exchange, r o y a l t i e s and income r e s u l t i n g from a cut back i n log exports. The extent to which concern over the problem of regional imbalance i n Indonesia's economic development, epitomised by the concentration of almost a l l new i n d u s t r i e s i n and around Jakarta, i s represented by the r o l e of foreign investment i n the f o r e s t sector. This concern w i l l be d e c i s i v e i n the r e s o l u t i o n of t h i s c o n t r a d i c t i o n by the government. For t h i s w i l l be the chief focus for the government's r e a l , or s u p e r f i c i a l , desire to achieve a measure of indigenous economic growth i n the outer i s l a n d s , a d e s i r e made more complex by the dynamics of a new economic nationalism. - 98 -4.2 THE MALAYSIAN ECONOMY The performance of the Malaysian economy i n the l a s t f i f t e e n years has been accorded much approbation. An annual growth rate of 6%, a strong balance of payments and good domestic p r i c e s t a b i l i t y stands i n sharp contrast to the experience of many other Asian countries. I n d u s t r i a l output has grown annually by 11-12% and the claim has been made that Malaysia i s ready to follow the export-led growth path of South Korea and Taiwan (Kasper, 1974). Foreign trade played a dominant part i n the country's progress. Intssp'iltee <©'f <a continuous decline i n Malaysia's terms of trade, p a r t i a l l y o f f s e t by p r o d u c t i v i t y increases i n rubber, and because of a high rate of growth i n earnings from palm o i l and timber of 18% per year, during 1961-1970 merchandise exports grew o v e r a l l at 5.3% per year. The r e s u l t s of a d i v e r s i f i c a t i o n in-exports can be seen i n the growth of manufactured exports which expanded at 19% per annum between 1968 and? 1972^ .('I.B.R.D. , 1973a). Under the veneer of t h i s experience considerable scepticism can be cast upon the nature of the Malaysian growth pattern. F i r s t l y , when the d e t e r i o r a t i o n i n the terms of trade i s allowed for, r e a l growth d i d not exceed 4.5% during the 1960's and t h i s was i n a period when popula-t i o n growth was approximately 3%,, thus only a f a i r l y conservative increase i n income was po s s i b l e . Secondly, the high r a t i o of exports to G.N.P. standing at 45% means that the country i s very s e n s i t i v e to changes i n external demand. Recent economic h i s t o r y shows that good export years are followed by an upsurge i n investment; since t h i s investment has a high import content, i t p a r a l l e l s the import cycle. Therefore years of good balance of payments surplus are followed by years of d e f i c i t . Kasper contends that the economy di d manage s i g n i f i c a n t economic progress through - 9 9 -the d i v e r s i f i c a t i o n of exports away from t r a d i t i o n a l items. Yet i n 1974 70% of the export b i l l was made up.of rubber, t i n , palm o i l and timber which compares with 73% i n 1960. So, while i t i s true to say that exports have been d i v e r s i f i e d by export s u b s t i t u t i o n , i t hascbeen very l i m i t e d , and the basic r e l i a n c e of the economy on these four commodities remains as does the inter-dependency of the r e s t of the economy on the demand i n the developed world f o r these commodities. T h i r d l y , the outlook for the manufacturing sector to promote growth through exports i s dimmed by i t s marked tendency to pursue expansion i n areas of import s u b s t i t u t i o n . Export s u b s t i t u t i o n appears to be concentrated i n the resource sector compared with an average of 14.3% of manufacturing output being exported (Table 19). In turn the manufacturing sector has been unable to create s u f f i c i e n t employment opportunities. Both the foreign dominated manufacturing sector and innovation i n the technology of rubber produc-t i o n have been labour-saving. F i n a l l y , the growth of unemployment to an estimated 8%, the very c l e a r income i n e q u a l i t i e s between Malays and non-Malays , and between the east and west coast states reveal the true nature of the Malaysian development experience. Aggregate employment opportunities expanded by 2.6% per annum i n the 1960's which lagged behind the estimated growth of 2.8% i n the labour force. This takes no account of under-employment and those already unemployed. The need f o r employment expansion can be shown by the disproportionate share of wealth i n non-Malay hands and the contrast with the Malay population who form the bulk of the r u r a l poor. Inequality i n the d i s t r i b u t i o n of income was recognised i n the l a t e 1960's and, along with unemployment, attained greatest prominence i n the Second Malaysian Plan. Unemployment seems such a severe problem that the Plan's goal was simply to avoid an increase between 1971-1975. However the f a s t e r rate - 100 -Table 19. Malaysia: Exports Of "Pioneer Industries." (Peninsular Malaysia Only) For Comparison Exports as Export Capital/labour Percent of Growth r a t i o , Gross Sales, 1967-71 1969 1970 (percent) (dollars) Food 13.3 7,007 Beverages 10.2 410.0 14,473 T e x t i l e s , c l o t h i n g f o o t - 7,245 wear 23.8 105.9 Wood products 64.3 Furniture 60.7 404.7 3,833 Leather products - -Rubber products 8.3 77.3 C 5,064 Chemicals 10.4 37.7 18,818 Petroleum products 24.9 -30.3° 186,862 Cement and re l a t e d products 18.1 52.1 C 12,530 Iron and s t e e l 11.1 160.0° 23,515 Metal products 8.3 103.5 C 4,808 Machinery (except e l e c t r i c a l ) 1,560 Transport equipment 14.8 66.6 8,109 E l e c t r i c a l machinery 5.2 -P l a s t i c s 5.0 - -Total pioneer sector 14.3 - 11,378 T o t a l manufacturing sector 20. 0 b 68.8 7,159 a. E n t i r e manufacturing sector (pioneer and non-pioneer enterprise) . b. Author's estimate. c. Share of les s than 5% i n 1971 manufactured exports. Source: Kasper, 1974. - 101 -of growth of the manufacturing sector exacerbates the l e v e l of unemployment and thus has been regarded as an i n e v i t a b l e consequence of Malaysian development p o l i c i e s (Alatas, 1972, Richards, 1974). Naturally the issue of unemployment i s c l o s e l y a l l i e d with the growing r a c i a l and cla s s discontent i n Malaysia which was v i o l e n t l y r e a l i s e d i n the 1969 r i o t s when Malays set on t h e i r Chinese compatriots. The 'Bumiputra', or Malay-advancement programme, was designed to appease t h i s i n the shape of development projects and land reform to a l l a y t h e i r grievances. Recent developments indi c a t e that t h i s appeasement has been f a r from complete. The extensive land development programme cur r e n t l y underway, along with continued e f f o r t s to a t t r a c t export-oriented i n d u s t r i e s i n the l e s s developed parts of the country, are c e n t r a l to the current development strategy. 4.2.1 Foreign Exchange Earnings Hardwood exports have s t e a d i l y increased t h e i r share of the t o t a l export b i l l . In 1962 t h i s share was 6% and by 1973 had expanded to 21% but the following year t h i s declined to 14% (Table 20). Fluctuations i n world trade d i d not have any adverse e f f e c t on the continuous growth of these exports and so they are ranked t h i r d behind rubber and t i n without having faced d e c l i n i n g terms of trade. As was the case with Indonesia, f o r e s t products exports have gained prominence for t h e i r capacity to earn foreign exchange and also have been an important component of trade expansion when t r a d i t i o n a l commodity exports were s u f f e r i n g from t h e i r inherent problems. The d i f f e r e n c e l i e s with Malaysia or more accurately, within Malaysia,where the export trade can be distinguished by the degree of processing and by the state of o r i g i n . A fundamental objective of f o r e s t development i n Peninsular - 102 -Table 20. Malaysia: T r o p i c a l Hardwoods Share of the Export B i l l , 1962 - 74. Tot a l Export. T r o p i c a l Hardwoods• E a r n i n 9 s - Share % $ m i l l i o n s , 1962 1 0 6 5 . 4 1963 1 0 8 8 . 2 1964 1 1 0 1 . 6 1965 1 2 3 6 . 2 1966 1 2 4 8 . 7 1967 1 2 1 3 . 0 6 8 9 10 13 16 1968 1347.4 16 1969 1652.0 16 1970 1686.9 18 1971 1636.0 21 1972 1728.2 22 1973 3072.1 21 1974 4243.8 14 Source: Compiled from F.A.O. 1975d and I.M.F. 1975. Malaysia i s to minimize the loss of commercial timber that w i l l be harvested during the process of large-scale c l e a r i n g of f o r e s t land f o r a g r i c u l t u r e which w i l l be a continuing feature of development over the next twenty years. In t h i s way f o r e s t resource development i s to be integrated with the o v e r a l l land-use plan f o r Peninsular Malaysia and to t h i s end planning aims to double the log intake capacity of the f o r e s t i n d u s t r i e s and so tre b l e f o r e i g n exchange earnings (F.A.O., 1974). Therefore the capacity - 103 -of the fo r e s t resource to sustain a wood-based i n d u s t r i a l sector i s now a r e a l p o l i c y issue. This i s emphasised by the high proportion of Peninsular Malaysia's hardwood e x p o r t s ' f u l f i l l e d by sawnwood and plywood: i n 1974 $203 m i l l i o n were earned by these exports. As with other primary"exports the i n t e r n a t i o n a l demand for fo r e s t products fluctuates considerably and export booms such as those i n 1968 and 1973 coincide with p h a s e s o f high capacity and u t i l i z a t i o n . Correspondingly the time lag between export demand f l u c t u a t i o n and actual production for export i s r e l a t i v e l y short. On the other hand, log exports dominate as foreign exchange earners'in Sabah and Sarawak. In the former state log harvesting and growing export crops are the main a c t i v i t i e s . Sabah has co n s i s t e n t l y exported a very high volume of her r a p i d l y expanded log production, usually over 90% and one one occasion,' 1969, 100%. In 1973 these exports accounted f or over h a l f of Malaysia's f o r e s t products export b i l l . Sarawak, a much smaller hardwood exporter had exports t o t a l l i n g $52 m i l l i o n i n 1972 compared with Sabah's $176 m i l l i o n . Exports From Sabah and Sarawak 1972 ($ m i l l i o n ) Sabah Sarawak T o t a l Exports 211 214 Forest Products 176 52 Source: E.C.A.F.E., 1973, F.A.O., 1975d. - 104 h The main point to note here i s that other than the sawnwood exports from Sarawak, a much greater degree of processing i s c a r r i e d out i n Peninsular Malaysia. U n t i l the 1972 log export ban on preferred species, log exports from Malaysia went i n the main to Singapore where sawnwood and plywood were exported to the E.E.C. In t h i s way unlike Sabah, Peninsular Malaysia avoided being at the mercy of the Japanese log market and the conditions i t imposes on the producing nations. 4.2.2 Regional Income State revenue i s obtained from f o r e s t e x p l o i t a t i o n through r o y a l t y payments and l i c e n s e fees which d i f f e r amongst states as they are determined on an ad hoc basis (I.B.R.D., 1973b). However the 10% log export tax calculated from the f.o.b. p r i c e i s standard. Only recently have the states of Peninsular Malaysia recognised t h e i r inter-dependence r e s u l t i n g i n an evaluation of the resource's p o t e n t i a l as a basis f o r export-oriented i n d u s t r i a l i z a t i o n . Log exports have very l a r g e l y been responsible for Sabah's trade surplus since independence. The balance of trade exceeded $200 m i l l i o n f o r the f i r s t ten years of independence, 1963-1973, and G.N.P. grew by 29% during 1972-1973. Since independence Sabah has acquired between 70%-80% of her export revenue from timber exports. P r i o r to federa-t i o n , rubber was the highest value export crop but i t and a l l other a g r i c u l t u r a l products are now surpassed by log exports. The revenue received by the Sabah government from these exports increased from only $4.5 m i l l i o n i n 1963 to around $30 m i l l i o n i n 1971. During t h i s period, f o r e s t e x p l o i t a t i o n underwent rapid growth and i t i s apparent that most of the timber revenue has not come to the state i n taxation. This has been a t t r i b u t e d to the nature of the log export trade, c o n t r o l l e d by foreign-based companies (Burrough and Burrough, 1974). - 105 -In a manoeuvre designed l a r g e l y to capture the support of the r u r a l poor, a State Trust Company was set up under the Sabah Foundation to take over and co n t r o l timber e x p l o i t a t i o n i n an area of over 1 m i l l i o n hectares. Operators i n t h i s concession areas, held p r e v i o u s l y by twelve i n t e r n a t i o n a l timber companies, were subcontracted to l o c a l logging companies and the Company purchased s i x ships to transport logs to Japan. A l l Sabahans were e l i g i b l e to r e g i s t e r f o r a free Trust share i n March 1971 and about 90% d i d so. Dividends are paid on a regular basis to the order of $20-$25 per person and the remaining balance of the income derived from the export business i s invested i n various, not n e c e s s a r i l y f o r e s t industry, p r o j e c t s . As such the Trust Company represents the f i r s t i n i t i a t i v e on behalf of a producing country to d i r e c t l y undertake f o r e s t e x p l o i t a t i o n and to co n t r o l the manner i n which the resource i s exploited with the aim of r e t a i n i n g the benefits i n l o c a l hands. The inauguration of t h i s Company was not an i s o l a t e d act but part of a programme to t r a n s f e r f o r e i g n c o n t r o l l e d operations i n the f o r e s t sector i n t o indigenous c o n t r o l . The State government has refused to renew concession agreements when they come for renegotiation and presently a v a i l a b l e f o r e s t land i s to be rea l l o c a t e d to l o c a l entrepreneurs. 4.2.3 Foreign Investment Encouragement of the free enterprise system i n Malaysia has provided a t t r a c t i v e conditions f o r foreign investors. Between 1966-1970 42% of pu b l i c investment was financed from abroad as was 14% or about $1,000 m i l l i o n of p r i v a t e sector investment. Foreign investment was stimulated a f t e r 1958 when the Pioneer Industries Ordinance o f f e r i n g incentives f o r domestic and foreign investors was enacted and was further encouraged by the 1968 Investment Incentives Act (Stikker and Hirono, - 106 -1971). Pioneer status was accorded to foreign investors i n c e r t a i n i n d u s t r i e s such as canned f r u i t s , wood products and assembled e l e c t r i c a l equipment. I t incorporated tax holidays, investment tax c r e d i t , accelerated depreciation, i n return f o r 51% Malaysian p a r t i c i p a t i o n and the tax incentives were coupled with t a r i f f p r o t e c t i o n . As a r e s u l t most of the foreign enterprises were i n l i g h t manufacturing aimed at import s u b s t i t u t i o n . Processing of primary products such as rubber and palm o i l has also a t t r a c t e d foreign c a p i t a l . By 1970 pioneer firms engaged i n the manufacture of wood products and f u r n i t u r e had invested $1.1 m i l l i o n or about 1% of the t o t a l foreign equity i n pioneer i n d u s t r i e s (Kasper, 1974). Forest i n d u s t r i e s d i f f e r from the other pioneer industries and from the e n t i r e manufacturing sector, c h i e f l y i n market o r i e n t a t i o n and scale. Both the wood products and f u r n i t u r e i n d u s t r i e s export the highest proportion of t h e i r gross sales i n the pioneer industry category which i s a move away from the import s u b s t i t u t i o n i n d u s t r i a l i z a t i o n . Secondly, although pioneer status and investment c r e d i t s are i n proportion to the amount of c a p i t a l invested, so that i n d u s t r i e s with high c a p i t a l output r a t i o s are preferred to labour intensive f a c t o r i e s , wood products and f u r n i t u r e have the second lowest c a p i t a l to labour r a t i o i n the manufacturing sector (Table 19). This i s probably because much of the industries' growth i n the 1960's was financed domestically. The average annual growth of the wood products industry between 1968-1972 was 14% while the manufacturing sector averaged 10.5%. This growth i s r e f l e c t e d i n the remarkable expan-sion of exports over a s i m i l a r period (Table 19). Comparable f i g u r e s f o r Sabah and Sarawak are unavailable ;however, a 1971 survey ind i c a t e d that 8 This only applied to Peninsular Malaysia. - 107 -75-80% of the equity c a p i t a l i n the timber industry i n Sabah was held by e x i s t i n g concession operators. Some two-thirds of the industry equity c a p i t a l was foreign, mainly B r i t i s h , American and Japanese •*» (Canada: Department of Industry, Trade and Commerce, 1973). The domestically owned part of the industry i s held by a few Chinese f a m i l i e s with p o l i t i c a l or economic power and the recent r e d i s t r i b u t i o n of concessions has continued t h i s pattern. 4.2.4 Employment As only 27% of Peninsular Malaysia's population is'urban nearly h a l f of the workforce i s employed i n a g r i c u l t u r e , f o r e s t r y and f i s h i n g . The growth of manufacturing employment at a rate of 11.7% between 1965-1970 meant that manufacturing employment represented 20% of t o t a l employment by 1970. In that year employment i n f o r e s t r y and the f o r e s t i n d u s t r i e s was nearly 43,000 and t h i s f i g u r e i s expected to grow by 60% by 1990.(F.A.O., 1974a) (Table 21). Very s u b s t a n t i a l employment opportunities are envisaged i n the a g r i c u l t u r a l development programme i n t h i s period. The p r o j e c t i o n for the f o r e s t i n d u s t r i e s w i l l , of course, be a function of the techniques introduced i n future years and the scope for job creation i s i l l u s t r a t e d by Figure 3. Although value added per worker remained f a i r l y constant throughout the 1960's i n the wood products industry i t i s very d i f f i c u l t to reach a conclusive i n t e r p r e t a t i o n of t h i s trend. Between 1965-1970 job creation occurred at 12% per year i n the wood industry, while the t o t a l value added doubled (I.B;R.D., 1973a). Constant value added per worker implies that any technological "change i n the industry has been minimal and that i t has, say, only been able to meet a decrease i n resource q u a l i t y . Yet the number of firms i n the industry has increased and output - 108 -Table 21. Peninsular Malaysia: Employment i n Forestry and Primary Forest Industries i n 1970. Employer Category of Employment Per Category of Employment Per Category of Employer Forestry Department S t a f f S k i l l e d Labour 1 660 1 300 2 960 Logging and Transport S t a f f 800 S k i l l e d Labour 10 100 U n s k i l l e d Labour 5 600 16 500 Sawmills S t a f f 2 250 S k i l l e d Labour 10 100 Un s k i l l e d Labour 4 550 16 900 Plywood'Mills S t a f f 600 S k i l l e d Labour 1 350 Un s k i l l e d Labour 4 750 6 700 Grand T o t a l T o t a l S t a f f 5 110 To t a l S k i l l e d Labour 22 850 Tot a l U n s k i l l e d rc-• Labour 14 900 42 860 Source: F.A.O. 1974a. - 109 -1 000 1 1975 1980 1985 1990 YEAR Figure 3 . Peninsular Malaysia : A l t e r n a t i v e Employment Opportunities i n the Forest Industries, 1970 -1990 - 1 1 0 -has been shown to have grown at a higher rate than manufacturing generally. Peninsular Malaysia's exports i n the low value added category have made good progress i n overseas markets. Present e f f o r t s to upgrade the export products, are l i k e l y to increase value added per worker while recent h i s t o r y i n d i c a t e s that i n d u s t r i a l expansion may not have been at the expense of employment through wholesale adoption of labour saving techniques. To be f a i r , the sawmilling industry i s not renowned for the pace of i t s technological advance. There are important implications i n t h i s instance f o r the type of industry that has to develop i n t o l a r g e r -scaled operations i n order that i t may be successful i n overseas markets. The experience of other producing nations i n v a r i a b l y demonstrates that the sawmilling industry (plywood i s also important i n the Malaysian context) has a dual structure and t h i s trend i s becoming more marked i n Peninsular Malaysia. I t i s assumed that approximately 50% of the industry's expansion w i l l have to be financed from overseas, with i n d i v i d u a l states, a domestic partner and a foreign investor a l l being involved (F.A.O., 1974a). These employment opportunities w i l l be a l l the more valuable i n the future as present government p o l i c i e s plan to avoid increasing unemployment. A serious attack on reducing the l e v e l of unemployment i s made more d i f f i c u l t by p o l i c y measures which e x p l i c i t l y favour large-scale i n d u s t r i a l operations or a r t i f i c i a l l y p r o f i t a b l e i n d u s t r i e s with l i m i t e d linkage and s p i l l o v e r e f f e c t s such as automobile assembly. 4.2.5 Discussion Malaysia possesses an exceptional natural resource i n the form of the a v a i l a b i l i t y of land suitable f o r a g r i c u l t u r e . Agro-based in d u s t r i e s l i k e those processing rubber, palm o i l , and timber are viewed as s u i t a b l e v e h i c l e s to promote r u r a l development e s p e c i a l l y i n the - I l l -eastern states of Peninsular Malaysia. The poor states on the east coast have per c a p i t a incomes les s than h a l f that of the more i n d u s t r i a l i z e d west coast states where growth has been heavily weighted i n favour of c a p i t a l intensive import s u b s t i t u t i o n i n d u s t r i a l i z a t i o n . Ethnic i n e q u a l i t y i s a lso c l o s e l y a l l i e d to t h i s regional d i s p a r i t y . If Malaysia succeeds i n sustaining a high rate of per c a p i t a income growth i n small-scale a g r i c u l t u r e , the r u r a l purchasing power would be an important source of demand i n the present narrow market f o r manufactured goods. In the f o r e s t sector, resources are a v a i l a b l e , the i n d u s t r i e s have s u f f i c i e n t capacity to expand and finance future growth which i s focussed on large-scale integrated complexes. At present the industry has the a b i l i t y to s e l l i n overseas markets and while the o v e r a l l importance of the small sawmillers i s l i k e l y to become l e s s they w i l l continue to serve the domestic market. In the case of Sabah, the log trade i s l i k e l y to remain su b s t a n t i a l . As with Sarawak, i t s future w i l l depend upon how much of the proposed investment i n f o r e s t i n d u s t r i e s w i l l be r e a l i s e d . The opportunity Sabah has to guide the pace and d i r e c t i o n w i l l be an advantage i n i t s favour. As much of the f o r e s t i n d u s t r i e s ' fortune i s t i e d to a g r i c u l t u r a l development, the spread of i n f r a s t r u c t u r a l development across the needs of several r u r a l i n d u s t r i e s geared to export s u b s t i t u t i o n , w i l l a i d t h e i r expansion i n the eastern states. Given the proposed growth of the f o r e s t i n d u s t r i e s , they would appear to have a function i n promoting r u r a l development through employment and income generation. The move towards large r - s c a l e d integrated complexes inv o l v i n g several d i f f e r e n t processes^ and t h e i r prospects, ought to reveal the p o t e n t i a l of t h i s form of export s u b s t i t u t i o n . Whether t h i s p o s s i b i l i t y and others i n the same vein w i l l - 112 -advance the p a r t i c i p a t i o n of the Bumiputras and redress some of the i n e q u a l i t i e s i n Malaysia remains an open question but t h i s type of strategy does stress the interwoven nature of r u r a l development. 4.3 THE PHILIPPINE ECONOMY Two important events i n 1972 have had equal influence on the d i r e c t i o n of the P h i l i p p i n e economy since that year. The unspectacular performance of the a g r i c u l t u r a l sector, the l a r g e s t sector i n the economy contributing 32% of G.N.P., was further a f f e c t e d by massive flooding i n Central Luzon which caused severe damage to i n f r a s t r u c t u r e and meant that a portion of the r i c e requirement had to be imported. President Marcos' declaration of m a r t i a l law i n September has had more f a r reaching consequences, with the r e a l or promised advances towards a 'New Society' being one of the regime's major j u s t i f i c a t i o n s and the basis of i t s general support. The economy grew at an average rate of 6% per annum i n r e a l terms during the 1960's and,while population growth was around 3% per annum, per ca p i t a income increased by $45 to $200 i n 1970. From a 7.5% expansion i n 1970, a g r i c u l t u r a l production f e l l i n 1971 to show only a 2% gain and i n 1972 the sector registered a decline of 1% (F.E.E.R., 1973). Despite growing emphasis on a g r i c u l t u r a l development which was shown by heavier investment i n farm development, land reform and i n f r a s t r u c t u r e , the average growth rate was predicted at 5% for 1973-1977. In comparison to t h i s , much f a i t h has been placed i n manufacturing, forecasted to grow at 9-10% per year and to increase i t s share of G.N.P. from 21% i n 1973 to 23% by 1977 (I.B.R.D., 1973b). The a g r i c u l t u r a l sector's future, with the emergence of a land hunger, a h i s t o r y of neglect, where present progress can no longer support a population of 42 m i l l i o n , growing at a - 113 -f a i r l y high rate, i s a serious issue. Employment i n a g r i c u l t u r e grew at only 1.2% per year into the 1970"s but the sector absorbed 23% of the increase i n t o t a l employment. Because of t h i s low l e v e l of growth the sector's share of employment f e l l from about 60% to 54%. During the 1960's copra, logs, copper and sugar comprised 70% of P h i l i p p i n e export earnings. Evidence of s i g n i f i c a n t growth i n manufactured exports i n the same decade i s l a r g e l y accounted for by plywood, coconut o i l and canned pineapples (Power and S i c a t , 1971). This growth of manufactured exports was at the l e v e l of 11.5% per annum while the sector i t s e l f grew by 6.8% as opposed to 4% i n a g r i c u l t u r e (Hicks and MacNicoll, 1971). Nevertheless the promising outlook f or the i n d u s t r i a l sector i s marred by i t s very l i m i t e d labour absorption capacity. Due to the heavy emphasis on c a p i t a l intensive technologies, industry absorbed only 10% of the increase i n the labour force so that i t s share of t o t a l employment remained constant at 12% throughout the 1960's (I.B.R.D., 1973b). In the 1970's, around four m i l l i o n people w i l l enter the work force so that about 3.5 m i l l i o n new jobs w i l l be needed, quite apart from the problem of dealing with the widespread underemployment and the present natio n a l l e v e l s of unemployment around 8-9%. Against t h i s back-ground the new Four Year Plan, 1974-1977 aims at achieving the New Society through: a) the promotion of employment b) maximum economic growth c) more equitable income d i s t r i b u t i o n d) regional development and i n d u s t r i a l i z a t i o n e) s o c i a l development f) acceptable p r i c e and balance of payments s t a b i l i t y (E.C.A.F.E., 1974). - 114 -A narrow d i s t r i b u t i o n of the benefits of growth, the preponderance of i n d u s t r i a l expansion i n and around Manila, growing unemployment, a c o l o n i a l export trade pattern and import dependent i n d u s t r i a l i z a t i o n give some breadth to the P h i l i p p i n e s ' problems. 4.3.1 Foreign Exchange Earnings Declining from a peak of 34% of the country's t o t a l export earnings i n 1969, to a low of 22% i n 1972, the value of the P h i l i p p i n e s ' f o r e s t products exports picked up i n 1973 (Table 22). These exports accounted for le s s than 5% of the export b i l l i n the e a r l y 1950's but t h e i r r apid growth explains around 50% of the absolute growth i n t o t a l exports since 1950. As a r e s u l t of the importance of commodity exports to the P h i l i p p i n e economy t h i s growth has been of considerable value. The f i r s t three years of t h i s decade witnessed a 30% d e t e r i o r a t i o n i n the Republic's terms of trade but i n 1973 both commodity and manufactured exports enjoyed favourable foreign markets. This pattern associated with chronic balance of payments d i f f i c u l t i e s has induced a haphazard or spas-modic growth within the i n d u s t r i a l sector. For some years log exports have been s t a t i c or d e c l i n i n g and government p o l i c y generally has moved towards a s s i s t i n g manufactured exports. Their p o t e n t i a l remains to be r e a l i s e d and has been seen to be a d i f f i c u l t road to follow f o r reasons which are i n part r e l a t e d to a hangover from import s u b s t i t u t i o n p o l i c i e s and to external obstacles such as t a r i f f e s c a l a t i o n . Power and S i c a t comment that, "the f a i l u r e of i n d u s t r i a l i z a t i o n to generate new sources of export earnings i s simply outward evidence of the nature of the i n d u s t r i a l i z a t i o n d r i v e " . (Power and S i c a t , 1971). Bearing t h i s c o n s t r a i n t i n mind, the present measures to progressively ban log exports were taken i n the l i g h t of t h e i r foreign exchange implications. A study group was - 115 -Table 22. P h i l i p p i n e s : T r o p i c a l Hardwoods' Share of the Export B i l l , 1962-1974. To t a l Export T r o p i c a l Hardwoods Earnings Share %. $ m i l l i o n s 1962 5 5 6 . 0 22 1963 7 2 7 . 1 23 1964 7 4 2 . 0 21 1965 7 6 8 . 4 21 1966 8 2 8 . 2 21 1967 8 2 1 . 5 23 1968 8 5 7 . 3 32 1969 8 5 4 . 6 34 1970 1 , 0 6 1 . 7 27 1071 1 , 1 2 1 . 8 24 1972 1 , 1 0 5 . 4 22 1973 1 , 7 8 7 . 8 23 1974 2 , 6 7 1 . 0 10 Source: Compiled from F.A.O. 1975d, I.M.F., 1975, P h i l i p p i n e s : Bureau of Forest Development, 1975. - 116 -set up i n 1973 to examine the economic e f f e c t s of the export ban and i t indicated several d i f f i c u l t i e s which would a r i s e from e f f o r t s to stimulate domestic processing. The group's conclusion was that log exports should follow the prescribed ban, that e x i s t i n g capacity should be used more f u l l y , that investment be made i n m i l l s i n areas of log surplus, that sawmills equipped with c i r c u l a r saws be phased out, and that i n f r a s t r u c t u r e , e s p e c i a l l y roads and ports be improved i n order to f a c i l i t a t e domestic processing. Estimation of f o r e i g n exchange income from the export of wood products processed from logs exported previously as such was c a l c u l a t e d to more than make up f o r the drop i n earnings foregone from log exports, by 1978 (I.A.S.G., 1973). In order that t h i s o p t i m i s t i c conclusion could be reached, heroic assumptions about market access, p r i c e and the competitiveness of the P h i l i p p i n e f o r e s t products i n d u s t r i e s were made. For a number of years P h i l i p p i n e plywood and veneer m i l l s , the main sources of future growth along with lumber, have unsuccessfully competed with m i l l s i n South Korea and Taiwan. By 1973 i n the U.S.A., Korean producers had captured 45% of the t r o p i c a l hardwood plywood market and firms i n Taiwan had obtained a further 27% of t h i s same market. A host of reasons i s introduced by those seeking to explain the mixed fortunes of the f o r e s t i n d u s t r i e s . They include poor i n f r a s t r u c t u r e , high f r e i g h t rates and t a r i f f b a r r i e r s . I t i s true to say that high f r e i g h t rates paid by P h i l i p p i n e exporters r e s u l t from distance to the market and the scattered number of p o r t s . High i n t e r - i s l a n d rates have already been mentioned i n connection with logs. I t i s s i g n i f i c a n t that Japan, South Korea and Taiwan have been importing the bulk of t h e i r log requirements thus i t has been r e l a t i v e l y easy f o r them to group t h e i r processing plants i n one port of - 117 -c a l l . P h i l i p p i n e wood products exports are now being transshipped to a few selected main ports i n the P h i l i p p i n e s to improve the s i t u a t i o n of a few years ago when the t o t a l export of plywood, veneer and corestock to the U.S.A. was loaded from 21 ports (P h i l i p p i n e s : The P h i l i p p i n e Association f o r Permanent Forests, 1972). But high f r e i g h t rates are s t i l l viewed as the main problem i n marketing f o r e s t products. This view can be discounted when the log transport costs absorbed by the i n - t r a n s i t processors are examined. Rola has analyzed the claims of 'higher' f r e i g h t costs made by plywood firms and concluded that these claims ignored the extra procurement cost faced by t h e i r competitors (Rola, 1974) . The high nominal and e f f e c t i v e t a r i f f s placed on processed f o r e s t products are a u n i v e r s a l constraint. However, u n t i l 1974 when the Laurel Langley agreement expired, the P h i l i p p i n e s enjoyed p r e f e r e n t i a l treatment i n the U.S.A.'s plywood market. Therefore i t would seem necessary to seek a l t e r n a t i v e and more s a t i s f a c t o r y explanations f o r the P h i l i p p i n e s ' i n a b i l i t y to compete e f f e c t i v e l y against countries that she supplies with t h e i r necessary raw material. I t i s i n t e r e s t i n g to note that the lack of success with export s u b s t i t u t i o n i s not r e s t r i c t e d to one natural resource: the P h i l i p p i n e s s t i l l exports q u a n t i t i e s of copra, m e t a l l i c ores and concentrates which are often processed and re-exported by other countries. I n d u s t r i a l i z a t i o n p o l i c i e s favoured inward looking, import dependent i n d u s t r i a l i z a t i o n and encouraged i n d u s t r i e s which were based upon undervalued, imported inputs rather than on materials from a g r i c u l t u r e , mining and f o r e s t r y . As the export of goods from these sectors i n unprocessed form (e.g. logs) has been more p r o f i t a b l e than i n processed form (e.g. sawnwood and plywood) there has been a reluctance to devise export-oriented p o l i c i e s , p a r t i c u l a r l y with the pressure on f o r e i g n - 118 -exchange earnings. The import component of log exports has been valued at 14% and f o r plywood at 18.8% (minerals at 23.6%) which shows that the net contribution o f the natural resource sector i n earning f o r e i g n exchange i s noticeably l e s s than the l e v e l indicated by the gross f i g u r e (Power and Sic a t , 1971). 4.3.2 Regional Income The regional impact of the f o r e s t sector i s l a r g e l y indeterminate. Revenue from the log export tax and the 7% tax on l o c a l sales of f o r e s t products accrues to the national government. In 1971 the t o t a l income from the f o r e s t sector was estimated at $60 m i l l i o n , a f i g u r e which included a l l forms of corporate tax and l e v i e s . As i n d u s t r i a l growth has been centred i n South-west Luzon, the f o r e s t i n d u s t r i e s of Mindanao, Visayas, and Palawan are of importance to regional growth. 4.3.3 Foreign Investment Since the imposition of martial law i n 1972 there has been a new p r i o r i t y placed on e n t i c i n g foreign investment to reverse past patterns. Investment i n t e r e s t i n the P h i l i p p i n e s i n t e n s i f i e d during 1973 owing to the appearance of a more clea r c u t investment p o l i c y . Although the Investment Incentives Act of 1967 and the Export Incentives Act of 1970 had offered incentives i n the form of tax exemptions and tax deductions, these resulted l a r g e l y i n a concentration of investment on a small number of highly c a p i t a l intensive p r o j e c t s . From 1963-1970, out of a t o t a l investment of $176 m i l l i o n , $27 m i l l i o n or 16% was given i n tax exemptions (I.B.R.D., 1973). These were i n mining, plywood and veneer, t e x t i l e s , chemicals and pulp and paper. The devaluation of the peso i n 1970 and su b s t a n t i a l incentives i n the Export Incentives Act marked a change i n p o l i c y . - 119 -Table 23. P h i l i p p i n e s : CAPITAL-LABOR RATIOS AND DISTRIBUTION OF DIRECT FOREIGN INVESTMENT IN MANUFACTURING, 1970 Per cent Distribu-K/L* tion of Foreign Less than Cumula-Industry (0010'i Investment in tive Distribution of pesos) Manufacturing Foreign Investments (1) (2) (j) Petroleum and Petroleum products 184.060 24.2 24.2 Basic Metal Industries 65.425 2.8 27.0 Nonmetallic Mineral 45.647 3.0 30.0 Chemical and Chemical Products 23.761 3.4 33.4 Drugs, Medicines and Cosmetics 9.1 42.5 Paper and Paper Products 22.915 7.2 49.7 Food 17.256 14.8 64.5 Transport Equipment 14.697 .7 65.2 Textile (exc cordage, rope ind twine) 12.757 2.0 67.2 Cordage, Rope and Twine 0.4 67.6 Beverages 12.648 7.7 75.3 Rubber Products 10.837 5.4002 80.7002 Machinery except electrical 10.144 3.3 84.002 Metal Products 8.287 4.2 88.2002 Electrical Household Appliances Electrical machinery 8.175 0.9 89.1002 except household appliances 3.6 92.7002 Miscellaneous manufacture 8.077 0.3 93.0002 Leather and Leather Products 7.964 0.0001 93.0003 Wood and Cork Products 7.560 2.8 95.8003 Printing and Publishing 7.032 0.2 96.0003 Furniture and Fixtures 5.522 0.0002 96.0005 Tobacco Produc.s 5.078 3.2 99.2005 Footwear and wearing apparel 13.200 0.8 100.0005 •The capital-labor ratio ia approximated by the book value of fixed assets over total employment. Source : Noriega, 1973 - 120 -Foreign investment i n the f o r e s t sector and e s p e c i a l l y i n the conversion i n d u s t r i e s amounts to a small proportion of t o t a l f o r e i g n investment (Table 23) and with the exception of pulp and paper f a l l s at the lower end of the c a p i t a l / l a b o u r for a l l foreign investment i n manufac-t u r i n g . Current investment i n the f o r e s t r y sector w i l l need to be supplemented by a t o t a l of $115 m i l l i o n s i f a l l logs c u r r e n t l y exported are to be processed domestically (Table 24). A large part of t h i s investment w i l l be for i n f r a s t r u c t u r e and shipping which are judged to be v i t a l to the f u l l e r u t i l i z a t i o n of i n s t a l l e d capacity. In a d d i t i o n to t h i s amount $98 m i l l i o n would be required to finance the imported content of t h i s investment (I.A.S.G., 1973). I f t h i s type of investment i s undertaken i t w i l l be a move away from e x i s t i n g biases i n the f a c t o r markets towards labour intensive i n d u s t r i e s which have i n the past been penalized as l i t t l e foreign investment has been a t t r a c t e d to them. Table 24. P h i l i p p i n e s : Necessary Investment I f Proposed Log Export Ban Occurs. ($ m i l l i o n ) Infrastructure 68.7 E x i s t i n g Plants 8.4 Expansion of E x i s t i n g Plants 14.2 New Plants 16.2 Shipping 7.9 T o t a l 115.5 Source: I.A.S.G., 1973. The regional d i s p e r s i o n of t h i s investment would also be an important factor although t h i s brings with i t the lack of overhead c a p i t a l i n the remote areas of Luzon and Mindanao. Over the twelve month period - 1 2 1 -from mid 1973 to mid 1974 costs i n wood-based panel production increased by 77% very l a r g e l y because a l l r e s i n , machinery and f u e l has to be imported (Sanvictores, 1975). This w i l l i n turn a f f e c t future investment prospects. Because of the high p r i c e s which p r e v a i l e d from e a r l y 1973, i t became more p r o f i t a b l e than normal to export logs than to process 3 them. The increase i n f.o.b. p r i c e s from $26 per m to $65 i n the f i r s t quarter of the year made log exporting very favourable and even processing operations diverted the bulk of t h e i r logs to f o r e i g n markets. A steady supply of logs for the domestic industry, for processing p r i o r to export, w i l l be a v a i l a b l e once the log export ban i s f u l l y enforced. 4.3.4 Employment Studies of the employment generating e f f e c t s of f o r e i g n investment i n the P h i l i p p i n e s reach gloomy conclusions. The future for a g r i c u l t u r e , the l a r g e s t sector which remanis the l a r g e s t job creator i s overshadowed by that of the manufacturing sector. The problem of determining the proportion of t o t a l employment due to f o r e i g n investment i s not an e a s i l y solved one. Several f a c t o r s , such as the m u l t i p l i e r e f f e c t of foreign investment on employment and income and the time lag involved, are hidden behind a s c a r c i t y of data on the same. Subido (1973) suggested t h i s i s l e s s of a problem i n the P h i l i p p i n e s as the i n d u s t r i a l linkages produced by import using i n d u s t r i a l i z a t i o n have been minimal. Employment opportunities have thus not been r e a l i s e d because of the l i m i t e d linkage e f f e c t s and remain unexplored again due to the concentra-t i o n of investment i n c a p i t a l intensive operations. Because of the growing need to deal with unemployment and to f i n d a l t e r n a t i v e sources of foreign exchange, the employment opportunities offered by export oriented i n d u s t r i e s have received some a t t e n t i o n . These ind u s t r i e s f i r s t l y are categorised according to Lary's value added per - 122 -employee approach which c l a s s i f i e s as labour in t e n s i v e those manufacturing in d u s t r i e s with low value added per employee according to i n t e r n a t i o n a l comparisons. Total value added i n the wood industry more than t r i p l e d between 1960-1970 which was roughly comparable to the average f o r the manufacturing sector as a whole. In t h i s same group, employment doubled from 19,000 to 38,000 (I.B.R.D., 1973). Under the above c l a s s i f i c a t i o n a d i f f e r e n t pattern emerges. In the P h i l i p p i n e s , the c a p i t a l intensive export industry absorbs 12% of the t o t a l employed labour force, that i s , about 1.4 m i l l i o n people. This group consists of firms which export s i g n i f i c a n t amounts of t h e i r output and, perhaps s u r p r i s i n g l y , log and lumber production are included. Log exports lead the employment and export index with 23% of t o t a l export earnings and an estimated employment fi g u r e of 498,522 (Table 25). This amounts to 44% of the t o t a l labour absorption i n c a p i t a l - i n t e n s i v e export i n d u s t r i e s (Alban, 1973). In contrast, labour intensive manufactured exports which include plywood, veneer and pulp and paper, provided 30,000 jobs i n 1970. The f o r e s t i n d u s t r i e s , i n c l u d i n g f u r n i t u r e and other wood manufactures absorbed 16,000 (54%) of t h i s t o t a l . Export-oriented employment remains f a i r l y low i n t h i s sub-group, accounting f o r only 15% of employment i n a l l labour intensive i n d u s t r i e s or 9% of t o t a l manufacturing employment (Noriega, 1973) . The Export Incentives Act and the Investment Incentives Act are 9 The writer has grave doubts about the v a l i d i t y of t h i s f i g u r e . Alban (1973) stated that employment data was unavailable for the "non-manufacturing" group of f o r e s t r y , mining, and a g r i c u l t u r e , included i n the a n a l y s i s of export i n d u s t r i e s . The f i g u r e remains excessive, even when an allowance i s made for his d i f f e r e n t c l a s s i f i c a t i o n . - 123 -Table 25.--Philippines: Major Exports (Excluding Labour-intensive Exports) Ranked According to Export Earnings and Generated Employment. Logs 1 1 Sugar, c e n t r i f u g a l 2 4 Copper concentrates 3 2 Coconut o i l 4 13 Copra 5 3 Gold 6 7 Mineral f u e l , l u b r i c a n t s , and r e l a t e d materials 7 19 Base metals 8 11 Abaca 9 6 Copra meal or cake 10 13 Tobacco 11 5 Lumber 12 7 Chromite ore 13 9 Bananas 14 8 Copper ore 15 12 Iron ore 16 10 Chemical elements and compounds 17 17 Portland cement 18 16 T e x t i l e s 21 14 Source: Alban, 1973. - 124 -administered by the Board of Investment (B.O.I.) that aims p r i m a r i l y to d i v e r s i f y the P h i l i p p i n e export base. The B.O.I, o f f e r s incentives on the basis of c e r t a i n necessary conditions such as 'economic' plant s i z e and product mix and has an influence upon i n d u s t r i a l structure and l o c a t i o n . While the "non-manufacturing" exports from the natural resource sectors make the l a r g e s t contribution to labour absorption and although the labour intensive export i n d u s t r i e s perform a u s e f u l , i f smaller, function, very few i n d u s t r i e s within these two groups receive assistance or acceptance by the B.O.I. The high employment generating (and unstable) export products of veneer, plywood, mineral ores, and food preparation i n d u s t r i e s are a l l excluded (Alban, 1973, Noriega, 1973). Support v i a the B.O.I, has been given mainly to manufactured exports i n new i n d u s t r i e s i n order to achieve the important goal of export d i v e r s i f i c a t i o n , rather than to the export s u b s t i t u t i o n i n d u s t r i e s based on t r a d i t i o n a l f o r e i g n exchange earners. If the export i n d u s t r i e s are to f u l f i l a p o t e n t i a l l y s i g n i f i c a n t function as employment creators, i n addition to earning foreign exchange, then i t would seem v i t a l not to ignore these as they are the very areas where employment promotion could be most e f f e c t i v e . 4.3.5 Discussion Foreign exchange earnings have been, and s t i l l are, an important aspect of P h i l i p p i n e i n d u s t r i a l p o l i c i e s . Present government objectives emphasize employment creation, with the manufacturing sector becoming i n c r e a s i n g l y important to the P h i l i p p i n e economy i n r e l a t i o n to both of these objectives. As the thrust of i n d u s t r i a l development over the past few years has attempted to move away from the f r u s t r a t i o n of import dependent, import s u b s t i t u t i o n , i t might be expected that the - 125 -changing i n d u s t r i a l structure would seek to u t i l i s e f u l l y a l l the a v a i l a b l e linkage e f f e c t s needed to progress toward dealing with unemployment. On i t s present l i n e s , i n d u s t r i a l expansion remains import dependent, remains centred around Manila, and remains a small contributor to easing balance of payments d i f f i c u l t i e s . I n d u s t r i a l processing of natural resources seems to o f f e r better prospects i n the d i r e c t i o n of labour absorption and foreign exchange earnings. A comparison of the r e l a t i v e p r o f i t a b i l i t y of exporting crude or processed products misses the key point. Timber w i l l be exported whether as logs or plywood. The rate of return on plywood manufacture should therefore not be compared with that of log exports, but with a l t e r n a t i v e investment opportunities; since i t i s these that would be displaced, not logging. Unfortunately, t h i s comparison i s equally inappropriate as the other investment opportunities include those i n a r t i f i c i a l l y p r o f i t a b l e import s u b s t i t u t i o n i n d u s t r i e s . The heavy protec-t i o n of these i n d u s t r i e s defends an exchange rate at which logs can be exported but not plywood i n substantial q u a n t i t i e s . Thus Power and S i c a t argue that the p r o f i t a b i l i t y of the i n - t r a n s i t processors has s u f f i c i e n t explanation i n , "...the p r o t e c t i o n system and the unfavourable exchange rate which i t defends. This suggests that many other p o t e n t i a l export i n d u s t r i e s based on domestic raw materials may also be v i c t i m of the p r o t e c t i o n system". (Power and S i c a t , 1971) Much of the P h i l i p p i n e f o r e s t industry sector operates f a r below i n s t a l l e d capacity, has poor export-oriented i n f r a s t r u c t u r e and needs to import simple inputs, a l l of which add to the high cost of log processing i n the P h i l i p p i n e s . I t i s the i n a b i l i t y of, or the bias against, manufacturing a c t i v i t i e s which l i n k back to the resource base - 126 -that suggests a fundamental change i n i n d u s t r i a l structure, namely concentration and l o c a t i o n , ought to be a serious consideration i n the pursuit of the New Society. - 127 -CHAPTER FIVE CONCLUSION The f o r e s t resources of Indonesia, Malaysia and the P h i l i p p i n e s together provide by f a r the la r g e s t supplies of t r o p i c a l hardwoods traded on world markets. I t might be assumed that t h i s commonality would a s s i s t i n an an a l y s i s of the f o r e s t sector's r e l a t i o n s h i p with economic develop-ment. Instead, the v a r i e t y of experience renders a general conclusion on the r o l e of the resource i n the promotion of economic development rather problematic. For these open dual economies, export s u b s t i t u t i o n poses d i f f i c u l t problems. The expansion of t h e i r narrow i n d u s t r i a l bases i s r e s t r i c t e d on the one hand by external obstacles and on the other hand by the i n a b i l i t y of t h e i r i n d u s t r i a l sectors to generate adequate employment and income. - 128 -The p o s s i b i l i t y f o r moving away from such i n d u s t r i a l i z a t i o n , which does not contribute much to r e l i e v e basic s o c i a l needs and problems, remains to be seen. Common themes that do e x i s t among our countries include: a preponderance of log exports which i s h i g h l i g h t e d r e g i o n a l l y ; a large number of small, indigenous conversion plants; the dominant influence of foreign investors; the substantial foreign exchange earnings; a divergence between pri v a t e and s o c i a l i n t e r e s t to the point of c o n f l i c t and a desire to develop processed exports. The country s p e c i f i c i n t e r a c t i o n of the f o r e s t sector with general economic development i s a c e n t r a l part of the analysis. Here i t i s argued that the tendency to examine the f o r e s t sector i n an abstract sense, and to stress the importance of the sector's s p e c i a l c h a r a c t e r i s t i c s , i s bound to be an u n r e a l i s t i c and p a r t i a l view. In the simplest terms, f o r e s t r y i s c l o s e l y associated with the l i v e s of the r u r a l majority. Employment i n logging and the small f o r e s t i n d u s t r i e s has the advantage of being, p r i m a r i l y , based i n r u r a l areas. In some ways t h i s i s recognised i n Malaysia. While, i n Indonesia the small f o r e s t i n d u s t r i e s are the second larges t source of employment i n the small industry sector. The obstacles or constraints to domestic i n d u s t r i a l i z a t i o n based on log extraction are well-documented. Although foreign exchange earnings are s u b s t a n t i a l , and the logging industry i s highly p r o f i t a b l e , any durable contribution to r e g i o n a l / r u r a l development i s lacking under the present system of resource e x p l o i t a t i o n . Regional co-operation to e f f e c t changes i n t h i s pattern seem l i k e l y to be a f f e c t e d more by changes i n the i n t e r n a t i o n a l economy than by the s p i r i t of j o i n t action. Other issues i n the f o r e s t products trade (dealing c h i e f l y with i t s composition and the pressures to increase processed f o r e s t products) - 129 -extend beyond the scope of our present study. Many other aspects of the f o r e s t sector have not been discussed. S p e c i f i c a l l y , the prospects f or a g r i - s i l v i c u l t u r e (where trees and a g r i c u l t u r a l crops are r a i s e d on the same piece of land); plantation forestry; f o r e s t v i l l a g e s and the influence of t r a d i t i o n a l p r a c t i c e s such as slash and burn or s h i f t i n g c u l t i v a t i o n on the resource base, would bear attention. There i s a serious question whether governments have the power to e f f e c t change i n the d i r e c t i o n that would promote more general r u r a l development objectives, or whether they have c e r t a i n n a t i o n a l goals with-i n which r u r a l development w i l l achieve prominence only when i t does not c o n f l i c t with the o v e r a l l development approach. P o l i c i e s to a t t r a c t foreign investment would be one example, p a r t i c u l a r l y i n the case of the f o r e s t i n d u s t r i e s . This i s a cen t r a l consideration underlying a country's development. Each country i n t h i s study has stressed employment and s o c i a l j u s t i c e as primary development goals. Leaving aside the degree of com-mitment to be expected from three s e c u r i t y conscious regimes, and thus t h e i r reluctance to stimulate development 'from below', i t i s generally acknowledged that the regional dimension i s a c r i t i c a l component where equity and growth are at stake. National development objectives may have changed but the r e a l i s -ation that an export-oriented f o r e s t industry predominantly involved i n exporting logs may not always be i n l i n e with these objectives has changed much more slowly. Measures to stimulate domestic processing seem l a r g e l y confined to a t t r a c t i n g foreign c a p i t a l and l i m i t i n g or p r o h i b i t i n g log exports. Two questions can be raised here. On the one hand, while p o l i c i e s to encourage import dependent i n d u s t r i a l i z a t i o n and lar g e - s c a l e investment - 130 -projects remain, can they be made consistent with the objectives of r u r a l development? On the other hand, how f a r can i n d u s t r i a l p o l i c i e s encourage i n d u s t r i a l expansion more consistent with our r u r a l development objectives of increasing l o c a l retained income, l o c a l value added and employment? In the case of the former, the common outcome has been the con-centration of investment i n and around urban centres which generated l i m i t e d l o c a l income and employment. As far as the l a t t e r i s concerned, p o l i c i e s favouring labour intensive processing of f o r e s t products have more uncertain prospects. The f o r e s t i n d u s t r i e s of Malaysia and the P h i l i p p i n e s may w e l l have grown i n s p i t e of p o l i c y r e s t r i c t i o n s (such as the lack of expendi-ture on roads, ports and i n t e r - i s l a n d shipping) but to a s s i s t the e s t a b l i s h -ment and expansion labour intensive, r u r a l i n d u s t r i e s i t would appear necessary to change p o l i c y p r i o r i t i e s . I t does not seem possible to launch a serious attack on r u r a l poverty and unemployment by means of development s t r a t e g i e s which emphasise modern i n d u s t r i a l i z a t i o n at the expense of indigenous i n d u s t r i e s . Local materials, l o c a l c a p i t a l funds and l o c a l l e v e l s of s k i l l should be i n c o r -porated with simple improvements i n e x i s t i n g technology, e s p e c i a l l y i n the small industry sector. As far as the f o r e s t i n d u s t r i e s are concerned, i t i s apparent that production, consumption and trade are d i v e r s i f i e d , also some operations require l i m i t e d c a p i t a l and o r g a n i z a t i o n a l s k i l l s . This i s the c h i e f , unresolved issue f o r p o l i c y makers. In s p i t e of new n a t i o n a l development objectives, the means f o r encouraging and supporting labour intensive technological innovation and adaptation are s t i l l lacking. Yet, i n d u s t r i a l p o l i c i e s appear to discriminate against labour intensive i n d u s t r i a l i z a t i o n and many p o t e n t i a l export s u b s t i t u t i o n - 131 -industries are excluded from export promotion and incentive schemes. Immediate scope ought to be available here through a r e d i r e c t i o n of assistance to the domestic i n d u s t r i e s . Indigenous f o r e s t i n d u s t r i e s are numerous i n the three countries under discussion but l i t t l e attention has been paid to t h e i r r o l e i n promoting r u r a l development. I t i s u s u a l l y assumed, and has l a r g e l y been the case, that the smaller f o r e s t i n d u s t r i e s have a l o c a l service sector function. That i s , they process lower q u a l i t y logs for the domestic market. As i n the case of the other small i n d u s t r i e s , much of t h e i r growth and prospects l i e i n the hands of the modern, export-oriented sector and with l o c a l demand. The p o l i c y issue should be focused upon how the small, wood-based i n d u s t r i e s can be aided best. The extent to which t h e i r s u r v i v a l i s jeopardised by d i s c r i m i n a t i o n in favour of foreign c a p i t a l ; by lack of access to d i s t r i b u t i o n channels; by lack of c r e d i t and by i n b u i l t bias i n i n d u s t r i a l p o l i c i e s , i s of prime importance. A commitment to r u r a l development would subordinate the present approach. Instead of r e l y i n g upon selected e x t r a c t i v e sectors, wholesale r u r a l development would involve multi-faceted elements of t e c h n i c a l and i n s t i t u t i o n a l reform. In concept t h i s has happened i n Peninsular Malaysia, where the f o r e s t sector's future has been integrated with that of a g r i c u l -ture. 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United Nations Educational, S c i e n t i f i c and C u l t u r a l Organization. P a r i s . 456 pp. - 140 -Wah, C P . 1972. Secondary Wood Processing Industries. Paper presented at the Fourth Malaysian Forestry Conference. Kuala Lumpur. August 1972. 12 pp. Wallace, P.A. 1974. Economic Trends i n Indonesia J u l y 1973-July 1974: Caution the Keyword. Review of Indonesian and Malaysian A f f a i r s . 8(2): 1-24. Warfvinge, H. 1970. Developmental Aspects of Pr i v a t e Forest Investment i n Forestry i n Less Developed Countries. Unpublished M.S. Thesis. Syracuse University. Waters, W.G. 1970. Transport costs, T a r i f f s and the Pattern of I n d u s t r i a l Protection. American Economic Review. LX (5) •  1013-1020. Wellwood, R. 1976. The P o s i t i o n of Forestry i n the Pahang Tenggara Regional Development Plan. Unpublished Term Paper. Department of Economics. U n i v e r s i t y of B r i t i s h Columbia. 23 pp. Westoby, J.C. 1962. Forest Industries i n the Attack on Economic Under-development. Unasylva. 16 (4): 168-201. Review. 54 (3+4) : 2 0 6 - 2 1 5 . 1975. Making Trees Serve People. Commonwealth Forestry World Wood. 1967. 1967 World Wood Review. 8 (3) . 1 9 7 4 . 1974 World Wood Review. 15 (6) . 1 9 7 5 . 1975 World Wood Review. 16 (8). Appendix 1 Table 1. World Trade in Forest Products, 1962-1973. $ 1,000 1963 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 . 1973 World 6,145,389 6,689,455 7,629,645 8,057,128 8,549,623 8,819,259 9,963,958 11,312,078 12,582,458 13,065,780 15,403,331 21,763,348 Developed' 4,937,849 5,325,350 6,023,225 6,307,959 6,647,435 6,857,589 7,665,178 8,712,993 9,720,070 10,008,434 11,854,124 16,189,122 Developing 544,363 657,583 751,147 804,176 891,336 948,504 1,223,780 1,423,384 1,518,286 1,642,340 1,949,906 3,423,000 Asia 423,816 503,676 557,890 607,331 709,834 777,380 1,015,511 1,156,056 1,306,391 1,451,422 1,705,364 2,932,019 ( Africa 212,010 258,235 307,054 293,117 299,573 305,151 348,924 414,651 386,471 386,172 479,329 780,084 South-America 68,197 66,162 87,910 111,375 125,413 119,844 150,972 184,265 189,440 197,670 214,961 315,334 Oceania 34,014 43,584 48,951 49,314 50,874 62,772 77,099 89,135 104,240 118,164 130,459 167,842 4> t — 1 I ' Market Economies Source: F.A.O. 1975d. Table 2. The Southeast Asian Log Trade 1962-74. $ 1,000 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Indonesia 672 1,103 1,483 1,618 2,840 6079 10,340 28,237 86,181 163,560 220,915„ 574,000 n.a. r .Malaysia 46,880 59,816 66,766 85,829 125,241 155,122 160,922 196,835 210,208 209,339 233,458 399,558 356,000 - P.Malaysia 63 940 8748 10469 14112 19,211 248500 27698 3241S 32993 32215 180C0 22420 - Sabah 39,216 48,922 48,149 59,999 84,282 103,335 109,135 122,324 124,310 136,838 171,616„ 330,791 r - Sarawak 7,601 9,955 9,874 15,361 26,847 32,576 45,274 46,813 48,480 39,458 29,627 50,767 I P h i l i p p i n e s 101,719 136,906 122,800 134,000* 138,971 155,341 219,640 235,701 244,489 223,617 173,253„ 303,426 215,600 Asia 175,735 228,517 225,637 257,231 306,688 349,910 448,719 501,959 571,755 636,476 664,343 1,334,315 n.a. World 357,883 449,528 476,664 517,232 558,874 610,785 753,684 862,295 893,302 636,476 1,076,302 2,013,500 n.a. * U n o f f i c i a l Figures F. F.A.O. Estimate Source: F.A.O. 1975d, Letourneau, 1975, and P h i l i p p i n e s , Bureau of Forest Development, 1975. N3 Asia Table 3. Forest Products Exports From The I n - t r a n s i t Processing nations. 1952-1973. $ 1,000 1952 1963 1964 1965 1966 1967 1963 1969 1970 1971 1972 1973 423,816 503,676 557,890 607,331 709,834 777,380 1,015,511 1,156,056 1,306,391 1,451,422 1,705,364 2,932,019 Singapore 784 400 16,883 21,4440 27,634 29,751 39,603 51,891 58,257 60,741 89,974 209,506 I I—1 South Korea 2,284 6,375 12,613 19,344 31,660 36,448 65,616 82,041 103,143 140,177 183,397 319,365 £ I Taiwan 24,920 33,290 54855 56148 69474 81,447„ 86,766 106,197 126,563„ 146,068 187,924 275,454 Malaysia P.Malaysia - Sabah Sarawak Table 4. Plywood Exports From Selected Countries In Asia. 1962 - 1973 1962 $ '000 363 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 446 367 714 1,009 1,564 3,370 6,410 10,204 15,229 18,316 28,180 45,000^ 10 1 74 306 464 326 592 700 1,370 2,470 30 337 893 835 1,C38 742 982 1,081 2,306 Philippines 11,171 15,964 16,020* 17,058* 19,686 18,207 28,975 23,940 25,426 27,300,, 34,140 48,392 South Korea 2,284 6,309 12,550 19,055 30,683 36,448 65,570 81,758 102,346 138,724 175,236 273,987 Singapore - - 924 1,331 3,051 4,588 7,825 12,080 14,930 18,976 30,476 72,745 Taiwan 13,216_ 19,909^ , 29,493„ 30,035^ 36,409,, 45,593^ 55,426^ , 68,330 79,133^ , 96,240„ 135,790,, 225,114 r: F F F F £ F r £ r 101293 115868 136S74 142654 173902 188414 268376 301231 323980 397682 Asia * Unofficial Figures F. F.A.O. Estimate Source: F.A.O., 1975d. F 507877 759262 - 145 -Table 5. Selected Countries' Log Exports By Destination , 1972-1973 3 (1,000 m ) To/From Japan S. Korea Taiwan Singapore Hong Kong World 1972 1973 1972 1973 1972 1973 1972 1973 1972 1973 1972 1973 Indonesia Malaysia Philippines Asia Sabah Sarawak P.Malaysia  9,687 11,200 1,781 2,522 1,200 2,440 178 38 13,891 19,883 5,146 1,408 7,102 1,260 1,253 1,575 14 56 748 627 3 42 800 860 29 151 242 205 103 105 4 145 1,764 585 7,718 1,995 10,156 1,895 1,889 844 5,270 5,690 322 285 885 1,000 10 24 56 159 6,858 7,752 20,591 25,366 3,845 4,567 2,885 4,000 1,399 828 1,224 1,029 32,861 40,931 Source: Compiled From F.A.O. 1975d. - 146 -Table. 6. Selected Countries Plywood Exports: By Destination , 1972-1973 To/From S.Korea Taiwan P h i l i p p i n e s P.Malaysia Singapore. 1,000 m~ U.S. 1972 1062 864 1973 881 521 280 285 39 26 46 15 Europe 1972 8 30 1973 47 66 11 51 116 178 145 278 Japan 1972 93 1973 354 58 387 1 26 Asi a 1972 93 1973 361 111 429 17 85 138 58 110 World 1972 1195 1203 1973 1322 1188 317 340 250 349 278 436 Source: F.A.O. 1975d. - 147 -Table 7. Selected Countries Sawnwood Exports: By Dest i n a t i o n J 1972' -1973 (1 3 ,000 m ) To/From Singapore Malaysia P h i l i p p i n e s A s i a P. Malay Sarawak Japan 1972 48 146 1 46 292 1973 51 130 - 105 403 N.America 1972 82 161 31 89 322 1973 39 133 18 117 360 Europe 1972 354 583 208 26 1973 627 983 199 87 A f r i c a 1972 117 66 - 12 195 1973 40 40 28 108 Oceania 1972 47 133 12 56 1973 31 140 21 75 World 1972 303 1,450 303 231 1973 1,110 2,046 251 427 Source : Compiled from F.A.O. ,1975d 2 . Table 1 TRADE and TRADE PROSPECTS IN TRCMCAI. BROADLEAVED WOODS . . L O G S m i l l i o n s o ( m 3 ( r ) S A W N W O O D m i l l i o n s o f m l ( s ) V E N E E R n u t P L Y W O O D m i l l i o n s o f m 3 ( s ) T O T A L L O C E Q U I V A L E N T m i l l i o n s o i m l ( r ) I M P O R T S O F 1 9 6 5 1 9 7 1 1 9 U 0 iosa 1 9 6 5 1 9 7 1 1 9 8 0 1 9 9 0 1 9 6 5 1 9 7 1 1 9 8 0 1 9 9 0 1 9 6 5 1 9 7 1 1 9 E 0 1 9 5 0 ( a ) C c n r u m e r A r e a s 6 . 2 7 . 6 8.8 8 .1 2 . 2 3 . 1 4 . 2 s.o 1.7 3 . 0 5. 1 7.8 1 4 . 7 2 0 . 2 2 7 . 9 3 3 . 9 N o r t h A m e r i c a E u r o p e O t h e r t e m p e r a t e J/ 0.2 5 . 4 0 . 3 0 . 1 6 . 8 0 . 4 0 . 1 7 . 5 0 . 7 0 . 1 6 . 0 1 . 4 0 . 4 1 . 1 0 . 5 0 t 5 1 . 6 0 . 6 0 . 8 2 . 0 0 . 8 1 . 0 2 . 4 0 . 8 1 . 5 0 . 2 2 . 3 0 . 5 0 . 2 3 . 5 1 . 0 0 . 4 S . O 1.5 1 . 0 4 . 8 S . l 1 .3 6 . 3 1 0 . 7 2 . 0 9 . 0 1 3 . S 3 . 1 1 2 . 1 1 3 . 8 S . O W o o d I m p o r t i n g a r e a s o f L a t i n A m e r i c a 2/ A f r i c a 3 / 0.2 0.1 0 . 2 0 . 1 0 . 4 0 . 1 0 . 5 0 . 1 0 . 2 0 . 2 0 . 2 ' 0 . 4 0 . 2 0 . 6 0 . 2 - 0 . 0 5 0 . 0 5 0 . 1 0 . 1 0 . 2 0 . 1 0 . 2 O . S 0 . 6 0 . 6 1 . 4 0 * 9 2 . 1 0 . 9 ( b ) C o n s u m e r - P r o c e s s o r e x p o r t e r A r e a s 12 .1 3 0 . 3 4 1 . 3 5 2 . 4 0 . 2 0 . 6 1 . 5 4 . 0 - 0 . 3 1.2 2.7 1 2 . 5 3 1 . 9 4 7 . 1 6 5 . 8 J a p a n O t h e r E a s t A s i a 4 / N e a r E a s t 5) T r o p i c a l A s i a 5/ 9 . 3 1.2 0.1 l . S 2 1 . 3 5 . 6 0 . 2 3 . 2 2 6 . 0 1 0 . 0 0 . 3 5 . 0 2 6 . 0 1 8 . 0 0 . 4 8 . 0 0 . 2 0 . 3 0 . 3 1 . 0 0 . 5 2 . 0 2 . 0 -0 . 2 0 . 2 . 0 . 8 0 . 1 0 . 3 2 . 0 0 . 2 0 . 5 9 . 3 1.2 0 . 1 1 .9 2 2 . 2 5 . 6 0 . 2 3 . 9 3 0 . 0 1 0 . 0 0 . b 6 . 6 3 4 . 0 1 8 . 0 0 . S 1 3 . 0 T O T A L I M P O R T S 1 8 . 3 3 7 . 9 5 0 . 1 C O . 5 2 . 4 3 . 7 5 . 7 9 . 0 1 .7 3 . 3 6 . 3 1 0 . 5 2 7 . 2 5 2 . 1 7 5 . 2 9 9 . 7 E X P O R T S O F • ( a ) C o n m m c r - P r o e c s s o r E x p o r t e r A r e a s o . i - - - 0 . 7 0 . 8 1 . 2 1.5 0 . 9 2 . 4 3 . 7 4 . 0 3 .7 6 . 8 9 . 8 1 1 . 0 J a p a n O t h e r E a s t A s i a 4 / N e a r E a s t 5 / T r o p i c a l A s i a " 6 / • 0.1 - - -0 . 3 0 . 4 0 . 1 0 . 7 1 . 2 1.5 . 0 . 4 0 . 4 0 . 1 0 . 3 1 .7 0 . 1 0 . 3 3 . 2 0 . 5 3 , 0 1 . 0 1 . 6 1 . 0 0 . 2 0 . 9 1 . 0 4 . 0 0 . 1 1 .7 6 . 4 3 . 4 6 . 0 5 . 0 ( b ) P r i m a r y T r o p i c a l p r o d u c e r s 19 .1 3 7 . 7 S O . 3 6 0 . 5 2 . 1 2 . 9 4 . S 7 ,S 0 . 8 t . l 2 . 6 6.2 2 4 . 9 1 5 . 1 6 4 . 5 ' 8 7 . 9 L a t i n A m e r i c a A f r i c a A s i a - P a c i f i c 0 . 5 5.2 1 3 . 3 0 . 3 7 . 0 3 0 . 4 0 . 3 5 . 0 • 4 5 . 0 0 . 5 4 . 0 5 6 . 0 0 . 3 0 . 7 1.1 0 . 5 0 . 6 1.8 1 . 0 1 . 0 2 . 5 2.5 2 . 0 3 . 0 n . 0 3 0 . 1 0 . 7 0 . 2 0 . 3 0 , 6 O . S 0 . 8 1 . 3 1.5 1.5 3 .5 1.2 6 . 8 1 6 . 9 1 . 4 8.7 3 5 . 0 3 . 3 8 . 6 5 2 . 6 8 . 5 1 1 . 0 6 9 . 0 T O T A L E X P O R T S 10.2 3 7 . 7 S O . 3 C O . 5 2 . 9 3 . 7 5.7 9 . 0 1 . 7 3 . S 6 . 3 1 0 . 5 28.6 5 1 . 9 7 4 , 3 9 9 . 5 1/ S o i u h A f r i c a , A u s t r a l i a , N e w Z e a l a n d , N o r t h A f r i c a , N e a r E a s t , U S S R 4 / C h i n a a n d K o r e a R p 2/ Mainly Aicentlna, Uruguay and Cuba 5/ Israel if M a i n l y E a s t Africa 6/ S i n g a p o r e o r d H o n g K o n g Source : Pringle,1973. Projected Demand for Tropical Hardwood, by Major Areas, up lo 19851 (unit: million m%)) Projected Implied Growth Rates 1955 1960 1965 1968 1975 1930 1985 1965-75 1968-75 1975-85 Tropical Producing Areas 31.3 30.6 35.1 38.1 46.3 53.2 ' 61.0 (percent per annum) 2.8 2.8 2.8 Tropical Africa 3.1 3.5 3.8 4.3 n.a. n.a. n.a. Tropical Latin America 15.2 ' 13.9 15.5 15.4 n.a. n.a. n.a. Tropical Asia 13.0 13.2 15.9 18.4 n.a. n.a. n.a. Importing Areas* 7.3 14.2 22.8 33.2 54.5 69.5 83.1 9.1 7.3 4.3 Europe 3.5 6.2 8.4 10.0 12.0 13.0 14.0 3.6 2.6 1.6 13.0 7.9 3.9 United States 1.4 2.0 3.2 6.4 10.9 14.3 16.0 Japan 1.3 4.1 9.2 13.7 28.0 . 37.S_ 47.0_ U.8 10.8 5.3 5.5 2.2 5.4 Rest of the world 1.1 1.9 2.1 3.1 3.6 4.7 6.0 World Total 38.6 44.8 57.9 71.3 100.8 122.7 144.0 5.7 5.1 3.6 'Regional figures may not add to totals because of rounding JThrcc-ycar averages, except for 1968 'Consumption in all areas outside (he tropical areas Source : Takeuchi.,1974. - 150 -Table 3 Estimated Growth of Tim iber Exports from the Philippines, Malaysia, an d Indonesia , 1968 and 1980 1968 1980 (Projected) Vo ilume Value Volume Value million m1 million mJ(r) million S million m3(r) million S The Philippines Total n.a. 8.7 .203 11.0 480 logs 7.5 7.5 170 2.0 70 sawnwood 0.10 n.a. 6 4.0 190 veneer 0.22 n.a. 8 included in plywood plysvood 0.24 n.a. 19 5.0 220 Malaysia Total n.a. 12.9 740 13.0 560 logs 10.51 10.51 179 3.0 80 sawnwood 1.20 n.a. 52 5.0 170 veneer 0.02 n.a. 2 included in plywood plywood 0.07 n.a. 8 5.0 310 Indonesia Total n.a. 1.89 54 19.0 750 logs . 1.88 1.88 ' 53 10.0 300 • sawnwood 0.01 n.a. 1 4.0 140 veneer — — ' — included in plywood plywood — — — 5.0 310 The Three Countries Total n.a. 23.5 497 43.0 .1,790 logs 19.9 19.9 ' 403 15.0 450 processed wood n.a. 3.6 94 28.0 1,340 Source : Takeuichi,1974 - 151 -Appendix 3. Table 1. T a r i f f s (%) Canada U.S. Japan A u s t r a l i a E • E .C • Softwood Plywood 15 20 15 33 1/3 13 2 Hardwood Plywood 15 20 20 43 1/8 13 Softwood Lumber Free Free Free Various 3 Free Hardwood Lumber n.a. Free"*" 10 10 Free Veneer Sheets n.a. 8.5-17.0 15 23 7 Logs n.a. Free Free 4 Free Carpentry & Joinery Various 8 7.5 15 7 Excluding Philippine Mahogany, boxwood, Japanese maple and Japanese white oak. 2 85% of shipments under duty free quota. 3 Rough sawnwood only. Source: Angus, et a l , 1975, Takeuchi,1974. 152 Appendix 4. Table 1. . Southsea Log Prices 1974-75 P h i l i p p i n e s f.o.b. / irT ($) Kalimantan 1974 January 53 February 58 March 60 A p r i l 56 May 56 June 50 July 49 August 44 September 45 October 35 November 37 December 46 1974 February 67 - 75 November 25 - 28 1975 February 42 - 45 May 32 - 34 July 37 - 39 August 38 - 40 Source : J.L.J.,1975c, P h i l i p p i n e s : P.L.P.M.A.,1975 - 153 -Table 2. plywood and Log P r i c e s , 1963-1974 Plywood (si/sheet) Logs 2 (S/m ) 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 83.3 64.7 61.1 73.6 80.0 79.4 84.4 103.1 81.8 95.6 188.8 35.5 30.3 35.0 36.8 39.3 40.3 38.9 43.2 43.1 40.5 68.1 19.73 Jan. - June 1973 July - Dec. 1974 Jan. - June 177.5 200.1 172.2 62.6 73.6 92.4 Notes: 1 Lauan, 3-ply extra, 91 cm x 182 cm x 4 mm wholesale Tokyo spot. 2 Lauan, 3.6 m or more x 60 cm, importers' sale p r i c e to wholesalers delivered Tokyo. Source: I.B.R.D. 1974. - 154 -Table 3. Indonesia: Log Export Check Prices,, 1970-1974 Check Price ($/m3) 1970 13.56 1971 16.55 1972 18.5 1973 1st Quarter 20.02 2nd Quarter 31.17 3rd Quarter 33.00 4th Quarter 35.00 1974 1st Quarter 42.36 Source: Indonesian Times, 1975, I.B.R.D., 1972. - 155 -Table 4. Estimated T y p i c a l Costs of Logs For The; P h i l i p p i n e s And Indonesia ($ per saleable log,'mid 1972) P h i l i p p i n e s Indonesia Average L a r g e A v e r a g e Operation Scale; -;, Operation Production Costs F e l l i n g and Bucking 0.70 0.60 0.80 Yarding, Skidding, Swinging 2.40 1.90 1.90 Loading on Trucks 1.10 0.90) Hauling 5.40 2,60) 6.40 Unloading 0.90 0.70) Trimming 1.00 0.80 0.70 Grading and Sorting 0.70 0.50 0.60 12.20 8.00 10.40 Export Expenses Tow to Ships ide 1.00 0.80 1.40 Grading and Inspection 0.80 0.70 1.10 Loading on Ship 0.30 0.20 0.40 Other S e l l i n g Expenses 3.60 3.30 6.00 5.70 5.00 8.90 To t a l Costs and Expenses (US$) 17.90 13.00 19.30 Source: I.B.R.D. 1973b. - 156 -Appendix 5. Table 1. Indonesia: The Recent Export P i c t u r e , 1972 - 7,4. 1972 1973 1974 $ m i l l i o n s Exports 1777.7 Crude Petroleum & Products 913.1 Crude Petroleum 833.6 Rubber 189.1 Tinore & Concentrates 64.2 Coffee 77.2 Timber 254.3 3210.6 1608.0 1382.0 391.4 93.2 77.6 633.2 7426.3 5211.4 4822.4 474.3 175.4 98.2 750.0 Source: F.E.E.R. 1975b, I.M.F. 1976. - 157 -Table 2. Indonesia» Timber Exports By Regional Origin:1970 Volume Value 3 '000 m $ m i l l i o n East Kalimantan 4,188 55.0 Rest of Kalimantan 1,348 13.3 Riau 648 6.8 Rest of Sumatra 481 4.3 Maluku 428 7.1 Sulawesi 123 1.2 Java 66 2.9 Rest of Indonesia 18 1.1 T o t a l 7,400 91.7 Source: Manning, 1971. - 158 -Table 3.« Indonesia: Timber Exports By Regional O r i g i n . 1972. Sumatra Java Kalimantan Sulawesi Moluccas Volume m3 2,624,156 340,444 9,732,084 163,355 13,890,942 Value $ 31,094,794 3,439,356 156,727,159 4,852,627 222,312,176 Source: Indonesian Times, 1975. - 159 -Table 4.. Indonesia: Structure .of Forest Taxes. ^ ^ D i s t r i b u t i o n % Tax Rupiah/m $/m Central Govt. Regional Govt. Basic Royalty 652 1.57 30 70 Dredging Surcharge 622 1.50 100 _ Export Tax:10% of Check Price 830 2.00 - 100 Grading Fee 30 .07 30 70 Local Tax 10 A t h e l e t i c s / F e s t i v a l 20 .10 - 100 Community Development 10 Source: I.B.R.D., 1972. - 160 -Table 5. Indonesia: Employment By Major Economic Sector 1971. Urban Rural T o t a l % % % A g r i c u l t u r e 10.4 72.3 63.2 Mining and quarrying 0.8 0.1 0.2 Manufacturing 11.4 6.8 7.7 Construction 5.0 1.3 1.9 Transport, communication & U t i l i t i e s 9.3 1.2 2.4 Trade, banking & insurance 26.6 8.0 10.7 Services 32.0 6.2 10.0 Other & Unknown 4.6 4.0 4.1 100.0 100.0 100.0 Source: I.B.R.D 1972. - 161 -Table 6. Malaysia: The Recent Export Picture 1972-74. 1972 Exports 1728.6 Rubber 1261.1 T i n 330.0 Logs & Timber 311.1 Palm O i l 128.9 Petroleum 79.6 1973 1974 m i l l i o n s 3072.1 4245.8 1045.0 1202.1 373.7 631.2 637.9 452.5 194.1 280.8 112.1 Source: I.M.F. 1976 - 162 -Table 7.Peninsular. Malaysia: Processed Forest Products Exports 1 9 6 2 - 7 4 . Sawnwood Plywood $ '000 1962 14220 446 1963 19021 367 1964 18946 714 1965 19183 1009 1966 17850 1564 1967 22410 3370 1968 36182 6410 1969 39633 10204 1970 48876 15229 1971 47195 18316 1972 79529 28180 1973 105000„ 45000^, F F 1974 163330 404000 F: F.A.O. Estimate. Source: F.A.O. 1975d and Letourneau, 1975. - 163 -Table 8. Malaysia: I n d u s t r i a l Production: Survey of Manufacturing Industries, 1970 a (Malaysia). Value Added For comparison: Employees, :. Weight F u l l Time $ m i l l i o n s %share Index Processing of rubber,coconut o i l and tea* 3 13, 163 129. 4 10. 6 9. 6 Food manufacturing 18, 362 190. 5 16. 1 16. 7 Beverage industry 2, 622 42. 9 3. 6 4. 5 Tobacco industry 3, 931 84. 6 7. 2 7. 2 T e x t i l e manufacturing 7, 880 26. 6 2. 3 2. 2 Clothing and t e x t i l e goods 4, 950 10. 8 1. 0 0 Wood products 25, 744 118. 2 10. 0 11. 9 (of which: sawmills) (16, 496 (89'; 4) (7. 6) (9. 2) Furniture 2, 489 9. 0 0. 8 0 Paper and paper products 1, 562 9. 5 0. 8 0. ,8 P r i n t i n g , publishing and a l l i e d i n d u s t r i e s 10, 978 73. 0 6. 2 0 Rubber products 8, 435 51. 3 4. 3 6. ,4 Chemical products 6, 170 107. 1 9. 1 9. .6 Petroleum r e f i n i n g 457 41. 9 3. 5 5. .1 Cement,cement products and glass 8, 000 80. 8 6. 8 7. ,6 Basic-metal i n d u s t r i e s 3, 282 33. 3 2. 8 2. .7 Metal products 7, 598 41. 7 3. 5 4. .2 Machinery, except e l e c t r i c a l 6, 680 30. 2 2. 5 0 E l e c t r i c a l machinery 3, 204 32. 7 2. 8^ 2. ,1 Transport equipment 4, 779 36. 4 • 3. 1 2. .3 (of which:car assembly) (2, 870) (24. 4 (2. 1) (1. .8) P l a s t i c products 4, 130 13. 8 1. 2 0 Others 3, 492 16. 9 1. 5 7. .1 TOTAL 147, 848 1",180. 100. 0 100. .0 a The coverage of the survey and of the index d i f f e r (compare l a s t two b Palm-oil';' processing i s not covered by the manufacturing survey, c Index of i n d u s t r i a l production; manufacturing i n 1968 = 100. Source: Kasper, 1974. - 164 -Table '§. P h i l i p p i n e s : The Recent Export P i c t u r e . 1972 1973 1974 Exports 1105.4 17.87.8 2671 Sugar 208.6 272.7 718.1 Copra & Coconut 3 5 3 „ 2 O i l 228.3 353.2 591.5 Copper 190.9 281.3 389.0 Wood 174.4 326.1 237.1 Source: I.M.F., 1976. - 165 -Table 10. P h i l i p p i n e s : Plywood and Veneer Exports 1962-74. Export Volume Value 3 m $1,000 1962 1 3 9 , 2 0 0 1 5 , 8 0 7 1963 2 1 2 , 1 0 0 2 1 , 9 4 9 1964 2 6 0 , 6 0 0 2 3 , 0 6 0 1965 2 4 4 , 7 0 0 2 4 , 2 1 2 1966 2 7 9 , 6 0 0 2 8 , 0 9 1 1967 2 8 0 , 3 0 0 2 5 , 6 9 7 1968 4 0 7 , 1 0 0 4 1 , 0 6 0 1969 3 2 7 , 6 0 0 3 5 , 4 3 0 1970 3 8 2 , 8 0 0 3 3 , 5 2 6 1971 4 1 4 , 0 0 0 3 4 , 4 2 5 ^ 1972 5 3 2 , 3 0 0 5 1 , 6 8 5 _ r 1973 5 0 9 , 0 0 0 6 6 , 8 6 3 1974 n.a. 4 4 , 6 9 5 F: F.A.O ...Estimate.-Source: F.A.O. 1975d, P h i l i p p i n e s , Bureau of Forest Development, 1975. i - 166 -Table 11- P h i l i p p i n e s : Sawnwood Exports. 1962-1974 Production Exports m Exported Value $ '000 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 958 1,138 1,180 1,254 887 760 1,022 1,466 1,341 861 1,412 1,061 1,291 122 115 135 116 112 103 153 178 185 231 231F 427 383 13 10 11 9 13 14 15 12 14 27 16 40 30 6,408 5,966 7,551 6,722 6,894 6,265 8,988 14,994 11,148 11,776F 14,786F 35,117 33,500 F: F.A.O. Estimate. Source: Compiled from F.A.O. 1975d, P h i l i p p i n e s : -P.L.P.M.A. 

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