The forest industry is one of the few industries that operate in remote areas of Papua New Guinea. As such the industry creates the few opportunities for rural communities to enter the formal workforce and improve their standard of living using money earned as wages.

Forest companies create basic infrastructure such as roads, bridges, schools and health centres. In the absence of government support, the presence of the forestry industry in rural areas is usually seen as a proxy for government with communities becoming entirely dependent on the forestry operations to act as the government body and the business entity to provide service to the community.

Financial contribution

PNG’s real Gross Domestic Product (GDP) was about K8,084.4 million in 2005. The contribution to this real GDP from the agriculture, forestry and fishing sector was estimated at K3,114.6 million or 38.5 percent. Using the relative values of exports generated by the forestry sector in 2005, this suggests that forestry’s contribution to real GDP in 2005 was as high as K742.2 million or 9.2 percent of total real GDP.

Central government revenue contribution

In addition to royalty payments made directly to landowner groups and the provision of services in remote areas, the forestry industry also makes substantial contributions to state revenues in the form of both income tax payments and log export tax payments. Log export tax payments alone in 2005 were K130 million which equates to 2.4 percent of total central government revenue (excluding receipts from borrowings).

Export contribution

The forest industry has mainly been log export oriented. About two million cubic metres of tropical logs are exported annually making PNG the world’s second largest exporter of tropical logs after Malaysia. In 2005, the export of forest products represented 4.7 percent or K476.3 million of the value of all exports from PNG (K10,147.5 million) making forest products the largest non-mineral export from PNG in terms of value.

Employment Contribution

The forestry sector employs directly about 7,000 people with half working in logging operations and the other half employed in other activities such as veneer processing, timber processing, carpentry, supporting workshop/engineering services.

Downstream processing

Downstream processing of forest products in PNG has for the last several years, been the fastest growing manufacturing sector of the economy. Log exports have declined by over 33 percent since the Asian currency crisis of 1997, and declined again in 2004 compared to 2003; this at a time when other exporting countries are increasing production and exports. On the other hand, exports of downstream processing products have increased by over 200 percent since 1997 (in US dollar value) and by almost 10 percent in 2004 compared to 2003.

Market

The majority of the timber is exported. PNG logs are exported to 11 countries, all in the Asian region. More than 80 percent of log exports go to just China/Hong Kong, Korea and Japan. China is the principal market for round logs from PNG; it imported over one million cubic meters of logs from PNG in 2002 rising to 1.7 million cubic meters in 2005 – accounting for 74.6 percent of PNG’s log exports. The major markets for processed and semi-finished products are Australia, New Zealand and various South Pacific countries. Veneer is predominantly exported to China and South Korea.

Major companies

There are 29 forest concessions currently in production, covering a total area of 3.5 million hectares. Privately owned companies control all commercial timber production from natural forest areas. Companies that are directly or indirectly owned or controlled by Malaysian multinational companies dominate commercial timber production. Five companies control over 80 percent of the market.