Indonesia’s forest-based industries remain on the edge of survival after more than a decade of government decentralization that was accompanied by a series of failed policies and mismanagement.

The situation deteriorated in 2009 as the domestic troubles were coupled by a slump in global demand that was caused mainly by two factors: the greatest financial crisis in history and the growth in global awareness of the sustainable management of forests.

The annual value of Indonesia’s exports of wood products — mainly panel products such as plywood, sawn timber and woodworks — has been decreasing since at least 2003 when the value stood at 5.4 million cubic meters and was followed by 4.6 million in 2004, 3.5 million in 2005, 3.1 million in 2006, 2.9 million in 2007, and 1.68 million cubic meters in 2008.

For 2009, it is seemingly impossible to reach the same level as the previous year as, by the end of November, the total exports had only reached 1.2 million cubic meters.

Industry players said the government was failing to keep up with global reality, regardless of the numerous regulatory amendments made in the past few years.

David, a vice president at the publicly listed PT Sumalindo Lestari Jaya, said the “improvements in forest governance” had yet to help boost the growth of the country’s forest-based industries.

“In fact, this situation has persisted for the last 10 years, except for the pulp and paper sector.

Forest-based industries have continued to decrease.

“While demand from the international market continues to increase, we see the shrinking of our market share,” David said.

China is an ideal model for Indonesia to follow in terms of its ability to diversify its products and improve its value-added production system.

“In 1991, while our production of panels had reached about 10 million cubic meters, China only produced about 1 million cubic meters. But then in 2007, China managed to supply 74 million cubic meters or one third of the total global demand, which stood at 220 million cubic meters of panels,” he said.

David said to produce the panels and other wood products China needed about 200 million cubic meters of logs every year, which were mostly supplied from its 26 million hectares of plantation forests.

Policy making in Malaysia is another good example for the Indonesian government, he said.

“If China managed to sell wood products at cheaper prices due to availability of cheap logs from its plantation forests, Malaysia did it through its costs allocation that enabled it to spread the costs across all wood products, from high-value ones to lower-value ones, such as logs, which are allowed to be exported, unlike in Indonesia,” he said.

The Malaysian government has also been pursuing all-out efforts to help market the country’s wood products on the international market.

“Considering their achievements, I don’t think they only rely on buying illegal logs from Indonesia, as many people here have suspected up to now. I think, instead of only thinking of the negative aspects, we should look upon their achievements as a lesson to learn,” David said.

Nana Suparna, deputy chairman of the Association of Indonesian Forest Businessmen (APHI), concurred with David, saying that, especially over the last three years, all forest industries have been struggling to survive.

“For example, many plywood industries have had to lay off workers or reduce their working hours due to the slump in sales,” he said.

Nana deemed the situation would worsen, with more companies collapsing, should the government refrain from implementing the necessary fiscal incentives for the forest-based industries.

The government, at the request of the House of Representatives, plans to introduce various fiscal incentives, as hinted at by Forest Minister Zulkifli Hasan recently.

“We all agree that the government should increase its income from forest-related taxes. But it should not be done by choking the industries themselves. It should help them expand their businesses,”

“The more their businesses grow, the more the government’s tax income increase will be. I think instead of raising taxes it should help us by providing incentives to expand,” Zulkifli said.

The implementation of fiscal incentives in conjunction with the improvement of the global economy would serve as a positive momentum for domestic companies, both David and Nana said.

National Forest Council chairman Taufiq Aliani said only by further improving its forest governance could Indonesia manage to attract new investment and help develop trust on the international market on the legality and sustainable management of Indonesian forests and forest products.

Taufiq said the government should go ahead with the formation of an independent agency for wood legality verification, as demanded by the Forestry Ministry regulation No. 38 that was issued in 2009.

The agency, which membership include the government, industry players and non-government organizations, will be responsible for monitoring the implementation of all verification processes and also overseeing a dispute settlement body for conflicts on wood legality.

“Unlike what happens now, the government’s influence on the verification process and dispute settlement is too direct and too dominant,” Taufiq said.

Such a dominant influence, he said, would be prone to abuse of power and corruption, thus increasing the distrust of foreign buyers, particularly those from Europe and the United States.

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