Solomon Islands forestry: A brief background

Commercial logging started in Solomon Islands in the 1920s. Bennett documents the story of the Vanikoro Kauri Timber Company (VKTC), an Australian-owned company, that harvested kauri timber (Agathis macrophylla) on Vanikoro Islands in the eastern Solomons from 1926 until 1964. During that period the company struggled to make a profit, and eventually closed its operations and left due to the high cost of production and transportation, and restrictions on access to potential markets (see Bennett 2000a).

Large-scale commercial logging is, however, a recent phenomenon. As Frazer (1997a: 45) notes, in the past three decades there have been two distinct regimes, ‘each marked by differences in the ownership and location of the forests being harvested, the number and size of the companies engaged in export logging, and government management of the industry’. The first was from 1963 to the early 1980s, when most logging took place on government land, or customary land leased by government. During this period, under the Colonial Government’s Timber Ordinance, it was the Government that had the responsibility for acquiring land and giving logging licences to companies interested in harvesting timber. At that time the British-registered company Levers Pacific Timber (a subsidiary of Levers Brothers) monopolised the timber industry, accounting for about 75 per cent of log production (Bennett 1998: 2).

The second period began in the early 1980s and continues today. This period is marked by a shift from government land to customary land and an influx in the number of foreign (especially Asian) companies with logging concessions. Between 1981 and 1983, for example, the number of foreign companies with logging licences increased fourfold (Frazer 1997a: 46). The beginning of this period coincided with an event that marked an important turning point in the history and development of the logging industry in Solomon Islands: in 1982, Levers Pacific Timbers’ logging camp and equipment at Enoghae on New Georgia in the Western Province were destroyed by landowners opposed to the company’s operations. This led to the subsequent establishment of the North New Georgia Timber Corporation Act, which allowed customary landowners to set up logging companies (Tausinga 1989). The Enoghae incident demonstrated the displeasure of local landowners and their leaders with attempts by the Government to facilitate the allocation of logging rights on customary land to Levers. The Forest and Timber Amendment Act (1977) had recognised the customary landowners’ rights to the forest and their ability (albeit via the cumbersome process of adjudicating claims to rights by the Area Council) to allocate these within the process. The North New Georgia Act enhanced this recognition of landowners’ authority over land and forestry resources (Tausinga 1989).

Figure 1. Log production, export and estimated sustainable yield for natural forest (CBSI log export records; Forestry Review 1995; ADB 1998)
Figure 1. Log production, export and estimated sustainable yield for natural forest (CBSI log export records; Forestry Review 1995; ADB 1998)

This period also coincided with the first Solomon Mamaloni Government’s time in office. This was a government known for its pro-logging policies, which encouraged Asian companies to invest in the logging industry. The Mamaloni Government pushed for a shift away from a concentration on Western investors to ‘looking north’ towards Asia. The Government also wanted to encourage landowners’ active participation in the industry (Bennett 2000; Frazer 1997).

This period was also characterised by a rapid increase in log production. In 1989 the volume of log production was about 300,000 cubic metres as compared with about 700,000 and 800,000 cubic metres in 1993 and 1996 respectively (see Figure 1). This rapid increase was due to an increase in the number of logging companies with logging concessions, a shift into customary land, the increasing demand for hardwood timber in international (particularly Asian) markets, an increase in the price of hardwood timber, and Solomon Islands’ increasing economic dependence on log exports (Duncan 1994; Price Waterhouse 1995).

The rapid increase in log production led to harvests going beyond the estimated sustainable yield. In 1992, for instance, it was estimated that about 13 million cubic metres of commercial timber was harvestable using conventional logging methods. By the mid-1990s, production was way above the potential sustainable yield. Log production in 1994 and 1995, for example, was 735,000 and 826,000 cubic metres respectively. These figures were more than double the potential sustainable yield for those two years, of 294,896 and 275,710 cubic metres respectively (CBSI 1996). If these levels of log production continued, it was estimated that the logging industry would not be sustained for another decade (Montgomery 1995; Price Waterhouse 1995; Frazer 1997).

Predicting the depletion of forests is, however, not an exact science. In 2005, nearly a decade later, authorities were saying that forests would be depleted in 15 years if harvested at the current rate, which was higher than it was in 1997 (CBSI 2006).

Figure 2. Log volume to major export destinations 1994-1998 (Log export data from CBSI.)
Figure 2. Log volume to major export destinations 1994-1998 (Log export data from CBSI.)

In 1997 there was a sudden decline in log production, due mainly to the Asian economic crisis and the collapse of Asian timber markets. This was especially serious because of Solomon Islands’ dependence on the Asian log markets (see Figure 2). The ADB (1998: 54) estimated that the volume of log production in 1996 was 811,000 cubic metres while in 1997 it dropped to 637,000 cubic metres (see Figure 1).

Despite the decline in production, the Central Bank of Solomon Islands (CBSI) reported that in 1998 the volume of logs harvested from natural forests did not drop to the extent anticipated at the beginning of that year and was still well above the estimated sustainable level. For instance, while the volume of timber harvested from natural forests in 1998 was estimated to be about 640,000 cubic metres, the predicted sustainable yield was about 220,000 cubic metres. This was attributed mainly to the 20 per cent devaluation of the Solomon Islands dollar in December 1997, which ‘positively impacted on exporters’ balance sheets, government’s preferential taxes for stockpile exports, and partial recovery in the market that raised the average price for Solomon Islands’ logs from a trough of US$45 [$A60] per cubic [metre] to US$80 [$A108] per cubic [metre] towards the end of 1998’ (CBSI 1999: 15).

By 2000, most of Solomon Islands’ major industries were affected by the civil unrest, which started in late 1998 (see Fraenkel 2004; Moore 2005). The Solomon Islands Plantation Limited (SIPL) oil palm plantation stopped operations in June 1999. A year later, in mid-2000, the Gold Ridge mine on Central Guadalcanal also suspended operations after militants took over the mine site and threatened workers.

In the first year of the civil unrest, the forestry sector was not as severely affected as other sectors. The CBSI reported that this was because ‘the Western and Isabel provinces are the major hosts to logging operations and therefore while logging on Guadalcanal ceased for some time, or [was] operating at below capacity, the overall output actually rose’ (CBSI 2000: 16). In 1999, because log production data were not available, the CBSI used export shipment data to make estimations: about 624,000 cubic metres of logs were exported, up by 3 per cent on the previous year.

By March 2000, however, log production declined. This was attributed to the deteriorating security situation, which had by then affected other parts of the country, especially the high log production areas such as the Western and Choiseul Provinces. The Commissioner of Forests, Peter Sheehan, quoted in March 2000 a harvest rate of 550,000 cubic metres per annum (Sheehan 2000). This was well below the 624,000 cubic metres of the previous year, but still well above the expected sustainable harvest rate of 250,000 cubic metres per annum.

The claim that forests would be depleted in less than a decade if current logging practices were maintained was disputed by the Solomon Islands Forest Industries’ Association (SIFIA). In January 1997, SIFIA showed a video documentary produced for the purpose of what Eric Kes, the then Executive Director of SIFIA, described as correcting ‘widespread misconceptions about the Solomon Islands forest industry sector, which have often resulted in misinformed and emotion[al] criticism[s] of the industry and government, both locally and abroad’ (Solomon Star, January 29, 1997). The underlying argument in the video was that while close to 80 per cent of Solomon Islands’ land was covered by forests, only about 12 per cent was suitable for commercial logging operations. Kes stated that ‘the often used stereotype of total forest destruction is simply untrue’ (Solomon Star, January 29, 1997). In a printed document released by SIFIA along with the video, Kes argued that ‘approximately 10 per cent have been previously logged, but are not, as often argued, completely destroyed, but will generally recover and can be re-harvested over the years’. The document also asserted that 80 per cent of Solomon Islands’ natural forest would never be subject to large-scale commercial logging.

Apart from unsustainable log production, another issue that dominated discussions of the forestry industry was Solomon Islands’ economic dependence on log exports. In 1990, logging contributed 34.5 per cent of the country’s total exports. This increased to 54.9 per cent in 1993. In 1994, it contributed 56 per cent of the country’s export earnings and 31 per cent of all government earnings (Montgomery 1995). In the 10 years between 1988 and 1998, timber made up a huge percentage of Solomon Islands’ principal exports (see Figure 3). From 1992 to 1996, receipts from log exports increased dramatically and dominated total exports. The average value of timber exports in that period was $SI285.2 million per annum. In 1998, however, there was a dramatic decline in log export receipts: $SI196.3 million compared with $SI290.7 million in 1997 and an average of $SI285.2 million in the period from 1993 to 1996 (CBSI 1999: 25). The 1997 and 1998 declines were due to the fall in export prices and volume as a result of the continued adverse developments associated with the Asian financial crisis. Despite this decline, the value of log exports was still well above that of other commodities (CBSI 1999: 25–6; see Figure 3).

Figure 3: Export values of principal commodity groups (CBSI data on value of exports by commodity)
Figure 3: Export values of principal commodity groups (CBSI data on value of exports by commodity)

There was also concern that unsustainable harvest rates would cause severe economic and financial disruption when the commercially accessible forests were depleted. The ADB asserted that if timber production was reduced to meet the sustainable level by 2000, then, although it would involve some short-term disruption as government and the economy adjusted to lower levels of forest revenue, ‘the forest resources would remain a source of revenue in perpetuity’ (ADB 1998: 66). The bank presented three possible scenarios for managing the natural forest: i) continue at about the current harvest rates; ii) allow harvest rates to rise to a new maximum level potentially set by logical constraints on harvest operations; or iii) implement sustainable yield levels by 2000. The ADB proposed that the ‘government should carefully consider the harvest level options, which are likely to actually fall within the range between scenarios 1 and 3’ (ADB 1998: 66).

Because of the country’s dependence on log exports, the negative developments of 1997 and 1998 had an impact on the rest of the economy, contributing to a decline of about 7 per cent of Solomon Islands’ real GDP in 1998 compared with an estimated growth of 3 per cent in 1997. This had an adverse impact on the country’s economy.

Further, despite increasing log exports, in the late 1990s actual revenue collected from log exports declined. The Solomon Star reported on April 4, 1996, that although the value of round log exports in 1995 increased by $SI16.7 million, the amount collected in export duties by the Government fell by $SI12.6 million. This signified weaknesses in Solomon Islands’ tax system, which meant that the Government was unable to collect potential revenue. Price Waterhouse (1995) discussed the deficiencies of the tax system and highlighted the need for trained manpower and an improved administrative and monitoring system to enable the Government to capture much needed revenue. If that were not done the country was bound to lose enormous amounts of money through potential lost revenue.

Apart from the weaknesses of the tax collection mechanism, a substantial amount of potential revenue was also lost as a result of inefficient government policies. One such policy was the granting of duty remissions to log-exporting companies. This increased significantly in 1995 and 1996. As a result of these remissions, lost government revenue from 1995 to 1997 was $75 million (ADB 1998: 59). This is a dramatic increase, compared with about $34 million of potential revenue forgone in 1994 (Duncan 1994).

The duty remissions were given largely to landowner companies with the intention of assisting them to participate in the logging industry and encouraging them to invest in domestic processing. Most of these landowner companies have contractual agreements with foreign-registered companies because they do not have the financial capital or technology to extract and process logs on their own.

Price Waterhouse (1995) asserted that subcontractor agreements were either fixed at a rate per cubic metre of logs exported, irrespective of free-on-board (f.o.b.) value, or accepted a percentage share of the f.o.b. price, which is the price calculated without charge for delivery to the ship. Consequently, it was concluded that although most landowner companies received a share of the forgone tax revenue, ‘the logging contractors are capturing up to 77 per cent of this’ (Price Waterhouse 1995: 35) because of the structure of the contractor/landowner company agreements.

Further, logging companies evaded taxes because of a poor taxation system in the country. Dauvergne (1998–99: 8) discussed how structural defects in Solomon Islands’ timber management policies enabled ‘multinational investors to operate with remarkably poor harvesting and environmental standards, and make windfall profits’. Price Waterhouse (1995) reported that insufficient finance and lack of technical and human resources to monitor logging operations meant that it was difficult to implement the state’s forestry policies, especially environmental rules. Further, there is evidence that companies used transfer pricing and made informal agreements (between buyers and producers) to ensure they benefited from the timber industry. By comparing Solomon Islands’ import clearance records into Japan and the Republic of Korea with Solomon Islands’ log exports for the first half of 1995, Price Waterhouse (1995) concluded that under-invoicing had reduced declared f.o.b. prices by at least $A108 per cubic metre after reasonable allowances for freight and insurance. FORTECH (1995c) compared log export volume and value from Solomon Islands with log import volume and value to Japan and the Republic of Korea, and found that while for 1994 export and import volumes essentially correlated, after providing allowances for freight and insurance, sales to Japan were under-invoiced by about $A46 per cubic metre and to Republic of Korea by $A43 per cubic metre. According to Price Waterhouse (1995), under-invoicing is a common method of minimising taxation payments and that ‘to claim that under-invoicing does not exist in Solomon Islands would make this country unique among log exporting countries around the world’.

Economic surplus forgone from 1990 to 1997 as a result of transfer pricing was estimated to be about $481 million, compared with the $131 million lost through under-taxation. The Government’s cumulative recurrent budget deficit for the same period was an estimated $295 million (ADB 1998: 71).

By the mid-1990s, there was widespread awareness of and concern (locally and internationally) over the issues confronting forestry developments in Solomon Islands. The Australian Government, for example, criticised the Mamaloni Government’s policy on logging, and, to back its criticism, in 1996 it cut back aid to Solomon Islands and stopped funding the Timber Control Unit Project of the Forestry Division, set up to monitor the rate of logging. The EU also threatened to stop its funding of projects ‘if the government failed to address forest management concerns’ (Solomon Star, April 2, 1996). From 1998, however, AusAID revived its funding of government efforts to monitor and regulate the forestry industry, through the Solomon Islands Forest Management Project.

Because of the issues raised above, it was realised that the Government needed to develop policies that provided a coherent framework for developing the forestry sector. The ADB (1998: 76) suggested that, because of the cross-sectoral impact of these activities, developing forestry policy should be part of the broader public sector policy reform process. It also suggested that a subregional approach (through the Melanesian Spearhead Group) aimed at improving resource rent capture should be established. This suggestion was not taken up.

Because of widespread awareness of the problems associated with the logging industry, Francis Billy Hilly’s National Coalition Partnership (NCP) Government, which came to power in mid-1993, attempted to introduce policies to reform the timber industry. In July 1993, for instance, the NCP Government announced plans for increased local processing and the phasing out of large-scale logging in favour of eco-forest logging. A Timber Control Unit was established within the Ministry of Forests to monitor timber production. The effort of the NCP Government was thwarted after its collapse in 1994. It was alleged that logging companies opposed to forestry reforms had a hand in its collapse (Bennett 2000: 340–4).

Another attempt to reform the forestry sector was the Bartholomew Ulufa’alu Government’s introduction of the Forestry Act 1999, which, despite being tabled in Parliament, was never gazetted. The Ulufa’alu Government’s initiatives, however, suffered a setback when Ulufa’alu was forced to resign as Prime Minister after the Malaita Eagle Force coup of June 5, 2000.

The collapse of the Asian economies and log markets gave the Government an opportunity to re-evaluate the industry. By late 1997 there was a drop in demand and price for Solomon Islands logs. The CBSI (1998: 26) reported that from 1992 to 1996, the period of the logging boom, the annual average export price had been more than $A160 per cubic metre. In 1997 and 1998, however, this fell dramatically to an average of $A140 and $A80 per cubic metre, respectively. These included prices for plantation logs (about $A86 per cubic metre), which are lower than for natural forest logs (CBSI 1998: 18).

The collapse in demand and price for logs caused a corresponding decline in log exports. In 1998 an estimated 604,000 cubic metres of round logs were exported compared with 650,124 cubic metres in 1997, and 811,000 cubic metres in 1996 (see Figure 1). The total value of shipments amounted to $A93 million in 1997, dropping from $A124 million in 1996. The value of log shipments in 1998 came to $A48.5 million, down by 47 per cent from the previous year, reflecting the subdued demand in Asia for much of the year (CBSI 1999: 15). However, as noted above, there was a rise in production in 1999 that corresponded with the improvement of Asian economies, especially log markets in Korea, Japan and the Philippines.

The Asian economic crisis and the collapse of log markets caused many logging companies to stockpile. At the end of 1997 the volume of log stockpiles reached 300,000 cubic metres and uncollected logs left in the jungles were estimated by the Ministry of Forestry, Environment and Conservation (MFEC) to number about one million cubic metres.