Arnoldo Contreras
Arnoldo Contreras is Senior Forestry Officer for Planning in the Policy and Planning Service, FAO Forestry Department, Rome.
· The operations of transnational corporations in several sectors of economic activity in developing countries have attracted increasing interest. In the forestry-based sector, however, they have seldom been analysed despite the widespread impression that they are heavily involved in extractive operations as well as in industrial processing of wood.
FRENCH PLYWOOD PLANT IN GABON transnationals are dominant in Africa
Understandably, much of the information available about the costs and benefits of transnational corporations is mainly of the anecdotal type, and often based on isolated or partial case-studies. Statements are usually emotionally charged and biased by political preconceptions. Furthermore, most studies do not discriminate between foreign and domestically owned corporations and therefore do not establish a sound basis for consistent policy formulation in host countries.
In this article an attempt is made to answer some of the most basic questions related to the operations of transnational forestry corporations, i.e. what is the extent of transnational involvement in the sector?, what is the nature of the associated development impacts?, and what can be done to harness this most powerful economic force in order to serve more effectively the development objectives of developing countries?
The empirical evidence collected here covers several countries of Africa, Asia and Latin America. This evidence is not exhaustive and therefore conclusions may not always have general validity. Even so, in many cases the available evidence is indicative and revealing.
The central question running through this article is whether the economic power of transnational corporations in the forestry sector can be harnessed in such a way as to speed the process of development in the numerous developing countries where extensive transnational investments are taking place. One of the conclusions is that, yes, it can but that it won't happen spontaneously. Government policies must be carefully designed and consistently applied to ensure that benefits can accrue to the host countries as well as to the transnationals. In the past a disproportionate amount of the benefits has tended to go to the transnationals themselves.The first part of the article is devoted to a presentation and analysis of data concerning forestry transnationals in the African, Asian and Pacific and Latin American regions. This is the first time such extensive information on the subject has been put together in one place, and many of the findings are quite surprising. The second part of the article discusses the impact of forestry transnationals in developing countries in terms of industrialization, multiplier effects, foreign exchange and various socioeconomic impacts.
1. AFRICA
Although there has been foreign activity in the forest-based sector of Africa since colonial times, substantial involvement did not take place until after the Second World War. British companies initiated what was probably the first foreign operation on the continent around 1880 with the exploitation of mahogany in the Assinie region of Côte d'Ivoire. Since then, corporations from many other countries including Denmark, France, the Federal Republic of Germany, India, Japan and the United States have been attracted; and today, despite numerous attempts to nationalize foreign ventures, the sector is overwhelmingly dominated by transnationals. Foreign investment has been primarily oriented toward the export of African tropical hardwoods to European markets.
A recent analysis of the situation in Africa has been produced by Gillis, Mescher and Peprah for FAO (1984). This study covers Cameroon, the Central African Republic, the Congo, Côte d'Ivoire, Gabon, Ghana, Kenya, Liberia, Nigeria, Rwanda and Zaire. This group of 11 countries produces half the industrial wood, sawnwood and wood-based panels of Africa. They also export about 95 percent of all industrial wood from Africa and about 80 percent of the sawnwood. It is therefore quite representative of the region as a whole.
The study shows that, with the exception of some operations in Nigeria and Ghana, heavy transnational involvement in Africa did not take place until the 1950s and 1960s. The largest operation took place in Côte d'Ivoire, where the government promoted forest exploitation and provided suitable infrastructure by building roads and the ports of Abidjan in 1951 and San Pedro in 1971. After a period of intense activity, operations slowed down as a result of, among other things, increases in takes and the near depletion of the forest resource. In other French-speaking African countries conditions were not so favourable as in Côte d'Ivoire. In particular, transportation infrastructure was, and still is, very poor.
Among the former British colonies, Nigeria probably has the most accumulated foreign investment and the most heavily exploited forest resources. Transnationals have also been involved in Liberia since 1940. Similarly, in Ghana, exploitation of forests began with small quantities of mahogany exports in 1940. In East Africa, Kenya had one of the largest endowments of forest resources but not enough to attract transnationals in the way that West African countries did.
German and French companies are the most important foreign investors in Africa, although there are many corporations from other countries as well. The Germans have invested in all wood-rich countries of the region but have concentrated in Cameroon, the Congo and Côte d'Ivoire. The French are involved in Cameroon, the Central African Republic, the Congo, Côte d'Ivoire, Gabon and Zaire. In certain cases, foreign involvement has been very intense. For example, in the early 1980s, the French alone controlled about 80 percent of all wood products exported by Côte d'Ivoire (Gillis, Mescher and Peprah, 1984).
Transnational corporations in Africa often have operations in more than one country. Evidence also shows that the main former colonial powers tend to concentrate their activities in their ax-colonies. The cases of joint ventures or portfolio investment are scarce and not always successful. For example, a mixed company, Folhados e Contraplacados de Bissau (FOLBI), was created in Guinea-Bissau in 1983 for the production of plywood with a majority national financing and Swedish public as well as private funding (60 percent SOCOTRAM, 20 percent SWEDFUND and 20 percent BOHAMON and JOANSON, respectively), but results to date have not been encouraging (FAO, 1986). In other cases transnationals have shown a reluctance to relinquish even partial control of operations.
Another relevant aspect is that with the exception of two corporations from Côte d'Ivoire - Forestière équatoriale of Abidjan, which owns majority interest in two companies in the Cameroon, and the Entreprise forestière de bois africains Centrafrique in the Central African Republic - there is practically no African company investing in another African country.
Furthermore, most transnationals operating in Africa are relatively small, as compared with the largest firms of the industry such as Weyerhaeuser and Georgia Pacific. None of the transnationals with operations in Africa can be found among the 500 largest companies in the United States or in the 500 largest outside the United States.
Neither the magnitude of the operations of transnational corporations in Africa nor their comparative size vis-à-vis domestic enterprises can be ascertained with precision. Gillis, Mescher and Peprah (1984) estimated the value of foreign-owned capacity as a proportion of total capacity existing in the country. As detailed in Table 1, estimates for the nine countries covered in the study show that foreign-owned production capacity (valued at 1980 prices and using the assumptions listed at the bottom of the Table) probably reaches a value of the order of US$2900 million, while total domestic investment in the forestry-based sector is about US$1500 million. These estimates provide an idea of the importance of transnationals in the region. They show a clear dominance of foreign-owned corporations.
Table 1. Accumulated investment in the forest-based sector of selected countries in Africa (in millions of US dollars)
|
|
Foreign |
Domestic |
Total |
% Foreign |
|
Côte d'Ivoire |
558.80 |
145.00 |
703.80 |
79 |
|
Cameroon |
365.41 |
335.71 |
701.12 |
52 |
|
Congo |
157.20 |
28.60 |
185.80 |
85 |
|
Central African Republic |
92.21 |
12.79 |
105.00 |
88 |
|
Zaire |
95.03 |
54.44 |
149.97 |
64 |
|
Liberia |
124.87 |
22.03 |
146.90 |
85 |
|
Nigeria |
932.16 |
621.44 |
1553.60 |
60 |
|
Gabon |
364.46 |
94.07 |
458.53 |
79 |
|
Ghana |
175.45 |
207.15 |
382.60 |
46 |
|
Total |
2865.59 |
1521.23 |
4387.32 |
65 |
Estimate assumes that the proportional age structure of all investments in all countries is the same. No recent studies have been done on the age structure of African forest-based sector investments to be able to adjust figures according to age structure.
Investment costs per unit of capacity vary from country to country. Most of these figures have been derived in Côte d'Ivoire with the Ministry of Economics, Finance and Planning, and double-checked using different reports of World Bank missions. They are assumed to be the following:
· logging investment costs range from US$71/m³ in Côte d'Ivoire to US$142/m³ in Gabon· sawmilling investment costs range from US$190/m³ of output capacity in Côte d'Ivoire to US$380/m³ in Gabon;
· veneer investment costs range from US$620/m³ of output capacity in Ghana to US$1050/m³ in the Congo.
As shown in Table 2, about US $900 million are invested in logging operations. Foreign investment in all the wood-processing industries is equivalent to about US$2000 million, mainly in sawmilling and wood-based panel production. Although the pulp and paper industry is still incipient in Africa, about US$470 million of foreign investment, mostly in Kenya and Nigeria, is associated with this industry.
Table 2. Accumulated investment in the various activities of the forest-based of selected countries in Africa (in millions of US dollars)
|
|
Foreign |
Domestic |
Total |
|||
|
Value |
% |
Value |
% |
Value |
% |
|
|
Logging |
930.06 |
33 |
404.06 |
27 |
1334.12 |
30 |
|
Sawmilling |
738.47 |
26 |
428.50 |
28 |
1166.97 |
27 |
|
Wood-based panels |
726.65 |
25 |
243.08 |
16 |
969.73 |
22 |
|
Pulp and paper |
467.20 |
16 |
442.80 |
29 |
910.00 |
21 |
|
Total |
2862.38 |
100 |
1518.44 |
100 |
4380.82 |
11 |
2. ASIA AND THE PACIFIC
As in the case of Africa, transnational corporations have dominated the sector in the Asia and Pacific region. In the past two or three decades their importance has grown steadily with the expansion of the role of the region as a world supplier of tropical logs. However, as explained below, this trend has been reversed in recent years.
The precise magnitude of total foreign investment in the region is not known. Gillis (1981) estimates that foreign involvement in Indonesia, Malaysia, Papua New Guinea and the Philippines probably reached a total of about US$1160 million in 1977 at 1980 prices (see Table 3). However, this is probably an underestimate.
Table 3. Estimate of foreign direct investment in the forest-based sector in major Asian and Pacific timber-producing countries (in millions of US dollars)
|
Indonesia |
380 |
|
Malaysia |
360 |
|
Papua New Guinea |
115 |
|
Philippines |
303 |
|
Total |
1158 |
Source: Gillis (1981)
After the Second World War, transnationals began to enter the sector in a major way under traditional forms of concession agreements and with rather liberal terms. Investment concentrated in logging operations. During the 1970s, however, countries began to impose more stringent conditions for entry, including new fiscal provisions and the introduction of processing requirements. By the end of the decade, the major producing countries (Indonesia, Malaysia and the Philippines) had completely abandoned concession agreements involving exclusively foreign equity. The role of state-owned firms grew in importance, particularly in Indonesia, Sabah (Malaysia) and Thailand (and to a lesser extent, in Papua New Guinea).
With the exception of some operations in Nigeria and Ghana, heavy transnational involvement in Africa did not take place until the 1950s and 1960s.
In the case of the Philippines, US corporations initially received major timber licences but with the expiration of the Laurel-Langley Agreement - which specified that US firms could have the same privileges as Philippine firms - American corporations had to give up their timber concessions. Some transnationals, such as Georgia Pacific and Boise Cascade, stayed in the Philippines as minority partners while others, such as Weyerhaeuser, divested fully. Since 1974 a more diverse group of foreign investors has entered the sector, all but one as minority partners in Philippine firms. By 1980 there were 12 joint ventures entirely managed by nationals (Gillis, 1981).
Major transnational involvement in Malaysia also started during the postwar years under traditional concession agreements granting foreign corporations the right to harvest wood for periods of up to 21 years. In 1966 this policy was radically changed with the creation of the Sabah Foundation and the subsequent award of about 8500 km² of prime forest land to the Foundation for a period of 100 years. Among the purposes of the Foundation was the gradual absorption of all remaining long-term concessions granted previously to foreign firms. The Foundation has also participated in several joint ventures with transnational corporations from India, Japan, Kuwait, the Philippines, and the United States as well as with Malaysian firms. Transnational corporations are expected to continue to play a role but primarily as partners in mixed-ownership enterprises.
In Indonesia, major transnational involvement dates from 1968, when the first concessions under the Foreign Investment Law were awarded. Initially, very large concessions were granted in East and South Kalimantan. However, by 1975, the foreign investment policy had evolved and only Indonesian nationals were eligible for awards. Transnational corporations with previous concessions were allowed to continue operations but only as minority shareholders in joint ventures. Some of them, such as Weyerhaeuser and Soriano, withdrew from the Indonesian forestry sector. By 1978 there were 77 foreign enterprises in the forestry sector of which 66 were joint ventures. Domestic investment now considerably exceeds transnational investment in this country (Gillis, 1981).
Although Papua New Guinea has over 15 million ha of forests, production up to 1979 had never exceeded 1000000 m³/yr and transnationals had not shown much interest in the country. There were several reasons for this, including the fact that a greater diversity of species existed than in the large Dipterocarp forests of Indonesia, Malaysia and the Philippines and the fact that these species were not well known in world markets. Other factors were the inaccessibility of many forest areas and the pattern of customary ownership of forest lands, which were in the hands of tribal groups, in contrast with the almost complete government ownership of land in the three major producing countries of the region. However, once these latter countries had imposed more restrictive policies for the exploitation of their forests and started to curb log exports, the interest of transnationals in Papua New Guinea grew. By 1979 there were 14 companies ranked as "major timber operations" of which eight were run by foreign enterprises. Japanese and Australian investors are dominant: Japanese transnationals control 50 percent of timber rights while Australian corporations hold 32 percent. Japan imports most (68 percent) of the forest products produced by Papua New Guinea. The operations of transnationals may increase in the future as opportunities in other countries become more and more scarce.
PHILIPPINE LOGS FOR EXPORT a recent increase in domestic processing
The involvement of transnational corporations in other countries of the region is not very important. In Thailand, the transnational involvement dates as far back as 1874, when the first logging contracts were signed for the exploitation of the teak forests in the northern part of the country. Restrictive measures, resulting from the depletion of native resources, began to be imposed soon after the Second World War. By 1960 no foreign companies remained with timber concessions.
In the Solomon Islands the British-based Unilever has long been active, beginning in 1904 with oil-palm plantations and later continuing in timber harvesting and processing. However, total production of the islands is small compared with that of the leading regional producers. In Western Samoa two foreign companies have been reported, one Japanese and one Australian, but again, total production is small. In Fiji, British Petroleum and Australian firms are involved in the forest sector but total foreign investment has not been very substantial.
The transnational corporations operating in the forestry-based sector of the region in the last ten years or so have been very diverse. Most were firms from developed countries but there were also a few headquartered in developing countries. American firms were dominant and included large enterprises such as Weyerhaeuser, Georgia Pacific, Boise Cascade and International Paper, all of which rank among the 200 largest firms in the United States, as well as smaller enterprises such as Insular Lumber Sales and Pacific Wood Products. Transnationals from Europe also included large firms such as Unilever and McMillan Jardine. The Japanese firms included Mitsui, Toya Menka/Eidai, Sumitono and Mutsumi Trading Co. Transnationals from other developing countries have also operated in Asia and the Pacific. For example, the Korea Development Corporation received a large concession in Indonesia in 1970 as did the Philippine-based enterprise Soriano & Co. The Malaysian-based company, North Borneo Timber Bhd, also operates in the Philippines.
Not all foreign investment in the region has consisted of direct foreign investment. For example, Saudi Arabian and Kuwaiti investors have been involved in portfolio investment in timber operations in Malaysia.
The increasingly demanding conditions related to the access of transnationals to domestic forest resources imposed by the countries in the last few years have not stopped foreign participation in the sector. Several corporations have been operating processing facilities without concessions of their own. For example, several smaller German and American companies operate in Indonesia and depend on Indonesian partners for wood supplies. By 1980 several large transnational corporations were involved in ventures in the Philippines without having the benefit of controlling logging concessions.
3. LATIN AMERICA
In Latin America the investment climate has been constantly changing during the last decade or two, and so has the involvement of transnational corporations in the forestry-based sector. The operations of transnationals are radically different from those in Africa or in Asia and the Pacific. In Latin America foreign investment is almost exclusively concentrated in the pulp and paper industry, and production is oriented toward local markets rather than to exports. For example, while the proportion of foreign investment in the pulp and paper industry in Africa is 16 percent, it reaches 93 percent in Latin America. Furthermore, large-scale logging operations are much less frequent in Latin America than in Asia or Africa.
Foreign investment conditions in many countries have been very unstable in the past. Policies in the 1950s and 1960s were generally favourable to transnational operations in the majority of countries. Furthermore, the strategy of industrialization based on import substitution prevalent in those years was instrumental in consolidating the position of transnational corporations in the more capital-intensive and technologically complex forest industries. In the face of strong protectionist policies, transnationals struggled to maintain a presence in profitable, or potentially profitable, Latin American markets.
As a result, by 1970 the foreign share in the paper industry had reached about 26 percent in Argentina, and 79 percent in Colombia. One-third of the industry was controlled by foreign investors in Mexico and two-thirds in Peru (Jenkins, 1984). Gregersen and Contreras (1975) estimate that in 1974 affiliates of American companies (and there was, of course, investment from other countries as well) controlled about 50 percent of the market of paper products in the region.
However, the liberal attitude toward transnational corporations was being increasingly questioned at the beginning of the 1970s. Arguments against transnationals emphasized the existence of excessive monopolistic gains, the allegedly unfair distribution of benefits between foreign investors and the host country and, in general, the emergence of a "new dependency" of countries upon transnational corporations.
Reacting swiftly to these changing attitudes, the Andean Pact countries adopted Decision 24 in 1970 on the "Common Treatment for Foreign Capital, Trademarks, Patents, Licensing Agreements and Royalties", which restricted foreign ownership and specified a time table for divesting until foreign firms attained certain minimum local ownership requirements. Decision 24 also limited the access of foreign corporations to local credit, established ceilings for the repatriation of profits, and regulated the transfer of technology. Moreover, in 1978 the Organization of American States approved a foreign investment code that was essentially a restatement of the Calvo doctrine dating from the nineteenth century, which states that foreign companies must be subject to the exclusive jurisdiction of the country in which they operate. The need to regulate the operations of transnational companies was also discussed at the Tlatelolco Dialogue in Mexico City in 1974 in the wake of revelations about the transnationals' role in bringing down the Allende government in Chile.
In Latin America foreign investment is almost exclusively concentrated in the pulp and paper industry, and production is oriented toward local markets rather than to exports.
MAKING PAPER BAGS IN GUATEMALA many American firms in Latin America
However, despite restrictions, transnational involvement in the sector in Latin America continued to expand. In Brazil, for example, the total stock of foreign direct investment in the sector grew at an explosive rate, from US$15 million in 1960 to US$64 million in 1970 and US$860 million in 1980. Firms with foreign participation now account for about one-third of nominal pulp capacity but over 40 percent of pulp production. (Prior to changes in ownership in Jari and Riocell, two large enterprises now in Brazilian hands, these proportions were probably in excess of 50 percent.) On the other hand, firms with foreign participation account for about one-fifth of the Brazilian paper capacity and almost one-quarter of paper production. While the fibre-board industry is dominated by domestic capital, about one-third of the particle-board capacity and nearly 40 percent of sales and employment in this industry are controlled by companies with foreign participation. Firms with foreign capital probably account for about 10-15 percent of total plywood and veneer capacity but a higher proportion of export sales.
For the region as a whole, estimates indicate that in 1977 the value of foreign-controlled capacity in the region was about US$1800 million (at 1980 prices).
After this period of restrictions, there are signs that the tide is changing again in Latin America. Chile, for example, after leaving the Andean Group, has actively sought the involvement of transnational corporations and recently issued a new Foreign Investment Statute (Decree-Law 600) guaranteeing greater stability for transnational investors. In February 1982 Cuba radically changed a long-standing policy with Decree-Law 50, which opened the doors for transnational investment in the country. In Brazil, a country traditionally favourable toward transnational corporations, the possibility of applying the "Asian Model" is currently being discussed: in other words, the transformation of the country, in the same fashion as Hong Kong, the Republic of Korea and Singapore, into a "workplace" for the industrialized world. At the same time, the regulations of Decision 24 are increasingly being questioned by member countries. The current foreign exchange difficulties of many countries will probably reinforce this trend.
The two most important transnational groups in Latin America are American and Japanese. In 1983 there were about 100 projects with foreign participation in the region, of which about 75 percent were American. About half these ventures were located in Brazil and Mexico. The large corporations of the industry such as Kimberly-Clark, Container Corporation of America, Georgia Pacific International Paper are, or have been at one time or another, involved in the region. Foreign firms with headquarters in other countries include Marubeni, McMillan Bloedel and Billerud Uddenholm AB.
One aspect worth mentioning is that most of these corporations do not make direct use of the forest resources of the host country but prefer to import a good proportion of their raw material needs. With the exception of some cases in Brazil, investments in forest management and resource development by foreign interests in the region are conspicuously uncommon. A study on American transnationals in Latin America found that 29 firms were not utilizing the forest resources of the host country at all (Bethel, 1981). De Camino (1982) reports that no transnationals are involved in forest resource investments in Venezuela although there have been some unsuccessful attempts In the past. This reinforces the impression that most transnational corporations have moved to the region not to take advantage of the availability of forest resources but to have access to profitable national, often protected, markets.
Developing countries seek a number of benefits from transnational investment, beyond the simple immediate increase of financial resources and foreign exchange. Transnational corporations have me potent/al to offer a distinctive "package" of resources and services that is difficult to find elsewhere. While this package contains capital as a significant component, it may also include access to technological knowledge and managerial expertise, to networks for international marketing of outputs and to necessary inputs. Apart from the physical outputs generated by the transnational corporation, there are a number of associated benefits, including additional employment, foreign exchange and government income. The main potential benefits are shown in Table 4.
Table 4. Nature of potential benefits to host countries from investments in the forest-based sector
|
Type of benefit |
Nature of benefit |
|
I. Tangible and measurable (in principle) | |
|
1) Employment income |
|
|
Direct |
Direct increases in income, from higher employment in forest-based projects |
|
Indirect (linked) |
Increases in employment in enterprises linked to forest-based sector projects (suppliers, etc.) |
|
2) Capital income |
|
|
Direct |
Direct increases in dividends' rents and other capital income for shareholders in forestry projects |
|
Indirect (linked) |
Indirect increases in capital income for firms linked to forestry projects |
|
3) Foreign exchange |
Net foreign-exchange earnings |
|
4) Fiscal receipts (taxes) |
|
|
National-level taxes |
Expansion of national government tax and royalty collection |
|
Subnational-level taxes |
Expansion in subnational government taxes, royalties and other charges |
|
5) Regional development benefits |
Development of backward or isolated timber bearing regions in host countries |
|
II. Intangible or hard to measure | |
|
6) Resource-based industrialization |
Enhancement of prospects for industrial growth in host countries |
|
7) Transfer of technology |
Increased access to knowledge, technology and skills |
|
8) Managerial |
Increased entrepreneurial capacity |
|
9) Markets |
Increased ability to compete and access to markets |
On the other hand each one of the potential benefits contains, as a counterpart, a potential cost. The technological knowledge transferred, for example, may be the "wrong" one if it does not conform to the dynamic evolution of the endowment of resources of the host country. Foreign exchange impacts can also be negative if only a modest proportion remains in the country as retained earnings. The superior technology, market contacts and managerial expertise of transnational corporations may inhibit the development of domestic entrepreneurship.
Income Although investments by transnational corporations are often sought with the main objective of generating a new source of income to the host country, problems have often arisen in this respect. In fact, one of the most common arguments against transnationals is related to the share of income, or of the economic surplus, accruing to the host country. It is often maintained that this share has not always been "fair". In these discussions it is usually assumed that the foreign investor should not be rewarded with more than a "normal" return on his investment, i.e. should not receive economic rents. A normal return has often been interpreted as ranging from about 15-20 percent profitability after taxes. In this connection, the problem of transfer pricing pervades virtually all discussions of the role of transnational corporations in developing countries. This problem originates in the ability of transnationals to manipulate their internal price systems so that taxes on corporate income and other taxes are understated.
There are indications that host countries have not received a fair share - as defined above - of the income generated by transnational operations. For example, an early study in Ghana indicates that, in the early 1970s, rents in the case of high-value species, reached as much as 80 percent of the log value, but that the government received less than 40 percent of the rents generated. Similarly, it has been estimated that in 1973-74 forest enterprises in East Kalimantan - which were mainly foreign-owned - succeeded In capturing about three-fourths of actual rents generated in the export of sawnwood. In the case of log export operations, the government captured only 50 percent of rents. In 1980 the Government of the Philippines received about 10 percent of potential rents from forestry pro-: auction (Gillis, 1981; Repetto, 1985).
Industrialization It has also been argued that countries have been deprived of potential income because transnational corporations are reluctant to increase the degree of domestic processing; and that they often operate as technical and economic enclaves in the host country with few links to the rest of the economy, and therefore with few multiplier effects. With respect to the first point, it has been shown before that corporations in Africa have successfully resisted pressures from host countries to increase the degree of domestic processing. Their main objective has been to export logs to their processing plants and markets in Europe and not to increase value added through industrialization in Africa.
This has been the case, for example, in Côte d'Ivoire. In 1965, the government passed a forestry law with the purpose of encouraging domestic processing, hoping to increase value added and income to the country. The law was designed to give several incentives to those enterprises that installed processing plants in the country but its real effect, in fact, was negligible: foreign companies continued to export logs. This led to further legislation aimed at controlling the exports of precious woods and linking new concession terms to the degree of processing carried out in the country. The additional legislation also failed to provide effective results because of, among other things, numerous legal loopholes. Some industrialization did take place but most corporations regarded industrial investments only as a necessary evil - as part of the cost of exporting logs - and paid little more than lip service to the industrialization policy. Even today, most plants use technically obsolete equipment, sometimes even discarded from European mills after the Second World War. By 1980, Côte d'Ivoire still exported about two-thirds of its production in the form of logs.
EUROPEAN-BOUND MAHOGANY FROM CÔTE D'IVOIRE a steady depletion of forests
In 1973 Liberia tried to promote local processing by stipulating in concession contracts that wood processing activities should expand at a 20-percent annual rate, thus achieving 100 percent domestic processing in 1977. However, by 1980, 64 percent of its log production was still being exported as logs.
Other countries, however, have been more successful in promoting domestic processing. For example, Cameroon in 1980 had 65 foreign-owned industrial plants and seven joint ventures with a total accumulated investment of US$111 million, mostly in sawmilling. In that year Cameroon had become the third largest producer and the second largest exporter of sawnwood from hardwoods in Africa, and had reduced the proportion of logs exported to 46 percent, as compared with 68 percent in 1970. Similarly, in 1980, Indonesia promulgated the Three Ministers' Decree, aimed at phasing out log exports; as a result there are today as many as 98 plywood mills in the country with a production capacity of some 5.3 million m³/yr. As mentioned before, Latin American countries have been successful in forcing the pace of industrialization in the forestry sector, particularly in areas of advanced technology, through a combination of incentives and restrictive policies. In Nigeria, the construction boom between 1970 and the early 1980s apparently provided natural incentives for a substantial expansion of local processing.
Experience suggests that, with exceptions such as the Nigerian experience, industrialization and its consequent economic benefits will not take place spontaneously and that deliberate policies must therefore be implemented by host governments to promote it. But it is also apparent that industrialization should not be considered by developing countries as an objective per se, as the cost involved, if carried out in an inefficient manner, may well exceed the benefits. This may have been the case of Indonesia, where the uncontrolled expansion of the panels industry led to costly excess capacity. In early 1985 the problem became so serious that the government called a moratorium on the issuance of new licences for the installation of plywood mills.
Furthermore, the imposition of a log export ban as a means to promote industrialization has often created a powerful incentive for log smuggling and export underreporting. Repetto (1985) indicates that there is evidence of this in the Philippines. According to Philippine records, the country exported to Japan 0.5 million m³ of logs in 1980 but Japanese reports show that in the same year 1.1 million m³ were imported from the Philippines.
In other cases inefficient industrial processing has led to substantial economic losses for the country concerned (Repetto, 1985). There is evidence that the costs of industrialization may have exceeded benefits in a well-known transnational project in Papua New Guinea (De'Ath, 1980) owing to, among other things, leakages in the system which the country has been unable to control (Fraser, 1981).
In contrast, other countries have abandoned the idea of promoting industrialization at any cost and have instead chosen those alternatives which appear to be the most economically efficient, whether they involve industrialization or not. Chile, for example, feeling pressed for foreign exchange in the 1970s, reversed previous policies and allowed exports of logs, thus providing a powerful incentive for expanded economic activity in the sector. In this case, it could be argued that an industrial policy based on the persistence of the previous log bans would have led only to an excess supply of wood in the country and to associated costs in terms of exports and foreign exchange not earned because of the restrictive measures. Thus, industrialization policies should, as in the case of any other economic decision, be carefully evaluated in terms of their benefits and costs to the country.
Multiplier effects Multiplier income and employment effects are created through forward and backward linkages. Enterprises with a high propensity to import inputs and export the output generated are likely to have rather small forward and backward linkage effects; in effect, they constitute enclaves in the host country. If this is so, transnationals operating in Africa are likely to have very low income and employment multipliers. On the other hand, available information indicates that, as early as 1966, Latin American imports by American affiliates in the paper and allied products industry - which as a group are the main transnational force in the region - amounted to less than 10 percent of total production costs. In 1974, about 80 percent of the total output of these enterprises was sold locally and expatriate employment accounted for only one-half of 1 percent of total employment. The tendency of transnational corporations operating in Latin America to use local contractors for their wood supplies also suggests that their employment multiplier may be significant since these contractors use predominantly labour-intensive technologies as compared with the more capital-intensive methods used by transnationals.
Thus, it is likely that intersectoral impacts are more important in Latin America than in Africa. The Asian and Pacific region is probably in an intermediate position. In Indonesia, for example, employment in the sector rose from only about 2000 in 1967 to 87000 in 1978 and the proportion of expatriates, although still substantially higher than in the countries of Latin America, fell from one-third to one-twentieth in the same period (Gillis, 1981).
Foreign exchange The net foreign exchange impact of transnational operations depends on the gross value of exports generated, the value of imports substituted and imports induced, capital and profit repatriation, interest of external loans, wages and salaries paid abroad to expatriates and other external payments. The net foreign exchange impact can be less than the potential one if "leakages" occur such as transfer pricing and underreporting of sales. Information on these elements is, naturally, not easy to obtain.
Partial information suggests that in Asia and the Pacific retained earnings were probably very low in the early 1970s. In the case of Indonesia estimates indicate that they were as low as 25 percent of gross earnings but that by 1979 this percentage had probably increased to about 50 percent as a result of more strict tax structures, particularly export taxes (Gillis, 1981).
In the case of Latin America, studies show that the net foreign exchange of the dominant American companies may be as high as 82 percent of total sales value (Gregersen and Contreras, 1975). In Africa, although transnationals probably have an important impact in terms of export revenues generated because they dominate the export market, complaints from host countries about unfair business practices and "leakages" are very common, more frequent than in the other regions.
Other socio-economic impacts Because of their superior access to technological research, transnationals have the potential to create new technologies, appropriate to the conditions found in the host country, or to transfer existing technology. In Latin America several American companies have been involved in southern Brazil in the development and management of plantations and have sought association with a number of Brazilian research institutes. These contacts have proven to be productive. Private domestic corporations such as Aracruz Florestal have also mounted sizeable research programmes of their own.
In other cases, such as the Jari project in Brazil, plantation development has led to a series of unexpected and undesirable impacts affecting rather large areas. Therefore the impact of transnational operations cannot be classified as positive.
However, with few exceptions such as the ones mentioned, transnationals have seldom been involved in any form of resource management. Almost all major attempts to manage forest resources in the Third World have involved domestic, not transnational, companies.
There are some examples of original research and innovation in the industrial processing area but they are scarce. Perhaps the best known experience is mat of the Honshu Paper Company of Japan. Sometime prior to 1968, drawing on the results of Australian (CSIRO) research, the company succeeded in producing corrugated packing materials from hardwood chips for the first time. An affiliate, Japan and New Guinea Timbers (JANT) started exports of tropical chips from Papua New Guinea to the parent company, Honshu Paper, in 1974. By the end of 1983 the company had cleared about 37000 ha of tropical forests in the Madang Province but the economic viability of clear-felling tropical forests for me production of chips is still open to question, not to mention the associated negative impacts in terms of environmental deterioration and undesirable effects on the local population (De'Ath, 1980; Gane, 1985).
In fact, it appears that environmental damage has been serious in the case of the JANT project. Moreover, it is likely that similar damage has also occurred in other large-scale projects. For example, serious erosion caused by forest operations has been noted in Indonesia, Malaysia and the Philippines. Insular Southeast Asia and Papua New Guinea had a total of 54 million ha committed to logging in 1980 and therefore the total effect is, no doubt, considerable.
Host countries have also sought foreign investors to promote development in thinly populated or economically depressed areas. This was one of the considerations of the Jari project in Brazil and the JANT project in Papua New Guinea. In Africa, even relatively small countries such as Gabon have apparently placed heavy stress on the development of thinly populated areas. Chile has in the past attempted to encourage transnationals to invest in the relatively economically backward province of Chiloé, and so on.
In all these cases a wide range of results has been obtained. De'Ath (1980) is very critical about the regional impact of the JANT project in Papua New Guinea. Several authors have also indicated the negative regional consequences of the Jari project in Brazil.
Gillis and De'Ath also call attention to the possible socio-economic costs of boom and bust operations. There is evidence of this in East Kalimantan, which had about half a million inhabitants prior to the initiation of large-scale logging operations in 1968. Population jumped to more than a million in 1981, an annual growth rate of more than twice the national average. This rapidly expanding population began to face a very different situation when the resource base began to shrink and the previous very high cutting rate could no longer be sustained. A similar situation occurred in Côte d'Ivoire where the government assigned more than two-thirds of all productive forests to concessionaires in the space of seven years (Repetto, 1985).
A very intense concentration of economic activity in one particular region, as occurred in East Kalimantan, can also lead to undesirable effects related to the allocation of economic resources at the national level. For example, in East Kalimantan the regional government collects two-thirds of all royalties while in Sabah (Malaysia) all royalties are received by the provincial government with a resulting misallocation of resources from the national point of view. The problem may be serious. It is estimated that in Sabah every citizen received about US$450 in 1979, a figure well in excess of government expenditure in other regions of the country. In the case of East Kalimantan the regional government reached levels of expenditure that were more than six times the provincial average in Indonesia as a whole.
Transnational corporations have had a decisive influence in the development of the sector in all three regions examined. It is likely that they will continue to play an important role in the future, particularly in those countries where rapid economic growth and industrialization have high priority and where sophisticated technology and massive capital investments are needed. The possibilities for creating effective domestic corporations, having access to advanced technical knowledge, effective market contacts and with adequate managerial expertise, are limited in most countries. The acquisition of technology through management agreements and the employment of foreign experts provides only a few and limited alternatives. However, it is also likely that the relative importance of transnationals from the developing world will increase in the future (Khan, 1985).
Industrialization and its consequent economic benefits will not take place spontaneously and deliberate policies must therefore be implemented by host governments to promote it.
FORESTRY CENTRE IN CENTRAL AFRICAN REPUBLIC a need for domestic industries
If transnational corporations are expected to continue to play a role in developing countries, it is evident that these countries should devise policies allowing them to draw on the advantages of transnationals and mitigate associated costs. To achieve this result, several policy areas require increased attention.
In some countries, there has been a lack of clear and firm government policy prescriptions, especially where an over-eagerness exists to attract foreign investment at almost any cost. For example, where concessions have been granted, contractual obligations related to resource management have very often been either non-existent or, when present, loosely drafted, and seldom implemented or controlled. In fact, public policies have often unintentionally encouraged a short-term perspective and resource depletion in transnational operations.
Weak policies are the result of weak institutions in developing countries. Ill-designed policies and weak institutions are a sure recipe for mismanagement of resources. Understandably, corporations, foreign or domestic, will not always attach importance to the development and resource management priorities of the host country if their satisfaction does not lead to a financial profit or if compulsory measures are not effectively enforced by the government. In the absence of restrictive policies they will tend to put private gain before social benefit. They are likely to succeed in doing so in countries where public institutions and policies are particularly weak.
Countries should not hesitate to impose strict regulations as long as these regulations are consistent and stable. It appears that, within limits, it is not necessarily the severity of policies that prevents foreign investors from playing a more constructive role in the economic development of the host country but the unexpected and inconsistent changes in these policies and regulations. Uncertainty makes it impossible or difficult to plan long-term operations. Uncertainty increases the propensity of investors to "get rich quick" and to disregard management practices that are essential for the long-term sustainability of the productive capacity of the resource. Therefore, it would appear that countries need to design ways to increase investment stability. This should not, however, be interpreted as a prescription for inflexibility In policies but rather for establishing clear "rules of the game", including well-defined and pre-established conditions for change.
However, no meaningful and consistent exercise in policy design, monitoring and control can take place without certain minima of information and analytical skills. The lack of an appropriate information system concerning the operations of transnational corporations is illustrated by the fact mat despite the dominant role they play in developing countries, information about the impact and potential of transnational corporations is vary scarce. If benefits from transnational operations are to be maximized and their costs minimized, countries must develop the necessary skills to assess benefits and costs, to evaluate alternative patterns of operation and, finally, to negotiate mutually acceptable conditions.
It is only through a combination of factors - an increase in knowledge about investment potentials, stable government policies guiding transnational investment and an increased domestic capacity to carry out development activities and monitor progress - that developing countries will be able to realize the full potential of transnational firms operating in the forestry sector.
BETHEL, J. 1981 et al. The role of the US multinational corporations in commercial forestry operations in the tropics. A report submitted to the Dept of State. Univ. Washington, College of Forestry Seattle, USA.
CORTES, H. 1983 Las empresas transnacionales en el sector basado en los recursos forestales de Argentina, Chile y Perú. Informe preparado pare la FAO. Santiago, Chile.
DE'ATH, C. 1980 The throwaway people: social impact of the Gogol Timber Project, Madang Province. Monograph 13. Boroko Papua New Guinea, Inst. Applied Social and Economic Research.
DE CAMINO, R. 1982 La operación de las corporaciones transnacionales en el sector forestal de Venezuela. Informe preparado pare la FAO. Caracas, Venezuela.
FAO. 1986 Assistance au développement forestier, by H. Bianchi. Guinée-Bissau, Planification forestière. Rome.
FRASER, A.I. 1981 Issues in Papua New Guinea forest policy. Port Moresby, Papua New Guinea, Inst. of National Affairs.
GANE, M. 1985 Notes on the Gogol Timber Project, Madang Province, Papua New Guinea. A report for FAO. East Devon, UK.
GILLIS, M. 1981 Foreign investment in the forest-based sector of the Asia-Pacific Region. A report for FAO. Cambridge, Mass., USA.
GILLIS, M., MESCHER, M. & PEPRAH, I. 1984 Foreign investment in the forest-based sector of Africa. A report for FAO. Cambridge, Mass., USA.
GREGERSEN, H.M. & CONTRERAS, A.H. 1975 US investment in the forest-based sector in Latin America: problems and potentials. Baltimore, USA. The Johns Hopkins Univ. Press.
JENKINS, R. 1984 Transnational corporations and industrial transformation in Latin America. London, UK The Macmillan Press Ltd.
KHAN, K.M. 1985 Third World multinationals: new actors in the international economy. In Development and Cooperation: 1/1985.
REPETTO, R. 1985 Creating incentives for sustainable forest development. Draft. Washington, D.C., USA, World Resources Institute.
SCOTT-KEMMIS, D. 1984 Foreign investment in the forest-based sector of Brazil. A report prepared for FAO. East Sussex, UK.
