The forest industry is on the ‘user end' of Government decisions and actions in regards to a stable investment climate, and resource security. Without these, a faltering sector will result and FNG will fare poorly in terms of the potential offered by the sustainable development of her forest resources.

Success will be achieved if strong and competent operators are attracted to invest in PNJG, under regulations which give a fair deal to all parties:- resource owners, resource operators and Government, both for current and future harvesting cycles from production forest.

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A stable social and political base will go a long way to engineering opportunities for a solid future. PNG enjoys the raw potential of talent, mineral wealth, extensive fisheries and strategic forest resources. These cannot be legitimately utilized for the nation’s benefit by formal industry structures and at the same time be managed with environmental responsibility, without such stability being pre sent.

The natural forests of PNG are not public forests - they are privately owned, and unless they become part of a forest management ethic and practice on the part of resource owners, it can be questioned whether there will be any effective base for the long term management goals of forest policy.

Much has been said in the past in regard to effective planning, stability in the investment climate, and resource security. Clearly all of these areas are still evolving in PNJG, and do present a variety of obstacles for resource operators it conditions are not conducive to smooth operations.

With regard to policies and practices which would encourage industry development, it is not just a question of policies being conducive to attracting the initial investment outlay. Rather it is the whole policy matrix and how practices are formulated within that matrix that will influence the investment outcome. To achieve an internationally competitive industry, policies must focus on international best practice to be successful. Accordingly, policies which guarantee a secure resource base, in large enough volumes to support the investment must be the starting point.

Policies which often indirectly increase the cost of ongoing operations need to be addressed. The high level of protection afforded the, domestic shipping industry, resuming in one of the world’s highest freight rates, would be one example. The expectation that an investor should or would provide all public infrastructure and services within a project area, including those normally expected of State agencies, needs to be revised to achieve an internationally competitive balance between investment and social costs.

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Table top made from PNG timber

The method by which operational practices are designed and introduced can be equal to, if not more important than the broad policies themselves. Long term, large scale investment requires long term stability and certainty as to the operational rules of conduct.

The design of operational practices needs to be as open as possible to industry participants and having reached a consensus; their implementation needs to be conducted in such a manner that causes the least disruption and uncertainty in the market place.

The impediments to industry development resulting from the uncertainty surrounding the introduction of the pro posed Project Development Levy, moves to impose export tax on domestic processing operations and the decision to allow log exports to recommence from the Port Moresby domestic supply zone are only the most recent examples of constantly shifting the goal posts”.

As a result, inherent risk factors rise and in the real world of commerce, so do required levels of return in order to validate an investment.

Externally, market development will be a major task over the next several years. Neither industry nor Government has any adequate control over major trade issues in the region or outside the region, and as essentially a market follower, we will have to be able to out- compete others in product, quality, price, quantity and regularity of supply to see the hoped for development and growth of export markets for our processed forest products.

This is by no means certain, but must be confronted and overcome if we are to be successful. As was highlighted in previous export market studies, an internationally competitive processing industry is not developed by building factories - an industry is developed by building markets, and this takes time.

How will obstacles be tackled? Industry is of the view that they must be tackled co-operatively and collectively by the main players working in concert. Top down command” directions won’t work if developed in isolation from real world pressures and circumstances.

The efforts to overcome these obstacles must be based on home grown experience of the real circumstances faced by the Government, industry and people as we move into the future. Government, resource owners and industry will need to cooperate to an exceptionally high degree if PNG is to overcome its competitive disadvantage, and hence gain optimum return from dedicated production.

Reprinted from PNG RESOURCES Magazine

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