FOREST SECTOR REFORM IN THE DRC: STAKEHOLDER

UNCLAS SECTION 01 OF 04 KINSHASA 001127

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EAID ECON EINV ETRD SENV EAGR KGHG CG
SUBJECT: FOREST SECTOR REFORM IN THE DRC: STAKEHOLDER
REACTIONS, PART II OF II

REF: A. A. SECSTATE 56792

B. B. SECSTATE 87904

C. C. KINSHASA 1037

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1. (SBU) Summary: The GDRC is reviewing 156 forestry titles
for conversion into new titles as part of its forestry sector
reform and economic development plan. The process is intended
to regulate the forestry sector in a way which encourages
sustainable resource management, improves forestry
conservation efforts, and maximizes the sector's contribution
to local and national economies. Despite significant
technical and financial support from the donor community, the
process remains limited in scope. Competing expectations of
the private sector, civil society, GDRC, and international
community may not all be met unless additional reform
measures are taken by GDRC to support the forestry title
conversion process. End summary.

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Background
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2. (U) As part of the Congo River Basin, the DRC is home to
the world's second largest rainforest. The least exploited
rainforest in the region, it supports approximately 40
million people throughout the country and 20 active
commercial logging companies concentrated in the west. In
2005, President Kabila issued a decree reinstating a
moratorium on all logging concessions and requiring all
existing forestry titles to be converted into new titles. The
objective is to ensure that all operating concessions are
legal and in compliance with the 2002 Forestry Code --
particularly those which may have been issued between 2002
and 2005, in contravention of the 2002 moratorium on logging
concessions, which was not published until 2004. (Note:
Congolese legislation must be published in the official GDRC
journal in order to be considered law. Whether or not the
moratorium was in effect before its official publication in
2004 is a source of contention between the GDRC and private
concession holders. End note.) Of the 156 titles up for
conversion, 114 have had their applications reviewed by a
technical working group (TWG) and await decision by an
inter-ministerial commission (IMC) yet to be formed. (ref A)

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Private Sector: Few Hopes for a Vibrant Industry
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3. (SBU) According to Francoise Van de Ven, Secretary-General
of the Federation des Industrialistes de Bois (FIB),a
consortium of major logging companies in the DRC, forestry
sector reform is long overdue. Jose Mingas and Sabbagh
Youssef, co-owners of Trans-M and ITB, agree that reforms,
such as simplifying the tax system and improving rail, road,
and water transport, could support private sector development
in the DRC's forestry industry and lead to a vibrant
industry. Lacking these necessary changes, however, domestic
industry leaders hold little hope that the forestry sector
will be transformed into an "engine of the economy" even
after the title conversion process is completed. Rather,
private sector reps such as Youssef and Mingas fear that this
initiative might have the opposite effect and further weaken
the industry, given that some companies now risk title
cancellation and/or financial losses.


4. (SBU) According to Van de Van and Youssef, small
family-owned firms, which constitute the majority of logging
companies in the DRC and were granted concessions after 2002,
are assumed to be the most likely to face immediate closure.
(Comment: It is unlikely that small firms would be willing or
able to contest IMC decisions given their low profitability.
In contrast, FIB, Trans-M, and ITB reps told us they would
consider taking legal action against unfavorable decisions
made by the IMC. End comment.) Interviews with public,
private, and government reps, including the Ministry of
Environment's legal expert, revealed that little attention
has been given to the potential socio-economic impact these
closures might have on local economies following the
permanent cancellation of a title or prolonged legal battles
over IMC decisions.


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5. (SBU) Larger companies who oppose the conversion process
generally fear financial losses may result. Many worry they
won't be able to support increased production costs implied
by sustainable forest management plans (SFMP),mandated by
the Forestry Code, and required for conversion. (Note:
According to USAID/Carpe, production costs for SFMPs are
estimated between USD 2.50 and USD 5.00 per ha (USD 1.00 to
USD 2.0 per acre) End note.) Youssef expects that, under
increased financial constraints, future expansion of his
medium-sized company will not be possible. He predicts that
only a handful of companies will survive the conversion
without suffering economic losses. Van de Ven said she knows
of at least 2 companies considering closure and several
others looking to reduce their operations given their bleak
expectations for the industry's future.


6. (SBU) Private sector reps said the conversion process
offers few benefits and only increased uncertainty for their
operations. Van de Ven said that while the FIB has complied
with GDRC conversion requirements and incorporated
sustainable forestry management into its mission, the GDRC
has not reciprocated with any efforts to support private
sector development - whether through the improvement of
road/rail/water transport, simplification of the tax system,
or production incentives. She reported that FIB companies
alone have constructed: 101 schools; 34 health centers and 4
hospitals; nearly 2 km of roads; and over 1,900 homes
totaling USD 16.5 million. This comes in addition to over
USD 50 million FIB claims to have invested in constructing
other structures for local communities. Van de Ven expressed
frustration when noting that, meanwhile, the GDRC is
preparing to add five new taxes to the forestry industry in
addition to the 171 which already exist. ITB and Trans-M
reps agreed with Van de Ven that the conversion process
"serves them in no way" and is "only complicating things" in
the sector. Most private sector reps felt that by being
required to make contributions to local development, while at
the same time paying high taxes, they were being asked to
take on the GDRC's role.

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Civil Society: Wishful Thinking ?
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7. (U) Public interest in the DRC's forestry industry focuses
on concerns for forestry conservation, indigenous rights to
land resources, and socio-economic development of
forest-dependent communities. Of primary concern is the
redistribution of 40 percent of tax revenues generated by the
forestry industry to decentralized entities. Representing
over 800 NGOs, the Congolese Coalition of National
Environmental NGOs (CRON) has, with USAID/CARPE and the World
Resources Institute's Global Forest Watch (WRI-GFW),assisted
communities in selecting representatives to address these
issues as members of the Technical Working Group (TWG) and
the Inter-Ministerial Commission (IMC).


8. (SBU) CRON's director, Flory Botamba, like World Wildlife
Fund (WWF) and WRI-GFW officers, indicated that his
organization received support from the GDRC and believes it
to be sincere in its desire to work collaboratively with
civil society. He said that, with the exception of the FIB,
CRON had received less cooperation from the private sector.
While not singling out any particular company, CRON's
director claimed that he was once physically threatened by a
private sector representative.


9. (SBU) Internal reports by local NGO's involved in the
community assessment phases of the conversion process listed
the following obstacles to their work: restricted access to
concessions; difficulty traveling between concessions;
language barriers; lack of familiarity by GDRC and community
reps with conversion process and forestry code;
intra/inter-communal disputes over shared concessions;
insufficient funding for assessment work; interference of
self-serving government deputies; and resistance of local
communities to participation in the conversion process.
According to the USAID/Carpe, it would be unrealistic to
think that communities will be able to raise, address, and/or
resolve all of their grievances with the commercial logging
industry through this process.

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DRC Government: A Green Revolution?
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10. (SBU) Stakeholders in both the public and private sectors
seem to think that the GDRC is serious about forestry sector
reform; however, many expressed frustration with the approach
being taken by the administration. Industry experts believe
that, in addition to the conversion process, the GDRC must
adopt supportive legislation on decentralization and zoning
in order to ensure that the goals of economic development and
improved conservation are realized in the near future.


11. (SBU) Successful decentralization is considered by many
to be a necessary ingredient of a sustainable forestry
industry in the DRC. All interviewed fear that without
legislation to support decentralization in place, revenue
inflows from industry taxes will not reach local communities
as intended. Stakeholders also share a common concern that
the lifting of the moratorium prior to the creation of proper
zoning plans will be counter-productive to current
conservation efforts. (Note: Forestry zoning is particularly
important for regulating non-commercial uses of forests, such
as subsistence agriculture, home construction, and firewood,
which USAID/Carpe says have the greatest impact on
bio-diversity and forest configurations. End note.) Although
the 2005 Presidential Decree which established the moratorium
requires a concession allocation plan for the first three
post-moratorium years, the GDRC has done little to develop
such a plan. The lack of clarity regarding titles granted
after the 2002 moratorium is an additional source of
uncertainty and frustration for sector leaders.


12. (SBU) In Equateur, one of the most heavily logged and
poorest provinces in the DRC, the Provincial Coordinator for
the Ministry of Environment, Mr. Baseka, agreed that the GRDC
is sincere in its efforts to reform the forestry industry;
however, he said that the sector was unlikely to become a
primary source of development for the region -- a view shared
by Equateur's Governor, Jose Makila, who openly expressed
disapproval of promoting or expanding commercial forestry.
(Note: According to Van de Ven, the Governor has refused
numerous requests to meet with the FIB. End note.) Noting the
large amount of food imported into the region, both officials
advocated the development of agriculture for poverty
alleviation in the province instead.

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International Community: Large Investments, Few Guarantees
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13. (SBU) The GDRC has been able to capitalize on
international interest in forest conservation within recent
years and hopes to do so even more in the future,
particularly as it relates to climate change and carbon
credits. According to Greenpeace, deforestation is
responsible for up to 20 percent of carbon emissions
worldwide. To date, conservation efforts in the DRC have been
led by USAID/CARPE and the Congo Basin Forest Partnership,
CBFP (ref A). According to CARPE administrators,
USAID/CARPE alone has devoted over USD 60 million to forestry
conservation and sector reform in the Congo River Basin.


14. (SBU) The UK/DFID, EU, and Canada recently announced
financial commitments of 50 million pounds sterling (USD 100
million),38 million euros (USD 51.6 million),and 24 million
Canadian dollars (USD 22.7 million) respectively. While
exact allocations of these funds have not been determined, it
is expected that the DRC will receive a significant
percentage of these grants. In late June, the German Embassy
to the DRC also announced it would dedicate 283 million euros
(USD 384.6 million) to environmental work in the DRC. (Note:
Germany is a primary stake-holder in the DRC's logging
industry via the Germany-owned Danzer Group and is next in
line to assume leadership of the CBFP. End note.) In June,
the World Bank also announced the creation of a USD 250
million fund to combat deforestation worldwide, but
especially in the DRC, Brazil, and Indonesia. The Bank has
already made USD 3 million available to the DRC for
post-title conversion work. It also plans to prepare, by

KINSHASA 00001127 004.2 OF 004


2009, a grant through the International Development
Association (IDA) of between USD 30 million and USD 50
million to help the DRC planand manage its forests. The GDRC
also hopes to benefit from the G8's Forest Carbon Initiative,
which will grant developing countries carbon credits for
prevented deforestation.


15. (SBU) Those interviewed were particularly critical of the
World Bank's role in this process and questioned its
motivations and management of its funds. Neither private nor
public sector representatives interviewed had a positive
impression of the World Bank's role in this process.
Recalling how grant conditionality had been used by the Bank
in 2002 to push the GDRC to develop a Forestry Code and set a
moratorium on logging concessions, private enterprises viewed
the Bank as a "bully" or undue source of pressure in the
sector. Van de Ven was particularly critical of the amount
of money and time spent on this initiative and the way the
World Bank's resident forestry expert had "made a mess of the
situation" through personal mismanagement of information.
(Note: Public sector reps also questioned the Bank's
motivation, claiming that its primary interest was commercial
forest exploitation. The Bank is criticized by the
Greenpeace April 2007 report "Carving up the Congo" for
failing to control the "illegal pillage" of the forest. End
note.)

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Comment: Not Meeting Expectations
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16. (SBU) There is broad consensus (within the DRC and
internationally) that pursuing forestry sector reform is a
positive and necessary step; however, there is disagreement
as to whether the current concession conversion process is
the best way of achieving the goals of private sector
development, community-based resource management, and
improved conservation. Unsupported by additional legislation
on decentralization, privatization, and zoning, the
conversion process is short-sighted and lacks elements
necessary for the sector's long-term growth and
sustainability. Both private and public sector
representatives seem to feel that incomplete reforms of this
nature will only contribute to greater uncertainty in the
industry.


17. (SBU) Comment continued: Given the leadership role played
by the USG through USAID/Carpe, the CBPP, and in the World
Bank, the USG is well-placed to support and advocate the
additional steps needed to promote sustainable forest sector
reforms in the DRC post-forest title conversion process.
Lifting of the moratorium on new forestry concessions is
conditional upon implementation of a necessary, but not yet
completed, zoning of the nation's forests into conservation,
logging, and multiple use zones, to be followed by a
transparent bidding process for new logging concessions. A
streamlined tax system for logging that transparently shares
forestry tax revenues with local communities and the new
decentralized government bodies is also a near-term priority.
Strengthening GDRC management and oversight of forestry
activities, including awarding of concessions, monitoring of
logging activities consistent with laws, and good
environmental stewardship and revenue management, will boost
investor confidence and create support for sustainable forest
management. Investment in physical infrastructure, such as
roads, railways and ports, is a massive and long-term
undertaking which will require the concerted effort of the
GDRC and the international community, but it is critical to
the success of the forestry industry and to the overall
development of the economy. End comment.
BROCK