GUYANA AND FORESTRY SECTOR AT LOGGERHEADS; BOURGEONING

UNCLAS SECTION 01 OF 02 GEORGETOWN 000459

SIPDIS

SENSITIVE
E.O. 12958: N/A
TAGS: BTIO EAGR EAID ECON EIND EINV SENV ETRD
SUBJECT: GUYANA AND FORESTRY SECTOR AT LOGGERHEADS; BOURGEONING
INDUSTRY FACES DOWNTURN


1. (U) Summary: Guyana's forest-products sector, which with USAID
support grew 56 percent from 2004 to 2006, will likely decline for
the second consecutive year. In general, the private sector has
worked to develop the forestry industry in a sustainable way, and
large international wood companies have signaled readiness to invest
even more. The government regulatory body, the Guyana Forest
Commission (GFC),recently expanded its mission in a way that puts
the profitability of the industry--and sustainable management of
Guyana's vast forest resources--at risk. End summary.

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Setbacks in a Successful USAID Program
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2. (U) Since 2004, USAID, through the Guyana Trade and Investment
Support (GTIS) program, has provided some US$1.5 million to
encourage industry growth by helping local timber producers market
their products and coordinate with forest management NGOs and
international timber companies. In 2006, USAID estimated that every
dollar spent on this program led directly to US$250 in Guyanese
exports. However, after growth of 56 percent from 2004 to 2006,
Guyana timber industry declined by 21 percent in 2007 and will
likely decline further this year.


3. (U) Both the regulatory Guyana Forest Commission (GFC) and the
private sector want to develop the timber industry in a sustainable
manner. However, local and international firms have expressed
concern that the GFC's needed crackdown on logging violations has
been overly harsh. The GFC does not have the staff and the expertise
for effective regulation, and new proposed regulations risk making
sustainable timber harvesting unprofitable. The GFC believes it is
capable of formulating and enforcing regulation policies that
facilitate export growth while ensuring sustainable timber
harvesting. It argues that companies knew for months they were out
of compliance with GFC regulations prior to the levy of heavy fines.



4. (SBU) In addition to regulating the industry and awarding
concessions, the GFC believes it is the organization best suited to
certify that timber was harvested consistent with international best
practices. USAID and the private sector view this as a serious
conflict of interest. Industry standards require that an
independent body certify tropical timber before it is sold on the
world market. Having the GFC control the concessions, enforce
regulations, and certify the timber makes the government agency
susceptible to bribery and corruption, putting long-term sustainable
forest management at risk.

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Private Sector Eager for a Solution
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5. (U) With proper forest management, industry insiders estimate
Guyana can export up to US$300 million in wood products annually, an
amount greater than one-third of Guyana's 2007 GDP. Major U.S. and
European wood companies have indicated they are committed to
remaining in Guyana and increasing their investment. DLH, a Danish
company with large U.S. operations, is currently looking for a
suitable location to invest up to US$4 million in a state-of-the-art
sawmill and kiln that would partner with local firms to meet large
orders. However, they believe industry growth will stagnate if
regulations and concession are not determined in a fair and
transparent manner.


6. (SBU) European and American companies want to move quickly to
improve the regulatory environment. They claim that some Chinese
timber companies bribe low-level officials for favorable concessions
and practice unsustainable timber harvesting that risks harming
Guyana's forest assets. If a fair regulatory and concession policy
is not in place, Western companies fear that Chinese practices will
become entrenched and more widespread, ultimately increasing the
cost of doing business in Guyana.


7. (SBU) Due to potential political ramifications and a desire to
establish a respected regulatory environment, international
companies prefer to work with the GFC to address their concerns
rather than more senior GoG officials, despite indications that the
Minister of Agriculture, who oversees the GFC and has presidential
aspirations, might accommodate them. Instead, the industry, in
conjunction with GTIS and other aid agencies, is trying to persuade
the GFC to leave timber certification to an independent agency and
change some of its regulations to reflect better its capabilities
and international best practices.

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Comment
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GEORGETOWN 00000459 002 OF 002



8. (SBU) The government and private sector will eventually find a
compromise on regulation because both parties ultimately want growth
in the industry. The question is whether an agreement will come
this year, or if the sector will shrink further first. A lack of
understanding about the economics of the world timber industry
hampers decision-making at the GFC, and perceived independent
assessments of the industry will be critical in solidifying a
credible and transparent regulatory environment. Local producers
will need to continue partnering with international timber companies
to gain a foothold in the world market. Successful development of
the forest sector would be a large step towards raising income
levels and reducing poverty in Guyana. End comment.

WILLIAMS