Illegal activities have far-reaching economic, social and environmental impacts, including government revenue loss, ecological degradation and greater income inequality.
Many forest laws prescribe the adoption of sustainable management objectives, including social welfare (livelihood support, recreation, etc.) and the protection of forest ecosystem services (watershed protection, carbon sequestration, biodiversity conservation, etc.), which have no market price and may therefore be of little interest to private operators and governments working towards short-term political and private gains. Operating in illegal ways precludes achieving these societal and environmental objectives and can lead to widespread environmental damage. Illegal activities can be a threat to biodiversity, and in some cases may breach the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).
Illegal activities may distort the entire global marketplace for a number of key timber products, thereby hampering sustainable management, which is subject to higher costs associated with good husbandry, proper tax declaration and so on. Illegal operations depress the market value of forest products, reduce the comparative profitability of sustainably produced forest products and give a competitive advantage to illegal operators. The difference between legal and illegal production costs, and thus the magnitude of price rises expected if illegal activities were eliminated, can be substantial. For example, an analysis carried out in the United States estimates that domestic roundwood prices would be 2 to 4 percent higher if "suspicious" global roundwood production were eliminated. United States exporters, in the absence of competition from illegal operators, would be able to increase their exports of wood products by an estimated US$460 million per year (Seneca Creek Associates and Wood Resources International, 2004).
While responsible investors shy away from countries where the rule of law is weak and where investment risks are consequently high, unscrupulous corporations find this kind of environment favourable. Over time, corporations which engage in illegal operations may manage to dominate the sector in such environments.
If financial proceeds of these illegal operations are sent abroad, they limit possibilities of re-investment in the forest sector.
Illegal activities represent a major loss of revenue to many countries by depriving governments of income from taxes, stumpage fees and other costs associated with legal forestry. For instance, it is estimated that government losses due to evasion of the Felling Tax alone are between US$5 and US$10 million per year in Cameroon (Auzel et al., 2002). The World Bank estimates that illegal logging results in additional losses of at least US$10 to 15 billion per year of forest resources from public lands alone (World Bank, 2005). A Senate Committee in the Philippines estimated that the country lost as much as US$1.8 billion per year from illegal logging during the 1980s. The Indonesian Government estimated in 2002 that costs or foregone revenues related to illegal logging were US$3 billion a year.
It is sometimes argued that the rural poor may benefit from weak law enforcement as they may illegally enter public lands and use forest resources without paying taxes or other usage fees. While the interactions between illegal activities and inequality are very complex, the cases examined for this publication show that when the rule of law is weak, major stakeholders wielding considerable power eventually tend to dominate the utilization of forest resources (Box 8). Corruption affects the livelihoods of the poor more than those of the better off (Transparency International, 2004a). Benefits of illegal acts accruing to the poor are therefore likely to be transitory. Moreover, illegal acts also weaken the capacity of government to provide services to the forest-dependent poor, such as technical assistance and proper delimitation and consolidation of property rights.
Illegal forest operations can be linked to conflicts and wars. In some countries, timber is traded by armed groups, be they rebel factions or regular soldiers, or by a civilian administration involved in armed conflicts to either perpetuate conflict or take advantage of conflict situations for personal gain. "Conflict timber" trade undermines the development of democratic institutions and political stability. The substantial revenues from illegal logging sometimes fund and thereby exacerbate national and regional conflicts, as in Cambodia, Liberia and the Democratic Republic of Congo.
Factors contributing to the occurrence of illegal operations in the forest sector are multiple as well as inter-related. Thus, any strategy aimed at addressing the problem of illegal activities needs to be holistic and include a wide range of policy, legal, institutional and technical options (see Figure 2) in order to:
A strategic approach should carefully balance measures to discourage illegal activities, such as stricter controls and punishments, with activities that encourage legal behaviour such as incentives and simplified regulations. Measures aimed at increasing control alone are seldom successful where the economic attractiveness of illegal behaviour remains. In these cases, illegal operators will always find a way to circumvent controls.
A few countries have already recognized the urgent need to develop a comprehensive and coherent strategy to tackle the problem of illegal logging in consultation with a range of stakeholders. Costa Rica and Indonesia, for instance, are developing strategies based on prevention, detection and suppression of illegal activities (Boxes 9 and 10).
In carrying out the above-mentioned steps, four elements appear critical:
Elements of a strategy to promote legality in the forest sector
While illegal logging may inject large amounts of cash into an area, benefits in terms of livelihoods are thin and temporary. In the Sico-Paulaya valley, Honduras, legalized and clandestine production of about 11 000 m³ of mahogany over 2000 and 2001 brought local people about US$1.2 million in wages and profits. However, over half of the income was grabbed by powerful community members, eventually leaving only about a quarter of it for poorer groups. After the misappropriation of funds by elites and the purchase of chainsaws for the cutting operation itself, only 6 percent of the value of the timber produced could ultimately have been invested in local livelihoods, and it is likely that the poorest households captured very little of this.
Source: Wells et al. , 2004
In 2001 Costa Rica approved its National Forest Development Plan after a lengthy process involving all important stakeholders. One of the priority actions of the Plan is the control of illegal logging in the country, which has become a serious problem in recent years. The Plan estimated that at least 25 percent of the timber produced in Costa Rica comes from illegal sources. The Ministry of Environment and Mines (MINAE) commissioned a series of studies to analyse the root causes of illegal logging and propose measures to overcome the problem. On the basis of the results and with the assistance of different stakeholder groups, particularly the NGO Fundación para el Desarrollo de la Cordillera Volcánica Central (FUNDECOR), in 2002 MINAE developed a comprehensive, five-year strategy aiming to:
The strategy consists of a wide range of measures to prevent, detect and control illegal forest activities. It includes measures to discourage illegal logging (stricter control using geographic information systems [GIS] and global positioning systems [GPS], forest control brigades, internal and external auditing) as well as those designed to encourage legal behaviour (simplifying regulations, reviewing the forestry law, promoting reforestation and forest management). An external advisory group consisting of representatives of different stakeholder groups such as research institutions, NGOs, private sector representatives, environmentalists and the professional association of private foresters assists the government in the implementation of the strategy.
Source: MINAE, 2002
The Government of Indonesia has recognized the urgent need to tackle the problem of illegal logging. Over the last two years, a wide range of stakeholders have participated in a detailed assessment and series of consultations to develop a strategy to combat illegal logging.
The strategy resulting from these consultations is summarized as a ten-point Action Programme:
Source: H. Speechly, DFID, personal communication, 2005.