Corruption in the Forestry Sector: why

regional initiatives are needed

Manoj Nadkarni

Forests and forestry trade

Of vital importance to the Asia Pacific Region

– Contributes about 10% to the GDP of Indonesia according to the World Bank

– >Over 15 % to the GDP of Lao PDR ( FAO)

– Developing countries, so this is vital for meeting the MDGs

Some forestry trade figures

Tropical Primary Product Exports by Producing Regions, 2004-2007 (1000 m3 rwe*)

* rwe = round wood equivalent

The Timber Trade in Indonesia

Source: inWent, 2003

Is this a coincidence?

There is an Illegal trade ready and

waiting to to deal with corrupt timber

Illegal trade needs corruption to

survive

Logs are bulky and can only be sold with connivance of host of institutions (transport, customs, environmental protection agencies, police, port authorities)

Source: inWent 2005

What is corruption?

TI Definition:

The misuse of entrusted power for private gain

Why is corruption worthwhile?

Look at forestry….

Illegal Logger Indonesia………….Gets $2.2/m3

Broker illegal log Indonesia………Gets $20/m3

Broker legal log Malaysia………..Gets $160/m3

Source: The World Bank, 2006

The costs of corruption

1) Waste of resources – corruption serves to diminish the total amount of resources available for public purposes.

– Money leaves the investment cycle and enters private domain, goes abroad or results in ‘black money’

– Corruption results in a substantial loss in productive effort and labour force inefficiencies

– The prospect of payoffs can lead officials to create artificial scarcity and red tape

– Money transfers – corruption represents a rise in the price of administration and inefficient public expenditures

– Inappropriate technology acquisition

The costs of corruption 2

Corruption distorts allocation

Corruption causes decisions to be weighed in terms of money, not human need. e.g.: Forests used for sustenance by the poor families, can be turned over to loggers or private industry for agriculture

A corrupt act is a failure to achieve public sector objectives

Reduced competition

The costs of corruption 3

Failure to lead by example

If the elite politicians and senior civil servants are widely believed to be corrupt, the public will see little reason why they, too, should not take bribes

Rule of law breaks down

Corruption in government lowers respect for constituted authority and hence leads to....

...Reduced governmental legitimacy

How is corruption to be fought?

Transparency International

– Is a global civil society organisation leading the fight against corruption

– Brings people together in a powerful worldwide coalition

– Transparency International is a global network of more than 90 local national chapters

TI has put corruption on the international agenda

S O C I E T Y’ S V A L U E S

P U B L I C A W A R E N E S SM

ED

IA

CIV

IL S

OC

IET

Y

PR

IVA

TE

SE

CT

OR

INT

ER

NA

TIO

NA

L A

CT

OR

S

The National Integrity System

SUSTAIN-ABLE DEVELOP-MENT

QUALITY OF LIFE

RULE OF LAW

AU

DIT

OR

GE

NE

RA

L

OM

BU

DS

MA

N

WA

TC

HD

OG

AG

EN

CIE

S

PU

BL

IC S

ER

VIC

E

LE

GIS

LA

TU

RE

EX

EC

UT

IVE

JUD

ICIA

RY

N A T I O N A L I N T E G R I N A T I O N A L I N T E G R I T YT Y

NIS and NIS pillars

Target Countries

Areas of Intervention

foreign bribery and political influence

land and forest concessions

timber laundering

financial transactions

unsustainable demand for forest products

Licensing and Concessions

Improved transparency, accountability and anti-corruption in…

Public institutions and private enterprises responsible for the issuance and ownership of forest and land licenses and concessions,

and the reduction of corrupt practices related to such issuance and ownership

Political Corruption & Foreign Bribery

Improved transparency & accountability in:

Public Foreign forest sector companies in their overseas operations and in their transactions with foreign public officials, and to the reduction of foreign bribery in supply countries

Institutions and political parties in the exercise of their functions in relations to the forest sector, and to the reduction of political corruption

Timber Laundering

Improved transparency, accountability and anticorruption of…

Public institutions and private enterprises that enable and hold responsibility for the transnational movement and certifications of timber and to reducing incidences of timber laundering.

Financial Institutions

•Improved due diligence practices of financial institutions which service forest sector clients

•Decreased incidences of loans to illegal or unsustainable forest enterprises and money laundering.

Unsustainable Demand for Wood

Improved customs and procurement regulations

National/Regional Governance

More effective development and implementation of national and regional forest governance initiatives such as East Asia FLEG, FLEGT and bilateral agreements.

Global Governance

Increased transparency, accountability and effective implementation of global mechanisms aimed at offsetting climate change and avoiding deforestation, such as Reducing Emission from Deforestation and Degradation (REDD) and the Clean Development Mechanism (CDM).

Thank You