According to the state statistic committee, in the first six months of 2003 timber enterprises increased output by 3.2% compared with the same period of 2002. Output of some woodworking products, such as plywood, wood based panels and cardboard saw the biggest growth.

Harvesting volumes increased by 0.2% up to 49.4 million m3, sawn timber production increased by 0.9% up to 8.8 million m3 and particleboard production rose 20.7% up to 1.5 million m3 compared with the first half of 2002. Production of door blocks was down by 2.6% to 1.9 million m2.

Industry analysts believe these figures indicate that production growth is still unsteady and slow. Growth is usually based on the success of the pulp and paper industry but growth of 2-2.2% a year is not enough to overcome the limitations of deteriorating assets, low investment and legislation which does not encourage investment.

Only US$400m of foreign investment has been directly invested in the timber industry over the past four years. Meanwhile, according to the Ministry of Industry, Science and Technology, US$25bn needs to be invested between now and 2015, including nearly US$19bn for the development of the pulp and paper industry. Experts at leading investment companies say that annual investment of US$2-3bn is needed.

Growth forecast

However, the Ministry of Economic Development and Trade announced that output is expected to grow by 2.5% this year and, by 2006, will be 15-19% higher than 2002. The proviso is that these predictions are based on greater value-added processing and favorable economic conditions in export markets.

Revenue from wood and paper product exports in January-February came to US$7.6bn – 11% growth on the same period of the last year. Sales were up for all main product categories, except for round timber which is gradually being replaced in the export market by value-added products. However, raw material still dominates exports and this will only change when duties on processed timber products are reduced or abolished.

Meanwhile, in June export customs duties for newsprint in rolls and sheets was reduced to 5%. And in beginning of July export duties for a number of products, such as wood flour, wood wool and for a number of pulp and paper products were abolished.

Lack of certification is another urgent problem for Russia because about 75% of its round timber, 40% of sawn timber and 30% of cellulose is exported to the environmentally-sensitive markets of Europe, the US and Japan. Certification is in its infancy in the country, but it is making some headway. In May, a national council on forest certification was set up to develop different systems of forest certification and to establish specialist advisors.

The Ministry of Natural Resources believes that certification will solve the problem of illegal harvesting. A recent report by the WWF estimated that 35-70% of Russian timber is of illegal origin and Russia is losing up to US$1bn a year from illicit operations. The government has charged the ministry with preparing a new Forest Code with the aim of improving forest legislation. However, experts believe that the project is still very controversial.

Lost revenue

When the Audit Chamber examined the results of a review of government credits and preferences to the timber industry in 2000-2001 it noted inconsistencies in the state policy governing the industry. Allocation of money for scientific research and state investments has been reduced over the past three years. Numerous middlemen bought timber cheaply from financially weak companies and sold it abroad at prices well below those on the world market. Considering that the average world price for unsawn timber is US$77/m3, and in Russia the price is just US$47/m3, the state lost a considerable amount of hard currency revenue and tax.