The Russian timber sector had a difficult 2003, with the financial position of many businesses summed up as ‘unstable’.
According to the Ministry of Industry, Science and Technologies (Minpromnauka), timber production grew by just 1.5%, one of the lowest growth rates in Russian industry. This compared with 2.4% growth in 2002 and 18% in 1999. Timber harvesting last year was down 5.2%.
However, there was better news from wood-based panel producers. Particleboard production in 2003 rose by 15.9% compared with 2002, plywood by 7.8% and hardboard by 3.7%.
And this year the industry as a whole is more upbeat. In January, log removal increased by 11.6% compared with January 2003 to 11 million m3, sawn timber production increased by 9.2% to 1.4 million m3, plywood output rose by 10.9% to 174,000m3, and particleboard by 22.5% to 296,000m3.
In 2003, timber exports rose by 11.8% compared with 2002, reaching US$5bn. Imports were up by 15.9% to US$2.3bn.
According to industry sources, there were also some positive trends in the nature of the exports: the proportion of raw material fell by 1.4% while the proportion of sawn timber increased by 3.2%.
Added-value priority
Last month the government declared that the move towards increasing added-value production should be a priority for the industry. As a spur to this, according to the deputy minister for economic development and trade Mukhamed Tsikanov, export taxes for round timber may rise, although he accepted that timber exporters would need some time to prepare for any increase.
Total capital investment in the industry in 2003 was estimated at Rb22bn. This represented a rise of 8% on 2002, but industry correspondents say the figure is still not high enough if the sector wants to make more rapid progress down the added-value route and raise the overall growth rate. They estimate that between Rb57-85.5bn (US$2-3bn) a year is needed. Currently the bulk of investment comes from timber companies themselves, accounting for Rb13.3bn of the total spend in 2003.
Last year direct foreign investment was estimated at Rb4.2bn (US$150m), 145% above the level of 2002. And 87% of this money went to the woodworking industry.
Another problem still dogging the Russian industry is the lack of effective forestry legislation. The new forestry code proposed by the government has not been adopted yet and is coming in for criticism from both timber traders and environmentalists. The code has created heated debate because it has not addressed many questions. Some critics say it could lead to the exclusion of Russia from world timber markets and to a loss of state control over forest management.
Some also fear that the auction system proposed for timber in the code could lead to many small and middle-size enterprises going bankrupt.
Privatisation
Full privatisation of the industry is also meeting opposition from those who feel it could result in industrialists buying forests but not using them effectively or at all for timber production. In addition, there are worries over the ecological performance of forestry under the new code and the protection of the interests of local stakeholders.
But the government insists that the code must be adopted and claims it will attract much needed investment in the industry. They also reiterate that it does not propose the immediate privatisation of forests as companies must rent land for 15 years before they can make a claim for private ownership.
The code should have been debated by the government in mid-February but the initial reaction was so negative that the discussions were postponed for a month. It is also thought that Russian government restructuring and the presidential election will add further delays to any final decisions.