ENCOURAGING VALUE-ADDITION INVESTMENT -GOL REPLIES GLOBAL WITNESS
The government of Liberia says the Forest Industrial Development & Employment Regime Act of 2017 which was mentioned by UK based watchdog organization, Global Witness in its recent report was passed to alleviate pressure on the logging sector and to “encourage value-addition investment” as part of government’s effort to diversify the country’s economy and engender inclusive and impactful growth. The government statement comes in the wake of a publication on December 19, 2017 by Global Witness which criticizes the law and described it as a ‘secret tax break’ of US$13 million dollars for logging companies.
In a press statement issued December 22, 2017, the Liberian government clarifies that contrary to the allegations contained in the Global Witness publication, the act does not provide the timber industry a $13 million tax gift and that every penny the logging concessions owe is still due and payable.
The government’s statement issued by the Ministry of Information, Culture & Tourism added that the bill provides an incentive for companies to accelerate the investment in the processing industry – the companies can offset investments in saw mills, dryers, plywood factories etc. against the portion of the tax bill that comes from the bid premium.
“Those companies that harvest and export continue to pay the timber taxes as they have in the past years since starting operations – this amounts to about $30 to $35 for each cubic meter exported,” the Government of Liberia intimated.
According to the government, the economic rationale behind the bill is straight forward: encourage companies to expand production because the country is today operating at 10% to 20% of capacity compared to what was envisioned 5 years ago; incentivize companies to build the processing industry in lock step with expansion of production that would stimulate employment and expand the government’s tax base for development financing; substantially leverage the multiplier effect of investments in the logging sector and expand and deepen linkages to other sectors of the economy; expand the total tax base and collect more taxes cumulatively over the next 5 years with this bill than without
The statement also pointed out that the present administration has repeatedly demonstrated full commitment to the sustainability principals under the Forest Law Enforcement, Governance and Trade regime in keeping with its Voluntary Partnership Agreement with the European Union. The focus on controlled harvesting with a push to stimulate processing and employment is precisely part of the FLEGT agenda.
“Liberia is focused on the socio-economic benefits and the environmental sustainability of a profitable commercial logging sector. It is therefore unfortunate that Global Witness would suggest that this investment program which is aimed at engendering value addition and sustainability in forest management as one that “puts back efforts to halt climate change” and “short changes the Liberian people,” the government maintained in its December 22, 2017 press statement.
The Liberian Government continued: “Global Witness and others with interest in the proper management of the forest resources to eschew uninformed rhetoric and focus on facts and data: sustainable commercial tropical forest management in collaboration with the local people is the best way to protect the forests and this happens only when the industry becomes profitable; today, illegal logging does not take place in the commercial concessions and efforts to tackle it in open public forests are yielding positive results; the Liberian sustainability management process is not perfect yet, and room for improvement definitely exists, but today the commercial logging companies in Liberia are not harvesting timber illegally nor do they export without paying taxes. Any claim to the contrary is false and misleading.”
However, the government emphasized that Liberia does have a lot of timber sold locally that is harvested illegally and the GOL collects zero tax. All that timber is produced by local people – it is known as the pitsaw industry.
“The government has accepted certain accruals of outstanding land-based taxes, namely the original bid premiums and annual land fees, because the government was not able to fulfill all its obligations in a timely basis under the terms of the concession agreements with regard to infrastructure, particularly roads, bridges, ports etc, the press statement added.
The statement disclosed that the “government agreed to a payment plan with each company for the outstanding balances. This recognizes the fact that certain delays in the development of the timber sector occurred through no fault of the concessionaires. This practice is not unique to Liberia. It is evidence of good governance. It is also evidence of Liberia’s desire to encourage private sector investors to locate here. The alternative to government’s forbearance in this regard would have probably been litigation”.
There are examples in several countries of the OECD where governments have implemented similar programs for particular industrial sectors or for the interest of advancing a national priority. They all do it for the reasons articulated for the Liberian timber sector.
The Forest Industrial Development and Employment Act is good economic policy. It focuses the industry on the right commercial, industrial and national priorities: local processing, employment creation and resource sustainability.
The government, in its continued practice of transparency, remains prepared and willing to grant access to Global Witness to all its activities, transactions and programs relating to the forest sector.