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Abstract: Good governance of natural resources is key to national development. For resource-dependent countries1, the economies of democracies grow faster than despotic autocracies—provided, however, that sufficient restraint on political power exists. Where ‘checks and balances’ are absent, democracies actually lag behind. Thus, the importance of oversight mechanisms like the Extractive Industries Transparency Initiative (EITI), which requires the regular publication, by individual companies and government, and the reconciliation and audit of all material benefits made by companies and revenue received by government in the oil, gas and mining sectors. When Liberia joined the EITI, it decided to include forestry in its reporting. Over the last two decades, logging had been a source of patronage; previous governments colluded with industry to evade millions of dollars in taxes. However, lost revenue was not the only impact on governance. Loggers trafficked weapons and revenue from logging fueled violent conflict, so that in 2003 the Security Council sanctioned timber from Liberia. In many ways, however, Liberia is not unique. Illegal logging—harvesting in excess of authority, or avoiding taxes—comprises up to a third of all timber in trade. An estimated US$10 billion a year is lost worldwide. But the costs are more than just financial. Persistent impunity for illegal loggers challenges the authority and legitimacy of the state; hand in hand with erosion of rule of law is the entrenchment of corruption. All of which has implications not only for economic development but for the human security of already vulnerable rural people. The ceding of forests to logging companies represents a significant loss of forest-based livelihoods, as well as cultural uses of the forest. In relatively lawless regions, security forces intimidate community members, violating human rights, in order to protect logging operations and gain access to forests. In fact, financial oversight is just one of the mechanisms necessary to confront illegal logging. Nonetheless, the EITI can play a valuable role in reinforcing rule of law. In developing countries, privately held companies dominate the forestry sector. Free of the reporting requirements of publicly listed companies, this opacity increases the risk that logging companies are mere shell companies with little assets to recover. And the tax structure of logging creates clear incentives for companies to ‘cut and run’.
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Résumé : Good governance of natural resources is key to national development. For resource-dependent countries1, the economies of democracies grow faster than despotic autocracies—provided, however, that sufficient restraint on political power exists. Where ‘checks and balances’ are absent, democracies actually lag behind. Thus, the importance of oversight mechanisms like the Extractive Industries Transparency Initiative (EITI), which requires the regular publication, by individual companies and government, and the reconciliation and audit of all material benefits made by companies and revenue received by government in the oil, gas and mining sectors. When Liberia joined the EITI, it decided to include forestry in its reporting. Over the last two decades, logging had been a source of patronage; previous governments colluded with industry to evade millions of dollars in taxes. However, lost revenue was not the only impact on governance. Loggers trafficked weapons and revenue from logging fueled violent conflict, so that in 2003 the Security Council sanctioned timber from Liberia. In many ways, however, Liberia is not unique. Illegal logging—harvesting in excess of authority, or avoiding taxes—comprises up to a third of all timber in trade. An estimated US$10 billion a year is lost worldwide. But the costs are more than just financial. Persistent impunity for illegal loggers challenges the authority and legitimacy of the state; hand in hand with erosion of rule of law is the entrenchment of corruption. All of which has implications not only for economic development but for the human security of already vulnerable rural people. The ceding of forests to logging companies represents a significant loss of forest-based livelihoods, as well as cultural uses of the forest. In relatively lawless regions, security forces intimidate community members, violating human rights, in order to protect logging operations and gain access to forests. In fact, financial oversight is just one of the mechanisms necessary to confront illegal logging. Nonetheless, the EITI can play a valuable role in reinforcing rule of law. In developing countries, privately held companies dominate the forestry sector. Free of the reporting requirements of publicly listed companies, this opacity increases the risk that logging companies are mere shell companies with little assets to recover. And the tax structure of logging creates clear incentives for companies to ‘cut and run’.
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