In Laos, Cronyism Is Fueling Illegal Logging With Little Payoff

Laos is a small, mountainous, landlocked country that’s ruled by one of the few one-party communist regimes left in the world. That’s not normally a recipe for economic success, and the Southeast Asian country ranks near the bottom of the world for per capita GDP. But Laos’ economy is growing at one of the fastest rates in the world, largely because the country is very resource rich. Unfortunately, that growth has led to an incredible pace of deforestation that’s fueled in part by rampant cronyism.

Laos’ fertile forests are ripe with timber sought by processors throughout Asia, especially in neighboring Vietnam. Laos is one of only four countries in the world to host a natural teak forest — along with India, Myanmar, and Thailand — and sustainable logging of the valuable hardwood could be a key long-term growth driver for the country. But even as planted teak forests increase, pristine forests are shrinking, in part due to illegal logging by politically-connected corporations that are able to buy exemptions to logging regulations.

In March, the Laos government announced it would work harder to regulate the logging trade to help ensure the health of its forests and keep Laos’ hardwood trade clean and free-flowing. But according to a newly-released Environmental Investigation Agency report (PDF), the quota systems put into place are lackadaisically enforced, and well-connected logging operations are having little trouble clearing protected forest areas and smuggling timber into Vietnam.

Under Lao law, exports of raw, unprocessed logs are banned completely. The goal of the export ban is twofold. First, the ban helps the country get full value out of its teak resources by fostering the development of a domestic timber processing industry. Second, the ban also supports sustainable harvesting and growth of planted forests by making sure logging output keeps pace with growing production capacity.

However, the EIA report shows that the Lao government has written a number of opaque exemptions to the myriad laws that constitute the ban. That means that the government basically has carte blanche to grant exemptions and loopholes to its own laws whenever a “connected” company requests it. One ploy used involves the granting of permits for hydroelectric, infrastructure, or mining feasibility studies, which allow corporations to set up logging operations inside of protected forest zones.

The process is simple: the Government of Laos (GoL) prepares and signs a Memorandum of Understanding (MoU) with a business that is basically a legal agreement that can stand outside of laws on the books. High-quality logs cut with MoU exemptions are then often sold to Vietnam for processing, often facilitated by an economic branch of the Vietnamese military.

One entity that takes full advantage of this is the Phonesack Group, a major logging and development enterprise that the EIA has previously implicated in illegal logging, development, and bribing of officials. From the report:

In March 2012 Phonesack Vilaysack, chairman and owner of Phonesack Group, signed an MoU with the GoL entitling it to undertake an 18-month feasibility study of a large hydroelectric dam project, Nam Theun 1 (NT1). The proposed dam had already been a source of significant controversy, as it will involve the deforestation and inundation of thousands of hectares of the Nam Kading National Protected Area (NPA), a globally significant biodiversity hotspot. NT1 had previously been left out of Laos' power development strategy because it was not considered to be economically viable. Despite this, logging of the area began before necessary permits had been obtained by Thai and Malaysian firms engaged by the original project developers. In July 2012 an NPA ranger at the proposed dam site inside Nam Kading NPA told EIA researchers that Phonesack would be setting up a base to begin logging the park within the month. Phonesack seems likely to use the project and the surrounding national park as a source of logs for export for years to come. The granting of the MoU is further testimony to Phonesack's close links with senior figures in the GoL, especially given the controversial nature of the company's involvement in logging and mining associated with a previous hydropower project – the Nam Theun 2 (NT2) dam. External monitors of NT2 found that Phonesack was involved in systematic and repeated illegal exploitation of the Nakai Nam Theun National Protected Area (NPA).

The issue is more than just an environmental one. While it’s important to protect Laos’ pristine forests and the biodiversity they contain, it’s extremely difficult to tell a poor nation not to utilize some of its extremely valuable natural resources. That makes such cronyism all the more frustrating. Laos’ export ban was designed to help the country get as much cash out of its forests as possible; rather than selling logs wholesale for relatively little value, using those logs to build a wood processing industry — and perhaps a competitor to Vietnam’s furniture industry — Laos can maximize the economic development it gets out of its logging industry. And as Lao timber processing grows, so will timber farms that reduce the impact of the industry on pristine forest.

But when officials and companies circumvent those regulations to make a quick buck, Lao forests get gutted without reaching much of their economic potential. That’s not to mention the standard environmental issues caused by illegal logging, which include over-deforestation, clearing sensitive areas, and making quota systems useless and unreliable. For a country that, despite strong growth, is still very poor, it’s frustrating to see Laos’ resources being stripped and sold for less of a payoff than they could be.

Follow Derek Mead on Twitter: @derektmead.