Using Timber to Bridge India and the Russian Far East

By:
Timber

 

India is one of the world’s largest importers of timber, having imported over 3 mn cubic meters of tropical logs in 2016 and 346,000 cubic meters of tropical veneer. As a significant end user of timber products, India has hit 2.5 mn cubic meters consumption of tropical plywood over the recent years.

The bulk of imports have traditionally come from countries like Malaysia, Myanmar, Ghana, Ecuador, Costa Rica, Côte d’Ivoire, the Solomon Islands and Papua New Guinea. However, the industry has faced difficulties in securing raw material, with supplies of teak from Myanmar, previously a major supplier, plunging in 2015 in response to log export restrictions imposed in the country. Further to this, the reduction in availability and rising costs of log imports from the state of Sarawak, Malaysia has led to an increase in India’s imports from other major supply sources.

This opens up opportunities for suppliers in the far east region of Russia, which enjoys an abundance of timber resources. Russian forests constitute over 20% of the total global forest area, which is several times more than in any country with a leading timber industry, like the US, Canada, China, Sweden, or Finland.

With a recent orientation towards exports, development of a good resource base and a stable demand, the Russian timber industry has demonstrated a steady production growth; with the harvest reaching 214 mn cubic meters of wood in 2016, a record high for the last 20 years.

The Ministry of Industry and Trade in Russia has initiated various steps to promote the timber industry that includes subsidized interest rates on loans for producers and financial aid in priority investment projects (especially in the Far Eastern Federal District), and project finance. Other measures include incentivizing the production of high value-added products as well as advanced and innovative products such as nano pulp, biofuel, high-quality paper and cardboard. Efforts are being made towards the improvement of the forest legislation and industry management system. Russia’s Ministry of Natural Resources predicts a 50% increase in the timber harvest from each leased hectare by 2030, if the aforementioned measures are implemented effectively.

With the restricted availability of logs from Myanmar, Indian manufacturers have been investing in manufacturing facilities in Myanmar, Lao PDR, Vietnam, Indonesia and Gabon. Such investments may now be channelized towards the Russian Far East to capitalize on the abundance of resources and build India-Russia cooperation through trade.

China, the largest importer of Russian timber, has gained an early mover’s advantage. An example of this is the construction of the Asinovsky Timber Industrial Park in the Tomsk Region with an annual timber procurement and processing volume of 4.5 mn cubic meters. The main investor is China’s AVIC International, which manages the project through its Russian branches, RosKitInvest and Khenda-Siberia.

Stakeholders in India will have to reorient their investments and import strategies to compete with the dominance that their Chinese counterparts enjoy in the Russian Far East. There is an increasing sentiment inside Russia to diversify and not only focus on the Chinese market. This paves the way for increased bilateral investments between India and Russia that can supplement the political closeness that the nations already enjoy.

India’s growth in timber consumption in 2016 was underpinned by robust private and public consumption. Consumption was supported by lower energy costs, public sector salary and pension increases, and favorable monsoon rains, which boosted urban and rural incomes. Economic activity also benefited from a pickup in foreign direct investment (FDI) and an increase in public infrastructure spending.

According to The International Tropical Timber Organization’s Market Information Service (MIS) reports, India’s housing and construction sector is a significant plywood end user and activity had slowed in 2015-2016 but is expected to pick up in 2017-18, particularly in the Northern and Western regions of the country. Investment in the affordable housing segment of the construction market is expected to be boosted by government tax incentives and access to lower interest financing for projects.

The India-Russia Business Dialogue that took place on 22 December 2017 in New Delhi highlighted the need for the business community to catch up and build on the bedrock of the strong political ties between the two nations. Sergey Cheremin, a minister of the Moscow City Government, who is also the head of the Department of International Economic Relations of the Moscow City, led the engagement between the industry stakeholders during the Dialogue. He stressed on the need to tap into the potential of bilateral trade between the Russian Far East region and India.

The increasing demand for timber in India along with the Russian Government’s programs to prioritize the industry’s development makes timber the ideal resource to build this bridge between India and the Russian Far East.