New Research by Leading International Forestry Nonprofit Comes to Surprising Conclusion
That Oil and other Cash Wealth Can Slow Destruction of Rainforests

JAKARTA, INDONESIA (Monday, 23 June 2003) – A new report released today by one of the world’s leading international forest research centers comes to the startling conclusion that producing oil and minerals actually helps some countries protect most of their forests and the exotic animal and plant species that live there. The report was produced by the Indonesian-based Center for International Forestry Research (CIFOR). CIFOR does not receive funding from oil or mining companies.

Since practically one half of all tropical forests are in countries that rely heavily on petroleum and mineral exports for their incomes such as Venezuela, Gabon, Ecuador, Indonesia, and Papua New Guinea, this conclusion has huge implications. Over 12 million hectares of natural forest, corresponding to the size of Greece, are lost in the tropics every year.

"The prospect of Iraqi oil flooding the world market over the next few years and pushing down gasoline prices is music to the ears of consumers. But our research has found that it could be devastating for tropical forests," said Sven Wunder, author of the report, who is an economist at CIFOR.

The report, titled Oil Wealth and the Fate of the Forest: A Comparison of Eight Tropical Countries, argues that high incomes from oil and minerals can relieve pressure on forests in several ways. High revenues from oil and mineral exports strengthen exporters’ national currencies. The resulting changes in exchange rates makes it less attractive to invest in activities associated with forest-destruction such as farming in forested areas and logging. Oil-rich governments increase spending on urban development. That stimulates the urban economy and attracts people out of the jungle and into the cities, allowing forests to come back-or at least deforestation to go down, according to the report.

"When developing countries get higher prices for their oil and mineral exports, it usually makes agriculture and logging less profitable," said Wunder. "If people can earn more money from oil and mineral activities-or the government bureaucracies and construction booms they finance-those people are less likely to cut down forests to farm."

When oil and mineral revenues fall and economic crisis follows, everything works in reverse, potentially causing widespread deforestation, says the report. Currencies weaken, making logging and the expansion of farming into forest areas more profitable. Unemployed urban workers move back to the countryside where they can hunt for bushmeat and clear forests to grow crops.

Environmentalists have campaigned for years against the damage inflicted on forests by oil and mineral companies slashing through virgin jungle to build drilling platforms, worker camps, helipads, and access roads. According to the new report, however, such negative direct impacts resulting from mining and petroleum are only part of the story. "The indirect, forest-protecting macro-economic effects oil wealth brings greatly outweigh the direct negative impacts associated with oil production and mining. The crucial factor is how governments spend their oil wealth," Wunder said.

Other Types of Cash Infusions Also Protect Rainforests

The implications of this analysis go far beyond minerals and petroleum. "The key lesson from this research is not that oil and mining are good for forests, but rather that changes in commodity prices, exchange rates, and wage rates frequently have a much greater impact on the environment than most people realize," said Wunder. "Even though these effects are indirect and invisible to the eye, they can actually be quite large."

Wunder points out that the positive impact on forests does not have to come only from an increase in oil or mineral wealth. Indeed, many types of capital inflows can have the same beneficial effects on forests as oil and mineral revenues. As Kristalina Georgieva, the Director of the World Bank’s Environment Division, and author of the foreword to the report notes, "other international capital transfers, like bilateral credits, aid or debt relief, can have similar impacts" as oil and mineral revenues and can also help to alleviate pressures on forests.

"People have been arguing for some time about whether relieving the large level of foreign debt held by many developing countries would help them save their forests," said Wunder. CIFOR’s study suggests in most cases it would, especially in the poorest countries of Africa. "This is also true of foreign direct investment or the money sent home by immigrants living in the United States or Europe," continued Wunder.

The results of CIFOR’s study also lend weight to critics of economic austerity programs involving large currency devaluations. According to CIFOR’s Director General, David Kaimowitz, "If developing countries are forced to devalue their national currencies as part of some International Monetary Fund program, this will make it much more profitable to cut down the forest. That may be good for the economy, but it spells trouble for forests."

Cases in Point: Gabon and Venezuela

Few countries illustrate the impact of oil wealth on rainforests better than the sparsely populated Central African nation of Gabon. Up until the 1970s, most Gabonese lived, farmed, and hunted in villages in the forest. After oil revenues shot up during the first oil crisis in the mid-1970s, however, people moved to the cities, giving up their thatched huts for suburban houses-and in the case of the elite, French champagne and high rise buildings of Libreville, the country’s capital.

Most people living in Gabon, which came to be known as the "African Emirates," stopped farming and ate imported food instead. This has not necessarily been a wise development strategy, especially since oil resources are slowly drying up, which will make it necessary to develop alternative income sources.

But for forests, it has been excellent news, according to Wunder. In many rural areas of the interior, oil wealth has caused a dramatic rural exodus, and forests have grown back in abandoned fields. One village chief named Mbouila Thaopile described the process like this, "Nobody lives here anymore. The young are leaving and the elephants and gorillas run freely through our gardens, destroying what little we grow to eat."

As a result, "forest cover in Gabon has basically remained unchanged since 1970, probably with marginal net reforestation," according to the report, whereas the average tropical country loses its forest at a speed of about 1% per year.

In other cases the story is slightly different. In Venezuela, for example, when oil first became important back in the 1920s, the country initially went through a process similar to Gabon. People moved massively to the cities, abandoning the rural areas. Forest area markedly increased up to 1950. But, after World War II, unlike Gabon, the government used large amounts of its oil money to build roads into the jungle and promote cattle ranching, at the expense of forests. So, deforestation started to pick up, even though it remained much lower than in other forested countries. The difference for forests was how the governments used their oil wealth.

Given Wunder’s controversial conclusion that oil and mineral exports can be good for forests, some critics might think that this report is out to promote the big oil companies. However, Wunder emphasizes that the positive indirect benefits for forests from oil and mining do not justify mining companies unnecessarily damaging the environment.

"Environmentalists should not misinterpret this report. The research in no way excuses companies using destructive mining practices that excessively damage the environment. But the report does say that unless governments adopt extremely land-extensive and forest-damaging policies, oil and mining will benefit forests through a range of powerful macro-economic effects," Wunder said.

For further information, contact:

Ellen Wilson, Preeti Singh or Joe Sutherland (in U.S.) at
or psingh@burnesscommunications.com or
Greg Clough (in Indonesia) at +62 251 622622, email: g.clough@cgiar.org