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October 7, 2016

Mixed prospects for future Indonesian FLEGT licensed timber products

Mixed prospects for future Indonesian FLEGT licensed timber products

There are reasons to believe that FLEGT licensing will help improve competitiveness and could provide a fairly immediate boost to trade in those sectors where Indonesia has already established a strong market position and where EUTR regulatory activity has been focused – such as decking, plywood and wood flooring.

However, significant gains in market share over the long term, particularly in high value sectors like furniture, will only be achieved if FLEGT licensing is combined with policies to improve the international competitiveness of Indonesian wood manufacturers across a wider range of issues.

The good news is that the FLEGT process has some potential to enhance this process through the role it plays to increase industry co-operation, improve dialogue and information exchange with customers and suppliers, raise the overall image of Indonesian products and potentially encourage investment by reducing actual and perceived business risk.

Indonesian supply of wood products to the EU must also be set within the context of the wider market opportunities available to Indonesian manufacturers. The influential “Global Construction 2030” report by Oxford Economics published in 2015 forecast that Indonesia will rise to become the world’s fourth largest construction market by 2030.

The value of Indonesian construction is predicted to rise from around US$250 billion in 2015 to nearly US$700 billion in only 15 years, moving up from its current position as the 11th largest market to overtake Japan.

The same report suggests that European construction will also grow, but only slowly from around US$1,800 billion in 2015 to US$2,250 billion in 2030, little more than the total value of the European market in 2007 before the crash (US$2200 billion).

Therefore, the key challenge, and opportunity, for the SVLK system on which FLEGT licensing is based may ultimately lie in the role it plays to promote efficient delivery of legal and sustainable timber products into the domestic market and to promote new investment in forest, technical and human resources to supply that market.

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