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Unlocking the Potential of Small and Medium Forest Enterprises
In the forestry sector, small and medium-scale enterprises (SMEs) are often considered a vehicle for development, jobs, and poverty alleviation among forest-dependent households, although there is inconclusive evidence that SMEs are always better placed to deliver these benefits than large enterprises. SMEs are thought to constitute 80–90 percent of enterprises in the forest sector. It is estimated that over 40 million people are employed (either part-time or full-time) through such enterprises. SMEs also primarily service the domestic markets for wood and non-wood products—markets that in many regions of the world are growing in tandem with the growing middle class.
Despite widespread support for SMEs, the success of such enterprises in the forest sector has been mixed. Forest sector SMEs, like SMEs more generally, suffer from limited access to business and financial services, lack of support to enhance their competitiveness, regulatory measures that constrain their ability to operate in a "legal" space or that create perverse incentives, and limited access to markets. These and other challenges and constraints for SMEs have been widely identified, and recommendations and efforts have been made to address them in a fragmented and often sectorally bounded manner, limiting the effectiveness of the intervention. A possible explanation is the limited consideration given to whether SMEs should be engaged in a particular forest subsector and, if they should, how to enhance their competitiveness.
This programmatic activity proposes to adopt a “sector-neutral" approach to determining how to create jobs and growth in a sustainable manner. The step-wise approach involves first examining if forestry can contribute to a broader national sustainable development agenda compared to other sectors using, when sustainability considerations (including life cycle analysis) are considered. This is followed by examining if, where, and how SMES could help be part of the forestry contribution to the development objective. Where SMEs are well positioned to contribute to sustainable development agenda, the activity will provide guidance on how to enhance their competitiveness and to develop the needed regulatory, financial, and technical environment. Accordingly, such an approach starts with understanding the optimal uses of timber and non-timber products, given national and subnational development objectives, followed by assessing which subsectors SMEs could be competitive in and how to help them accomplish this.
The long-term development objective of the proposed programmatic activity is to create market and policy environments that support competitive SMEs in the forest sector that are sustainable and contribute to job creation and growth. The long-term development objective is to increase the client’s ability to generate jobs, promote climate resilience and environmental sustainability, and fuel domestic growth through competitive SMEs. This programmatic activity will involve working with colleagues from the Finance and Markets Global Practice and from the Trade and Competitiveness Global Practice.
The work will be done under with three pillars. The first pillar will involve a high-level analysis of issues and experiences and documentation of methodologies. The aim is to bring together the evidence and justification for adopting the approach (compared with the more common approach of identifying how to make SMEs competitive independent of the trends and changes emerging in the subsector). The second pillar will involve in-depth analyses in a small set of countries. The third pillar will focus on knowledge sharing and uptake throughout the activity. The second phase will involve to roll out the approach. The second phase will have four pillars.
Pillar 1: Analysis of issues and experiences and methods
This pillar will capture existing knowledge from:
- Prior applications of the proposed approach in the forest sector
- Cases in which competitive forest SMEs have helped create sustainable jobs and growth
- Evidence of how financial and technical services are delivered to SMEs in the forest sector and lessons learned from effective efforts (this will involve drawing on experiences from rural finance initiatives and activities in the trade and competitiveness field)
- Approaches for assessing the impact of regulations, and enhancing competitiveness.
Pillar 2: Country level analysis of demand, supply and business environment
This pillar will conduct country level analysis in 3 countries. The analysis will involve the application of tailored approaches and tools identified in pillar 1. The country level work will analyze if, where and how forest sector SMEs can contribute to the national sustainable development agenda, carry out demand, supply and business environment analysis , and propose concrete actions for enhancing the competitiveness of SMES by lifting regulatory constraints, and improving access to financial services, technical support and markets .
Pillar 3: Capture and broadcast in a targeted manner the knowledge on opportunities to engage with SMEs.
This pillar will involve:
- Augmenting existing briefs and infographics on the extent of forest sector SMEs in countries and information on their role in meeting the demand for wood and non-wood products/services in domestic markets and any information on the employment and job creation;
- Bringing together the work that PROFOR and partners have supported on investing in locally controlled forests, opportunities for investing in SMEs, and Forest Connect and making it more user friendly way for Bank TTLs (working in partnership with LLI); and
- Bringing together the findings and tools developed in the other pillars into user friendly outputs and working with systems available through LLI for dissemination
A fourth pillar may be added to this activity in the coming year. This pillar would focus on enhancing the link between SMEs/community enterprises and job creation in the natural resource sector. This would entail three activities: a stocktaking on which demographic segment benefits from forest-sector SME employment and job opportunities; an assessment of the skill development needs for rural enterprises plus cost-effective models for meeting these needs as part of broader initiatives on young people and job creation; and ideas on how to increase opportunities for young people to engage in innovation in rural areas and forest-based enterprises (examples of applying models used in developing and developed countries). An alternative approach will be to fold these activities into the existing three pillars.
The analytical framework for knowledge generation (pillar 1) is being developed. The framework will cover four thematic areas: a) supply and demand for products in value chains where SMFEs have a significant market opportunity; b) legal and regulatory constraints to SMFE growth along the value chain; c) financing constraints to SMFE growth; and d) “know-how” constraints to growth. In addition, the three countries for case studies on country specific constraints and solutions to SMFEs are being identified with discussions underway with country management units to confirm selections.
Last Updated : 03-01-2017