Reforming Forest Fiscal Systems

CHALLENGE

An active debate on concession policies and forest fiscal systems has taken place for a number of years. Several countries, encompassing a diverse range of forest types and associated industries, are implementing or considering new approaches to allocating rights to utilize forests. While their situations are different, in all cases the objective is to identify the practical ways to ensure that forests can be utilized sustainably and make a more positive contribution to national poverty reduction objectives (as defined in PRSPs or similar statement of policy) through stimulating growth and providing regular and enhanced revenue flows to governments.

Read workshop proceedings for more detail.

The following year, on May 3, 2004, PROFOR organized a side event at UNFF-4 on reforming forest fiscal systems. Representatives from Ghana and Brazil delivered updates on fiscal reform in their countries since the October 2003 workshop.

For stories and updates on related activities, follow us on twitter and facebook , or subscribe to our mailing list for regular updates.

Last Updated : 06-16-2024

Reform of State Forest Management in Northeast China

CHALLENGE
The reform of state forest management has become a priority issue in Northeast China. Unlike the collective forest areas of Southern China, Northeast China's state forest enterprises (SFEs) have not been successfully transformed. A decline in timber productivity (due to overexploitation and degradation of forests) has been acompanied by economic stagnation and heavy fiscal obligations toward state forest enterprise workers, leaving SFEs highly dependent on subsidies and transfers.

APPROACH
Although the World Bank has been an important partner of the Chinese government in the forestry sector over the past 20 years (supporting over 3 million hectares of plantation establishment and over 1 million hectares of protected areas), its engagement on forestry policy reforms has been limited. With PROFOR support, the World Bank's East Asia and Pacific staff sought to inform policy and institutional reforms in key state forest management areas in Northeast China, to promote the transformation of practices toward economic viability, sustainable forest resource management, and local livelihood security.

The resulting study, State Forest Reform in Northeast China: Issues and options, was published as a Working Paper by PROFOR in October 2013.

Research for this study coincided with the Government's internal evaluation of the first phase of the Natural Forests Protection Program (1998-2010) and the formulation of the program's second phase.

The study drew on several background reports including: a historical review of forest management in the Northeast China by the State Forest Administration; an analysis of extensive data on forest resources and socio-economic conditions from two surveys conducted in 2005 and 2009 surveys by Jintao Xu and Xuemei Jiang; and a critical review of performance and lessons at existing pilot reform sites and state forest enterprises, by Yuehua Wang and Zhenbin Gu. The background papers were originally written in Chinese and shared at a workshop held in Beijing in May 2012. Several of the background papers are available in translation in the annexes of the document

MAIN FINDINGS
The study considers three options for institutional reform:

• the centralization of state forest management;
• the decentralization of local management responsibilities to the province;
• and a combination of the two, with clearly delineated functions and responsibilities.

Ultimately, whichever option is pursued requires current functions and control to be reallocated, and this issue remains divisive and politically sensitive.

The paper concludes by stressing the importance of consolidating stakeholders’ interests to create a common vision for the reform. The assessment of the ongoing pilot reforms will provide a solid foundation to evaluate options for moving forward, though the reforms will need to be set in the context of the wider challenges of social service provision, infrastructure development, and achieving an appropriate balance between resource extraction and protection.  There is considerable scope for the northeastern forests to support the local and national economies, through timber extraction as well as diversified uses including tourism and nontimber forest products.  Achieving this requires central government leadership to reform the current system and put in place the necessary institutional framework and incentive structures.

For stories and updates on related activities, follow us on twitter and facebook , or subscribe to our mailing list for regular updates.

Author : Professor Jinato Xu, leading expert on Chinese forestry at Peking University
Last Updated : 06-16-2024

Redesigning the Mexican Forest Fund to support sustainable forest management

BACKGROUND
The Government of Mexico recognizes the critical importance of forests as a natural asset for domestic socio-economic development as well as for the environmental services they provide. The Government’s commitment to this agenda is evidenced by its participation in relevant international fora, such as President Calderon’s statements on REDD+ at COP 16 in Cancun, Mexico’s leading role in the Forest Carbon Partnership Facility, and a new partnership with Costa Rica and Ecuador to learn lessons about how Payment for Environmental Services programs in those countries can create conditions for future REDD+ implementation.

CONAFOR (Comisión Nacional Forestal) was created as a decentralized agency by decree in 2001 with the objective of developing, supporting, and encouraging productive activities related to conservation and forest restoration, and of applying the policy of sustainable forest development. To that end, CONAFOR’s main financial instrument is the Forest Fund which:

• facilitates access to financial services
• promotes projects to integrate and increase the competitiveness of production chains
• develops mechanisms for payment of environmental services
• promotes bonds associated with the conservation of forest resources
• and also channels direct subsidy payments to communities to support activities such as reforestation, soil conservation, community forest management, and payments for environmental services.

CHALLENGE
The size of the Forest Fund and the scale of its operations have grown tremendously since its inception in 2001. The number of transactions has increased from about 200 per year to about 12,000 and the size of the fund has grown from about 20 to 600 million dollars. Also, some additional financial mechanisms have been created linked to the Forest Fund, such as a guarantee fund for forest plantations. In addition, it is expected that the Forest Fund will play an enabling role as part of the financial architecture that will be used to manage new financing associated with REDD+.

APPROACH
In light of Mexico’s changing circumstances and needs, CONAFOR and the World Bank proposed in 2011 to collaborate to redesign the Forest Fund so that it becomes a state-of-the art, best-practice financial mechanism, by:

• identifying key desirable features in the Forest Fund emerging from the current climate discussions and current and future needs,
• identifying international good practices relevant to Mexico’s needs (this desk review would build on previous work supported by the UNFF and its Ad-Hoc Expert Group on Forest Finance, and work on national forest financing strategies supported by Tropenbos, the NFP Facility, as well as others)
• providing summary recommendations and options for the redesign of the Fund that are feasible in the Mexican legal context.

RESULTS
This activity was closed in April 2012 because of lack of progress with the proposed analytical and policy support.  However the redesign of the Mexican Forest Fund is underway.

For stories and updates on related activities, follow us on twitter and facebook , or subscribe to our mailing list for regular updates.

Author : World Bank Latin America and Caribbean Region, CONAFOR
Last Updated : 06-16-2024

Private Financing for Sustainable Forest Management and Forest Products in Developing Countries – Trends and Drivers

CHALLENGE: A Global Imbalance in Forest Investments

The forest community recognizes that the private sector has a role to play in financing sustainable forest management (SFM). There is a considerable gap between the US$70-160 billion that SFM needs each year, and official development assistance to forestry, which only covers about 1 percent of the estimated total financing need.

Despite the private sector’s importance to forests, information on private forest financing remains scarce and inadequate. Data on private forest financing is not systematically reported in either global or regional databases and the quality remains inconsistent. The information that is available, however, points to an uneven distribution of forest investment across regions and countries.

Total private sector plantation investments in developing countries are estimated at US$1,763 million in 2011 (excluding REDD). Latin America accounts for a vast majority of annual investments, with US$1,464 million or 83% of the global total amount. Investments in Asia and Oceania are estimated at US$279 million or 16% of the global total, while private investments in plantation forests in Africa are estimated at US$20 million, or just 1% of total value.  Although Latin America draws the most private forest investment, it is unevenly allocated—Brazil accounts for more than 80% of the regional total.

There is a similar trend of regional imbalance in the estimated 66 million hectares of commercial, production-oriented forest plantations in developing countries, about one third of which are privately owned. Privately-owned plantations are spread over 18.7 million hectares in Latin America and comprise 78% of total commercial-production plantations. In contrast, there are only 5.1 million hectares of commercial plantations in Asia and Oceania and 0.3 million hectares in Africa.

APPROACH

Some countries are struggling to access private forest financing. What factors cause private forest investment to flow to certain countries, and not others? What can countries do to unlock more opportunities?

When assessing potential investments, forest investors compare expected returns and risks. Tree growing conditions, access to markets, growth potential, physical and institutional infrastructure, and the business environment -- including political and economic stability and security of land tenure -- are major determinants of investment flows. The main barriers to financing private investments in SFM in developing countries include high, real and perceived risks such as those related to land tenure; weak availability of both domestic and foreign equity and loan financing; unfavorable terms for financing; and finally, high up-front costs of preparing investment projects in the forestry sector.

To attract more forest investment, the government can take steps to make the investment environment better -- by improving policy and legislation, governance, transparency and infrastructure.  There are also many ways for the public sector to facilitate long-term investments in sustainable wood production. These include strengthening the information base on forest resources and finance, recording and publishing information on domestic investments and improving access to private financing.

FINDINGS

This report makes a number of recommendations to unlock private financing opportunities. These actions include:

Strengthening land tenure systems.

• Policy and legal reforms clarifying the role of the private sector, creating a policy framework for private sector investment in forestry and processing, and active investment promotion with targeted incentive schemes.
• Reducing investment risks, both real and perceived, through guarantees, public-private partnerships, and innovative financing (fund) schemes as well as through provision of information.
• Improving access to financing, for example, by developing new financial instruments favoring long-term investments.
• Collecting and improving access to information around the availability of suitable land for investments, growth and yield, growing conditions in general, risks, and others.
• Improving forest sector governance and transparency.
• Improving transport and other infrastructure.
• Supporting research and development to increase productivity.
• Helping to organize smallholders and communities so that they can enjoy economies of scale, become more eligible for accessing finance, and gain negotiating power.

The publication of this report is forthcoming. Please visit our website or visit our Twitter and Facebook accounts for updates.

For stories and updates on related activities, follow us on twitter and facebook , or subscribe to our mailing list for regular updates.

Author : Collaborative Partnership on Forests
Last Updated : 06-16-2024

Private and Community Forestry - Developing Livelihoods on the Basis of Secure Property Rights

CHALLENGE

Ten to forty percent of the forest area in Macedonia, Albania and Serbia is privately or community-owned. Due to poor governance and institutional shortcomings as well as the lack of capacities, small-scale private and community forestry has had difficulties accessing the forest products’ and services’ markets and meeting criteria for sustainable forest management. This has led to mismanagement and illegal activities perpetuating disinterest in sustainable forest management and endangering the execution of property rights. As a result, private and community forest owners have faced major difficulties in participating in national and cross-sectoral policy discussions such as national forest program implementation.

APPROACH AND RESULTS

PROFOR helped to address these issues by working through the Confederation of European Forestry Owners (CEPF) to do several things.

First, CEPF developed assessments of the status of non-state forestry in Macedonia, Albania and Serbia. This initial stock-taking was essential to understand and update the knowledge available of non-state forestry in those countries as well as begin to identify problems.  Those assessments are available here:

Next, working through its website and series of regional conferences organized by CEPF in close collaboration with the FAO’s National Forest Programmes (NFP), the activity began to develop networks of information exchange at the sub-regional level.  The first such occasion was in Skopje, Macedonia in late June 2008. Here representatives of forest owner associations, responsible ministries from Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, Macedonia, Serbia, Montenegro, met to discuss the situation on non-state forestry for the first time at a regional scale. Discussions revolved around property rights on non-state forest land, the role of forest owner associations at the local, regional and national levels, the forest management regulation features of small-scale forests and policy options for financial incentives for private/community forestry.

CEPF also worked with the FAO’s NFP staff to conduct workshops at the national level in the three countries to address country-specific issues. Legislation issues, livelihood generation from small-scale forestry by cleared property rights and financing SFM in non-state forestry were the main common issues in all workshops. 

For stories and updates on related activities, follow us on twitter and facebook , or subscribe to our mailing list for regular updates.

Author : Confederation of European Forestry Owners (CEPF), FAO’s National Forest Programme (NFP)
Last Updated : 06-16-2024

Ukraine Forest Sector: Status and Opportunities

The forest sector in Ukraine has the potential to more than double its contribution to the national economy by increasing timber harvests and forest products in line with modern sustainable forest management practice. To this end, PROFOR provided analytical input to a forest sector reform process to introduce measures that: set harvesting levels in accordance with actual forest growth rates; reduce the level of "sanitary cutting" with a corresponding increase in final, regeneration and thinning volumes; and capture carbon trade finance to support reconstruction of forests in abandoned or poorly productive agricultural lands.

A Forest Sector Note, published in March 2006, described the status of Ukraine's forest sector and opportunities for development.

For stories and updates on related activities, follow us on twitter and facebook , or subscribe to our mailing list for regular updates.

Last Updated : 06-16-2024

The Role of Forestry in Low-carbon Growth Strategies

CHALLENGE

Many developing countries are proactively seeking to identify opportunities and related financial, technical, and policy requirements to move towards "green growth" on a low-carbon path. With the support of ESMAP, the multi-donor Enegery Sector Management Assistance Program hosted at the World Bank, selected pilot countries have initiated country-specific studies to assess their development goals and priorities, in conjunction with GHG mitigation opportunities, and examine the additional costs and benefits of lower carbon growth. For some of these pilot countries, addressing issues in the forest and land-use sector play an important role for developing low-carbon growth strategies. Because results have been provided until now in an aggregate manner, a detailed analysis of the forestry and land-use sector have not been separately presented. However, such an analysis would provide important information and guidance to develop low-carbon growth strategies for many other countries where forestry and land-use change are key GHG emissions sources. Such knowledge will be especially important for guiding work in developing countries financed by the World Bank, one of the most important implementing institutions of new programs promoting sustainable forest management for GHG mitigation (FCPF, FIP, BioCF, UN-REDD, etc.)

APPROACH

PROFOR will finance ESMAP's effort to produce a policy brief analyzing the role of forests and forest management for developing and implementing low-carbon growth strategies, including financing options related to low-carbon growth.  While the policy brief will build on experience and data analyses already undertaken in key pilot countries (Mexico, Indonesia, Brazil), they will provide general guidance on the integration of forestry in low-carbon growth strategies beyond the case study examples.

The policy brief is expected to serve decision makers and World Bank operations "task team leaders" in developing and implementing forestry-based low-carbon growth strategies for countries with significant GHG emissions from the forestry sector.

RESULTS

This activity is ongoing. Results will be shared on this page when they become available.

For stories and updates on related activities, follow us on twitter and facebook , or subscribe to our mailing list for regular updates.

Author : Energy Sector Management Assistance Program ESMAP 
Last Updated : 06-16-2024

The Matrix: Mapping Payments for Ecosystem Services

For stories and updates on related activities, follow us on twitter and facebook , or subscribe to our mailing list for regular updates.

Author : Ecosystem Marketplace, Forest Trends, PROFOR
Last Updated : 06-16-2024

Mobilizing Ecosystem Service Payments in China

CHALLENGE

Across the world, the growing scarcity of ecosystem services has led to a flurry of conservation innovations over the past decade in the form of payment schemes and nascent markets for these services. The global economic value of ecosystem services is estimated in the trillions of dollars, though actual payments for protecting these services are developing unevenly around the globe.

While Latin America has experimented extensively with diverse types of systems, developments in Asia and in Africa have lagged behind, although there is a large pipeline of projects ready to be initiated by international development banks and funds.

Against this global backdrop, the Chinese government made extraordinary efforts in driving some of the largest public payment schemes for ecosystem services in the world. As of 2005, over RMB 50 billion had already been spent on the Sloping Land Conversion Program, and 7.2 million ha of cropland enrolled. The government also spent RMB 2 billion annually on the Forest Ecosystem Compensation Fund, which in 2005 covered 26 million ha of forest area across 11 provinces in China.

Given concerns about the effectiveness and financial sustainability of these efforts, policy circles debated how to improve these programs as well as how to explore and develop other market-based tools and regulatory innovations to better address China's environmental and development challenges.

APPROACH

To inform this growing debate, PROFOR supported the development of a report entitled "Developing Future Ecosystem Service Payments in China: Lessons Learned from International Experience". The China Council on International Cooperation on Environment and Development (CCICED) Eco-compensation Taskforce asked Forest Trends to develop this report as a summary of the global experience in payments for ecosystem services (PES), emphasizing lessons of particular relevance to China.

MAIN FINDINGS

The key issues regarding the effectiveness and efficiency of PES programs are: the importance of policy, institutional and legal frameworks; improving the poverty reduction impacts of PES by engaging local communities in the process of negotiation, design and implementation; devising methods to improve targeting; and the need to engage the private sector in order to better capture the value of ecosystem services and to improve the financial sustainability of current and future PES programs by relieving the burden on public funds.

International experience also suggests that by bringing in local communities and governments more closely into all aspects and stages of PES design and implementation, China will be able to significantly improve equity and efficiency issues in current and future PES schemes, and work toward reconciling the dual goals of conservation and sustainable rural development.

For stories and updates on related activities, follow us on twitter and facebook , or subscribe to our mailing list for regular updates.

Author : Sara J. Scherr, Ecoagricultural Partners; Michael T. Bennett, Peking University; Molly Loughney and Kerstin Canby, Forest Trends.
Last Updated : 06-16-2024

Mobilizing Private Investment in Trees and Landscape Restoration in Africa

CHALLENGE
Growing demand for food, fuel and other commodities, coupled with natural resource scarcity, has created an urgent need to produce more with less. Intensified production on farmed land in the tropics will be necessary to protect intact ecosystems from conversion and reduce emissions from deforestation and forest degradation (REDD), and most ongoing efforts to prepare national REDD+ strategies have rightly acknowledged this potential.

A range of agroforestry and landscape restoration practices can respond to this intensification challenge, increasing soil fertility and crop productivity very significantly, often by an order of two to three times compared to current yields in many parts of the tropics. Agroforestry farming systems and more intensive tree planting and management systems can also act as a safety net for rural families during times of environmental stress, and provide a wide range of timber, fuels and non wood forest products. Arguably, no other form of agricultural land use can potentially lock up more carbon per hectare of cropland than farm forestry and agroforestry making these technologies the ideal vector for addressing both food security and climate change in overpopulated and degraded landscapes.

Yet, despite the very considerable body of on-farm experience which has been gained in agroforestry and other tree-based technologies, investment in these approaches has been lagging. The challenge ahead is not so much a shortage of scientific knowledge about suitable agroforestry or more intensive farm forestry systems, but rather a lack of understanding of farmers’ specific constraints to adoption, and deficiencies in policy support and investments to scale up already well proven techniques.

APPROACH
Building on PROFOR's past experience with Investment Forums in Africa, PROFOR organized with a number of partners a new investment forum hosted by the World Agroforestry Centre in Nairobi, Kenya. Gathering representatives of leading private sector financial institutions, forest and agribusiness companies, non-governmental organizations. national forest associations and high level national government policy leaders, the Forum helped to identify immediate investment opportunities, to discuss the main constraints to investment and to identify policy and institutional reforms needed to overcome those constraints, as well as mechanisms to help create an enabling climate for accelerated private sector investment.

MAIN POLICY MESSAGES

• Policies and institutions need to be reoriented to ensure that investments in trees and landscape restoration are addressed in the decentralization agenda.
• Improving value-addition at the local level can increase incentives for better management of landscapes and trees in farming systems.
• Payments for environmental services can help.  Markets for environmental services from trees and from better managed farming landscapes are potentially important for carbon sequestration, for biodiversity conservation, for tourism, for and watershed management.
• Forest organizations need to be revitalized.
• Rural development efforts should work across sectors to encourage synergies.
• Policies that support good governance encourage private investment.
• Conversely, policies that improve land, water and tree governance can minimize the risks of large-scale land acquisitions.

RESULTS
Besides a very successful forum which was attended by 100 participants in Nairobi in May 2011, this activity yielded a collection of background papers available on this page and an Overview piece for distribution at Forest Day 5. The theme is also resonant with the World Bank and development partners' growing interest in climate-smart agriculture.  

For stories and updates on related activities, follow us on twitter and facebook , or subscribe to our mailing list for regular updates.

Author : PROFOR with the World Agroforestry Centre (ICRAF), the World Bank Group, IUCN, Ecoagriculture Partners and TerrAfrica.
Last Updated : 06-16-2024