| United Nations | E/CN.17/IPF/1996/5 |
Economic and Social Council
Distr. GENERAL
20 February 1996
ORIGINAL: ENGLISH
COMMISSION ON SUSTAINABLE DEVELOPMENT
Ad Hoc Intergovernmental Panel on Forests
Second session
11-22 March 1996
INTERNATIONAL COOPERATION IN FINANCIAL ASSISTANCE AND TECHNOLOGY
TRANSFER FOR SUSTAINABLE FOREST MANAGEMENT
Programme element II
Report of the Secretary-General
SUMMARY
The present report covers the implementation of the decisions of the
United Nations Conference on Environment and Development (UNCED) related to
element II, "International cooperation in financial assistance and technology
transfer for sustainable forest management", of the programme of work of the
Ad Hoc Intergovernmental Panel on Forests. The report aims to provide updated
information and a preliminary analysis of the situation, as well as the
outlook for forestry development in the area of financing and technology, with
particular reference to international cooperation.
Finance and technology are considered to be interrelated components of
investment, which is essential for socio-economic development and growth.
Investment in forestry cuts across all aspects of sustainable forest
management and development. Net investment is obtained by deducting
disinvestment from gross investment. Based on estimates made, annual gross
investment for forestry and forest industry in developing countries amounts to
$13.5 billion; if this estimated investment is increased by 50 per cent to
take into account missing components, such as non-wood forest products and
services, infrastructure and institutions, the overall figure would be about
$20 billion. At $25 per cubic metre of wood, tropical deforestation amounts
to an annual disinvestment of $45 billion. As a result of deforestation,
therefore, forestry in the developing countries, especially in the tropics,
has been subject to a negative net investment of about $25 billion a year.
There have been several estimates of the net investment required to
achieve sustainable forest management in developing countries. In chapter 11
of Agenda 21, it was estimated at about $31.25 billion annually for the period
1993-2000. Several estimates made independently prior to UNCED by several
agencies, such as the Food and Agriculture Organization of the United Nations
(FAO), the World Resources Institute and the World Wide Fund for Nature, range
from $4.5 billion to $18.0 billion a year. Recent studies by the
International Tropical Timber Organization estimate a cost about $2.2 billion
annually for the additional resources required to implement several priority
actions in producer member countries for their sustainable forest management.
These large differences on estimates for sustainable forest management reflect
the need to clarify significant gaps between requirements and actual net
investment.
Of the estimated $31.25 billion a year for the additional resources
required for sustainable forest management, about $25.58 billion a year must
be raised domestically, a daunting task for developing countries. Since
countries have different sizes of forest resources and levels of forest
industry, their capacity and capability to raise additional revenues
domestically through selling forest products, the collection of royalties, and
other forms of fees and taxes will also vary. In many countries, such
problems are further compounded by a low budget allocation for forestry due to
its low priority in national macro-policies, which is largely the result of
distortion in national accounts and insufficient awareness about intangible
forestry contributions. This is well reflected in the statistics contained in
the present report: some countries can finance a large part of their forestry
investment domestically, while others must rely heavily on the external
sources.
There are cases of successful private-sector participation in
large-scale reforestation/reafforestation programmes in developing countries.
Such participation, however, is still relatively limited; private-sector
participation is largely concentrated in the forest-based processing sector.
Due to the long gestation period and risks associated with investment in
forest resources, the private sector will only invest if attractive incentives
are provided.
Investment from foreign sources falls under foreign assistance and
foreign investment. Detailed information on the forestry component of total
foreign investment in 1993 ($226 billion) is not available. Most foreign
investment in forestry in developing countries is channelled through
transnational corporations, which have substantially increased their
involvement in forest-based industries. Although in previous decades such
involvement was based on "straight" investment, this is now being replaced in
favour of joint ventures due to the gradual growth of host country investors'
abilities to mobilize capital.
Official development assistance (ODA) is an important source of foreign
finance and technology transfer for many countries and an important potential
catalyst in facilitating coordinated development. ODA is provided to
developing countries bilaterally by donor countries and multilaterally through
international agencies. Some 20 donor countries and 13 multilateral agencies
are actively involved in providing ODA for forestry. Multilateral assistance
international agencies. Some 20 donor countries and 13 multilateral agencies
are actively involved in providing ODA for forestry. Multilateral assistance
agencies include multilateral development banks, international agencies,
non-official assistance agencies and non-governmental organizations.
Multilateral mechanisms, such as the Global Environment Facility and Capacity
21, provide resources for targeted activities, including environmental
conservation and country capacity development. In spite of its vital role,
the availability of ODA in the year 1993 (the maximum achieved) amounted to
only 27.2 per cent of the needs of the forestry sector as specified in
chapter 11 of Agenda 21 (US$ 1.54 billion, against an annual estimated need of
US$ 5.67 billion).
The post-UNCED trend in ODA for the forestry sector has not shown any
significant increase: total ODA was US$ 1.43 billion in 1990 and
US$ 1.54 billion in 1993 at current cost (without adjusting for inflation),
and available indications are that even this small increase has not been
maintained beyond 1993, and ODA has in fact been falling. The total amount of
the FAO field and regular programme together fell from US$ 78.5 million in
1993 to US$ 70.0 million in 1994; World Bank loan approvals fell from
US$ 278 million in 1994 to US$ 113 million in 1995; and similar trends have
been noted in the case of a number of bilateral donors. In any case, chances
of increased ODA for the forestry sector in the near future is expected to be
minimal. An analysis of ODA, by donors, geographic distribution and field of
action, is contained in the present report.
Experience with ODA has indicated several shortcomings whose removal
could considerably improve its effectiveness, including a multiplicity of
donors with different priorities and a lack of adequate coordination of ODA
activities. The differing priorities of donors and recipients have also led
to conflicts. The proliferation of frameworks for fund utilization has
affected the capacity of countries to demand and receive ODA. There is also
insufficient country commitment and low absorptive capacity. The problems
created by the low absorptive capacity of many countries must be dealt with
through expanded technical assistance targeted at building up human capital
and appropriate institutions: this is an important responsibility of ODA.
Improved technological and planning capabilities are vital for
sustainable forestry. Technology acquisition for forestry can take place
through technology development locally or transfer of technology from outside.
Generation of technology locally through national institutions is severely
hampered by the lack of financial and human resources. In fact, most
established research institutions are foreign-based, and have different views
and perspectives about problems in developing countries. Since only
5 per cent of ODA is channelled to forestry research, compared to about
10 per cent for agriculture, it is no surprise that there has been a lack of
new breakthroughs in forestry technology in the recent past.
One of the solutions to the technology gap in many developing countries
is the transfer of technology. At the international level, there are a
multitude of institutions with specific capabilities and comparative
advantages for providing technology to countries in need. The major sources
of technology transfer to developing countries are foreign investors
(including equipment suppliers), bilateral and multilateral assistance
agencies, institutions of the Consultative Group on International Agricultural
Research, non-governmental organizations and foundations, and technical
cooperation among developing of technology transfer to developing countries
are foreign investors (including equipment suppliers), bilateral and
multilateral assistance agencies, institutions of the Consultative Group on
International Agricultural Research, non-governmental organizations and
foundations, and technical cooperation among developing countries. Innovative
arrangements through agreements with foreign firms have been tried in some
countries, such as the INBio-Merck agreement for bio-prospecting in Costa
Rica.
The economic potential of raising additional revenues through innovative
financing has been discussed extensively. At the national level, that
includes establishing various forms of taxes, full cost pricing, and the sale
of management bonds. Although some of these innovations look promising, their
feasibility is also subject to various factors, including current rates of
royalties and taxes on forest products and services, size of forest resources
and status of forest-based industries. Such innovations could be implemented
in some countries thanks to the size of their forest resources and level of
technologies, but many other countries would not be able to benefit.
A similar situation exists for external sources, such as debt-for-nature
swaps, carbon off-sets, tradeable emission permits, bio-diversity patents etc.
Although such innovations have been available for some time, their economic
potential has not been fully realized. Except for debt-for-nature swaps,
which have managed to attract about $76 million so far (still a relatively
small figure), other innovations have yet to be fully implemented. Incentives
and motivations to implement such innovations are greatly influenced by other
factors, such as the introduction of a carbon tax, the size of the market for
carbon sequestration and biological diversity.
CONTENTS
Paragraphs Page
INTRODUCTION ................................................ 1 - 6 7
I. INVESTMENT IN FORESTRY ................................ 7 - 23 8
A. Estimation of current investment in forestry ...... 9 - 17 8
B. Investment needs estimates ........................ 18 - 23 10
II. FINANCING FORESTRY DEVELOPMENT ........................ 24 - 52 11
A. Domestic sources .................................. 25 - 39 12
B. Foreign sources ................................... 40 - 45 17
C. Constraints in financing for forestry ............. 46 - 52 18
III. ACQUISITION OF TECHNOLOGY ............................. 53 - 63 21
A. Technical cooperation among developing countries .. 59 - 60 23
B. Research .......................................... 61 - 63 23
IV. DEVELOPMENT ASSISTANCE ................................ 64 - 98 24
A. Bilateral assistance .............................. 67 - 70 24
B. Multilateral assistance ........................... 71 - 82 25
C. Trends since the United Nations Conference on
Environment and Development ....................... 83 - 89 27
D. Shortcomings of the official development
assistance system ................................. 90 - 91 29
E. Improved mechanisms ............................... 92 - 98 30
V. INNOVATIONS IN FUND MOBILIZATION ...................... 99 - 112 31
A. External resource flows ........................... 100 - 105 31
B. Domestic resource flows ........................... 106 - 109 32
C. Institutions to support targeted financing for
forestry .......................................... 110 - 112 34
VI. CONCLUSIONS AND OPTIONS FOR FURTHER CONSIDERATION BY
THE PANEL ............................................. 113 - 116 35
Tables
1. Variations in funding levels of selected developing countries for
forestry, 1991-1994 .............................................. 13
2. Official development assistance for forestry, 1986-1993 .......... 28
3. Share in official development assistance, by region, 1993 ........ 28
4. Change in volume of official development assistance devoted to
forestry, 1986-1993 .............................................. 37
INTRODUCTION
1. The present report covers element II, "International cooperation in
financial assistance and technology transfer for sustainable forest
management", of the programme of work of the Ad Hoc Intergovernmental Panel on
Forests. The report aims to provide updated information and a preliminary
analysis of the situation, as well as the outlook for forestry development in
the area of financing and technology, with particular reference to
international cooperation. Official development assistance (ODA) receives the
most detailed treatment. The report focuses on the developing countries,
since the subject is particularly relevant to them and the necessary
information is available; subsequent reports will provide more information on
countries with economies in transition.
2. The work under programme element II is guided by the decisions taken by
the Commission on Sustainable Development at its third session and further
elaborated by the Panel at its first session.
3. The Commission defined programme element II as a need to explore ways of
improving the efficiency and coordination of bilateral and multilateral
assistance, and consider ways to address the critical areas relating to the
transfer and development of environmentally sound technology on favourable
terms, as mutually agreed, and the mobilization of financial resources,
including the provision of new and additional resources with a view to
assisting developing countries in pursuing policies and comprehensive
strategies for achieving sustainable forest management, taking into account
Principles 10 and 11 of the Non-legally Binding Authoritative Statement of
Principles for a Global Consensus on the Management, Conservation and
Sustainable Development of All Types of Forests 1/ (Forest Principles) and the
Rome Statement on Forestry agreed by Ministers responsible for forests in
March 1995.
4. At its first session, the Panel re-emphasized the need to explore and
consider ways to address the areas relating to the transfer and development of
environmentally sound technology on favourable terms, as mutually agreed, and
the mobilization of financial resources to assist developing countries in
pursuing policies and comprehensive strategies for achieving sustainable
forest management, taking into account ongoing work of the Commission and
other relevant processes. Consideration should also be given to ways of
improving the efficiency and coordination of bilateral and multilateral
assistance in delivering forestry programmes, including proposals for
cooperation at the national and international levels (a) within and among all
relevant multilateral institutions, including United Nations agencies and the
World Bank, and (b) between bilateral and multilateral donors.
5. The report was prepared by the United Nations Development Programme
(UNDP), as the lead agency for programme element II, in consultation with the
secretariat of the Panel in the Division for Sustainable Development,
Department for Policy Coordination and Sustainable Development of the United
Nations Secretariat.
6. Subsequent reports will benefit from the outcome of an inter-sessional
workshop on finance, scheduled for 4-7 June 1996 in South Africa. To be
co-sponsored by UNDP and the Governments of Denmark and South Africa, the
workshop will give greater attention to mobilizing financial resources,
especially innovative financing to finance programmes for sustainable forest
management in the developing countries and countries with economies in
transition.
I. INVESTMENT IN FORESTRY
7. Finance and technology are considered interrelated components of
investment, which is essential for socio-economic development and growth.
Investment in forestry cuts across all aspects of sustainable forest
management and development. Expenditure on current production is not
considered as investment, which may be classified as gross or net investment.
Net investment is obtained by deducting disinvestment from gross investment.
8. In the forestry sector, investment covers the cost of the creation,
management and conservation of forest resources, and of developing facilities
for the production and marketing of forest products and services for many and
diverse social, economic and environmental benefits. World wide, the needs
and opportunities for investment for forestry are vast.
A. Estimation of current investment in forestry
9. Important activities to be considered in estimating investment in
forestry
are:
(a) Resource development (reforestation, agroforestry, forest
management);
(b) Resource conservation (forest, soil, water, biodiversity);
(c) Facilities for production of goods (wood and non-wood products) and
services;
(d) Infrastructure (e.g., improved access, facilities);
(e) Interface activities (forestry interface with agriculture, animal
production, fishery, primary health and medicine, tourism, construction and
trade;
(f) Research, technology, extension;
(g) Human resources development.
Information on most of these activities does not exist in most developing
countries, which seriously hampers the calculation of current levels of
investment. Available information is confined to the area of forest land by
broad categories, such as natural forests and plantations, and production and
trade in wood and wood products. Estimates based on such information can only
suggest the broad outlines of the above-mentioned activities.
1. Gross investment
10. The total area of natural forests in developing countries is
estimated at 1.9 billion hectares (ha). Recorded area of forest plantations
in 1990 was 68.4 million ha, with an average annual addition of 3.2 million
ha. To estimate the annual investment in forestry, it is considered (based on
reported figures) that average investment for raising one hectare of forest
plantation is $650, and the average annual cost of maintenance and protection
per hectare of natural forest is $2. On that basis, the annual investment in
forest resource management in developing countries works out to about $6.1
billion.
11. Similarly, it is assumed that average annual change of production
of
roundwood, sawnwood, wood-based panels and paper (in developing countries) has
entailed investment for plants, machinery and infrastructure. Assuming an
average investment per unit of additional production capacity of these
products as reported in recent studies, the estimated annual investment for
harvesting and processing is $7.5 billion.
12. The total estimated annual gross investment for forestry and forest
industry in developing countries thus amounts to $13.5 billion. Investment
statistics on agroforestry, non-wood forest products and services,
infrastructure, institutions and human resources development are completely
unavailable. If the estimated investment is increased by another 50 per cent,
to account for the missing components, the overall investment would be about
$20 billion.
2. Disinvestment
13. Disinvestment, on the other hand, is negative investment resulting
from the destruction or depletion of capital stock through capital
consumption. Whether planned or unplanned, deforestation that leads to
destruction of forest stock is a case of disinvestment. Other forms of
disinvestment include depreciation of stocks, equipment, infrastructure etc.
Forest disinvestment has happened in the past and continues to happen today,
as is evident from the increasing rate of deforestation.
14. According to The Forest Resources Assessment 1990, the annual
change
of natural forest cover in the developing countries during 1981-1990 was
-16.3 million ha, compared to -11.3 million ha during 1971-1980. The
estimated average wood volume per hectare is 113 cubic metres (m3); estimated
average biomass per hectare is 169 tons. At $25 per cubic metre of wood
(without any value being put on biomass), the annual disinvestment in the
forests of developing countries for the estimated rate of deforestation comes
to $45 billion.
15. The above amount does not fully represent the real extent of
disinvestment: it does not take into account the loss of biodiversity; the
degradation of agricultural lands, watersheds and pastures; the displacement
of forest peoples; the depletion of resources of non-wood forest products and
services, medicinal plants, and fishery products (particularly in mangroves);
and the overall negative impact of deforestation on environmental stability
and community welfare. Nor does it take into account the degradation in
forest quality caused due to fire, grazing, shifting agriculture, fuelwood
collection, overfelling of trees and other forms of injurious interference.
Information on change in forest quality is minimal, but indications are that
it may represent an even greater disinvestment than deforestation.
16. It is clear that annual gross investment in forests over the past
several years has been much lower than the actual disinvestment, resulting in
a negative net investment of $25 billion. Correcting the cumulative effects
of net disinvestment over the years will require significant efforts.
17. It is interesting to compare the situation of forestry with that of
agriculture. The estimate of net investment in on-farm improvement for
primary agriculture in developing countries is $26 billion per year between
1987 and 1992, gross investment being $77 billion; the corresponding figures
for the post-harvest sector and agro-industries are $16 billion and $40
billion, respectively. In addition to this largely private investment in
developing countries, it is also estimated that a net $10 billion per year is
involved in publicly funded research and extension, with another net $15
billion per year of public expenditure going to rural infrastructure. These
add to a total net investment of $67 billion per year for agriculture in
developing countries. The annual gross investment for agriculture in
developing countries during the period 1987-1992 was $144 billion, and is
expected to rise to $175 billion per year during the period 1993-2013.
B. Investment needs estimates
18. There are several pre-UNCED estimates of investment needs, which
were made for different purposes, with different scope and assumptions. In
1985, the World Resources Institute (WRI) report, "Tropical forests: a call
for action", presented an estimate of $5.3 billion over the five-year period
1987-1991, or about $1.1 billion per year, for 56 tropical countries. The
1985 estimate of the Food and Agriculture Organization of the United Nations
(FAO) for required investment in 53 countries (28 in Africa, 11 in Asia and 14
in Latin America) was $4.6 billion.
19. In 1987, FAO made a further estimate of the annual need for
investment for forestry development in developing countries at $13 to $17
billion. Of that amount, 70 to 80 per cent was for forest industry and
industrial forestry development. An estimate by the World Wide Fund for
Nature (WWF) in 1991 for forestry development, including the development of
forest-based industries, gave an annual figure of $18 billion.
20. The annual estimate of financial requirement for sustainable forest
management provided in chapter 11 of Agenda 21 2/ for four forestry programme
areas was $31.2 billion for the period 1993-2000, not including the cost of
implementing forestry components under other chapters of Agenda 21 and related
conventions or the full cost of putting the Forest Principles into effect.
21. In 1995, the International Tropical Timber Organization (ITTO)
estimated costs to producer countries of attaining the target of sustainable
management of tropical forests by the year 2000 at $2.2 billion per year for
priority actions. However, that estimate covered only a limited number of
activities: the enforcement of policy, law and regulations; demarcation and
maintenance of boundary, improved logging, training, research and public
education.
22. All such estimates should be interpreted to represent the magnitude
of the net investment required. Based on all new information available, it is
possible to make a revised estimate that would include the following
assumptions:
(a) Governments will be able to control deforestation, reducing it by
half by the year 2000, to reach a minimal level of deforestation by 2010;
(b) Depreciation of forest capital resulting from deforestation and
degradation will be made up through investment in resource creation,
rehabilitation and improved management;
(c) Incremental demands for forest products will be met by intensive
forestry in high-yielding forest plantations/production forests;
(d) Investment in forest industries (new mills, mill replacements and
industrial infrastructure) will be made to meet existing and incremental
demands;
(e) Adequate investment will be made available for developing support
services, market infrastructure, institutional capability, information
generation etc.
23. The estimate based on all the new information remains similar to
that of Agenda 21, except that $36 billion are added to counter the
depreciation resulting from deforestation. The estimates are presented not to
generate discussion or debate on these indicative figures but to clarify that,
however large they may be, there is a significant gap between requirements and
actual net investment.
II. FINANCING FORESTRY DEVELOPMENT
24. Investment can be broadly categorized as domestic and foreign, and
it is possible to distinguish public and private sources of finance, as
follows:
Type of Domestic Foreign
investment
Public Public administration/institutions Development assistance
State-owned enterprises Loans, grants
Private Individuals, cooperatives Direct investment
Companies, non-governmental organizations Portfolio investment
A. Domestic sources
25. In the long run available resources are defined by a country's
resource mobilization capacity, which is determined by its national income and
the propensity of both its private and public sectors to save. The balance
between domestic and foreign finance for investment is a key and controversial
question. Some examples are provided in table 1; it seems to be generally
accepted that most financing of investment will come from domestic sources.
26. Mobilizing funds for forestry of the size indicated from domestic
sources is a daunting task for developing countries, the success of which
depends on the facilitating efforts and policy supports of the Government.
Policies and regulations relating to land tenure and forest resource
management and utilization are critical. Various arrangements are encountered
in this regard, such as:
(a) Forests owned and managed (including harvesting) by the Government,
and product processing/marketing fully or partly carried out by the
Government;
(b) Forests owned and silviculturally managed by the Government, and
harvesting, processing and marketing undertaken by the private sector;
(c) Forests owned by the Government and managed (except for protected
areas) by the private sector on lease arrangements, including harvesting,
processing and marketing;
(d) Forests owned and managed (including community and customary
ownerships) by the private sector, subject to policy regulations of the
Government;
(e) Forests privately or customarily owned;
(f) Combinations of two or more of the above.
27. Even in situations in which ownership and management
responsibilities reside with the private sector, there is a need for
public-sector investment in policy enforcement, infrastructure development,
and training and education. Responsibility for socially and environmentally
oriented programmes with a low financial rate of return falls on the
Government.
Table 1. Variations in funding levels of selected developing
countries for forestry, 1991-1994
------------------------------------------------------------------------------
Country Per capita Forest Forest Investment
GNP of area as area per ------------------------
1990 (US$) per cent capita Total ODA
of land (ha) (thousands (thousands
area of US$) of US$)
------------------------------------------------------------------------------
Bangladesh a/ 210 8 0.01 10 930 8 730
Fiji b/ 1 780 47 1.17 9 288 2 235
Gambia d/ 340 10 0.11 1 200 888
India b/ 360 22 0.08 238 440 68 350
Indonesia c/ 560 64 0.64 5 273 465 36 767
Mozambique c/ 80 22 1.11 1 200 1 100
Philippines b/ 730 27 0.13 34 810 28 698
Senegal c/ 710 40 1.04 10 100 8 460
Uganda d/ 180 32 0.32 7 000 4 530
------------------------------------------------------------------------------
------------------------------------------------------------
Country Investment ODA ODA
per hectare investment investment
of forest per per capita
(US$) hectare of (US$)
forest
(US$)
------------------------------------------------------------
Bangladesh a/ 10.90 8.70 0.08
Fiji b/ 10.89 2.62 3.08
Gambia d/ 12.24 9.06 1.04
India b/ 3.67 1.05 0.08
Indonesia c/ 45.59 0.32 0.20
Mozambique c/ 0.07 0.06 0.07
Philippines b/ 4.33 3.57 0.46
Senegal c/ 1.32 1.11 1.15
Uganda d/ 1.10 0.71 0.25
------------------------------------------------------------
a/ 1991 figures.
b/ 1992 figures.
c/ 1993 figures.
d/ 1994 figures.
28. Often, forests are a source of revenue for Governments, and the
situation may be reversed when forests are depleted. Forest revenue sources
for Governments are of several types:
(a) Sale of forest products: proper pricing based on market value is
important. Lower prices lead to revenue loss and cause market distortions,
removing the incentives for the private sector to engage in afforestation and
forest-management activities.
(b) Collection of royalties, fees, levies, and other charges: this
system is common where government forests are leased to private entrepreneurs.
The purpose of these charges is to capture the maximum possible rent without
affecting the incentive for sustainable management.
(c) Administrative and service charges towards the cost of services
rendered by the Government relating to policy enforcement: where forests are
owned and managed privately, the cost of government-provided services are
recovered in the form of taxes.
29. For various reasons, many countries are unable to raise public
funds; programmes that depend on public finances, such as conservation,
infrastructure and institutional support, thus tend to be severely
underfunded. Public-sector financing alone cannot support sustainable
forestry development. The private sector is needed to mobilize the funding
required. In Brazil, domestic private enterprises provide 85 per cent of
investment in wood-product industries; in Chile, the private-sector share in
processing is 95 per cent.
30. Because of the comparatively long-term and high-risk nature of
investment, forest-resource development and management in most developing
countries does not attract sufficient levels of private investment. On the
other hand, the harvesting, processing and marketing of forest products tends
to be mostly private, given its higher and quicker payback. Private
investment in tree planting or forest resources development is encouraged
through incentives, such as tax remissions and subsidies. Management of
private natural forests, however, is much less common compared with private
forest plantations, due to greater uncertainty and perhaps a lower return on
investment. Private-sector investment in eco-tourism may be increasing.
31. For private-sector investment in forestry, sources of funds are
varied, and include personal savings, loans, subsidies, cooperative and
corporate shares. Investment is influenced by policies and strategies adopted
for mobilizing capital, including incentives, credit and marketing facilities
and regulations related to products, scales and horizons. Private domestic
investments in the forest-based sector include small local enterprises and
medium and large national enterprises, including large private corporations.
Non-governmental organizations, private voluntary organizations and community-
based organizations, though not strictly private institutions, often mobilize
funds for investment in activities that support forestry-related environment
and local community development, without profit motives.
1. Small investments
32. Small investments in forestry are often local investments,
sponsored
by or for local people and using local resources. Small entrepreneurs, mainly
small farmers, contribute considerably to the mobilization of investment. The
main sources of their funds are personal savings, grants, loans and subsidies.
Rural-level cooperatives facilitate the pooling of resources and help to build
bargaining strength. Several factors affect the extent and efficiency of
local private investment, such as access to land, regulations related to
tree/forest crops, organized credit facilities, price guarantees for products,
institutional support, extension services and adequate incentives. Local
investment in forestry takes place in tree growing, economic forest-product
harvesting and small-scale processing enterprises.
33. In many developing countries, local investments add up to sizeable
amounts through the involvement of large numbers of individuals, families and
local organizations. For example, a 1985 survey indicated that the local
participatory effort involved in planting 1,200 million seedlings in India in
1984 was equivalent to an investment of $222 million. Small-scale private
investment involved in such activities as growing medicinal and oil-yielding
plants, rattan cultivation, beekeeping, lac cultivation, mushroom production,
wildlife farming and agroforestry is quite large; data on its exact extent is
unavailable.
34. In many countries, small-scale operations predominate numerically
in
forest-based processing; they are entirely privately owned, are
labour-intensive, involve little capital input, and use mostly low-cost
technology, producing sawnwood, packing cases, matches, tool handles,
furniture, bamboo and rattan products, charcoal etc.
35. However, experience in many countries indicates that local
producers
of forest products are especially vulnerable: many small-scale tree-planting
and forest-based processing enterprises fail. The right combination of
resource-pricing policies, incentives, credit, technology, research and
support to stimulate successful local community investment is a major issue in
forestry today. Recent experience shows that if the resources of local
populations are mobilized effectively, a great deal of productive and
effective forestry investment can take place at a relatively low public cost
(see box 1). More information and analysis in this area are needed.
*****
Box 1. Government funding support to small investors in forestry
Specialized government agencies appear to be the most important source of
institutional loans for small local entrepreneurs in many countries.
Agricultural Finance Corporation of Kenya provides loans for growing fuelwood
to individual farmers and farmers' cooperatives at 12 per cent interest. In
Colombia, Fondo Forestal provides low-interest guaranteed loans through
private commercial banks. In Jamaica, loans are available for farm forestry
from the Agricultural Credit Bank. In Brazil, the National Petroleum Council
finances the Small and Medium Property Reforestation Programme. In India, the
Farm Forestry Programme of the National Bank for Agriculture and Rural
Development facilitates loans for farm forestry to individual farmers and
farmer organizations.
*****
2. Medium-to-large investments
36. Private investments in medium-to-large enterprises are initiated by
industrial firms and private corporations/companies. Funds for large
investments are drawn from reinvestable savings, equity shares, stocks, bonds,
loans from national and international financing agencies, equipment
manufacturers and so on. Medium and large-scale investors are present in many
forestry activities: forest plantations, forest harvesting, forest-based
processing activities and marketing. Some of the large units are integrated
complexes that operate from forest to market-place, such as Jari in the
Brazilian Amazon. However, in most countries private investment in forestry
generally flows into the processing subsector, using raw material resources
created through local investments or available from government forest lands.
Larger-scale forest-based industries are characterized by larger capital
investment in absolute terms; a higher proportion of capital budget relative
to working capital; and a higher relative capital investment per unit of
labour and raw material.
37. Private-sector investment in large-scale plantations has been
forthcoming, especially if various types of incentives are provided by
Governments and specific and financially attractive market opportunities
exist. Successful large-scale industrial afforestation/reforestation
programmes under private sector have been taken up in many developing
countries, such as Argentina, Brazil, Chile, Indonesia, Malaysia, the
Philippines, the Republic of Korea, Swaziland, Uruguay, Venezuela and
Zimbabwe.
38. Governments also support medium and large private firms investing
in
forestry industry through investment promotion packages, such as loan
guarantee programmes, tax holidays, duty-free importation of
equipment/machinery, provision of infrastructure etc. Incentives often
include a commitment to supply raw materials from government forests and
long-term forest management/harvesting leases.
3. Non-governmental organizations
39. Non-governmental organizations raise funds at the local, national
and international levels through multiple sources, such as donations,
subscriptions and governmental project support. The influence and presence of
non-governmental organizations in forestry is strong in several countries. In
Bangladesh for example, there are a number of non-governmental organizations
involved in forestry, with development delivery capability and experience in
organizing people and working with the rural poor; some of them also have
facilities for providing credit, training and marketing services. Collateral-
free short-term loans are available through the Grameen Bank to individuals
and groups engaged in rural small-scale forestry. Achievements in organizing
groups and implementing tree planting as an income-earning activity are
impressive, with some 25,000 small groups involved in social forestry. The
sericulture programme of the Bangladesh Rural Advancement Committee is
specially designed to benefit landless women. Mulberry raising is carried out
in homesteads, roadside plantations and agroforestry plots. The programme
integrates mulberry growing with silkworm rearing, cocoon production, silk
reeling and spinning, thus promoting development rather than subsistence.
B. Foreign sources
40. Least developed countries have not yet reached a level of national
income sufficient to yield the domestic savings required to finance
investments necessary for further growth. This makes foreign financing
necessary, which falls under two categories: foreign assistance and foreign
investment.
1. Foreign assistance
41. Foreign financing for forestry in the form of ODA essentially
provides resources to support non-commercial activities and technical
assistance, and plays a vital role in funding social and environmental costs.
Official development finance transferred about $53 billion (net) to developing
countries in 1993 (for international development non-governmental
organizations and non-official groups providing technical and financial
assistance, see section 5).
2. Foreign investment
42. Foreign investment comprises both direct investment and portfolio
investment. Foreign direct investment in developing countries by all
countries in 1994 amounted to $226 billion, an increase of 9 per cent over the
1993 figure and far exceeding ODA. However, foreign direct investment in 1992
in the whole of Africa (excluding South Africa) was only $1.7 billion,
compared with 9.0 billion in China and $1.8 billion in Indonesia. Information
on the share of foreign direct investment in forestry is not available.
Foreign private investment takes place mostly through transnational
corporations (TNCs), and may complement ODA.
43. The presence of TNCs in the forest-based sector has grown both in
the number of developing countries covered and the number of TNCs involved.
TNCs from some 30 countries operate in the forest-based sector of developing
countries of Africa, Asia, and Latin America. In Africa, foreign-owned and
controlled operations account for over 60 per cent of total investment in the
sector. Until about 1970, the forest-based activities of TNCs primarily
operated through wholly-owned subsidiaries, mostly involved in log production
and trade. During the 1970s and early 1980s, TNCs were required in many
countries to: (a) increase investment in the local processing of timber, and
(b) accept local equity participation in forest-based ventures. "Straight"
foreign investment is being replaced in favour of joint ventures.
*****
Box 2. Inadequacies of investment information
Full information on investment and other expenditures in the forestry and
forest industry sector is generally not available. Coverage varies from
country to country, often depending on the agency providing the information.
In most cases, information only covers government allocation to its forestry
agency/department. Some countries do provide information on external
assistance; most do not divide funding into capital investment and current
operating expenditure. Only in rare cases is it possible to obtain
information on the private sector, whether foreign or domestic.
*****
44. This is due, in part, to a gradual growth in the ability of host
country investors to mobilize capital. The present state of engineering and
heavy industries in developing countries means that much of the equipment
needed for expanding domestic capacity will have to be imported. Pressure on
meagre foreign-exchange reserves can be alleviated by TNCs, which can
progressively provide technology to increase local sourcing of inputs,
including some equipment.
45. A recent development in international private financing in forestry
is the interest of entrepreneurs in the creation and sustainable management of
forest resources. An example is Precious Woods Ltd., founded in 1990 by
investors for the reforestation of fallow lands, sustainable management of
existing natural forests, and sustainable production of tropical timber
through reforestation and harvesting. Precious Woods Ltd. is investing about
$40 million in Costa Rica for raising plantations of teak and other valuable
species and conserving the rain forests of the country; the number of similar
schemes is increasing.
C. Constraints in financing for forestry
46. Financing for forestry is complex because of its environmental,
economic and social roles and externalities. Long return periods and
externalities (including non-use values) make it different from many other
sectors in terms of financing needs. Financing forestry development in the
developing countries is constrained by several factors. Some are generic to
most sectors of the economy, such as poverty, lack of funds and credit
facilities, poor institutional capability, inappropriate development policies,
inadequate infrastructure, inadequate people's participation, lack of private
sector involvement, low labour productivity, inadequacies of technology, a
lack of information and databases, deficiencies of land tenure systems and a
lack of intersectoral coordination. Some constraints also have an
international dimension, such as current practices in most ODA financing.
Trade restrictions or barriers are another important issue: European
consumption of tropical wood products decreased by 26 per cent between 1981
and 1992.
47. Constraints specific to or of high severity for forestry include:
low priority, slowness of policy reforms, uncompensated land transfers and
accounting distortions. Forestry is perceived by many as a marginal activity.
Only the value of wood (timber and fuelwood) is considered in comparing the
value of forest land against its possible agricultural output. Forestry is
often misinterpreted as wood production; it is important to establish
awareness of the many other roles of trees and forests in increasing food
security; reducing environmental degradation; providing rural energy and
employment; mitigating climatic changes; maintaining the integrity of
watersheds; and providing medicines.
48. As a result of the low priority assigned to it, policy reforms in
the forestry sector have been slow, often lagging behind the reforms of
national macro-policies. In many countries, forest policies lack transparency
and a progressive people-centred approach, and forestry is accorded a
secondary status, forming part of a large government department or ministry,
such as a ministry of food, agriculture, natural resources or primary
industry. The low priority assigned to forestry in national development plans
results in low budget allocations in comparison to needs, and is reflected in
lack of technical capability, human resources, extension facilities, basic
data/information, and administrative efficiency. This in turn deters
entrepreneurial investment in forestry.
49. Divestment of forest capital and land transfers support development
in other sectors, such as mining, tourism, agriculture, and hydropower. Such
land transfers are made easier due to the extreme undervaluation of forest
lands.
50. In national accounts, there are several distortions relating to
forestry. Apart from the land transfers mentioned above, the value of a
number of forest benefits, such as medicinal plants and other non-wood forest
products and forest grazing, are not reported at all or are included in the
accounts of other sectors. Forest foods, grazing and fodder are often
reported under agriculture.
51. The total value of forest benefits should be reflected in an
integrated manner in the system of national accounts. National accounts
should consider wood products, non-wood forest products and forest
influences/intangible benefits as components of an integrated whole. Together
with valuation of forest resources stock, these would provide a more realistic
and meaningful representation of the value of the forests.
52. The total value of the formally recorded production of wood-based
forest products in the world in 1993 was $391 billion, of which the share of
developing countries was $144 billion. If the value of all forest benefits
were included, the value of forest benefits accrued to developing countries
would be nearly three times as much, increasing the currently recorded
contribution of forestry to gross domestic product (GDP) from 3 to about
10 per cent or more. The case of India illustrates the situation: its
officially accounted contribution of forestry to national income is only
$2.9 billion, against the actual contribution of benefits valued at
43.8 billion (see box 3).
*****
Box 3. Real value of forests: the case of India
The magnitude of underestimation and underreporting of forest benefits is
great, and India provides one of the best databases for its estimation.
Billions of
United States
dollars
Forest grazing: some 270 million cattle graze in forests.
Minimal value of $36 per year for providing alternate
source per animal ........................................ 9.7
Green fodder: average annual collection of 400 million
tons. Value estimated at $5 per ton ..................... 2.0
Medicinal plants: nearly 70 percent of the population use
indigenous herbal medicine as a means of primary health,
the bulk of it originating in forests. Value estimated at
$10 per person ........................................... 6.3
Non-wood construction materials (thatching materials,
bamboo, grass, fibres etc.): assumed that 250 million
people living below the poverty line use non-wood
construction materials from forests, valued at
$10 per year ............................................. 2.5
Food: 67.8 million tribal people who depend on forests
for their livelihood. A food value of $100 per year for
food derived from forest is assumed ...................... 6.8
Wood products, fuelwood and charcoal estimate ............ 16.5
------
Total ............................................... 43.8
This estimation does not consider the values of many minor products, nor
does it consider the value of biodiversity conservation, wildlife and nature
tourism, watershed protection or the sequestration of carbon.
*****
III. ACQUISITION OF TECHNOLOGY
53. Technology covers the physical, human and organizational capacities, and
includes hardware and knowledge. From a development perspective, appropriate
deployment of technology is essential. Technology influences the investment
need, depending on whether it is capital intensive (labour saving) or labour
intensive. There is an unprecedented accumulation of technological capability
in the world today. Much of it, however, remains unrecognized, underutilized
and inadequately shared.
54. Financial assistance and technology transfer are interrelated components
of international development cooperation. Technology transfer is a form of
resource flow and can normally be achieved without any large-scale expansion
of financial transfers. Technology transfer aims to bridge three major types
of gaps: (a) between innovation and commercialization, (b) between
technologies in use in developed and developing countries, and (c) among
technologies available to different developing countries.
55. No single technology or set of technologies can be appropriate in all
countries: optimizing technology for the great variety and combination of
situations is challenging. Technologies cover different ecological zones,
socio-economic needs and pressures, and environmental considerations. They
also cover a large number of activity groups, such as forest-resource
development, reforestation, sustainable harvesting, processing and value
addition, integrated waste management, product development and marketing, and
promoting interface activities. Considering the decrease of area under forest
cover and the increase of demand placed on it, technological innovations will
be a driving force for sustainable forest management. The transfer and
exchange of technology has increasingly been facilitated by developments in
information technology.
56. The transfer of technology from developed to developing countries takes
effect in different ways; private entrepreneurs, bilateral and multilateral
assistance agencies, institutions of the Consultative Group on International
Agricultural Research (CGIAR) and regional research institutions,
non-governmental organizations and foundations are all involved. Foreign
investment in developing countries is often associated with a technology
package, including management and marketing contracts, foreign equipment and
patented technology, examples of which can be seen in the forest-based
industries of several developing countries.
57. Bilateral and multilateral forestry projects are a common means of
achieving technology transfer. There are many national and regional forest
research institutes that have long received international assistance. FAO
technical publications provide updated technical information on almost all
aspects of forestry, such as mangrove forest management guidelines,
biotechnology in forest treat improvement, a model code of forest harvesting
practice and non-wood forest products for income generation and sustainable
forestry.
58. The People and Plants Initiative (jointly backed by WWF and RBG Kew) of
the United Nations Educational, Scientific and Cultural Organization (UNESCO),
the database of the United Nations Environment Programme (UNEP) on
environmentally sound technologies, the Zero Emissions Research Initiative of
the United Nations University (UNU), the Medicinal Plants Programme of the
World Health Organization (WHO), and the programme of the United Nations
International Development Organization (UNIDO) on industrial processing and
marketing are some of the many examples of multilateral technology transfer.
A. Technical cooperation among developing countries
59. Apart from North-South technical cooperation, TCDC is becoming an
effective medium of South-South technology transfer. Sharing of experience by
developing countries can happen through direct exchange or through formal and
informal networks; the Latin American Dendroenergy Network, the African Forest
Action Network and the Asian Network on Medicinal and Aromatic Plants are some
of the many active ones. UNDP and other United Nations bodies operate
technical cooperation among developing countries (TCDC) programmes that could
be applied more directly in technology transfer for forestry. TCCT needs
stronger support and development.
60. Developing countries will only be able to advance rapidly to state-of-
the-art technologies, avoiding mistakes and delays, if their capability level
is adequate. In most cases, the experience and technologies of developed
countries do not automatically translate into lessons and tools for developing
countries; each country will proceed along a path suited to its own unique
circumstances and influenced by a multitude of factors.
B. Research
61. While all CGIAR institutions have some forestry-related activities, the
Centre for International Forestry Research and the International Centre for
Research in Agroforestry are directly concerned with forestry and conduct
programmes on policy development; the management and conservation of natural
forests; the reforestation of degraded lands; products and markets; the
environmental and economic characterization of land-use systems and the
validation of technologies and issues related to their adoption; multipurpose
tree improvement; and component interaction between trees and crops. There
are also regional centres/institutions engaged in research and technology
transfer on specific aspects of forestry within their respective regions, such
as the International Centre for Integrated Mountain Development, the Inter-
American Institute for Cooperation on Agriculture, the Tropical Agriculture
Research and Training Centre, the Institute of Forest Management of the
Association of South-East Asian Nations (ASEAN) and the ASEAN Timber
Technology Centre.
62. Activities related to forestry research in developing countries and
technology transfer are found in some developed countries institutions,
including the Canadian International Development Research Centre, the East-
West Centre, the Natural Resources Institute of the United Kingdom of Great
Britain and Northern Ireland, RPG Kew, the International Cooperation Centre of
Agricultural Research for Development of France, the New York Botanical
Gardens, the Australian Centre for International Agricultural Research, the
French Institute for Scientific Research and Development Cooperation, the
Division of Forestry of the Commonwealth Scientific and Industrial Research
Organization, the Forestry Service of the United States Department of
Agriculture, and the Tropenbos Foundation. Globally, ODA for forestry
research amounts to about 5 per cent of total ODA to the sector, the
corresponding figure for agriculture being 10 per cent. A number of
international non-governmental organizations and foundations support research
and technology transfer.
63. Investment in forestry research in most developing countries has
traditionally been low, resulting in a smaller number of forest scientists
compared with those engaged in agricultural research, as well as a lower level
of training and inadequacy of infrastructure and facilities. The measure of
forestry research expenditure for developing countries as an
average percentage of the recorded value of forest products ranges from 0.05
to 0.1 per cent, compared with about 0.5 per cent for agriculture. Research
efforts are far from sufficient, and the lack of consultation with the users
of research results and neglect of the subsistence sector lead to continued
unsustainable practices; in most cases, there is hardly any participation of
the private sector. The so-called technology triangle of academia, business
and government is essential for developing and expanding a country's national
technological capability. Finally, the area of indigenous technologies in
developing countries is only beginning to be explored.
IV. DEVELOPMENT ASSISTANCE
64. The Forest Principles emphasize the need for international cooperation
and technical and financial support for the management, conservation and
sustainable development of forests. International financing on concessional
terms is required for supporting capacity-building, technology improvement,
infrastructure development and conservation, and to internalize global
externalities.
65. The estimate of the annual need for concessional financing for
implementing chapter 11 of Agenda 21, "Combating deforestation" during
1993-2000 is $5,670 million (not including forestry components of other
chapters, particularly chapters 12, "Managing fragile ecosystems: combating
desertification and drought" and 13, "Managing fragile ecosystems:
sustainable mountain development").
66. ODA for forestry is a relatively new phenomenon, having started in the
early 1960s; it has grown to $1,545 million for 1993. Dependence on foreign
funds in developing countries varies widely: the share of ODA in the total
government resources for forestry was about 10 per cent for Indonesia and
Malaysia, whereas it was over 80 per cent for Bangladesh and the Philippines
(see table 1).
A. Bilateral assistance
67. In 1993, total revenue flows to developing countries from countries that
are members of the Organisation for Economic Cooperation and Development
(OECD) amounted to $160 billion, of which development cooperation flows
accounted for $55 billion. Bilateral aid for forestry in the same year was
$916 million, only 1.7 per cent of the total (see table 4); this would seem to
reflect a very low priority.
68. There are some 20 donor countries providing bilateral assistance for
forestry. Bilateral assistance funds are mainly channelled through special
assistance agencies in the donor countries. Donor countries also contribute
to multilateral and non-governmental organization programmes (see paras. 71-82
below). It is important to note that some 80 per cent of all development
assistance derives from six of the G-7 countries (the United States of
America, Germany, Japan, France, the United Kingdom of Great Britain and
Northern Ireland and Canada), whether it is channelled in bilateral or
multilateral form. Clearly, changes in aid-fund resource availability in
these countries affects the multilateral and other international agencies.
69. Bilateral donors have their own priorities and preferences for recipient
countries and programme focus, and some even have a regional focus. Donor
interest is sometimes confined to specific aspects of forestry. Some aid
appears to be linked to equipment from donor countries, but most is not.
Forestry-related donor policies are also influenced by several new trends:
the growth and increased strength of non-governmental organizations; the
increasing globalization of forestry issues; increased awareness of social and
environmental issues; and the rapid economic growth occurring in some
developing countries. In view of the differences in the priorities and
preferences of donors, the coordination of development assistance at the
country and global levels continues to be essential to ensure complementarity
of assistance action.
70. Since 1992, there has been a decline in aid flows. Several countries
have either revised their aid commitments or frozen aid at its current nominal
levels. The reasons attributed for the change are recession and structural
unemployment in OECD countries; increased social needs in many donor
countries; rapidly increased peace-keeping commitments; and disillusion with
what can be accomplished through development cooperation.
B. Multilateral assistance
71. Multilateral organizations can be grouped as development banks, United
Nations and other international organizations, international non-governmental
organizations, regional organizations and CGIAR institutions.
1. Multilateral development banks
72. The World Bank, the African Development Bank (ADB), the Asian
Development Bank (AsDB), the Inter-American Development Bank (IDB) and the
International Fund for Agricultural Development (IFAD) are the main
multilateral development banks involved with forests. The first four have
been directly involved in financing forestry projects; the involvement of IFAD
has been indirect, through agricultural projects incorporating tree planting.
Increasingly, sustainable forest management is featuring in the policy
documents of these banks, as well as in loan and grant agreements.
73. Among the multilateral development banks, the World Bank is by far the
single largest funding source for forestry: total World Bank lending of
$115 million during 1967-1976 had increased to $1.8 billion for the 1977-1986
period. During 1993, World Bank forestry lending was $276 million. There are
currently 25 active forestry projects funded by the World Bank, spread over 20
countries. The World Bank is also, along with UNDP and UNEP, a managing
partner of the Global Environment Facility (GEF), which funds forest-related
projects through its focal areas.
74. Since 1978, ADB has funded 14 projects for a total of $337 million;
since 1977, AsDB total lending for forestry has amounted to $840 million; IDB
forestry lending has risen to $65.3 million since 1993. The lending profile
of these banks is similar: currently, no funding is provided for forest
harvesting or forest-based processing industries.
2. International organizations
75. Technical support for forestry in developing countries is provided by a
number of United Nations and other intergovernmental bodies including FAO, the
International Labour Organizations (ILO), the International Trade Centre/World
Trade Organizations, ITTO, UNDP, UNEP, UNESCO, UNIDO, the World Food Programme
(WFP) and WHO.
76. UNDP provides financial/technical assistance, particularly through
country programme allocations. In 1993, UNDP provided $33.5 million world
wide for forestry. These funds are designed to promote multisectoral and
programme-wide approaches to forest management. The UNDP-administered
component of GEF funding, in its pilot phase (1992-1994) included
approximately $80 million for biodiversity projects, of which $60 million were
for forest-related projects, mostly in Asia and Africa, with significant but
smaller programmes in Latin America and the Caribbean, the Arab States and
Eastern Europe. A smaller number of forest-related climate change mitigation
projects were also undertaken.
77. In 1993, UNDP launched its Forestry Capacity Programme, which provides
central funding to countries who best meet programme criteria. Relying on
building national capacity, programmes support participation, an integrated
cross-sectoral approach and donor coordination for more effectively managed
national forest programmes. The pilot programmes, funded by donors at
$4 million, have demonstrated the potential of the approach.
78. WFP is involved in watershed management, social/village forestry,
fuelwood plantations, land rehabilitation, sand dune stabilization and shelter
belts. The WFP contribution to forestry-related activities in developing
countries amounted to $121 million in 1993. WFP emphasis appears to be
shifting from development through food-for-work programmes to emergency
assistance. Since 1993, WFP has approved only $37.2 million in assistance for
forestry projects.
79. Internationally, FAO is the principal specialized agency in forestry and
is active in many areas. Its normative activities are funded from regular
budget allocations. It also implements field projects financed by UNDP,
multilateral development banks and bilateral donors as well as by its own
Technical Cooperation Programme. The FAO annual regular programme budget for
forestry has been about $13 million; for the forestry field programme, it is
about $55 million.
80. ITTO has an annual administrative budget of $4 million and is currently
mounting country projects at a cost of approximately $15 million. Between
1990 and 1995, ITTO approved grants of a total value of $88.3 million for
projects related to trade, forest products, forest management and
reforestation.
81. UNEP has been closely involved with activities relating to biodiversity
and desertification control, particularly the development of conventions. The
UNESCO Man and the Biosphere programme, People and Plants programme and
Botany 2000 initiative, as well as a number of its scientific activities, are
relevant to forestry. UNIDO is involved in promoting and developing
technologies for secondary wood products and phytochemicals/
phytopharmaceuticals.
3. Non-official assistance agencies
82. A number of other organizations support countries in taking effective
action for forestry development, including international non-governmental
organizations, regional organizations, and CGIAR institutions. International
non-governmental organizations involved in forestry differ widely in their
scope and interest; the International Union for the Conservation of Nature,
WWF, the International Union of Forestry Research Organizations, the
International Institute for Environment and Development, the World Resources
Institute, the International Technical Tropical Timber Association, CARE
International, OXFAM, Conservation International, AT International, the
Brothers of the Christian Schools, the Global Forest Policy Project and the
World Watch Institute are among those actively involved. IUCN operates on a
total budget of some $48 million annually focused on conservation. Many non-
governmental organization programmes are financially supported by bilateral
and multilateral agencies.
C. Trends since the United Nations Conference on Environment
and Development
83. Although the United Nations Conference on Environment and Development
(UNCED) established a case for increased support for forestry, overall ODA has
actually declined. Panayotou (1995) notes that the chances of raising ODA are
minimal in view of the political difficulties of donor countries in
maintaining even current levels of ODA. In addition, the outflow of resources
from the South for servicing foreign debt far exceeds the inflow of resources
from development assistance. The recent trend of decline in ODA is therefore
of grave concern. ODA to agriculture fell from $14.0 billion in 1991 to
$4.8 billion in 1993.
84. The total ODA to forestry showed a large increase in the 1980s and then
a small increase from $1.4 billion in 1990 to $1.5 billion in 1993 (see table
2). ODA in 1993 was comprised of 71 per cent grants and 29 per cent loans.
When this ODA level is compared with the need estimated in Agenda 21 ($5.67
billion) it amounts to only 27 per cent of that figure.
Table 2. Official development assistance for forestry, 1986-1993
(Millions of United States dollars)
--------------------------------------------------------------------------
Categories of donors 1986 1988 1990 1993
--------------------------------------------------------------------------
Bilateral Aid 434.5 723.0 937.3 915.7
Development banks 142.5 200.3 253.7 420.3
United Nations
organizations 188.0 191.6 234.3 208.5
------------------------------------------
Total 765.0 1 114.9 1 425.3 1 544.5
--------------------------------------------------------------------------
85. The forestry funding provided by all United Nations organizations in
1993 totalled $208 million, of which $121 million came from WFP. Other
intergovernmental bodies, including FAO, UNDP, ITTO and UNEP, provided a total
of $87 million, or only 5.7 per cent of total ODA for forestry.
86. Under bilateral cooperation, European Union countries gave nearly
40 per cent of total ODA (54 per cent of total aid in the form of grants).
Globally, bilateral cooperation represents 59 per cent of total aid
(80 per cent of total aid in the form of grants). It should be noted that
part of this is in the form of trust funds for international agencies,
particularly FAO.
1. Official development assistance by geographic region
87. Table 3 describes ODA for forestry, by geographic region. Asia and the
Pacific remains the principal beneficiary (37.2 per cent), followed by Africa
(30.6 per cent). More information is needed on which countries receive what
level of international cooperation, and whether that distribution is rational
and effective.
Table 3. Share in official development assistance, by region, 1993
(Millions of United States dollars/percentage)
------------------------------------------------------------------------------
Region Bilateral Development Multilateral Total
banks organizations
------------------------------------------------------------------------------
Africa 323.6 35.3 58.0 13.8 82.4 39.5 472.0 30.6
Asia/Pacific 261.4 28.5 248.0 59.0 68.0 32.6 574.3 37.2
Latin America/
Caribbean 208.4 22.8 84.5 20.1 19.8 9.5 315.7 20.4
Near East and
North Africa 36.9 4.0 18.9 4.5 20.6 9.9 77.5 5.0
CIS a/ and Eastern
Europe 10.0 1.1 10.9 2.6 1.7 0.8 21.9 1.4
Global 75.4 8.3 0 0 16.0 7.7 83.1 5.4
Total 915.7 100 420.3 100 208.5 100 1 544.5 100
-----------------------------------------------------------------------------
a/ Commonwealth of Independent States.
88. Funding of all the multilateral organizations are now at zero growth or
declining, and prospects for new and additional funds appear to be weak. In
any case, the ODA growth rate experienced during the period 1986 to 1990/1991
can hardly be expected to recur.
2. Donor priorities
89. In a 1994 FAO survey, donors were asked to indicate the degree of
priority (very high, high, medium and low) that they would give to each of 25
proposed areas. Based on donors' response, the priorities are as follows:
(a) Very high priority: country capacity-building; the management of
natural forests and social forestry; forestry research;
(b) High priority: country capacity for policy and planning:
agroforestry, watershed management and land-use management;
(c) Medium priority: desertification control; extension; national
parks
and the conservation of genetic resources; forestry legislation; non-wood
forest products; forest protection;
(d) Low priority: wildlife management; fire protection; industrial
plantations; industries; trade; the marketing of forest products.
D. Shortcomings of the official development assistance system
90. Past evaluations of ODA projects/programmes have identified several
shortcomings, which are essentially institutional in nature and, therefore
remediable, as follows:
(a) There are a large number of donors providing ODA, which have
differing policies, priorities, eligibility criteria, modalities and rules.
Conflicts of various nature arise because of such differences among providers
of ODA within each group (bilateral, multilateral, non-governmental
organization), among these groups and between donor groups and recipients;
(b) When donors have the same preference for countries and similar
priorities, they often compete among themselves, thus diluting the
effectiveness of assistance. Cooperative management and co-financing of
projects/programmes does not occur often enough;
(c) Because of the country preferences of bilateral donors, ODA does
not
get evenly distributed among countries according to their needs;
(d) ODA projects are often decided on an ad hoc basis without any
analysis of their linkages and relevance to overall goals of development;
(e) The policies and priorities of donors and recipients often
conflict.
As a result, some of the high priority needs of developing countries remain
unattended and national programmes are patchy rather than comprehensive;
(f) It is very difficult for recipients or anyone else to be well
informed on the multiplicity of changing programmes, funds, criteria and
procedures that exist. They lack adequate knowledge and capacity to receive
access and implement ODA;
(g) Projects are often prepared without sufficient national/local
involvement, resulting in the introduction of inappropriate technology and
dependence on foreign experts;
(h) There has been a proliferation of frameworks for environmentally
sustainable development planning, causing confusion and dissipation of
efforts;
(i) The ratio of local funding to ODA funding in projects is small,
raising questions about the capacity of recipient countries to maintain
investments once external assistance comes to an end;
(j) There is often insufficient national ownership and commitment,
resulting in a lack of positive impact and a lack of adequate technical skills
and capability to absorb the benefits of assistance.
91. Overall, ODA is observed as being rarely adequate and predictable: its
preparatory procedures are often elaborate and time-consuming, and
conditionalities have blocked, delayed or interrupted development assistance.
E. Improved mechanisms
92. Considering the crucial importance of ODA, such constraints need to be
removed effectively and immediately through simple and innovative procedures.
In order to improve its effectiveness, ODA planning for forestry should be
undertaken as a joint/collaborative effort of donors and recipients.
93. At the global level, it is necessary to resolve the conflicts among
donors and among technical assistance agencies and to arrive at a common
strategy and coordinated approach in setting priorities, country preferences,
funding levels and mechanisms, including the integration of diverse
frameworks. Where more donors are interested in the same country and
programme area, cofinancing activities can help to coordinate ODA delivery:
cofinancing multiplies each donor's impact, and cofinanciers may have
complementary skills and expertise that they can use in a joint fashion.
94. The international community has realized that coordination and
cooperation in the identification of needs and opportunities for investment
and technical assistance are just as critical, if not more so, as cooperation
and coordination in the financing of such needs and opportunities once they
are identified. This recognition was indeed one of the major forces that led
to the establishment of the Tropical Forests Actions Programme in 1985.
95. At the national level, all ODA activities related to sustainable forest
management need to be coordinated and effectively incorporated into the
overall forestry programme of each country; countries should designate an
appropriate agency to undertake this responsibility; for example, in Indonesia
the National Development Planning Board undertakes coordination through the
Consultative Group on Indonesian Forestry.
96. It is generally recognized that project lending and project-oriented
investment often do not result in balanced growth of the forestry sector, due
to overlaps, conflicts, duplication of efforts and inefficiency in the use of
resources. The World Bank and other multilateral development banks are
accordingly advocating a broad sectoral approach to investment lending. A
sector investment programme is to be based on a sector strategy and policy
framework, and it should cover all sector expenditures, current and capital,
and involve all stakeholders. This would help to avoid shifting priorities
and increase the focus on policy dialogue between donor and host countries so
as to ensure that there is mutual understanding of objectives and clear
agreement on strategies and conditions of performance for loans or grants; it
would also improve inter-agency cooperation and coordination.
97. This approach calls for high planning capability and continuity of
programme funding and is consistent with recent UNDP emphasis on a programme
approach. General Assembly resolutions on United Nations resident
coordinators and country strategy notes may also provide a framework and
mechanism for initiating such programmes.
98. Based on the principles of sectoral approach developed by the World Bank
and others, UNDP has developed a concept of forest partnership agreements
(FPAs) between country and donor communities so that national commitments and
donor support for implementing forestry principles and procedures specified in
Agenda 21 can coalesce. Establishment of a special forest partnership
facility in FPA countries is also envisaged. FPAs can help to establish large
financing packages based on multi-donor sectoral funding. They would focus on
countries with a strong national commitment to bring deforestation under
control, and would also focus beyond the forest sector on the underlying
causes of deforestation.
V. INNOVATIONS IN FUND MOBILIZATION
99. In recent years, a number of innovations have been introduced for
mobilizing funds for forestry, some more successful than others. Some new
mechanisms are still in their early stages, and others are still at a
conceptual stage. Such innovations can be considered under two broad
headings, external and domestic.
A. External resource flows
100. Foreign investment and ODA, including such arrangements as cofinancing,
matching grants and GEF, have been discussed above. Global environmental
values of forests offer possibilities for debt swapping and other means of
trading through international transactions. Several innovative and
interesting ideas for the international acquisition of funds for forestry have
recently been raised, and some are being tried with encouraging results, such
as debt-for-nature or debt-for-sustaining-forests swaps, carbon offsets,
internationally tradeable emission permits, tradeable development rights,
biodiversity patents and matching funds for sectoral reforms.
101. Debt-for-nature swaps were an early innovative financial mechanism.
Begun in 1987, they continued after UNCED and by December 1992 had generated
approximately $76 million for conservation in developing countries. These
small-scale transactions need to be greatly expanded to attract the serious
attention of finance ministers. In such arrangements, international debts can
be purchased or swapped in return for environmental safeguards, such as
establishing nature reserves, or, as suggested recently, in return for
guarantees of sustainable management of forest resources. In order to promote
policy reforms in forestry, the concept can be widened to include debt-for-
policy reform swaps, or even possibly to debt-for-sustainable-development
swaps.
102. Carbon offsets are arrangements by which, for example, a developed
country power utility finances reduced-impact logging, enrichment planting,
forest protection or reforestation in a developing country in order to
sequester carbon and offset emissions. Several such pilot offsets have been
initiated in recent years.
103. Internationally tradeable emission (carbon dioxide) permits could be
used to finance the protection of forests. Such a mechanism could allocate a
certain level of allowable emissions in the form of tradeable permits or
obligations, based on some internationally acceptable formula. If countries
exceed the limits, they can purchase or trade emission permits with countries
that have an excess supply of permits. The concept raises questions of equity
and sovereignty.
104. Tradeable Development Rights (TDRs) are comparable in conception to
tradeable emission rights, and could be used to conserve biodiversity both
within a country and globally. Developing countries could set aside habitats
for biodiversity conservation, dividing them into a number of TDRs. The TDRs
could be sold to firms, foundations, developed country Governments,
universities and research institutions. Some would buy it for direct use
(prospecting for biochemicals) and others to save them from commercial
exploitation. Developed countries could stimulate demand for these by
providing credits to domestic firms and property owners for the acquisition of
TDRs.
105. Additionally, at the international level, commercial private-sector
efforts to follow up UNCED are promoted by such groups as the International
Network for Environmental Management in Germany and the Business Council for
Sustainable Development (BCSD) in Switzerland. BCSD has established task
forces on, inter alia, internalizing social and environmental costs in prices,
and conducting a global study on the environmentally sound production and use
of paper.
B. Domestic resource flows
106. Domestic resource falls under two categories: government resources and
private resources.
1. Government resources
107. Apart from royalties charges, a large number of innovative measures can
be and are being applied to improve domestic resource flows for forestry (see
also paras. 25-39), such as:
(a) Objective-oriented taxation: specific charges can be imposed on
forest products for such purposes as afforestation, forestry education and
training and forestry research;
(b) Attributable reimbursements: other sectors/activities may be
required to pay for the benefits derived. For example, Colombia has planned
to divert income from coffee price-support payments by the European Union to
sustainable forest management;
(c) Beneficiary taxes and payments: taxes for the enjoyment of
non-marketed benefits, such as tax to be paid by downstream beneficiaries of
upland conservation. These are in fact payment for services. This type of
arrangement has been used in Japan for many years, and Colombia has a law that
requires a percentage of revenues from hydropower sales to go into a fund that
supports upland watershed management and conservation activities. Similar
approaches exist in a number of other countries;
(d) Watershed charges: these payments for damages inflicted can be
imposed on loggers and others who damage upland ecosystems;
(e) Licence fees/charges on non-damaging uses: fees or user charges on
permits for ecotourism/scientific tourism and bioprospecting;
(f) Reduction/removal of environmentally damaging subsidies: for
example, removing subsidies for activities leading to (or encouraging)
deforestation, such as agriculture, mining, irrigation, hydropower;
(g) Full-cost pricing: several forest products and services are
supplied to users at below cost, such as fuelwood, water supplies;
(h) Increased rent capture: more information on this has been given
above;
(i) Fines on wasteful use and wilful damage to forests: this provision
can be seen in many forest utilization contracts and may be enforced through
deposit of bonds;
(j) Deforestation charges/taxes: similar to item (i) above and often
linked to the afforestation cost involved.
2. Private resources
108. A number of successful cases of innovations to mobilize private
resources have been described above. People's participation of a different
nature (single tier or multi-tiered; individual initiatives or cooperative
action) and private- sector involvement can considerably improve the flow of
funds. Increased non-governmental organization involvement can be facilitated
by the establishment of offices or "windows" within existing organizations
that would accept proposals for projects from the non-governmental
organization community. Industries using forest products can be encouraged to
participate in developing forest resources; for example, tobacco and tea
manufacturing industries could participate in developing fuelwood plantations.
Targeted approaches, such as joint forest management (JFM) in India and
extractive reserves in Brazil, have produced encouraging results. Under JFM,
government forest departments and local communities have successfully entered
into forest management agreements that benefit both parties.
109. A newly suggested mechanism is tradeable reforestation credits, which
aims to provide an incentive for private landowners to encourage them to keep
their land under forest cover or reforest it. Landowners who keep their land
under forestry receive a tax credit against their general tax obligations, and
smallholders who do not pay taxes can sell their credits to wealthier people
who do. Costa Rica has been using this instrument, integrating it with carbon
offsets.
C. Institutions to support targeted financing for forestry
110. The innovative mechanisms discussed above have conceptual strength.
However, their success depends on strong and innovative institutions that can
implement and enforce the mechanisms. Current institutions, both nationally
and internationally, will need substantial strengthening and reform to
implement such innovative mechanisms.
111. At the national level, the establishment of a national forestry
development fund (national forestry fund) with decentralized funding
structures could support forest conservation through the reinvestment of
forestry income into forest resource development. It could also help to meet
private-sector environmental financing needs. A centrally managed fund could
incorporate several of the above-mentioned mechanisms and serve as an
effective agent for fund mobilization. It would help the implementation of
sector investment programmes for forestry and could effectively handle any
forest partnership facility that might be established on the basis of forest
partnership agreements. This would in turn help to strengthen alliances of
public institutions, donors and financing agencies, Governments and the global
community. Such a fund could be structured along similar lines to those of
some of the agricultural financing institutions, such as agricultural banks
and agricultural finance corporations, that already exist in several
countries, or it could be an affiliate of such existing financing institutions
with a special window for forestry.
112. The advantages and improved effectiveness of global level funding
mechanisms for forests is a central issue for the consideration of the Panel.
Proper consideration will require careful analysis and broad understanding of
the strengths and shortcomings of the present funding system.
VI. CONCLUSIONS AND OPTIONS FOR FURTHER CONSIDERATION
BY THE PANEL
113. In spite of the commitment of countries and the international community
to pursue Agenda 21 and the Forest Principles, real investment for sustainable
forestry development remains negative. The net annual forestry investment of
US$ 31.25 billion for the period 1993-2000 that was envisaged by UNCED, with a
component of US$ 5.67 billion of concessional financing, is far from being
realized. Increased funding and improved technology are the twin engines
needed to propel a take-off towards sustainable forestry. But fund
mobilization is generally weak in developing countries: public resources are
the mainstay for forestry development in most cases, and available resources
and capability are far from adequate. In circumstances of inadequate
resources for forestry, an early casualty has been budget allocations for
research and technology development.
114. Foreign investment and ODA are important for many countries,
particularly in Africa. The current level of ODA in forestry is only
27.2 per cent of the amount specified in Agenda 21; moreover, in the present-
day economic climate, increase in ODA is unlikely.
115. The forestry sector today is riddled with problems and constraints that
call for action on multiple fronts, and the resources needed are having to be
mobilized by the countries themselves; the ODA role can only be catalytic.
There is a need to promote the involvement of the people and the private
sector. All means of mobilizing financial resources need to be fully tapped.
Traditional measures of revenue generation and allocation, or funding based on
timber production alone, are no longer appropriate. Innovative measures are
required for generating funds based on the immense externalities and
environmental benefits of forests, requiring effective and sophisticated
mechanisms. In addition, a strong development partnership is called for among
government institutions, private establishments, assistance agencies, research
institutions and non-governmental organizations, and indications suggest the
need for a sectoral approach to forestry development, supported by appropriate
policies, strategies and regulatory mechanisms. The improvement and
development of technology needs to be assigned its due importance, and
wherever technology is acquired, there will be a need to adapt it to the
specific situations in the country.
Options for further action
116. The Panel may wish to consider the following options to advance the
agenda on finance and technology transfer:
(a) In view of the inadequacy of information on investment in forestry,
the Panel may wish to urge its member countries to support activities to
update and gather more information, especially information on current domestic
investment in forestry. The Panel may also wish to provide guidance on
institutional arrangements, procedures and mechanisms for the coordination of
data collection, analysis and dissemination;
(b) Since there has already been a current shortfall in financing
forestry programmes and it is unlikely that ODA contribution will increase
substantially from its current rate, the Panel may wish to provide guidance on
measures to sustain ODA contributions to forestry;
(c) Since forestry projects, including sustainable forest management,
are not separately covered under GEF, the Panel may wish to consider the case
for forestry projects that are specifically related to sustainable forest
management and have direct implications for the global environment to be fully
covered under GEF;
(d) There is a tendency among donors and lending institutions to give a
higher priority to projects on conservation and protection, and a lower
priority to projects on industry and marketing. Since successful forest
management is closely related to the ability to generate revenues and add more
value to forest products and services, the Panel may wish to urge donor
countries and lending institutions to review their policies on fundings to
take into account the need to give equal importance to forest industry and
trade as a strategy for achieving sustainable forest management in the
developing countries;
(e) In view of the need to increase effectiveness in coordinating
project funding among donors, the Panel may wish to give its view on the
approach taken jointly by UNDP and the World Bank of involving both donors and
recipient countries as partners in planning ODA for forestry. Such
partnership agreements between donors and recipient countries could help to
establish large financing packages based on multi-donor sectoral funding;
(f) Strong and dynamic institutions are required to drive efforts to
achieve fund mobilization and the acquisition of technology. The Panel may
wish to discuss the need to set up, at the national level, mechanisms for fund
mobilization and financing in the form of national forestry funds and
mechanisms for technology development and dissemination in the form of
national forest technology centres;
(g) In view of the large amounts of private-sector financial flows and
the need to complement these from ODA, the Panel may wish to consider urging
donor countries to formulate incentives to encourage their private sector to
invest in the development of forest resources in developing countries. Long-
term investment in the development of forest resources in the developing
countries would complement current investments in forest processing
subsectors;
(h) An international workshop on finance, to be held in South Africa
from 4 to 7 June 1996 and co-sponsored by Denmark, South Africa and UNDP, will
focus on the feasibility and economic potential of various innovative
financings. The Panel may wish to review the outcome of the workshop at its
third session.
Table 4. Change in volume of official development assistance
devoted to forestry, 1986-1993
(Millions of United States dollars)
------------------------------------------------------------------------------
1986 1988 1990 1993 1990-1993
Annual
variation
------------------------------------------------------------------------------
Bilateral
Australia 2.7 5.3 6.3 11.0 +4.7
Canada 79.8 75.1 113.4 48.6 -64.8
Japan 20.5 83.0 117.2 84.0 -33.2
New Zealand 4.0 4.1 4.5 3.3 -1.2
Norway 6.7 12.6 6.1 11.2 +5.1
Switzerland 13.1 22.9 22.5 28.0 +5.5
United States
of America 54.6 117.0 149.6 121.0 -28.6
Subtotal 181.4 320.0 419.6 307.1 -112.5
Austria 0.1 0.1 0.2 0.1 -0.1
Belgium 1.9 0.9 1.6 1.4 -0.2
Denmark 10.0 29.3 30.4 10.0 -20.4
Finland 31.2 22.0 36.8 28.0 -8.8
France 42.9 (42.9) (42.9) 30.5 -12.4
Germany 34.0 147.3 203.0 173.1 -29.9
Ireland 0.3 0.2 0.2 (0.2) -
Italy a/ 11.2 (11.2) 8.0 -3.2
Netherlands 28.5 32.1 46.0 60.6 +14.6
Portugal 0.1 0.1 0.1 (0.1) -
Spain a/ 0.9 0.3 (0.3) -
Sweden 49.1 57.9 72.0 37.1 -34.9
United Kingdom 35.2 23.1 28.5 45.2 +16.7
Subtotal 233.3 368.0 473.2 394.6 -78.6
European Commission 19.8 35.0 44.5 214.0 +169.5
Subtotal 253.1 403.0 517.7 608.6 +90.9
Total bilateral 434.5 723.0 937.3 915.7 -21.6
Multilateral
AfDB 2.7 1.0 3.0 5.0 +2.0
AsDB 9.0 77.0 71.4 74.0 +2.6
IADB 8.5 6.8 9.8 65.3 +55.5
World Bank 122.3 115.5 169.5 276.0 +106.5
Subtotal 142.5 200.3 253.7 420.3 +166.6
ITTO b/ 0 3.6 12.8 15.5 +2.7
FAO c/ 10.8 11.4 14.8 14.1 -0.7
ILO 2.8 2.0 0.6 0.2 -0.4
UNDP 22.0 24.9 52.0 33.5 -18.5
UNEP 1.7 1.5 0.1 1.1 +1.0
UNESCO 1.2 1.8 0.5 2.4 +1.9
UNIDO 2.0 2.8 2.8 0.4 -2.4
UNSO 15.0 12.2 18.1 10.0 -8.1
WFP 132.5 131.4 132.6 121.0 -11.6
GEF d/ 0 0 0 10.3 +10.3
Subtotal 188 191.6 234.3 208.5 -25.8
Total multilateral 330.5 391.9 488.0 628.8 +140.8
Grand total 765.0 1 114.9 1 425.3 1 544.5 +119.2
------------------------------------------------------------------------------
Note: Figures in brackets ( ) are taken from preceding survey; official
figures unavailable.
a/ Estimates unavailable.
b/ Total budget plus special funding for projects.
c/ Total budget of the FAO Forestry Department plus special funding for
projects.
d/ Spending on forestry components of GEF projects.
Notes
1/ Report of the United Nations Conference on Environment and
Development, Rio de Janeiro, 3-14 June 1992, vol. I, Resolutions Adopted by
the Conference (United Nations publication, Sales No. E.93.I.8 and
corrigenda), resolution 1, annex III.
2/ Ibid., annex II.
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Date last posted: 7 December 1999 12:45:30
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