Forests Sourcebook - HCV Resource Network

CHAPTER 2
Engaging the Private Sector in
Forest Sector Development
Sustainable forest management (SFM) requires substantial
financial resources. Developing countries
need to explore and encourage all sources and mechanisms
of funding for the forest sector to achieve SFM. The
private sector is expected to play the lead role in global economic
and production activities. Private investment in the
forestry sector in developing countries and countries in
transition is estimated at US$15 billion per year, or up to
nine times more than current official development assistance
flows. 1
To date, private investment in SFM has been concentrated
in developed countries. Although this trend is changing,
the need remains to motivate similar investment in
developing countries to maximize the full potential of SFM,
because investments required for harvesting and processing
can be large (for example, establishing a modern pulp mill
can cost the better part of US$1 billion). Investments on this
scale can only come from global corporations or joint ventures
involving local partners and development banks willing
to cover the risk. Furthermore, ensuring that these large
investments are made in a socially and environmentally
responsible manner is essential to preventing destructive
use of forest resources.
When discussing the need to attract investment to the
forest sector in developing countries, many organizations
and governments tend to focus on large-scale international
investors. However, the majority of the markets are domestic:
For example, as much as 86 percent of the wood harvested
in the Brazilian Amazon is consumed within Brazil,
and log exports from West and Central Africa account for
only 20 percent of the 25 million cubic meters harvested per
year. Although developed countries now consume approximately
70 percent of industrial roundwood, consumption
growth in developing countries is narrowing the gap: The
consumption of industrial roundwood in developing countries
grew by 3.2 percent per year in 1996–97, in contrast to
developed countries, where it grew by only 0.6 percent per
year (Victor and Ausubel 2000). In the forest sector, it would
be logical for much of the new global private investment to
try to capture the financial gains from these rising domestic
markets in developing countries, where the majority of the
world’s natural tropical forests are located. This aligns with
global trends that show that while foreign direct investment
remains important in developing countries for foreign
exchange earnings and skills and technology transfer, the
bulk of private investment remains domestic across all sectors
(ITTO 2006).
The forest products industry supplies a wide range of
essential products—from construction materials, paper,
sanitary products, and specialty chemicals to watershed and
soil conservation—from a renewable resource. It provides
millions of jobs and supports thousands of local communities
with an annual production of about US$750 billion
(WBCSD 2006).
Considerable potential exists in these investments to
deliver benefits to farmers, small forest owners, local communities,
and Indigenous Peoples. Forest investment can
involve small- and large-scale investments and can bring
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