Forests Sourcebook - HCV Resource Network

dred to tens of thousands of new jobs. Indirect employment
impacts can be many times higher than direct employment,
in particular when considering the forestry component.
While almost all the investments to date relate to large
industrial projects, the IFC has a particular interest in supporting
the expansion and sustainable management of
upstream fiber sources. Greater IFC involvement in forestry
can enhance the positive impacts of industrial development
in environmental conservation, economic development,
and poverty alleviation while possible negative impacts can
be better mitigated. 6
The International Development Association and International
Bank for Reconstruction and Development arms of
the World Bank Group have invested in enabling private
sector engagement in the forest sector in different ways. In
FY05, the Bank financed the Cameroon Forest and Environment
development policy loan to help consolidate and scale
up recent successful forest sector policy reforms, support
capacity building, and strengthen forest and environment
institutions. In this loan, a prior action for release of the second
tranche included signed contracts with companies
meeting requirements and implementation of appropriate
measures, including the withdrawal of concession, if appropriate,
for companies failing to meet requirements. Similarly,
in the Lao People’s Democratic Republic poverty support
reduction credit, there were prior actions that included
completing requirements for independent certification of
sustainable forest management and establishing a forest sector
monitoring system. The World Bank has also been
investing in activities enabling payments for environment
services (see details in note 2.3, Innovative Marketing
Arrangements for Environmental Services).
In addition to lending, since 2004, the World Wildlife
Fund (WWF) Global Forest and Trade Network (GFTN)
has been involved in World Bank–WWF Global Forest
Alliance activities by building up enterprise-level capacity
for certification and linking responsible suppliers with buyers
(for example in Ghana, Indonesia, Nicaragua, Peru, Russia,
and Vietnam). In Nicaragua, the cooperation of the
GFTN resulted in IFC support for local companies to
achieve certification. A financing mechanism for forest concessionaires
was developed in Peru. Development of timber
tracking systems has been supported in Cambodia,
Nicaragua, Peru, and in the Congo Basin countries. To promote
responsible investment in forest management, PRO-
FOR (Program on Forests) and the World Bank–WWF
Alliance for Forest Conservation and Sustainable Use have
organized three investment forums (a global forum in 2004,
and regional forums in East Africa in 2004 and in South
Africa in 2006) that have focused on the development of the
SME sector in forest-based activities within the framework
of poverty reduction.
KEY ISSUES
Numerous private sector actors. A variety of private
sector actors, all with different interests, capabilities, and
constraints, influence the forest sector, including
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large multinational companies,
local companies of varying sizes,
individual private investors (for example, conservation
investments by philanthropists),
community or cooperative enterprises applying SFM,
and
small-scale forest owners.
Primary manufacturers might include chainsaw operators
or small sawmills, in addition to large corporations
whose annual sales might be larger than the gross domestic
product (GDP) of many developing countries. All have the
potential to invest productively, create jobs, and expand—
thereby contributing to economic growth and poverty
reduction. Each type of business (or investment opportunity)
can be affected differently by changes in international
and domestic markets, as well as by changes in governmental
policies and the general in-country business and investment
environments (ITTO 2006).
Factors influencing private sector investment. Factors
that influence private sector decisions about forest-related
investments include the following:
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Returns. Sufficient returns are a prerequisite; therefore,
any factors that reduce the returns or profits from the
investment can act as a deterrent.
Risks. Weighing returns against risks, private investors
generally demand much higher returns (typically 15 percent
to 30 percent) from developing countries where
risks are (or can be perceived as being) high.
Transaction costs. High transaction costs can make
investments less attractive. For example, evidence indicates
that small investors in particular find it difficult to
meet the additional costs associated with SFM (see note
3.2, Forest Certification Systems).
Elements of an enabling environment. To encourage
the private sector to invest in SFM with full confidence and
CHAPTER 2: ENGAGING THE PRIVATE SECTOR IN FOREST SECTOR DEVELOPMENT 65