Forests Sourcebook - HCV Resource Network

Box 2.2
Since 1995, Brazilian small and medium enterprises
have grown annually by 2.8 percent and 4.7
percent, respectively—much faster than larger
enterprises—despite having a higher failure rate
than larger companies, with 39 percent failing in
Brazil within the first year (a reasonably average
failure rate globally for small and medium enterprises
(May, Da Vinha, and Macqueen 2003)). Logging
by SMFEs in Guyana contributes almost as
much to the revenue of the Guyana Forestry Commission
as do large enterprises (Thomas et al.
2003). In China, more than 90 percent of the total
value of wood products is generated by SMFEs
(Sun and Chen 2003).
Source: ITTO 2006.
The Prevalence of SMFEs
MARKETS FOR FOREST ENVIRONMENTAL SERVICES. Markets
for environmental services need further development and
may require the creation of an enabling environment for
private sector investment in this area. This could be facilitated
by providing greater clarity on the potential financial benefits
of environmental services and greater certainty regarding the
associated markets (see note 2.3, Innovative Marketing
Arrangements for Environmental Services).
Consensus is growing that investment in the sector has to
occur within a credible framework of safeguards and environmental
assessment procedures. These have to motivate
responsible investment and deter unsustainable and
destructive activities. There is a need to address such issues
as the identification and protection of forests that are a high
priority for biodiversity conservation, protection of rights
and resource interests of Indigenous Peoples and other
forest-dependent people, certification and other systems of
independent verification of forest management performance,
and establishment and management of forest and
agricultural tree-crop plantations (see note 1.3, Indigenous
Peoples and Forests, and section II, Guide to Implementing,
Forests Policy OP 4.36). The various safeguard initiatives
also need to be harmonized and extended to a broader range
of investing groups.
FUTURE PRIORITIES FOR ACTIVITIES
Increasing demand for forest products, especially in developing
countries, indicates that investment in the forest sector
will likely expand. Major prospects are in Brazil, China,
India, and Russia. To ensure that the growing private investment
generates benefits for a wide range of forest users and
forest-dependent households, some priority actions must
be taken:
Increase availability of and access to financing for
small-scale forestry and wood processing.
Opportunities that would provide funding for small-scale
enterprises and mechanisms that would strengthen the
supply chain for SMEs should be explored.
Provide incentives for the private sector to manage
(rather than solely log) natural forests, to adopt a longerterm
and broader view of forests (even for plantation
forestry and the timber processing industry), take on
emerging opportunities, and reduce perceptions of risk.
Remove constraints related to investments in
sustainable management of natural tropical
forests. This should be done by the international
community (the Bank and the IFC in cooperation with
other donors and intergovernmental organizations [such as
ITTO], nongovernmental organizations [NGOs], and the
private sector) in collaboration with governments. The
objective should be to enable policy reform to improve the
investment environment and strengthen the policy and
regulatory frameworks for responsible investment.
Continue providing support to the establishment, and
on-the-ground implementation, of environmentally
sound legal and regulatory standards and capacity,
which are essential to creating the necessary preconditions for
the sustainable operation of the predominantly downstream
private operators. Because forest-based investments are
usually made with a long-term time horizon, all means to
mitigate risks are particularly important for private investors.
Risk mitigation through enabling conditions is key in the
decision making of responsible private investors.
Build capacity at all levels to address the lack of
capacity in many developing countries to adequately
implement environmental assessment procedures and
safeguards. This increased capacity would develop
multistakeholder institutional mechanisms for monitoring
forest harvesting and management, especially where these
are weak. The presence of visible and strong institutional
mechanisms to implement monitoring of environmental
procedures and safeguards can substantially contribute to
project risk mitigation and would both encourage and
CHAPTER 2: ENGAGING THE PRIVATE SECTOR IN FOREST SECTOR DEVELOPMENT 67