Forests Sourcebook - HCV Resource Network

NOTE 2.2
Small and Medium Enterprises
SMFEs are business operations aimed at making profit
from forest-based activity. They are commonly
defined by employment (between 10 and 99 full-time
employees), by annual turnover (US$10,000–US$30,000,000),
or by annual roundwood consumption (3,000–20,000 cubic
meters) (Macqueen and Mayers 2006).
SMFEs can offer a trajectory out of poverty. SMFEs play
a critical role in securing poor people’s basic needs, spreading
wealth locally, enabling local innovation, and preserving
cultural identity and practices (Macqueen 2005; Macqueen
and Mayers 2006). SMFEs grouped together in clusters or
associations can reduce transaction costs for the poor,
develop strategic alliances, and shape the policy environment
through lobbying on behalf of the poor (Macqueen,
Figueiredo et al. 2005; Macqueen, Vermeulen et al. 2005).
SMFEs are diverse and complicated to deal with. SMFE
diversity is linked to a number of factors, including that
they span both timber and NTFPs, and include rural producers,
suppliers to large firms, primary and secondary
processors, and forest service providers. It is difficult to
make generalizations regarding SMFEs; thus, it is important
to consider the following:
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how supportive the policy and institutional environments
are toward SMFEs (Macqueen 2005)
whether the market structure offers real opportunity or
merely options of last resort
whether the business structures adopted by SMFEs are
those of profit-driven companies, democratically
accountable social cooperatives, or something in
between (Macqueen 2006)
whether SMFEs are isolated entities or an integral part of
a broader network
SMFEs tend to be underrepresented in policy initiatives
and development programs. This could be on account of
the following:
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the complexity of linking with diverse SMFEs in multiple
locations—even when they are grouped into associations
(there are 2,000–3,000 forest-based associations in
Uganda; Kazoora et al. 2006)
the constitutional diversity of these enterprises, which
diminishes the likelihood of common agendas, lesson
learning, and diffusion of relevant solutions (Saigal et al.
2006)
the small individual scale of each enterprise, which
reduces both per unit impact (that is, the perceived benefit
to the development agency) and comparative human
and financial costs of compliance (that is, the perceived
benefits to the enterprise)
The lack of formal incorporation and collateral through
which SMFEs become visible to public bodies and private
sector investors. For example, the informal economy makes
up 41 percent of gross national income in developing countries
(Schneider 2002) and is highest where incomes and
assets are not evenly distributed (Becker 2004)
Despite their potential, it can be challenging to make
SMFEs sustainable. Exploitative SMFEs can easily go
unchecked. Informality, insecure tenure, low investment,
and low profitability may reduce scope for social or environmental
benefits. Lack of management capacity in
SMFEs may lead to resource depletion. Risks are highest
in “distress diversification,” where SMFEs seek refuge in
low-skill activities and seasonal migration for products
without long-term prospects. High risks often lead policy
makers and decision makers to marginalize SMFEs, but
perhaps because of this, many self-help solutions have
evolved around local enterprise associations and networks.
Responsive support to these local institutions in
areas such as market information, secure resource access,
sustainable management, design and technology, and
financial and business administration can make all the
difference.
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