Forests cover a third of the world’s land area and, with almost half of forested land located in the tropics, they are of key importance to many developing countries. Forests are in fact the main source of income for 80% of the world’s poorest people and nearly 60 million people are entirely dependent on them, mostly in Africa. Forestry’s contribution to GDP is highest in South America and Africa, despite considerable unexploited potential (in Africa, only 10% of harvested timber produces commercial benefits).
Moreover, the environmental issues are crucial, since forests provide the main refuge for biodiversity on earth and are a key regulator in the carbon and water cycles. Being vulnerable to climate shocks and heavily dependent on agricultural resources, developing countries are very exposed to changes in the ecological balance. Yet it is precisely in these regions, particularly in the Congo, Amazon and South-East Asian forest basins, that deforestation is greatest.
Towards sustainable resource management
Conserving forests while benefiting from forest resources is, however, a difficult challenge, since it is an issue that concerns a number of different stakeholders (governments, local communities, logging companies, donors, civil society and researchers), some with conflicting interests. It was in response to this challenge that forestry management plans started to be introduced in the 1990s, followed ten years later by certification processes. Although the former responded primarily to a need to conserve forestry resources, the latter were aimed at taking greater account of the social and environmental aspects of forest exploitation.
At the same time, a number of community management projects were developed to enable local communities to share in the commercial benefits generated from forestry resources. The lessons learned in the Congo basin show that this evolution in forestry practices around the world has permitted a healthier, more sustainable, more transparent, better planned and more lucrative form of forest exploitation (at least for the governments and local communities), while improving conservation prospects. Although the logging companies have not seen direct financial benefits, these practices have enabled them to manage their resources, to improve their image in society and in the local communities and, as a result, to secure their markets.
Nevertheless, although management plans (often imposed by legislation) are now the norm and are implemented for the majority of legal logging operations, logging companies embarking on certification (still a voluntary process) remain the exception: only 7% of forested areas in tropical regions have been certified to sustainable forestry management standards. The cost and complexity of the certification processes makes them feasible only for a certain size of operation.
An attractive proposition for the private sector
Certification programmes and the forestry sector in general still face financing problems. Whereas until now the sector has largely been supported by public investment and donors, private investment in developing countries has been relatively limited. The considerable exposure of the forestry sector to environmental and social problems, its heavy dependence on the local institutional set-up and the lengthy pay-back periods are all obstacles to investment.
However, forestry assets are more profitable than any other type of asset and have the advantage of fairly stable, predictable prices that are only loosely correlated with the markets. In addition, exploitation costs are relatively low in developing countries, tree growth rates are excellent, there is a great deal of land available (especially in Africa) and the biomass can easily be used locally.
With global demand driven by emerging nations and resources drying up in developed countries, wood prices are likely to continue rising and the sector could become an attractive market for investors as well as an additional source of income for developing countries.
Ed.: This opinion piece is taken from issue No. 14 of Proparco’s Private Sector & Development magazine.
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