Unlocking the Potential of Small and Medium Forest Enterprises

CHALLENGE

In the forestry sector, small and medium-scale enterprises (SMEs) are often considered a vehicle for development, jobs, and poverty alleviation among forest-dependent households. SMEs are thought to constitute 80–90 percent of enterprises in the forest sector, with an estimated over 40 million people employed (either part-time or full-time) through such enterprises. SMEs also primarily service the domestic markets for wood and non-wood products—markets that in many regions of the world are growing in tandem with the growing middle class.

Despite widespread support for SMEs, the success of such enterprises in the forest sector has been mixed. Forest sector SMEs, like SMEs more generally, suffer from limited access to business and financial services, lack of support to enhance their competitiveness, regulatory measures that constrain their ability to operate in a "legal" space or that create perverse incentives, and limited access to markets. These and other challenges and constraints for SMEs have been widely identified, but recommendations and efforts to address them have been fragmented and are often sectorally bounded, limiting the effectiveness of the intervention.

APPROACH

This programmatic activity proposes to adopt a “sector-neutral" approach to determine how to create jobs and growth in a sustainable manner. The step-wise approach involves first examining if forestry can contribute to a broader national sustainable development agenda compared to other sectors, especially when sustainability (including life cycle analysis) is considered. This is followed by examining if, where, and how SMEs can be part of the forestry contribution to the development objective. Where SMEs are well positioned to contribute to sustainable development agenda, the activity will provide guidance on how to enhance their competitiveness and to develop the needed regulatory, financial, and technical environment. Accordingly, such an approach starts with understanding the optimal uses of timber and non-timber products, given national and subnational development objectives, followed by assessing which subsectors of SMEs could be competitive in and how to help them accomplish this.

The long-term development objective of the proposed programmatic activity is to create market and policy environments that support competitive SMEs in the forest sector that are sustainable and contribute to job creation and growth. The long-term development objective is to increase the client’s ability to generate jobs, promote climate resilience and environmental sustainability, and fuel domestic growth through competitive SMEs. This programmatic activity will involve working with colleagues from the Finance and Markets Global Practice and from the Trade and Competitiveness Global Practice.

The work will be done under with three pillars. The first pillar will involve a high-level analysis of issues and experiences and documentation of methodologies. The aim is to bring together the evidence and justification for adopting the approach (compared with the more common approach of identifying how to make SMEs competitive independent of the trends and changes emerging in the subsector). The second pillar will involve in-depth analyses in a small set of countries. The third pillar will focus on knowledge sharing and uptake throughout the activity. The second phase will involve to roll out the approach. The second phase will have four pillars.

Pillar 1: Analysis of issues and experiences and methods  

This pillar will capture existing knowledge from:

• Prior applications of the proposed approach in the forest sector
• Cases in which competitive forest SMEs have helped create sustainable jobs and growth
• Evidence of how financial and technical services are delivered to SMEs in the forest sector and lessons learned from effective efforts (this will involve drawing on experiences from rural finance initiatives and activities in the trade and competitiveness field)
• Approaches for assessing the impact of regulations, and enhancing competitiveness.

Pillar 2: Country level analysis of demand, supply and business environment

This pillar will conduct country level analysis in 3 countries. The analysis will involve the application of tailored approaches and tools identified in pillar 1. The country level work will analyze if, where and how forest sector SMEs can contribute to the national sustainable development agenda, carry out demand, supply and business environment analysis , and propose concrete actions for enhancing the competitiveness of SMES by lifting regulatory constraints, and improving access to financial services, technical support and markets .

Pillar 3: Capture and broadcast in a targeted manner the knowledge on opportunities to engage with SMEs.

This pillar will involve:

• Augmenting existing briefs and infographics on the extent of forest sector SMEs in countries and information on their role in meeting the demand for wood and non-wood products/services in domestic markets and any information on the employment and job creation;
• Bringing together the work that PROFOR and partners have supported on investing in locally controlled forests, opportunities for investing in SMEs, and Forest Connect and making it more user friendly way for Bank TTLs (working in partnership with LLI); and
• Bringing together the findings and tools developed in the other pillars into user friendly outputs and working with systems available through LLI for dissemination

A fourth pillar may be added to this activity in the coming year. This pillar would focus on enhancing the link between SMEs/community enterprises and job creation in the natural resource sector. This would entail three activities: a stocktaking on which demographic segment benefits from forest-sector SME employment and job opportunities; an assessment of the skill development needs for rural enterprises plus cost-effective models for meeting these needs as part of broader initiatives on young people and job creation; and ideas on how to increase opportunities for young people to engage in innovation in rural areas and forest-based enterprises (examples of applying models used in developing and developed countries). An alternative approach will be to fold these activities into the existing three pillars.

RESULTS

Global/knowledge work: The background note on small and medium forest enterprises (SMFEs) presents trends and key findings. The key findings include evidence on the levels of informality in SMFEs (in the 22 countries that account for the majority share of wood production, using the latest Bank enterprise survey information), ranging from 1 to 52 percent. The findings also include evidence on trends in different subsectors of forestry. By way of illustration, in the subsector of wood processing, SMEs provide the most significant share of formal employment.

For wood processing, the employment impact per unit (m³) wood products is higher in countries with low industrialized processing industries. Thus, with advancing technology, the expected impact is reduced employment. In Eastern Asia (Japan, Republic Korea and China), for example, industrialization of the forestry sector is taking place, triggered by strong demand for wood processing; in these, reduced employment through SMEs in forest sector could decline. The growing demand, however, could compensate for losses in employment due to technology. There currently is no analysis that has determined how much increased demand can buffer the impact of technology.

Some lessons learned from the cases examined in the global study include the following: 

• Value chain development programs are effective when they are designed to address several bottlenecks in the value chain simultaneously.
• Smallholders are willing to invest in tree planting—even for relatively long rotations of teak—provided they receive initial financial and technical support. 
• The role of the lead company is key to facilitate financial and technical support and open access to the market for smallholders who will invest in tree planting.
• A few key reasons for the establishment and funding of the incubation model to support SMEs:
• Incubation helps overcome market failures through strategic and planned access to information, workspace, services, technology, finance.
• It extends government role in providing public good –knowledge, research, infrastructure, innovation.
• The incubation models generally (not forestry-specific) have 80-plus percent success; other methods of small business development have a 35 percent success rate on entrepreneurs evaluated 3 years after incubation process.

Vietnam country diagnostic: Some of the initial findings from the work to date: In 2017, Vietnam’s export value of major forestry products was US$7.97 billion (increasing 9.2% year-on-year). In Vietnam, wooden products have a higher growth rate in terms of export share than the national average (though it is lower than the average world trade growth rate). 

The Vietnamese government has promoted increased recognition of land tenure (a common institutional barrier in Vietnam) for households involved in the linkage model. The wood products export is recognized to be of strategic importance. Through models such as that of Ikea and Scancia in Vietnam, 564 smallholders organized in groups and managing plantations totaling circa 1,700 hectares were enabled to participate in export market value chains and improve their overall competitiveness.

This activity indirectly influenced the design of the Ghana FIP project focused on private sector. The SMFE project informed the design of the $7 million loan component of $20 million Ghana FIP additional financing, which would support private sector involvement in forest plantation development. It contributed to the adoption of public-private partnership approach to manage the loan fund. Under the envisaged design, a competitively selected regulated financial institution will manage the loan fund, making long-term loans to small and medium-scale plantation enterprises (SMPEs); the Forest Commission will provide technical assistance to the SMPEs, monitor technical performance of the plantations, and ensure that the timber buyers pay any outstanding loan funds to the financial institution before they pay the SMPEs; and the Ministry of Land and Natural Resources will provide overall management of the project. The change that resulted by being able to bring the expertise from FCI to the Ghana project resulted in a shift from the original approach—a loan being managed by the line ministry—to a more mainstream approach.

This activity is ongoing.

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Last Updated : 06-09-2019

Support to Preparation of Programmatic Country Forest Notes

CHALLENGE:

Investment in forest management was always traditionally driven by conservation and sustainable forest management objectives. Most lending operations on forests focused on solutions within the forest sector itself. This inward paradigm changed over the recent years especially after the introduction of REDD+, which started to systematically analyze the drivers of deforestation outside the forest sector.  Additionally, the development world increasingly recognized that forests provided concrete and valuable services for other sectors. Although REDD+ initially provided new financial resources for client countries and opened engagement in many new countries, forest operations are still either underrepresented or their full operational potential has not yet been explored to tackle the underlying issues that plague the forest sector.

Therefore, CFNs will allow going deeper into the key issues in the forestry sector in a coordinated manner over time to fill knowledge gaps. The primary goal is to increase the understanding of the strategic value of forests in the Strategic Country Diagnostic (SCD) and Country Partnership Framework (CPF) process; in countries where this goal is achieved, the Country notes will help to shape a more programmatic approach to forests over time.

APPROACH:

The program supports an integrated development model that advances socioeconomic opportunities and needs without jeopardizing the health of forests, based on four features: country-owned program, appropriate mix of financial instruments, cohesive financial architecture, and long-term engagement. Activities will involve the following:

• Analyze the threats to forests in individual countries or regions and the opportunities for socioeconomic growth in the forest sector.
• Inform the SCDs and CPFs and then work towards a more programmatic engagement and explore how to tap into the full range of instruments available to address the underlying challenges.
• Provide strategic inputs into the development of the Nationally Determined Contributions (NDCs).

The CFNs are meant to be ‘living documents’, in that they will be reviewed and updated regularly to reflect additional data, a changing portfolio and the evolving dialogue and engagement with the relevant counterparts. The notes will act as a template to think through the complex issues, initially internally within the Bank, but over time, in coordination with partners and clients in the country as well.  The CFN process will involve critical assessment, preparation and annual implementation of action plans to address gaps and deep dives into the solutions needed for Forest Smart Investments.

A total of 7 countries has been selected to deliver on Country Notes based on (i) priorities of the Bank and its partners, forest size and opportunities on the ground and (ii) demand coming from the country units, clients and WB management. Selected countries are: Colombia, Mexico, Ethiopia, DRC, Indonesia, Nepal and Vietnam and possibly Liberia. Other countries have already expressed interest for the next round, including Brazil, Honduras, Lao PDR, Mozambique and Turkey.

RESULTS:

From Feb 2017- Jan 2019, this activity supported Country Forest Notes (CFN) produced for Nepal, Liberia, Mozambique, DRC, Mexico, Indonesia, Colombia, and Ethiopia.  As a result of this activity, the World Bank`s engagement on forests is integrated across sectors, accessing new and innovative finance in an integrated manner. The key outcomes from the CFNs supported by this activity are summarized below:  

Colombia: 

• Provided an upstream analysis of threats to forests and opportunities for socioeconomic growth 
• Served as an input to policy dialogue at 2017 Spring Meetings and with key forest-sector donors at the COP22 to infrom government, Bank, and donor strategy in the forest sector.  
• Donors utilizing the CFN and other inputs to define their forest investment strategy in Colombia.  
• Informed the Bank’s programmatic approach on forests, including the preparation of the Sustainable Low-Carbon Development in Orinoquia Region Project (BioCF ISFL, including its Emission Reductions Program), the Orinoquia Sustainable Integrated Landscape Project (GEF), and the GEF7 FOLUR Sustainable Supply Chains in Deforestation Hotspots.  It also informed more strategic ASAs to identify IPF and IFC entry points.  
• CFN led to a client request for a follow-on study “Support to Forest Economy”, which informed Colombia’s Green Growth policy, specifically the pillar on promoting Colombia’s forest economy. The GG policy was formally adopted by the GoC in June 2018. This ASA developed three knowledge products: 1) A Business Plan for Sustainable Forest Management and Non-Timber Forest Products (NTFP) in the Southern Pacific region (Cauca and Nariño), 2) A Business Plan focusing on the altillanura savannah area of the Orinoquia region, with a view of improving local communities and private sector investors productive practices options, which provided an opportunity to explore IFC interest in developing forest business in this region (who peer-reviewed the product and identified areas for continued due diligence to explore a potential investment), 3) An analysis of financial instruments that reviewed financing and incentive requirements necessary to support the successful development of commercial forestry and sustainable forest management activities. The structure of a national forest service to promote a competitive development of the forest sector that could be supported by the World Bank, was also explored. This knowledge product is supporting ongoing dialogue with the government. 

DRC: 

• CFN is beginning the dialogue again with the CMU since the previous WBG engagement came to a standstill in 2015.  The CFN is promoting dialogue to begin a new phase of engagement 
• The note is clearly reflecting the status of forests, the role of these for national economic development, livelihoods, provision of ecosystem services, climate change mitigation and adaptation and  the main challenges and opportunities present in DRC in regards to promote for forest smart development 
• The note highlights that agriculture, artisanal wood production, fuel wood and charcoal for energy production and mining are the main direct drivers of deforestation 
• Emphasizes on the Maï-Ndombe Emission Reductions Program which is a first step in implementing the country’s national REDD+ strategy. 

Ethiopia: 

• Built on analytical studies prepared for the REDD+ readiness program, Forest sector reviews, Forest Public-Pirvate Dialogue, and the preparation of forest chapters of the Country’s Growth and Transformation Plan 2 (GTP-2) and technical discussions.  
• CFN has been used directly and indirectly in forest policy and investment dialogue involving the government and other partners including donors including in the formulation and issuance of the new “Forest Development, Conservation and Utilization Proclamation”.  These have been used as inputs in the new forest laws and regulations.  
• The note presents a forward looking business case beyond the current investment portfolio and assesses key investment needs and potential interventions.  The Bank is advancing analysis and dialogue on critical land use and forest challenges including links to poverty, equity, sustainability and governance.  It is also building opportunities to integrate climate-smart approaches into sectoral dialogue and entry points with key ministries.   
• The key operations being influenced through this dialogue and analyses include: The Resilient Landscape and Livelihood Project (RLLP); the Oromia Forested Landscape Program (USD$68m); and dialogue between the Ethiopian Chamber of Commerce and Sectoral Association, the Forest Sector Transformation Unit, and other partners on meaningful engagement of private sector.   
• CFN has identified weak cross-sectoral policy and investment coordination as a key challenge 
• The OFLP program is therefore opening channels and coordination platforms across administrative tiers in the regional state of Oromia involving agriculture, livestock, energy, land use planning and civil society engagement.  
• CFN has positioned the Bank to leverage investment money through the operations mentioned including USD$119m for RLLP, and USD$19m from the Norwegian Government; and additional financing of USD$15m expected from Canadian government.  A GCF proposal for USD$183m has been submitted.   

Indonesia: 

•  Provided opportunities to identify forest-smart investment, TA and policy options, and supported discussion with the GOI team especially on further development of jurisdictional programs in East Kalimantan and Jambi, preparation of Social Forestry project, and identification of mangrove forests as a priority area for engagement.   

Liberia:  

• The note is supporting the ongoing IDA engagement in Liberia on forests (Liberia forest sector project) 
• Identified data and information needs that have led to an LSMS survey, a review of the FDA’s staffing, and other analytical studies including the Forest Sector Public Expenditure Review 
• Informed a high-level policy brief to the new government that was shared with HE the President in early 2018. 

Mexico: 

• The CFN utilized inputs from recently-conducted analytical work, helping to integrate and consolidate this work 
• CFN assessed opportunities to strengthen community forest enterprises, foster competitiveness in the forest sector, promote inter-institutional coordination to tackle perverse incentives (e.g., in the agriculture and livestock sectors) that lead to deforestation and degradation, and facilitate more inclusive forest landscapes, in which vulnerable populations are included in efforts to halt deforestation and degradation and implement integrated landscape management. 
• This work has shaped the design of the new IBRD/ISFL Strengthening Entrepreneurship in Productive Forest Landscapes Project (2018 – 2023) and helped advance the Bank’s dialogue on forests with Government counterparts and donors. 
• CFN has informed strategic instruments, such as the Country Partnership Framework, Policy Note on Sustainable Landscapes (a joint Agriculture and ENR GP exercise), Country Policy and Institutional Assessment, as well as a forest sector policy note. In addition, the Country Forest Note is also being used to inform an ISFL BioCarbon Fund Emissions Reduction Program that is in the initial design and preparation phase. 

Mozambique:   

• The process of preparing the note has influenced the existing blended finance program in Mozambique which includes FIP, FCPF, ILFM, MozBio, SUSTENTA and Zambezia ILMP.  
• The note is forming the basis of discussions with the government to consolidate a strategic vision for the future of the forest sector 

Nepal:   

• The note has been used to formulate the FIP Investment Plan for Nepal. The resulting FIP project will have IDA co-financing of $50mn out of a total of $95mn. 
• The data and statistics in the note have also been used to provide input to the SCD and CPF 
• The note is promoting dialogue on involving other sectors such as transport and hydropower in improving the forest clearance policy of Nepal 

BIC analysis:  The Bank Information Center has also published its review of a few of the CFNs – Liberia, Mozambique, Nepal and Indonesia.  The conclusion of the analysis is that CFNs have proved to be a useful exercise, aligning with the Forest Action Plan 2016-21, addressing cross-cutting issues, summarizing key policy challenges and opportunities, and integrating across sectors. 

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Last Updated : 06-11-2020

Resilient Landscape –Develop Learning to Support Operations

CHALLENGE

Land degradation, deforestation, climate variability and unsustainable land use represent multi-dimensional challenges that require integrated solutions across boundaries to address. For example, programs that promote resilient landscapes should be designed to connect forests, croplands, irrigated agricultural lands, woodlands, protected areas, and agro-silvo-pastoral lands that will optimize the provision and utilization of ecosystem services. Subsequently, World Bank client countries have been increasingly seeking support to move towards such an integrated approach to manage the multi-faceted challenges of managing land, water and other natural resources. This activity will, therefore, consolidate knowledge products that stakeholders can utilize to enhance their knowledge and create synergy on applying resilient landscape concepts to their work.

APPROACH

Two main activity components will be undertaken under this program:

1: Develop and launch a full online Landscape Approach 101 eCourse to be published on the WB Open Learning Campus for WB staff and external clients. The eCourse will consist of 4-5 hours of self-paced learning and will include discussions on key concepts and elements of creating an enabling environment for a landscape approach and the governance structures and tools that support landscape operation. A learning brochure and CD will be produced to accompany the course.

2: Support operationalizing resilient landscape through peer-to-peer knowledge exchange activities by pairing peers at the project level and across regions and countries. The e-course contents will be adapted into face-to-face learning modules, followed by a series of facilitated on-line learning events, BBLs, and putting together practical guides for operational teams.

RESULTS

1. The full online eCourse on Landscape Approach 101 launched in March 2017 published on the WB Open Learning Campus. A self-paced course is now available (see link at left). 
2. In partnership with African Union‘s NEPAD-TerrAfrica Secretariat, and the Bank’s ENR GP, the eCourse contents have been adapted into face-to-face training materials and were used them to support a regional training on “Resilience Landscape” in Nairobi, Kenya in July 2016. Attendees included Natural Resource Management (NRM) project managers, country program coordinators, Sustainable Land Management (SLM) focal points from ministries of Environment, Forestry, and of Agriculture, representing 18 TerrAfrica countries -- Lesotho, Kenya, Togo, DRC, Guinea Bissau, Burkina Faso, Malawi, Madagascar, Nigeria, Uganda, Zimbabwe, Cote d’Ivoire, Ghana, Gambia, Senegal, Burundi, Niger, and Comoros. The attendees rated the training highly and served to test the content of the adapted eCourse.
3. The Bank’s ENR GP and Climate Change CCSA, in collaboration with Mozambique Government delivered a training workshop on the “Landscape Approach” in Nampula, Mozambique, in February 2017. The content of the training was mainly adapted from the Landscape Approach 101 e-course. Participants included 50 representatives of institutions that have direct interest on the landscape approach in Cabo Delgado, Nampula and Zambezia provinces, where the World Bank is supporting the preparation and/or implementation of different integrated landscape management projects. These include the Mozambique Forest Investment Project, the Agriculture and Natural Resources Landscape Management Project, Mozambique Conservation Project, and REDD+ Readiness support.

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Last Updated : 04-05-2018