Meeting on Financing Reforestation with Native Species

Document Sample
Meeting on Financing Reforestation with Native Species Powered By Docstoc
					                    Meeting on Financing Reforestation with Native Species
                                      In Latin America




                        Financing Sustainable Management of Forests:
                                Opportunities and Challenges

                                        by Jorge E. Illueca
                        Principal Forest and Environment Policy Officer
                   Secretariat of the United Nations Forum on Forests (UNFF)




I. Introduction

      A. Addressing finance and transfer of environmentally sound technologies within the
framework of the United Nations Forum on Forests

        Ladies and Gentleman, it is a great pleasure for the UNFF Secretariat to participate in this
conference on Financing Reforestation in Latin America. We strongly believe that partnerships
at the global and regional levels need to be forged to move forward the global agenda on
sustainable forest management that is inextricably linked to the Millennium Development Goals,
the Johannesburg Plan of Implementation and the Doha Ministerial Programme of Work. The
UNFF Secretariat stands ready to assist in the development of regional initiatives and their
corresponding partnerships such as PRORENA, the Native Species Reforestation Project.

        The United Nations Forum on Forests (UNFF) was established in 2000 through a
resolution of the Economic and Social Council (ECOSOC) of the United Nations. Its Multi-year
Programme of Work (MYPOW) 2001 – 2005 is comprised of 16 key elements, with financial
resources being one of these.
        The 16 key elements are basically clusters of the 270 proposals for action for sustainable
management of all types of forests adopted by the Intergovernmental Panel on Forests (IPF) and
the Intergovernmental Forum on Forests (IFF), the predecessors of the UNFF, from 1994 to
2000.

        The MYPOW requires that finance is addressed at each of the UNFF sessions and that an
ad hoc expert subsidiary body is established that will advise the Forum on the issues of finance
and transfer of environmentally sound technologies for SFM.

        The two issues of finance and transfer of environmentally sound technologies are closely
linked in the work of the UNFF. Technology is defined as the application of scientific and
technical knowledge for practical uses in industry. According to Chapter 34 of Agenda 21,
“Environmentally sound technologies are not just individual technologies, but total systems
which include know-how, procedures, goods and services, and equipment as well as
organizational and managerial procedures.” Likewise, the Intergovernmental Panel on Climate
Change (IPCC) in its report entitled Methodological and Technological Issues in Technology
Transfer utilizes a broad definition for technologies in the forest sector. “These technologies can
include genetically superior planting material, improved silvicultural practices, sustainable
harvest and management practices, protected area management systems, substituting fossil fuels
with bioenergy, incorporating indigenous knowledge in forest management, efficient processing
and use of forest products, and monitoring of area and vegetation status of forests. These
technologies can meet several objectives, including conserving biodiversity and watersheds,
enhancing sustainable forest product flows, increasing the efficiency of use of forest products,
and maximizing the resilience of forest ecosystems to climate change, in addition to enhancing
sinks.”

       In carrying out its work, the UNFF is supported by the Collaborative Partnership on
Forests (CPF), whose 14 members are listed in the Table below. FAO currently chairs the CPF
and the UNFF Secretariat serves as the secretariat of the CPF.



                           Table 1: Focal Agency System of the CPF

                   Elements                                    Focal Agency
       1. National forest programmes              FAO
       2. Promoting public participation          UNFF (international)
                                                  UNDP (national)
       3. Deforestation and forest                UNEP
          degradation
       4. Traditional forest-related              CBD
          knowledge
       5. Forest-related scientific knowledge     CIFOR/ICRAF/IUFRO
       6. Forest health and productivity          FAO
       7. Criteria and indicators of              FAO/ITTO
          sustainable forest management
          8. Economic, social and cultural
              aspects of forests
                    Economic aspects                World Bank
                    Social and cultural aspects     CIFOR
          9. Forest conservation and protection     UNEP
              of unique types of forests and
              fragile ecosystems
          10. Monitoring, assessment and            FAO
              reporting
              (Concepts, terms and definitions)
          11. Rehabilitation and conservation       UNEP
              strategies for countries with low
              forest cover
          12. Rehabilitation and restoration of     FAO/ICRAF/UNCCD
              degraded lands, and promotion of
              natural and planted forests
          13. Maintaining forest cover to meet      UNFF
              present and future needs
          14. Financial resources                   World Bank/GEF
          15. International trade and sustainable   ITTO
              forest management
          16. International cooperation in          FAO
              capacity-building and transfer of
              environmentally sound technologies
          17. Forest biological diversity1          CBD


       B. Financing of sustainable forest management in the broader framework of sustainable
development

        In addressing the issue of financing reforestation with native species, it would be a
mistake to not look at the larger picture. First of all, donors and investors are concerned about
the sustainability of the projects that they are funding. For investors and producers, the decision
depends largely on the profitability of the project, which often can be unattractive given the low
prices for primary timber products in developing countries. The value of returns for financing of
forestry projects can be divided into three: the environmental functions and services provided by
forests over the broader socioeconomic landscape, which is of greatest interest to the public
sector; the social and cultural values of forests that is of particular importance to local
communities; and the financial returns of forestry projects that particularly concern the private
sector. If the returns are perceived as too low, no matter what the level of funding, the
sustainability of the project will be greatly at risk.

         Moreover, the sustainability of forest projects depends greatly on the policy and
institutional environment of each country. For example, subsidies and incentives favoring the

1
    Element was added in 2003 by the CPF.
agricultural sector can discourage the financing of sustainable forest management projects. Poor
law enforcement and illegal logging can undermine the profitability of sustainably managed
forests.

        Likewise, critical decisions affecting the forestry activities are often taken outside the
forestry sector and it can be difficult to influence the required changes. This is true for the
setting of tariffs on the importation of “hard” environmentally sound technologies for harvesting
or wood processing, or for the creation of tax incentives for producers utilizing ESTs.

       The situation is further complicated by the tendency of the forest sector to look at
sustainable forest management in a sectoral dimension, rather than multisectorally, thus
marginalizing itself from other actors whose decisions greatly influence the forestry sector.

        Sustainable forest management faces the same constraints in domestic and external
financing like any other sector in the developing world. Poverty, low level of savings and poor
export prices for primary commodities are common constraints to achieving rapid increases in
domestic investment rates. External capital is vital, whether it comes in the form of official
flows, loans, foreign direct investments or remittances by expatriate nationals.2

         In short, a holistic approach for financing sustainable forest management at the national
level is required.

        Bearing this is mind, I would like to first examine trends in financing forestry sector
projects.

II. Trends in financing forestry sector projects

        For the purposes of this meeting, we thought that it would be helpful to examine current
trends in financing forestry sector projects, particularly funding in support of sustainable forest
management where figures are available. The information provided concerning trends emanates
from research carried out by the UNFF Secretariat in preparing documentation for the meeting of
the Ad Hoc Group of Experts on Finance and Transfer of Environmentally Sound Technologies
that will be held in Geneva from 15 to 19 December of this year, as well as from technical
background documents commissioned for the meeting. These documents are available on the
UNFF website (www.un.org/esa/forests.htm).

        First, what are the estimated financial requirements for a worldwide implementation of
SFM? The United Nations Conference on Environment and Development in 1992 calculated
that US $31.25 billion would be needed annually for the implementation of sustainable forest
management worldwide. ODA was supposed to contribute 18 per cent of it. A few years later,
the total figure was revised up to $33 billion annually. Capital equipment and infrastructure was
supposed to take 37 per cent, protection of forest services, 18.5 per cent, and institutional



2
 UNFF Secretariat, Note by the Secretariat: Financing for sustainable forest management: Current challenges in the
changed financial environment (October 2003).
development and capacity building, 17 per cent of the total3. These figures fail to take into
account compensation for deforestation and forest degradation. Adding the associated
disinvestments, the total required financing should in fact amount to $69.3 billion per year.
Given that this calculation is for 2000, this figure is of limited usefulness to today’s
policymakers.


        A. Overseas Development Assistance (ODA)

         ODA to forestry increased until the 1980s and early 1990s, reaching approximately US$
2.2 billion in 1990 and 1992. Since then it has steadily declined to US$ 1.3 billion in 1996 and
more recently to approximately US$ 500 million annually, accounting for around 1% of a total
ODA of US$ 50 billion. Of this amount, two-thirds, or approximately US$ 335 goes to
afforestation projects, with the remainder used on policy, administration, research, training, and
fuelwood and charcoal projects.4 It should be noted that ODA support to transfer of
environmentally sound technologies for sustainable forest management has been quite limited.

        A particular challenge facing the proponents of sustainable forest management is to
increase opportunities for the transfer of environmentally sound technologies as a part of broader
development projects in forestry. This means increasing ODA allocation to EST-specific
activities.

        B. Support provided by multilateral donor agencies

       As in the case of ODA, official loan funding to forestry is also limited. The International
Bank for Reconstruction and Development (IBRD) provides approximately US$ 50 million
annually.5

       From 1977 to 2002, the Asian Development Bank (ADB) invested US$1.06 billion in
stand-alone forest projects.

         The Interamerican Development Bank has been the largest source of multilateral
financing for Latin America and the Caribbean the past nine years. Although the Bank’s
involvement in forestry has been established for a number of years, its annual financing level has
dropped from approximately US$100 million per year in the early 1990s to between US$20 and
40 million by the end of the decade, a level that is inadequate to address the problems facing the
sector.6

        C. Support from international organizations


3
 Chandrasekharan, C. 1996. Status of financing for sustainable forestry management programmes. In:
Proceedings of the Workshop on Financial Mechanisms and Sources of Finance for Sustainable Forestry.
Pretoria, June 1996.
4
  Indufor, p. 39; UNFF Secretariat, Note by the Secretariat: Financing for sustainable forest management.
5
  Indufor, p. 39.
6
  Salmi et al, Forest Financing in Latin America: The Role of the Inter-American Development Bank.
        Several international organizations are actively involved in providing financial resources
for forestry sector projects. Information on some of these is provided below.

       In 2001 the Consultative Group on International Agricultural Research (CGIAR) spent
approximately US$36.1 million on forestry and agroforestry research, which represents 12
percent of the total CGIAR sector/commodity investment.

       Since 1987, largely through funding provided by member states, the International
Tropical Timber Organization (ITTO) has funded 470 projects totaling US$192,480,715. From
1990 to 2002, ITTO has provided $77,538,975 to reforestation and forest management and forest
industry projects. Much of that has come in the last few years, with $36,125,806 provided to
such projects from 2000 to 2002.7

        The Global Environment Facility, as the financial mechanism of CBD and as a member
of the CPF, has provided support for protected areas and mainstreaming biodiversity in forest
management systems and landscapes through its forest ecosystem operational program. From its
inception in 1991 to June 2003, the GEF has committed $777.6 million for environmental
projects that address threats to forests, with nearly $2 billion in co-financing being leveraged
from national, bilateral and multinational partners. Nearly 150 projects have been implemented
in 76 countries. GEF projects provide support to more than 741 protected areas worldwide.
Strong emphasis is also placed on the sustainable use of non-timber forest products. In looking
to the future, the GEF is stressing the importance of expanding the current knowledge base for
improving the conservation and management of forest ecosystems.8

        While we were unable to get global figures for World Bank support to forestry projects,
figures were provided by the World Bank on its financial support to projects related to the
sustainable management of mangrove forests. Since 1990 the World Bank has provided
US$284.4 million to 8 principal projects with mangrove components. These include the Viet
Nam Coastal Wetlands Protection and Development Project initiated in 1999 with $31.8 million
in funding does concentrate on mangroves. This project had as a principal objective the re-
establishment of coastal mangrove ecosystems. Other projects in Haiti and Bangladesh with
significant mangrove components focused on rehabilitation of degraded mangrove forests,
research, mangrove afforestation, establishment of mangrove plantations and pilot community
forestry projects.9

       Other international organizations such as the FAO provide funding for forestry projects,
but we were unable to get specific figures.

        D. Foreign Direct Investment (FDI)

      Foreign Direct Investment (FDI) from private investments far exceeds ODA. The World
Bank has estimated that the private sector is expected to provide a net funding of US$ 158 billion

7
  International Tropical Timber Organization, Summary of Projects, Pre-Projects and Activities (2003).
8
  Global Environment Facility, Forests Matter: GEF’s Contributing to Conserving and Sustaining Forest
Ecosystems (September 2003).
9
  COCATRAM.
to developing countries in 2003, of which 90%, or approximately US$ 142 billion will be FDI.
What is misleading about FDI is that it tends to be concentrated in a few countries. For example,
China receives 90% of the FDI for East Asia and the Pacific. Brazil and Mexico are recipients of
70% of the FDI targeted for Latin America and the Caribbean. These three countries account for
58% of all FDI in developing countries for 2002, while sub-Saharan Africa, according to the
World Bank, is only able to attract 5%.10

        Unfortunately there do not exist global figures on the percentage of FDI that goes into the
forestry sector. We do know that in 1998 the combined FDI of the US and Finnish forest
industries reached US$ 30 billion, of which only a part was directed at developing countries.
Nevertheless, the magnitude suggests that FDI is a much larger source of financing than ODA or
official loan funding. As in the case of ODA, however, there is also evidence that FDI
channeled to developing countries tends to be concentrated in a few countries, and that it is
directed primarily to wood processing, particularly capital-intensive pulp and paper industries.11

        Although there are no reliable estimates of the level of funding going into the forestry
sector on an annual basis, it is a safe assumption to conclude that it is far below the estimates of
resources provided above. There are no reliable figures for the percentage of FDI going into
forestry or sustainable forest management in developing countries. Nevertheless, it would be
safe to guess that financial resources going into the forestry sector for sustainable forest
management are probably less than 4% to 10% of what is needed according to the few estimates
that exist.

III. Rent capture

        Inefficient rent collection from public forests and inadequate reinvestments adversely
affect the financial basis for SFM. Inadequate rent capture is not a minor issue. The World
Bank recently estimated that the failure to collect taxes and royalties from legal forest operations
amounts to US$ 5 billion worldwide, which is much greater than the ODA currently channeled to
forestry.12

        As discussed at UNFF 3 earlier this year, inadequate rent capture decreases government
revenues, poses a concealed subsidy and increases inefficiency. Among other things, low rent
capture may indicate improper accounting of forest resources and incomplete and poor forest
valuation. Institutional conditions and market imperfections, such as lack of competition and
incomplete information as well as complicated rent collection procedures are issues requiring
more examination. Low rent capture is often association with illegal activities that reinforce
forest degradation and undermine sustainable forest management.

IV. Factors affecting the financing of sustainable forest management projects

      As indicated in the introduction, for funding in the forestry sector to be attractive, it
depends on a number of factors, many of which fall outside the forestry sector. Some constraints

10
   Indufor, p. 46.
11
   Indufor, p. 46.
12
   UNFF Secretariat, Note by the Secretariat: Financing for sustainable forest management.
that work against attracting financing, particularly from the private sector, include, among
others:

       •   Unsuitability of policies/laws at the national level for promoting the transfer of ESTs,
           including inadequate integration of sustainable forest management issues and
           concerns into national, sectoral, regional and local development plans

       •   Inadequate institutions and resources at the national level for developing and
           sustaining SFM initiatives and projects

       •   Lack of coordination among national agencies

       •   Insufficient support for forest research and development of environmentally sound
           technologies for SFM in many countries

       •   Lack of or limited participation of the private sector

       •   Lack of or limited participation of local communities, making sustainable forest
           management unattractive

       •   Uncertain land tenure and property rights

       •   High costs to acquire, use and maintain technologies (e.g., hardware, software)

       •   Higher opportunity costs, particularly in agriculture, for alternative land uses,
           including in some countries the application of agricultural subsidies

        Moreover, certain broader conditions can affect negatively the attainment of sustainable
forest management, regardless of the availability of financing. These can include population
growth, poverty and inappropriate macro-economic policies.

        In the case of reforestation of native species, current financing tends to favor projects in
high value forests and timber species, which represent a small part of tropical forests. Financing
is needed for research and development for the sustainable management and optimal use of
existing low yield forests. This is an area where PRORENA and CTFS can play an important
role.

V. Creating conditions for promoting the financing of sustainable forest management


       Finance and the transfer of ESTs for SFM can be carried out more effectively in those
countries where national forest programmes have been integrated into national development
plans and, consequently, into national sectoral development plans as well as regional and local
development plans.
        Investments in ESTs are more likely to occur if they are cost-effective in comparison to
existing technologies. An analysis of suitability and adaptation of ESTs for each country,
particularly equipment and machinery, needs to take into account their cost-effectiveness.

        Financial incentives can be effective measures for attracting financing and promoting the
transfer of ESTs. These include, among others, financial incentives such as tax breaks for
companies importing ESTs, financial incentives for adopting sustainable forest management
practices (e.g., reduced impact logging), tax rebates and financial incentives for companies
promoting the recycling of wood, and financial incentives for companies importing equipment
and products that contribute to SFM.

        The participation of the private sector in sustainable forest management is fundamental.
Technology transfer is driven primarily by the private sector. It is estimated that 75% of
technology transfer takes place through commercial transactions. However, the greater part of
transfer of environmentally sound technologies is promoted though government-controlled
universities and research institutions to forest departments and farmers.13

        The demand for sustainable forest management technologies, practices and approaches
needs to be augmented through environmental regulations and their enforcement. Certification
and ecolabeling that increase the marketability of products from sustainably managed forests can
also lead to increased demand, and consequently to increased funding.

        Although the market for non-timber products and services is still small, it is growing. It
will be very important to accelerate the development of this market and to further investigate
new mechanisms that can efficiently link the buyer and seller of these products and services. To
this end, the role of the public sector is crucial for creating the legal, policy and institutional
frameworks for stable and transferable property rights.14

       The results of the on-going negotiations in the World Trade Organization (WTO)
regarding the Doha Ministerial Programme of Work, specifically on the liberalization in trade of
environmental goods and services, will undoubtedly impact on the marketability of forest
products and policies for financing sustainable forest management.

VI. Exploring opportunities for funding reforestation activities through multilateral
environmental agreements

        Multilateralism is providing a new emerging pathway for the development of
mechanisms for financing sustainable forest management. These mechanisms are associated
with the greater importance ascribed to the environmental functions of forests and the need to
take these into account. They include the application of integrated forest management systems,
the development of environmentally sustainable harvesting codes, the adoption of reduced-
impact logging programmes, as well as certification schemes and export controls for forest
products.15

13
   Indufor, p. 19.
14
   UNFF Secretariat, Note by the Secretariat: Financing for sustainable forest management.
15
   UNFF Secretariat. Note by the Secretariat: Transfer of environmentally sound technologies (TESTs).
       A. The Clean Development Mechanism (CDM) of the Kyoto Protocol

       Through the Kyoto Protocol to the United Nations Framework Convention on Climate
Change (UNFCCC), the clean development mechanism (CDM) has emerged, which will greatly
influence forest sector finance and technology transfer. The Global Environment Facility, the
financial mechanism of the UNFCCC, is facilitating the transfer of technology to near
commercial forestry sector projects through its programme on carbon sequestration.

        The IPCC Special Report: Land Use, Land-Use Change and Forestry was prepared with
the objective of examining the scientific and technical state of understanding for carbon
sequestration strategies related to land use, land-use change, and forestry (LULUCF) activities
and relevant articles of the Kyoto Protocol. It looks at the global carbon cycle and how different
land use and forestry activities impact on standing carbon stocks and emissions of greenhouse
gases. It also examines the opportunities and implications of afforestation, reforestation and
deforestation regarding the global carbon cycle. The report identifies critical factors affecting
the sustainable development contributions of LULUCF activities and projects to mitigate and
adapt to climate change, including the transfer and adoption of technology. These technologies
could fall under the following general classes: carbon conservation measures, carbon
sequestration, substitution of fossil fuels and non-sustainable extracted timber. Specific
categories of technologies could include (a) silvicultural practices for improved yields, (b)
improved genetic stocks, (c) practices for SFM and protected area management, (d) monitoring
and verification of carbon flows in forest projects, (e) use and management of secondary forests
and (g) traditional forest management practices.

        The Seventh Session of the Conference of the Parties to the Framework Convention on
Climate Change on 10 November 2001adopted decision 11/CP.7 on land use, land-use change,
and forestry, which recommends a draft decision on the subject for the adoption of the first
session of the Parties to the Kyoto Protocol. Of particular relevance in the draft decision is
operative paragraph 2 (e) that calls on the Subsidiary Body for Scientific and Technical Advice
(SBSTA) “To develop definitions and modalities for including afforestation and reforestation
project activities under Article 12 in the first commitment period”. Article 12 of the Protocol
defines the clean development mechanism (CDM), under which projects can be implemented
that will lead to certified reduction of emission of carbon dioxide. The CDM will assist in
arranging funding of certified project activities, many of which could be tied to the promotion of
the transfer of environmentally sound technologies for SFM involving both public and private
sector entities. It is expected that forest-related funding under the CDM will focus primarily on
tropical countries in Latin America and Asia.

       B. The expanded programme of work on forest biological diversity of the
             Convention on Biological Diversity (CBD)

       The Conference of the Parties to the Convention on Biological Diversity at its Sixth
Session (The Hague, 7-19 April 2002) in decision VI/22 adopted the Expanded Programme of
Work on Forest Biological Diversity, which constitutes “a comprehensive set of goals, objectives
and activities required for the conservation of forest biological diversity, the sustainable use of
its components and the fair and equitable sharing of the benefits arising from the utilization of
forest genetic resources”. The decision takes account of the necessity for new and additional
financial resources, with technology transfer and capacity building, for the effective
implementation of the expanded programme of work by developing countries. Relevant areas
highlighted include improved knowledge of the impact of invasive species, increased
understanding of the impact of pollution, development of fire risk assessment and early warning
systems, restoration of forest biological diversity, forest management practices for the
conservation of endemic and threatened species, sustainable use of timber and non-timber forest
products, development of low impact harvesting practices for timber and non-timber forest
products, the use of traditional forest-related knowledge, development of integrated information
systems, improved assessment of the status and trends of forest biological diversity and research
on the role of forest biological diversity and ecosystem functioning, among others.

         In decision VI/17 the Global Environment Facility, the financial mechanism of the CBD,
is instructed by the Parties to provide financial resources for country-driven projects, as well as
regional and international actions, that support the implementation of the expanded programme
of work, “underscoring the importance of long-term conservation, sustainable use, and benefit-
sharing of native forests”. Many of these projects will serve as vehicles for the transfer of
environmentally sound technologies and knowledge for sustainable forest management.

VII. The CPF Sourcebook as a tool for funding for sustainable forest management

        Recognizing the importance of facilitating access to foreign and domestic funding
information, the Collaborative Partnership on Forests (CPF), has developed the CPF Sourcebook
on Funding for Sustainable Forest Management, which includes information on the types, levels
and sources of funding. For a free hard copy or CD-ROM of the Sourcebook, please contact the
following electronic address: CPF-Sourcebook@fao.org. An electronic copy of the Sourcebook
is available at www.fao.org/forestry/cpf-sourcebook.

       The CPF Sourcebook:

       •   Contains a searchable database of sources of funds;

       •   Provides information on funding policies, delivery mechanisms and the development
           of project proposals;

       •   Offers a mechanism to match fund seekers with potential donors; and

       •   Promotes the establishment of new partnerships.

VIII. The work of the UNFF ad hoc expert group on finance and transfer of environmentally
sound technologies

        The above are all issues that will be addressed when the ad hoc expert group on finance
and transfer of environmentally sound technologies meets in Geneva later this year from 15 to 19
December. The third session of the UNFF has mandated the ad hoc expert group to:
(a) Consider previous initiatives on finance, including recommendations from the
Croydon, Oslo and Pretoria workshops, as well as the relevant IPF/IFF proposals for
action, background papers and strategy documents of Collaborative Partnership on
Forests members;

(b) Assess the role and status of official development assistance (ODA) directed towards
sustainable forest management and consider ways for enhancing its availability and
effectiveness. In this regard, identify possible means to enhance developed countries
efforts to fulfil their commitments on ODA;

(c) Review the effectiveness of existing international financing for sustainable forest
management, including methods and mechanisms, analyze opportunities, country-level
gaps, limitations and donor and recipient priorities, as well as the contribution of the
Collaborative Partnership on Forests towards financing sustainable forest management.
Propose measures to improve the effectiveness of that financing to enhancing the
enabling environment at both the national and international levels and to attract increased
financing from all sources;

(d) Explore the potential of new and innovative approaches to attract increased financing
for sustainable forest management. Discuss and make suggestions for expanded use of
those approaches to address the need for financial resources for financing sustainable
forest management, including through national forest programmes or equivalent
processes;

(e) Assess country experiences towards mobilization of financial resources to support
sustainable forest management. In this regard, identify gaps, potentials and limitations of
current financing sources and financial mechanisms to implement sustainable forest
management. Further, propose approaches to enhance and more effectively use and
mobilize national and international financial resources;

(f) Assess and consider the role of the private sector in financing sustainable forest
management. In this regard, recommend measures to improve the enabling environment
for private investment in sustainable forest management, at both the national and
international levels, and encourage increased private resource flows to the forest sector,
in particular in developing countries and countries with economies in transition.

(g) Review and assess existing initiatives on the transfer of environmentally sound
technologies and knowledge diffusion for the promotion of sustainable forest
management among countries and sectors and stakeholders, including through North-
South, North-North and South-South cooperation and programmes of Collaborative
Partnership on Forests members. This should include an analysis of incentives that
promote and obstacles that inhibit the transfer of forest-related environmentally sound
technologies between and/or within countries, in particular to developing countries and
countries with economies in transition, in both the private and public sectors;

(h) Recommend approaches to improve transfer of forest-related environmentally sound
technologies. The recommendation may include the role of various policy instruments,
       such as concessional and preferential terms, public private partnerships and research
       cooperation, as well as capacity-building in the use and application of current and
       emerging environmentally sound technologies, including remote sensing.

       The results of the deliberations of the ad hoc expert group will be presented for
consideration to the Fourth Session of the UNFF in Geneva in May 2004.

IX. Conclusions

       1. The decline in ODA needs to be taken into account when formulating a strategy for
          financing of SFM.

       2. Of the two principal sources of funding for forestry projects, ODA is largely directed
          at assisting developing countries in afforestation projects, while FDI financing stays
          within the private sector and is focused principally on wood processing.

       3. Many countries do not have national strategies for the sustainable forest management
          that are multisectoral in design and fully integrated into their national development
          plans.

       4. In general the forest sector in developing countries suffers from insufficient funding
          and relies heavily on foreign sources for forest sector funding.

       5. Low economic viability of forestry activities can discourage the private sector from
          investing in the forestry sector. Concerning forest management, the private sector is
          discouraged by the high risks involved, as well as by the relatively low rates of return
          for SFM.

X. Recommendations

       1. Cross-sectoral national strategies for sustainable forest management, which take into
          account commitments under multilateral environmental agreements such as CBD and
          UNFCCC, need to be developed and promoted as a framework for the effective
          utilization of financing for sustainable forest management.

       2. The demand for primary and secondary products from sustainably managed forests,
          through the establishment of environmental regulations and voluntary mechanisms
          such as certification and ecolabeling, should be increased, which should lead to
          increased funding of SFM.

       3. Greater attention needs to be given to creating enabling conditions attracting FDI to
          the forestry sector, linking FDI to the application of environmentally sustainable
          practices

       4. More efficient rent capture has to be promoted at the national level with a view to
          increasing financial resources available for sustainable forest management.
5. Full utilization needs to be made of the Clean Development Mechanism of the Kyoto
   Protocol for channeling increased funding for reforestation projects in Latin America,
   making full use of the private sector.

6. Public/private partnerships need to be developed to coordinate the application of
   financial, human and institutional resources for supporting sustainable forest
   management.

7. More consideration needs to be given to promoting downstream processing of wood
   within a country to multiply the social and economic benefits accruing to the country
   of origin of the timber, thus multiplying the benefits from SFM.

8. Greater financing has to be directed at research and development, with special
   attention given to optimizing the sustainable use of current low yield forests,
   increasing the number of commercially used timber species and adapting
   environmentally sound technologies to local environmental conditions. This is turn
   will create a more favorable environment for investments from the private sector.
References

COCATRAM. Transfer of Environmentally Sound Technologies for the Sustainable
Management of Mangrove Forests: An Overview. Technical background document for the
meeting of the ad hoc group of experts on finance and transfer of environmentally sound
technologies, Geneva, 15-19 December 2003. March 2003.

CTFS. Transfer of Environmentally Sound Technologies for the Sustainable Management of
Tropical Forests: An Overview. Technical background document for the meeting of the ad hoc
group of experts on finance and transfer of environmentally sound technologies, Geneva, 15-19
December 2003. Advanced draft end of November 2003.

Global Environment Facility. Forests Matter: GEF’s Contributing to Conserving and Sustaining
Forest Ecosystems. September 2003.

Indufor. Transfer of environmentally sound technologies from developed countries to
developing countries. Technical background document for the meeting of the ad hoc group of
experts on finance and transfer of environmentally sound technologies, Geneva, 15-19 December
2003. November 2003.

Intergovernmental Panel on Climate Change. IPCC Special Report: Land Use, Land-Use
Change and Forestry. Summary for Policymakers. 2000.

Intergovernmental Panel on Climate Change. Methodological and Technological Issues in
Technology Transfer. 2000.

International Tropical Timber Organization. Summary of Projects, Pre-Projects and Activities.
2003

Salmi, Jyrki; Simula, Markku; and Puustjarvi. Forest Financing in Latin America: The Role of
the Inter-American Development Bank. IDB, Sustainable Development Department. 2002.

UNFF Secretariat. Note by the Secretariat: Financing for sustainable forest management:
Current challenges in the changed financial environment. Prepared for the meeting of the ad hoc
group of experts on finance and transfer of environmentally sound technologies, Geneva, 15-19
December 2003. October 2003.

UNFF Secretariat. Note by the Secretariat: Transfer of environmentally sound technologies
(TESTs). Prepared for the meeting of the ad hoc group of experts on finance and transfer of
environmentally sound technologies, Geneva, 15-19 December 2003. October 2003.