Visioning a Financial Strategy for SFM: Conceptual Model & Required Elements

Owners, managers: decision makers about forest management, zCommunities zState zNGO’s zAssociations zPrivate companies zSmall forest owners Assumptions: zRational decisions balancing costs against benefits zFuture costs/ benefits require discounting zComplicating factors: yRisk yTransaction costs ySocial Status

Forest use types zForest types differ in their costs and benefits over time, affecting decision making yPlantations: high initial investment yNatural forest for production: direct harvest yNational park (biodiversity): initial investments necessary, benefits at mid-term yAgro-forestry (combining forest with agriculture, livestock): direct income from agriculture/livestock yMangrove / swamp forest (in combination with aquaculture): direct income from aquaculture

National forest financing strategy: a multi-stakeholder process SFM by forest owner/ Manager (Communities, State, NGOs, private enterprise) ) Plantations/Natural Forests/ National Parks /Agroforestry Source of concept: Savenije & van Dijk, persComm What influences decisions about the management of resources?

Investments Owners or others invest in forests zDirect investment in forests/forestry yDirect support (cash or kind) zEncourage others to invest yReducing barriers zTraditionally: the state or international donor, agency zRecently: communities, private sector, pension funds

Investment Financing: Goal zReduce costs zProvision of liquidity zRisk mitigation Some Characteristics: zLinked to future output, qualitative result zRequires guarantees or trust

Mechanisms: What and by Whom? zState zPension Fund zInt. Donor zFoundation zCommercial Bank Subsidies Tax reduction Direct investment ODA, grants & loans Credits & Loans

Mechanisms: What and by Whom? zState zPension Fund zInt. Donor zFoundation zCommercial Bank Subsidies Tax reduction Environmental Funds ODA, Grants, Loans Credits & Loans Direct investment

Financial mechanisms Allocation mechanism to link the provider of funds with the forest owner/ manager zRules and regulations zExecuting agency yAccess point for the forest owner/manager yInformation point yPayment zWho has access? yHow is “Equal benefit sharing” determined ?

National forest financing strategy: Investments Investments SFM by forest owner/ Manager (Communities, State, NGOs, private enterprise) Financing (distribution) mechanism State Bank Fund Project/ Programme (Bundling) ) Plantations/Natural Forests/ National Parks /Agroforestry Financing Sources Goal: Reduce Costs Liquidity provision Risk Mitigation Types: Subsidies Tax reduction Credits Investments Funds Sources: State, Donors, Banks, institutional investors, pension funds, stock market Source of concept: Savenije & van Dijk, persComm. 2007

Goods and services zPayment for a certain product or environmental service zMarket or buyer-seller zMore products or increased services result in higher payment zTraditionally: focus on goods zRecently: how to get services paid for (often referred to as “innovative”)

Goods and services: Goal zIncreased revenue generated by the products and/or services of the forest zFocus: Connect the provider (the forest manager) to the user/payer through adequate instruments and mechanisms zIssue: Output products are vaguely defined; often an intermediary product; the product should be better defined (“commoditized”).

Payment mechanisms are connected to zEnvironmental services: watershed, carbon, clean water, recreation etc. zGoods (timber, ntfp’s) zThere are many modalities

Payment Mechanisms zOpen market zNegotiated deal zState arrangement zEach option has its implications and specific points of attention

Investments Goods and services Payment Sources Goal: Increment Revenues Types: Environmental Services Goods (timber, NTFP) Tax reduction Sources: Society, State, consumers, NGO etc. SFM by forest owner/ Manager (Communities, State, NGOs, private enterprise) Financing (distribution) mechanism State Bank Fund Project/ Programme (Bundling) Payment (revenue) mechanism Market Negotiated deals State Fund (Bundling) Plantations/Natural Forests/ National Parks /Agroforestry Financing Sources Goal: Reduce Costs Liquidity provision Risk Mitigation Types: Subsidies Tax reduction Credits Investments Funds Sources: State, Donors, Banks, institutional investors, pension funds, stock market Source of concept: Savenije & van Dijk, persComm National Forest Financing Strategy: Goods and services

Enabling environment zNecessary legal framework for the mechanism(s) zInstitutional arrangements for e.g. ypayment and control of mechanism or market yparticipation of stakeholders zMinimum requirements to be able to participate, e.g. land tenure, personal identification.

Nfp supporting the enabling environment zApply nfp principles yConsistency with national policy and int. commitments yIntegrated in sustainable development policy of the country yPartnership and participation zCreating / supporting stakeholder platforms

Nfp elements: alignment and synergy

Investments Goods and services Payment Sources Goal: Increment Revenues Types: Environmental Services Goods (timber, NTFP) Tax reduction Sources: Society, State, consumers, NGO etc. SFM by forest owner/ Manager (Communities, State, NGOs, private enterprise) Financing (distribution) mechanism State Bank Fund Project/ Programme (Bundling) Payment (revenue) mechanism Market Negotiated deals State Fund (Bundling) Plantations/Natural Forests/ National Parks /Agroforestry Enabling environment for financing strategy Guided by national forest programme (nfp) principles Financing Sources Goal: Reduce Costs Liquidity provision Risk Mitigation Types: Subsidies Tax reduction Credits Investments Funds Sources: State, Donors, Banks, institutional investors, pension funds, stock market Source of concept: Savenije & van Dijk, persComm National Forest Financing Strategy: a multi stakeholder process