Improving business enabling environment in support of SVLK; improving access to international markets 3 rd High Level Market Dialogue Sultan Hotel, 21 st August 2013 Agus P. Djailani, MFP

SUCCESSFUL IMPLEMENTATION OF SVLK REQUIRES IMPROVEMENT IN BUSINESS ENABLING ENVIRONMENT SVLK is not only a forestry problem

Lessons learned from SVLK technical assistance: slide-1 Legality (Principle 1): ◦ Incomplete permits, different addresses, different capacity, or already expired ◦ Disturbance/HO or environmental permit/EIA Rp. 12 million (Jepara, Surabaya) ◦ Sawmill permit (IUIPHHK) officially Rp 700,000 in Jepara but Rp. 500 million (Pasuruan) ◦ Small scale producers are afraid of getting business permit/SKU and Tax ID/NPWP; don’t want to deal with bureaucracy and tax. ◦ SME must provide additional staff to deal with permits, timber administration, financial & tax reports

Lessons learned from SVLK technical assistance: slide-2 Timber Administration (TUK) in accordance to PUHH:  More issuers of FAKB from Timber Traders to sawmill  Only 3 issuers of FAKO (GANIS) di Jepara; cost of up to Rp /rate  Only 2 GANIS Supervisors in Jepara overseeing >800,000m3  Record of timber invoice is kept for outstanding ‘credit’ but disposed when settled  Difficulty in making timber reconciliation report (LMKO); unable to calculate ‘recovery’ Training of Technical Specialist > FAKO issuers for Jepara. Semarang, February 5-21, 2013

Lessons learned from SVLK technical assistance: slide-3 Facilitation: ◦ Well managed companies easy to facilitate ◦ Those exporting to EU are more ‘motivated’ to be certified ◦ Group certification requires extensive facilitation >3 months; horizontal group more difficult vs vertical one ◦ “SVLK Help Desk” is needed at every ‘production centre’ Training of SVLK Facilitators; Solo, April 4-8, 2013

Wood product export highlights: Slight recovery in total wood product exports (excluding pulp & papers) by USD 29 million, but not significant! Significant increase/recovery in wood furniture exports by USD 152 million from 2011 to 2012 No change in plywood export Recovery in woodworking product in 2011 (HS ) led by Teak friezes for parquet flooring & other non coniferous other Teak strips

TOTAL ISSUED 28,731 DESTINATION COUNTRY 139 MEMBERS of EU 26 HS CODE 36 SHIPPING PORTS 61 PORTS OF DESTINATION 749 WEIGHT (KG) 2,841,641,605 VALUE (USD) 2,229,106,781 Issuance of V-Legal document by LIU as of 21st May 2013; 08:00

Classification of timber based SMEs facilitated for SVLK by MFP & Partner 1) SME furniture ready for certification > “Low Hanging Fruit” 2) Group certification– Horizontal: a collection of independent small scale producers establishing a legal entity (group) 3) Group certification– Vertical: Exporter having regular suppliers and independent subcontractor

1) SME ready for SVLK Profile: Already have ‘voluntary’ certification: LEI, VLO, FSC, TFT, member of WWF-GFTN High level commitment by owner/management for certification; and request by buyer Complete and up to date business/operational permits Experienced staff in timber administration and or COC Examples: JAWA FURNI: LEI, TFT, VLO & FSC CV KWAS: a member of WWF GFTN, FSC RAPI FURNITURE: well established Production Planning & inventory Control (PPIC) system

2) Group certification– Horizontal UB SOLO KAYU RESMI CV AULYA CV KAYU INDAH UD ZAKKICV NUANSA UD MIRAH DELIMA CV ARYASENA CV ANDATU Group Management SOP Group & membership External Factor The biggest problem found in the field is in establishing legality of the business. It requires high cost and complicated procedures. As an example in the disturbance permit/HO, more than the time needed, at every phase from village level to the regent they asked for money from hundred of thousands to million rupiah. Internal Factor Main problem is the quality of human resources, availability of staff who understands SVLK from each micro enterprise. This is the main problem in preparation of supporting documents for permits/licenses.

3) Group certification - Vertical Regular/ Contract-1 Regular/ Contract-2 Regular/ Contract-3 Irregular/ Subcon-A Irregular/ Subcon-B Purchase, Shwrm-1 Purchase Shwrm-2 QC, log/timber administration Financial Admin-NPWP- Tax

Preparation for SVLK audit L egality aspects: Letter of Incorporation, SIUP, TDP, NPWP, HO, AMDAL, IUI, ETPIK Timber administration: Purchase orders, invoices, transport documents, etc Legality of finished products: Export declaration (PEB), Packing List/ Invoice Labor laws: 1.Work safety Officer (K3) 2.Fire extinguisher (APAR) 3.Industry accident reports 4.Company’s Regulation (PP) 5.No underaged labor

KOMPAS-27/2/2013 > a letter from reader on cost of EIA in Surabaya

Lessons learned from IFC Access to Finance - A2F PENSA ( ) Largest portion of 45+millions SMEs have no formal licenses Financial institutions only deal with ‘formal business’ leaving out ‘non-formal’ ones Formalizing businesses require improvement in ‘business enabling environment (BEE)’ Supported establishment of One Stop Shop (OSS/PPSA- Pelayanan Perizinan Satu Atap) at Provincial and Regional levels Supported establishment of Promoting Enterprise Access to Credit (PEAC), BDSP Principle 1 of SVLK requires support from PPSA in formalizing the enterprises through “SVLK CLINIC”

SVLK CLINIC – collaborative efforts by Associations and Jepara Regency Jepara SVLK CLINIC Visit of Chairul Basri, Director General of Foreign Trade

Recommendations: Facilitation from beginning is crucial and determine success of SVLK audit. Further facilitation required in business management and market development > entrepreneurship. Based on failure of “Surveillance” Timber trader is an important player in SVLK, however remains ‘untouched’, especially in establishment of registered logyards (TPT) which can issue FAKB; provide credits Ease of business/operational permits at Provincial and Regional levels, such as establishment of One Stop Shop = “Pelayanan Perizinan Satu Atap (PPSA)” in support of SVLK is a mandatory national regulation > technical and financial assistant needed for small scale forest and industry. Closer coordination with Ministry of Cooperatives and UMKM Incentive for smallholder forest (UMHR) > guaranteed market for certified timber > Public Procurement Policy = Lembaga Kebijakan Pengadaan Barang & Jasa Pemerintah (LKPP) International and national promotion of SVLK products

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