Story | 27 Jan, 2011

The value of investing in locally-controlled forestry

Forests are a good investment option. In the words of one of the world’s leading international news and business weeklies:

“A growing number of rich individuals, endowments and pension funds are including timber as a “hard asset” in portfolios.

No wonder. Average annual returns on timber - meaning managed preserves that are eventually harvested - have outstripped those from leading global stock indices, property, oil and gold for the past decade. Worldwide, timber has attracted more than $20 billion of investment from institutional investors.”

Since the 1980s the forest sector has outperformed the stock market - a diversified timber portfolio would have returned 13.3% annually compared with 11.6% for the S&P 500 . However, while banks and financial institutions have been eager to tap into the market opportunities that managed forestry affords, public sector investors have proved to be much less responsive to the potential of sustainable forest management to contribute towards economic growth. The benefits have tended to be massively under-valued by governments and development assistance donors.

This seeming myopia is particularly apparent in relation to locally-controlled forest management. As defined by the Growing Forest Partnerships, locally-controlled forest management is: “the local right for forest owner families and communities to make decisions on commercial forest management and land use, with secure tenure rights, freedom of association and access to markets and technology” . It is estimated that approximately US$10 billion of government budgets and US$2 billion of development assistance are allocated to the forestry sector each year - but only a tiny fraction of this is spent on locally-controlled forestry.

Public funding also remains overshadowed by the estimated US$150 billion which is currently injected into the commercial forest sector as part of private funding and mainstream institutional investment .
This omission affects a huge human population, and substantial areas of forests. Much of the world’s forest lies outside formally gazetted or commercially-run areas. It is managed by the people who live in and around it, many of them rural communities in developing countries. Locally-controlled forestry does not only provide an important and cost-effective tool in the global fight against deforestation and forest degradation, but it can also act as a powerful engine for pro-poor economic growth.

Over the past 5 years, IUCN’s Livelihoods and Landscapes Strategy (LLS) has been demonstrating how management approaches that strengthen community rights and control over forests can leverage real and meaningful improvements in the livelihoods of the rural poor, enhance biodiversity conservation, and ensure the sustainable supply of forest goods and services.

While LLS’s successes have mainly been achieved in individual landscapes where key legal, policy and governance barriers have been identified and removed, they have much broader applicability. Many other parts of the world face similar opportunities for catalysing economic growth through the identification and removal of barriers to locally-controlled forestry.

The aim of this paper is to show what might be the economic impacts, were this to happen. Specifically, it reviews existing forest use and management data in order to calculate the value of breaking down barriers to locally-controlled forestry in tropical and developing countries. Examples are provided from the landscapes and countries in which LLS has been working, and these figures are scaled up to provide estimates of the kinds of values that could potentially be generated should such an approach be applied more widely.

It is worth noting that the quality and accuracy of available data on forest areas, dependency and values vary widely - unfortunately, and as has been pointed out by various other authors, it is a characteristic of many of the global and regional estimates currently in circulation that data sources are not provided, or, where sources are shown they are 'guesstimates' or ‘back-of-the envelope’ calculations .

As interesting (and hopefully useful) as these aggregate numbers are, the reader must always bear in mind that such figures will inevitably mask some important elements of forest values, and over-simplify the complex relationships at play when looking at people’s livelihoods in relation to their access, rights and control over forests . The figures presented in this paper must be understood subject to these caveats and limitations.

The data present a clear message. Locally-controlled forest management is a highly profitable public investment and development assistance option, as it can secure values that are essential to more equitable and sustained economic growth at local, national and even global levels. In contrast, failing to do so may ultimately undermine many of the goals that so many public funds, efforts and time are being channelled into: reducing poverty, and providing cost-effective, equitable and sustainable development for all.