Issues and Opportunities for Investment in Natural Tropical Forests

Attracting and effectively utilizing investment that supports sustainable forest management (SFM) from donors, the private sector and local communities alike, requires an environment that permits and encourages good governance and the rule of law. While this critical underlying factor may seem elementary, it is often ignored.

In 2001, with support by the United Kingdom and through the good services of the World Bank, the United States funded the first ever-regional Forest Law Enforcement and Governance Ministerial in Bali , Indonesia . The Ministerial focused on illegal logging and associated trade and corruption. Its premise was that, by addressing critical governance issues, we could take a major step toward building sustainability and investment.

In 2003, President Bush announced a new international initiative – the President's Initiative Against Illegal Logging (PIAIL) intended to help developing countries build the means and capacity to combat illegal logging. When then-Secretary of State Colin Powell launched the initiative on behalf of President Bush, Secretary Powell observed that “…blatant disregard for the law weakens governments, encourages corruption, undermines democracy, and that, in turn, saps the faith of the people in the democratic system. It wreaks havoc on the fragile environment, destroying watersheds, devastating wildlife, and demolishing livelihoods.”

Effective Enabling Environment:

(1) First, clear and enforceable property rights – whether private, public, or held in common by local communities – clear and enforceable property rights are a prerequisite for investments in SFM. By virtue of the fact that trees grow slowly and have long life cycles, these are relatively long-term investments.  Absent a reasonable expectation of stable property rights in forest land resources – and the legal rights and actual capacities, backed by the state, to exclude interlopers – neither businesses nor communities will invest in SFM. 

However, the term “property rights” is not necessarily synonymous with “private, individual ownership.”  There are many kinds and degrees of property rights (e.g. long-term leases, rental), and many modes in which these rights can be held (e.g. local and indigenous communities' communal rights, land trusts, public lands)  The mix of modes and types of property rights will necessarily vary among countries, and even between different areas of a country. I understand, Ing. Reed, that in Mexico a majority of the forest area is comprised of community owned forests. I am sure that Mexico 's historical experience in this area has strongly affected the way Mexico 's present conception of property rights and community interests has evolved. It will be interesting to hear more about Mexico 's positive experiences in this area, as your experience can undoubtedly provide valuable insights for other countries where an expanded role for community forestry is under consideration.

(2) Second, effective rights to and mechanisms for public participation in making and implementing forest laws, policies and investments , by affected local communities, is another essential component of an effective enabling environment for SFM.  Where decisions and investments are made without such participation, local resistance (e.g. through encroachment, timber cutting) may reduce the value of SFM investments, and discourage future investment.  Disputes are more likely to grow into outright conflict, further dampening prospects for attracting investment – and for realizing a return on investments.

(3) Third, impartial and non-corrupt law enforcement is essential as well, both to discourage violations of law and policy (e.g. illegal logging), and to provide communities and investors with a guarantee of security for their investments.

(4) Fourth, clear and non-contradictory government laws and regulations , administered without favoritism or corruption by efficient public institutions , are particularly essential for attracting private sector investment in SFM.  They are also essential for ensuring, along with law enforcement, that investors actually meet the standards of sustainability (hopefully) set out in national law and policy that may seek to minimize negative environmental impacts.

(5) Fifth and finally, a well-functioning and accessible legal system , free of corruption, is necessary for the resolution of disputes, for meting out judgments and penalties for forest-related crimes and the general facilitation of contracts and other commercial transactions essential to boosting investment in SFM (or in any other sector, for that matter).

It is not enough simply to point out these basic elements of good governance. Those of us who are interested in seeing a world where forests thrive because good governance and sustainable forest management permit them to thrive have to remind ourselves and each other continually that good governance and SFM, in most areas, will not spontaneously arise. Good governance and policies that favor SFM will arise in most areas when governments and the people they represent understand the benefits and prepare to take the steps needed to create the appropriate political and legal environment. It goes without saying that, in many cases, over-burdened governments will need assistance to develop the capacity to carry out these functions, assistance in delineating property rights, creating mechanisms for public participation, improving impartial law enforcement, developing clear and effective laws and regulations, and establishing effective judicial legal systems.

As an international community, we have three regional Forest Law Enforcement and Governance Declarations which encourage many of these actions and the subject is debated and discussed in any number of international fora, including the UN Forum on Forests. Individually, a number of governments and institutions have taken steps to assist governments to fulfill these aims. In my country, the President's Initiative Against Illegal Logging provides a framework for a number of US agencies to help partners build their capacities to establish effective governance, and many US agencies are actively engaged in this endeavor. In a moment I will discuss one example, our efforts to build government capacity in Liberia .

There is also a “new generation” of policy and governance instruments that can be invaluable in attracting and maintaining investments in forest services other than timber, i.e. ecosystem services.  I have heard some good current examples of such instruments, including some initiated in Mexico . I understand that our host, Director-General of CONAFOR Manuel Reed, is responsible for having initiated a number of these, including the concept of promoting and protecting forest conservation through resources derived from water services. I look forward to hearing more about these ideas. There are other examples as well, for example from Costa Rica and Brazil . Dr. Manoel Sobral, Executive Director of the ITTO, made a challenging and forward looking speech about the need for a new generation of policy and governance improvements at the United Nations Forum on Forests (UNFF) in 2003. We hope to hear more along these lines from him at this conference and Michael Jenkins, President of Forest Trends has just given us some thought provoking ideas in this regard. However, innovative financing mechanisms can only thrive in a supportive and enabling policy and governance environment.

Liberia : A Pilot Reform of the Forest Sector

An example of our efforts to implement President Bush´s Initiative Against Illegal Logging can be seen our relationship with Liberia , where we have made it a priority explicitly to address the relationship between forests, governance and investment.

After a fourteen-year armed conflict in that country, the international community recognized that warlords in particular former President Charles Taylor – had exchanged timber concessions for revenues to purchase arms. In May 2003 the UN Security Council took action to address the timber-conflict connection by imposing the first sanctions on the import by member states of timber from Liberia . This was the first and only time the United Nations has imposed sanctions on timber trade.

Conflict in the forested regions, fueled by the activities of corrupt politicians, warlords, and loggers, destroyed the capacity of average Liberians to derive appropriate development-related benefits from their country's forest sector. Thanks to an international outcry and the actions of the United Nations, the exile and recent arrest of Charles Taylor and the accompanying peace agreement are now history.

International and Liberian observers expressed their concern over the manner in which corruption, poor governance and a lack of transparency had allowed the timber sector to be tapped to fuel violence and instability. The international community and the National Transitional Government of Liberia (NTGL) that was established in the wake of Taylor 's departure agreed that the Liberian forest sector required substantive reforms.

While some actors focused solely on what actions were needed to get UN sanctions lifted, the U.S. Government and many other donors and stakeholders within the international community and in Liberia felt that reforms of the forest sector had to be integrated into a broader reform effort targeting governance, financial management and equitable use of national resources within the country.

The Liberia Forest Initiative became a partnership of Liberia , the United States , the European Union , the World Bank, IUCN, and NGOs including Conservation International, Flora and Fauna International, a number of Liberian NGOs and industry. This partnership and a comprehensive approach, short and long-term, set about to restore transparency and legality to the forest sector.

Critical to this initiative is that reforms in the forest sector are being enacted in tandem with reforms across the entire Liberian government and in other natural resource and operational sectors (mining, shipping, etc). The free and fair recent election of President Ellen Johnson Sirleaf, a candidate whose campaign promised – and has already delivered deep and wide reforms, including reforms in the forest sector, has proved essential toward full recovery of the forest sector's health. One of President Sirleaf's first executive actions was to cancel all existing forest concessions at the recommendation of the Liberia Forest Initiative.

This comprehensive approach to good forest governance, including attention to appropriate enforcement of the rule of law, effective judicial and legal reform, and transparency of information on forest policy, management and money flows reaches far beyond the forest sector alone. Historically, these areas have generally fallen outside of the reach of forestry ministries and forest policy. The international community's effort to support massive and radical cross-sectoral reform in Liberia embraced the forest sector and provided positive reinforcement for reform.

Will it work? We are putting our support and action behind Liberia and its efforts in the firm belief that it will. This Forest Investment Conference will focus on many aspects of attracting investment to the natural tropical forest. Good governance is fundamental to attracting successful investment. Equally important is the partnership between civil society, industry, NGOs and the international community.

Taken together, improvements in these areas of law and governance, along with progressive forest management and conservation policies aimed at truly making the utilization of forest resources more sustainable, are an essential prerequisite for countries that wish to attract increased investment in sustainable forest management. In this way, investors can both earn a profit and maintain forest resources for future generations.

Thank you very much again.