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

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

2. decision makers about forest management, Communities State NGO’s Associations Private companies Small forest owners Assumptions: Rational decisions balancing costs against benefits Future costs/ benefits require discounting Complicating factors: Risk Transaction costs Social Status Owners, managers:

3. Forest types differ in their costs and benefits over time, affecting decision making Plantations: high initial investment Natural forest for production: direct harvest National park (biodiversity): initial investments necessary, benefits at mid-term Agro-forestry (combining forest with agriculture, livestock): direct income from agriculture/livestock Mangrove / swamp forest (in combination with aquaculture): direct income from aquaculture Forest use types

4. SFM by forest owner/ Manager (Communities, State, NGOs, private enterprise) ) Plantations/Natural Forests/ National Parks /Agroforestry Source of concept: Savenije & van Dijk, persComm. 2007 National forest financing strategy: a multi-stakeholder process What influences decisions about the management of resources?

5. Owners or others invest in forests Direct investment in forests/forestry Direct support (cash or kind) Encourage others to invest Reducing barriers Traditionally: the state or international donor, agency Recently: communities, private sector, pension funds Investments

6. Reduce costs Provision of liquidity Risk mitigation Investment Financing: Goal Some Characteristics: • Linked to future output, qualitative result • Requires guarantees or trust

7. State Pension Fund Int. Donor Foundation Commercial Bank Mechanisms: What and by Whom? Subsidies Tax reduction Credits & Loans ODA, grants & loans Direct investment

8. State Pension Fund Int. Donor Foundation Commercial Bank Mechanisms: What and by Whom? Subsidies Tax reduction Direct investment ODA, Grants, Loans Environmental Funds Credits & Loans

9. Allocation mechanism to link the provider of funds with the forest owner/ manager Rules and regulations Executing agency Access point for the forest owner/manager Information point Payment Who has access? How is “Equal benefit sharing” determined ? Financial mechanisms

10. Investments 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 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 Source of concept: Savenije & van Dijk, persComm. 2007 National forest financing strategy: Investments

11. Payment for a certain product or environmental service Market or buyer-seller More products or increased services result in higher payment Traditionally: focus on goods Recently: how to get services paid for (often referred to as “innovative”) Goods and services

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

13. Environmental services: watershed, carbon, clean water, recreation etc. Goods (timber, ntfp’s) There are many modalities Payment mechanisms are connected to

14. Open market Negotiated deal State arrangement Each option has its implications and specific points of attention Payment Mechanisms

15. Investments Goods and services 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 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 Source of concept: Savenije & van Dijk, persComm. 2007 National Forest Financing Strategy: Goods and services

16. Necessary legal framework for the mechanism(s) Institutional arrangements for e.g. payment and control of mechanism or market participation of stakeholders Minimum requirements to be able to participate, e.g. land tenure, personal identification. Enabling environment

17. Apply nfp principles Consistency with national policy and int. commitments Integrated in sustainable development policy of the country Partnership and participation Creating / supporting stakeholder platforms Nfpsupporting the enabling environment

18. Nfp elements: alignment and synergy

19. Guided by national forest programme (nfp) principles Investments Goods and services 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 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 Source of concept: Savenije & van Dijk, persComm. 2007 National Forest Financing Strategy: a multi stakeholder process