International Bank foT Reconstruction and Development c) el)FOR OFFICIAL USE ONLY _

SecM90-1369

FROM: Vice President and Secretary October 25, 1990

" FOREST POLICY: AN APPROACH PAPER

Attached is a report entitled "Forest Policy: An Approach Paper".

This report will ba considered at a Seminar of the Executive Directors to

be held on Friday. November 16. 1990.

Questions on this document may be referred to Mr. Sharma

(ext. 36661).

Distribution:

Executive Directors and AlternatesPresidentSenior Vice PresidentsSenior 1eanagement CouncilVice Presidents, IFC and MIGADirectors and Department Heads, Bank, IFC and MIGA

K This docunment has a restriced distribution and may be used by recipicnts only in the perfonmance| LI' their oficial duties. Its consents may not otherwise be disclosed without World Bank authorization. j

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WORLD BANK

FOREST POLICY: AN APPROACH PAPER

OCTOBER 25, 1990

World Bank

Forestrv Policy: An Approach Paper

Table of Contents

Page No.

I. Introduction . . . ....... 1

II. World Forests in Perspective . . . . . . . . . . . . . 1

Forestry Situation . . . . . . . . . . . . . . IComplexity of Forest Management . . . . . . . . 2

III. Bank's Current Approach to Forestry . . . . . . . . . 3

IV. Rationale for a New Forest Policy . . . . . . . . . . 4

V. Focus and Scope of the Policy Paper . . . . . . . . . 5

VI. Transnational and Global Concerns . . . . . . . . . . 7

VII. Issues for Consideration . . . . . . . . . . . . . . . 8

Tne Special Case of Tropical Moist Forests . . . 8Forest and Non-Forest Policies . . . . . . . . . 10Institutional and Legal Framework . . . . . . . 12Economic Value of Forests . . . . . . . . . . . 13

Annex 1: Overview of Bank-Financed Forestry Projects Since 1978

Glossary

World Bank

Forest Policy: An Approach Paper

I. Introduction

1. Forests are both an environmental resource and an economic resourcefor sustaining natural systems and promoting economic development. Forestscontribute to biological diversity and play a key role in the maintenance of air,water, and soil quality. Forests influence biogeochemical processes, regulaterunoff and groundwater, control soil erosion, and reduce downstream sedimentationand flooding. Forests also have aesthetic value and offer recreationalopportunities. The loss of "environmental services"1 can amount to considerablecosts in economic terms (especially when the effect is irreversible) but thesecosts are difficult to quantity.

2. Forests also contribute to the economy by providing commercial products(sawlogs, veneer logs, and logs for pulp), as well as nonwood products (nuts,fruits, gums, fibers, latex, bush meat, and palms). Moreover, forests are animportant source of food, fiber, and energy for indigenous populations and localcommunities. The economic benefits arising from the use of nonwood products ona sustainable basis can be substantial.

3. In recent years, enviro;!mental and economic issues relating to forestuse have moved from a local to a global scale, and from simple to complexdimensions. Perceptions of these environmental concerns have also shifted towarda higher level of awareness. As a result, important regional and globalimplications associated with deforestation have heightened the need forconservation and sustainable forest management.

II. World Forests in Perspective

4. Forestry Situation. Forests and woodlands are widely, though unevenly,distributed within and among different regions and countries of the world.Forests cover about one third of the world's land area (4.1 billion ha). Ifehrub and forest fallow in developing countries are included, the total woodedarea in 1985 was 5.2 billion ha. The area of forest lands is more or less evenlydivided between the developing (2.2 billion ha) and the developed (1.9 billionha) countries. There are about 2.9 billion ha of tropical wooded area and 2.3billion ha of temperate wooded area.

It Environmental services include the maintenance of biodiversity,protection of soil and water resources, moderation of climate,influence on rainfall, sequestering of carbon dioxide, habitat forwildlife, and maintenance of earth's natural balance.

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5. The developed countries have more than 90% of the world's temperateforests and more than 80% of their wood extraction is for industrial timber.After experiencing rapid deforestation until the early 1900s, forest areas inthe developed countries have stabilized and in some cases increased with rapideconomic development. Public intervention -- through research, education,incentives, and technical and financial support -- has encouraged reforestationand more intensive manseP-,ent of forests for multiple uses. The availabilityof cheap timber imports from the developing countries has to some extent reducedthe need to exploit domestic forests excessively for timber production. Themain concerns in the industrialized countries in forest management are aciddeposition, pot-"tial climate change, competing land use activities, thetradeoffs betwe a economic and environmental demands, and the need for moreefficient management of forests by public and private owners.

6. The developing countries account for 75% of the world's closedbroadleaved forests, most of which are tropical foreats. This total consistsof 30% of tropical moist forests aLnd the remaining 70% of tropical dry forests.In addition, the developing countries account for all of the other wooded land(1.1 billion ha). More than 80% of wood production in developing countries isused as fuelwood. Many developing countries are concerned about the chronicshortages of fuelwood, fodder, industrial timber, and other wood products fordomestic use. These countries are also facing an increasing trend towarddeforestation.

7. The loss of tropical moist forests has become a serious environmentalconcern, with regional and global implications (paras 26-28). Tropical moistforests account for about half of the earth's plant and animal species. Morethan half of the original area of tropical moist forests -- one of the mostdynamic and biologically diverse biomes -- has been cleared for agriculture,ranching, timber, fuelwood, and infrastructure. Based on recent information,tropical forests (moist and dry forests) in many developing countries are beingdestroyad at an alarming rate of 17 to 20 million ha annually, influenced bystrong socioeconomic and political forces. Saving these critical forestecosystems should be an important environmental and economic goal.

8. In response to these problems, many developing countries have increasedinvestments in the forestry sector, but the scale and extent of these measuresremain small. The rate of natural regeneration and reforestation in the tropicshas lagged behind the rate of deforestation. Forest plantations, which aregenerally more productive than natural forests, account for less than 3% of thetotal closed forest areas.

9. Complexity of Forest Manazement. Forests play a vital role in bothsocial and natural systems, each showing complex and dynamic interdependenciesamong various factors and processes. Therefore, the dynamics of forest userequire a good understanding of the role and importance of forest biomes in thesocial and natural systems and within the context of the interfacing of thesesystems.

10. There are two major types of demands on forest ecosystems: One isfor environmental protection, the conservation of genetic resources, and themaintenance of biological diversity. The second is for land, food, timber, andfuel, as well as for much needed revenue to support national development. Thesedemands can result in conflicting conservation and development goals.

11. Use of forest resources is influenced by a complex set of issues withdirect and indirect effects. The expansion of agriculture and livestock, small-scale shifting cultivation, fuelwood gathering, access roads, and commerciallogging are the primary causes of forest depletion. But these activities aredriven by population growth, poverty, competing land use activities, publicpolicies, and the state of the economy. In addition, nonforest sector policiesand development projects (agriculture, energy, mining, industry, infrastructure)have significant unintended effects on forest use. Forests are also vulnerableto misuse due to open access problems in the absence of clearly defined propertyrights, including the traditional rights of local communities and tribal groups.

12. Many non-governmental organizations (such as civic associations, churchgroups, citizen action networks, and environmental lobbies), both national andinternational, are now calling for strong measures to halt uncontrolleddeforestation and land degradation. More specifically, these groups areconcerned about the alarming increase in the current rate of tropical forestdestruct4_n, and therefore demand the protection of tropical moist forests asa valuable ecosystem. An outcome of this conservation movement is the tendencyto view tropical forests as a global environmental good. But this position isseen by many developing countries as impinging on national sovereignty as eachcountry is ultimately responsible for the management of its natural resources.Furthermore, there are tradeoffs between short-term economic gains from forestuse and long-term benefits from forest conservation. This dilemma is visiblelocally, nationally, and globally, requiring important decisions in balancingconservation and development goals.

13. Forestry projects and other projects which have impact on forests,financed by bilateral and multilateral agencies, are increasingly under scrutinyby these concerned groups to ensure that projects promote conservation andsustainable development, while safeguarding the interests of local communitiesand indigenous populations.

14. More r7-zently, the Tropical Forestry Action Plan (TFAP) has come understrong criticism. Many groups believe that TFAP has not yet been effective inpromoting sustainable use and management of tropical forests. To make TFAP aneffective instrument, these organizations have called for significant reformand restructuring of TFAP.

III. Bank's Current Avvroach to Forestry

15. Aggregate Bank lend-'- for forestry totaled $2.3 billion through early1990 (see Annex 1). The bulk o- this lending, in excess of 90%, has taken placeover the past 12 years. The Bank's first loan for forestry was made in 1950 to

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Finland primarily to finance logging equipment. This emphasis continued throughthe early 1970s. The forestry sector in developing countries was seen as avehicle to promote economic growth and generate government revenues. Extractingtimber from natural forests and planting exotic species for industrial use wereviewed as important sources of industrial development and exports. The enclavenature of forest development through specialized plantation and large wood-processing industries over-looksd the important environmental and social problemsrelating to forest use and management in a land use framework.

16. The Bank's Forestry Sector Policy Paper published in September 1977,called for reorientation of Bank lending, supporting a trend toward -)eople-oriented forestry programs that was already underway. The shift in forestrylending at that time was from industry-oriented operations (wood industries,industrial plantations, and infrastructure) to people-oriented projects (socialforestry, agrofo ..stry, and fuelwood plantations). Bank lending also movedtoward watershed management- and the rehabilitation of degraded lands by involvingboth local peopla and the public sector. Forestry components were also includedin rural development, agriculture, i--rlgation, energy, agroindustrial dnd otherarea development projects. More recently the shift has been towards broad basednational programs supporting natural forest management, conservation ofbiological resources and wildlife, institutional strengthening, policy reforms,research, and manpower development and training components.

IV. Rationale for a New Forest Policy

17. Since the publication of the 1977 Forestry Sector Policy Paper,economic and environmental issues involving forest use and management have becomemore important. These issues have become more complex and their serious regionaland globa]l implications have heightened the need for sustainable forestmanagement. While the 1977 policy paper is still largely applicable to drytropical forests, it is now timely for the Bank to devclop a new forest policy.The new policy paper will focus on all types of forests, with special emphasison tropical moist forests. In the case of the latter, the policy will placepriority on projects which will improve their protection and management. Thepolicy will also emphasize the importance of promoting development (includingreforestation) in degraded forests, wastelands, forest fallow, and shrub landsin developing countries.

18. External efforts have increased, but coordination of these efforts byvarious participants remains inadequate. The Bank could help improvecoordination of external agencies and develop consensus, especially since theperspectives of developing and industrialized countries on forest use andmanagement differ sharply. Much of this coordination could be achieved througha strengthened and restructured Tropical Forestry Action Plan (TFAP). The Bankcar. also help increase public awareness of the importance of forests as avaluable resource and of the environmental consequences of mismanaging forests.Finally, the Bank can coordinate international efforts and support globalinitiatives through ongoing or new programs promoting the preservation of

biodiversity, the protection of critical forest ecosystems, efficient managementof natural forests, and reforestation.

V. Focus and Scone of the Policy Pager

19. The proposed forest policy paper will consider all types of forests.It will consider forests as an environmental resource, taking into account therole of forests and trees in natural systems and in providing environmentalservices. The paper will also assess forests as an economic resource, focusingon their role in economic development.

20. The policy paper will take stock of the current forestry situationand give a comprehensive perspective on global forestry and how forests arevalued, used, and managed. Critical policy (forest and nonforest),institutional, and technical issues will be studied within a political economyframework since the interaction of many socioeco.tomic and political factorsinfluences land use and deforestation. Within this framework, major concernsand priorities for conservation and development of forests as renewable resourceswill be assessed in terms of a typology that classifies countries by similarenvironmental conditions, forest types, needs, and priorities.

21. The approach to developing a typology would be to distinguish two

broad classifications: tropical and temperate. Each of these broadclassifications will be differentiated in terms of moist and dry areas.

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Political boundaries, with few exceptions, do not correspond to the aboveclassifications. All Sahelian countries, for instance, would be classified as

tropical dry areas. India and Brazil would belong inL several categories.Tropical moist areas would include countries (such as Amazonian Brazil,Indonesia, and Zaire) that contain predominantly tropical rain forests. Tropical

dry areas would include countries (such as Sahelian countries, Pakistan,

northwest India, and northeast Brazil) characterized by wooded areas, shrubs,

and trees with dwindling forest resources and population pressure. The third

category, temperate moist areas, would include countries (such as China,northeast India, and eastern European countries) with coniferous and deciduousforests. The final category, temperate dry areas, would include countries (such

as Afghanistan, Iran, western China, and the Central Asian Republics of USSR)with scattered trees, shrubs, and grasses. This typology will be used to assessnot only issues and problems but priority areas for interventions (conservationof biological resources, protection of critical ecosystems, reforestation and

afforestation in marginal areas and wastelands, agroforestry, watershedmanagement, commercial timber production, and so forth) supported by incentivepolicies, regulations, and institutions. Finally, tropical moist forests, which

have generated mtuch criticism of Bank lending in forestry, will receive specialattention.

2/ In accordance with the new data currently being prepared by FAO for

the global forest inventory update expected in early 1991.

22. The policy paper will develop strategies f or integrating conservationand development goals. Conservation and development priorities will be examinedfor (a) providing environmental services and conserving biological resources;(b) addressing land degradation and watershed rehabilitation; (c) increasingagricultural productivity; and (d) meeting demands for wood and nonwood products,fuelwood, and fodder. The paper will assess traditional areas of emphasis(social forestry, agroforestry, industrial forestry, and watershed management')and the emerging trends focusing on conservation, sustainable forest management,and broadly-based national forestry programs. Special attention will be givento several key elements: incentives and regulations for optimal forest use,valuation of forests reflecting both economic and environmental benefits,institutional arrangements (including property rights and tenure issues),participation of local people and the private sector, natural forest management,and plantation technology.

23. Drawing from the experience of the last 12 years the Bank's new forest

policy would btmild on the successful thrusts (agroforestry, fuelwood production,

industrial plantations, watershed management) of the 1977 Forestry Sector Policy

Paper, supporting the Bank's development objectives (such as poverty alleviation,

women in development, and private sector involvement). The policy paper will

also emphasize the emerging trend in forestry focusing on conservation,

stabilization and environmental security (conservation of primary tropical

forests including biological resources, preservation of complex forest

ecosystems, rehabilitation of iecondary forests, and wa3telands, reforestation

and afforestation, and watershed management).

24. Given the diversity of forest resources, the policy paper will

emphasize that eventually each country must develop a forestry conservation and

management strategy specific to its needs, priorities, and development potential.

Such a strategy must also be complemented by a comprehensive land use policy

(including zoning, land classification, mechanisms for local participation, role

of the private sector, resettlement and enforcement).

25. The policy paper will examine nonforest factors which contribute

significantly to deforestation. It will point out that unless strong measures

are taken to accelerate agricultural production through intensified agriculture,the strain on forest resources will continue. Similarly, the paper will stressthat unless decision-makers dealing with key economic sectors (such as

agriculture, energy, transportation, and industry) pay attentiQn to the indirecteffects these sectors have on forest depletion, and given continuing populationgrowth and widespread poverty, the long-term prospects for benefits provided byforests will remain uncertain. However, it is recognized that the reality ofpopulation increase and the continuation of poverty are likely to exist for manydecades to come. Since many development projects contribute significantly to

deforestation, the policy paper will discuss the conditionality requirements

necessary to address this issue. Finally, the policy paper will also stress the

importance of monitoring changes in the world's forest resource bass.

VI. Trananational and Clobal Concerns

26. The forest policy paper will also address transnational and globalconcerns -- including the lose of biodiversity, climate change, acid deposition,and watershed degradation. The depletion of tropical forests has a seriousimpact on biological resources. Of the millions of forest species, it isbelieved that about half are found in tropical forests. As a result ofdeforestation, it is estimated that 4,000 to 6,000 species are lost each year.Many of these species have potential economic value and some are alreadyimportant sources of food, medicine, genetic material, and other products.Forests influence global biogeochemical cycles and the atmospheric processes thataffect patterns of climate. Evidence shows how forest depletion alters localrainfall and regional hydrological cycles.

27. Deforestation also contributes to the greenhouse effect (burning offorests produces carbon dioxids equivalent to 25% of that transferred to theatmosphere by the burning of fossil fuels). Standing forests, new plantationsand afforestation programs will sequester carbon, thereby partly helping tooffset emissions of carbon dioxide from energy use and other human activityelsewhere. Another concern is the effect on forests of acid rain and other formsof acid deposition associated with the burning of fossil fuels. Trees also aredamaged by ozone pollution resulting f- a increased economic activity. Whilethis problem appears to be significant only in the more developed regions of theworld, with rapid economic growth and industrialization, forests in developingcountries also may be threatened. Finally, forestry activities and deforestationmay contribute to the degradation of large watersheds with subsequenttranaboundary spillover effects. Watershed damage includes diminished waterretention in catchment areas that reduces hydroelectric capability and riverflows, increased soil erosion and downstream siltation, and increased runoff andrisk of flash-flooding.

28. Transnational and global environmental issues are more difficult todeal with than local and national issues. Often, the scientific evidenceunderlying international efforts to address these issues is not well understood.Furthermore, there is uncertainty regarding actual physical impacts and theresulting environmental costs. The adverse consequences may eften emerge indistant places and in the distant future thus diminishing the willingness ofindividuals and governments to take often costly remedial measures. Finally,the major costs of avoiding or mitigating transnational and global environmentaldamage usually fall upon societies and nations who may not necessarily be theprincipal beneficiaries. Collective action will require greater internationalcooperation, further developments in global organization, new revenuemobilization and allocation mechanisms, and further improvements in scientificand economic tools to define and analyze such environmental externalities.

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VII. Issues for Consideration

29. A number o. studies have been commissioned to address important policy,technical, and instLcutional issues and to provide policy guidance for Bankoperations. Among these, this section deals with four major issues relating toforest use and management: (a) the special case of tropical moist forests;(b) forest and nonforest policies; (c) institutional and legal framework; and(d) economic value of forests. The operational review of Bank-financed forestryprojects has also stressed the importance of these issues in forestry planningand investments.

The Special Case of Tronical Hoist Forests

30. Tropical mcG4st forests provide multiple services and have numerouspotential uses. Yet in recent years the world's tropical moist forests have beendeclining at an increasing rate (17 to 20 million ha annually). The total areaof tropical moist forests are estimated at about 780 million ha, of this some530 million ha are considered primary forest. Fifteen countries account for 95percent of the primary forest.3

31. Because of the increasing trend in the loss of tropical moist forests,there is a growing movement calling for the donor community to stop loggingoperations in primary tropical moist forests. There is growing evidence thatcommercial logging, one of the causes of deforestation, in primary tropicalmoist forests has not been sustainably pvacticed on a wide-scale. However, insome countries, e.g., Puerto Rico, Malavaia, and Queensland (Australia), systemsof managing tropical moist forest for timber production have been in existencefor many years.

32. Several factors contribute to unsustainable management of tropicalmoist forests for timber production. Deficient incentive policies and concessionagreements distort the true costs of forest resources and effectively subsidizelogging. Weak institutional arrangements at the country level have underminedthe government's effectiveness in promoting sustainable management of tropicalmoist forests either for single or multiple uses, and in implementing existingpolicies and regulations. The undervaluation of forests as capital stocks --ignoring environmental and economic benefits -- has inculcated a short-termperspective on natural forest management that has often led to forest mining.Scientific knowledge (relating to functions of forests in terms of physical,chemical,and biological processes) of tropical moist forest ecosystems islimited, and very little research has been carried out on sustainable managementsystems of these forests. Finally, evidence indicates that long-term viabilityof forest extraction is undermined if indigenous populations are not involvedin the control and use of forests.

31 These countries are: Brazil, Peru, Venezuela, Colombia, Mexico,Guyana, Zaire, Congo, Cameroon, Gabon, Indonesia, Malaysia, Burma,Papua New Guinea, and India.

33. Given the critical situation now confronting many tropical countries'foreats, a key question is what should be the Bank's rcls in dealing with primarytropical moist forests? The Bank's objective of supporting conservation anddevelopment goals should be to (a) promote preservation of primary tropical moistforests in countries (such as Cote d'Ivoire, Guinea, Ghana, Costa Rica, Panama,Philippines, Thailand, and Vietnam) where small areas of these primary forestsremain intact and are considered to be in imminent danger (para 34); and (b)promote preservation and sustainable management of primary tropical moist forestsin countries (such as Zaire, Gabon, Brazil, Guyana, Indonesia, and Papua NewGuinea, etc.) where large areas of these primary forests still remain (para 35).

34. There would be implications for the Bank. As the Bank curtails Itslending for commercial logging in primary tropical moist forests in countrieswhere small areas of these forests remain intact, greater efforts would have tobe mounted to assist these countries to preserve the remaining primary tropicalmoist forests and to meet the basic needs of the people by developing secondaryforests for multiple uses which are ecologicall7 su -ainable. Special attentionwould also be needed to increase forest resources through reforestation andafforestation, and agroforestry. Assistance would also b' needed in thesecountries for strengthening institutions, developing proper policy incentivesand regulations, implementing conservation programs, and developing sustainableagricultural production systems.

35. In countries where there are large areas of tropical moist foreststill remaining, the Bank must ensure that forest.y projects are preceded bycountry level forestry studies, based on biological inventories, environmentalassessments, and socioeconomic studies to determine what percentage of acountry's remaining forests should be put aside for preservation of biodiversityand -he balance for productive purposes (wood and nonwood products), withoutimm-'.ently endangering its ecological support systems. Such an approach would,however, mean acceptance of some loss of biodiversity. Countries should alsohave forest management plans (based on selective harvesting and best-practicecode), proper policy incentives, institutional support and viable conservationand development programs (including enforceable protected areas, restoration of

secondary forest lands, watershed rehabilitation). This would require the Bankto support research programs and pilot projects developing management systemsfor single or multiple uses. Research efforts would also be needed for the

development of appropriate, low cost technologies and intensive managementtechniques for reforestation, increasing productivity, and expanding agrofrrestryin developing countries. Research is also needed on biotechnology, and

marketing. Programs focusing on sustainable land use and production systems are

also needed for the several hundred million people now living in or on thefringes of tropical forests. Integrating trees into agricultural systems is alsorequired to promote sustainable land use in areas adjacent to primary forests.

36. Such a policy decision should have support from the donor communityand be an integral element of the TFAP to be effective. It must also have thepolitical commitment of the country concerned. Such a policy decision wouldhave economic impact on the countries involved, particularly in the short run,requiring some form of compensation or adjustment financing as discussed below.

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37. Cost and Compensation Considerations. As countries face the challengeof stabilizing existing forests and expanding reforestation and afforestationto increase forest resources, they are confronted with a number of importantquestions: How much forest should be maintained, taking into consideration thedesired economic, social, conservation, and environmental objectives? How shouldthese resources be classified in terms of forest types reflecting the productiveand protective functions of forests (forest reserves, national parks, protectiveforests, forests for timber production, wildlife preserves, forests forrecreational purposes, and forest areas for mixed cropping, tree crops,agroforestry and nonwood product extraction)? To what extent should globalconcerns be reflected in these decisions? These questions have significant costimplications.

38. These same questions are applicable globally taking the biosphere asa global ecosystem. Tropical moist forests are increasingly being viewed as aglobal environmental good because of their biodiversity and their potentialimpact on climate. This being the case, the compelling question relating toforest conservation is one of cost and compensation. Who should pay for the costof preserving forests for the benefit of the world community, present and future?Also, what proportion of the cost should be met nationally on the grounds thatbenefits accrue locally? How should countries, and affected social groups withincountries, be compensated for income foregone as a result of forest preservationwhich benefits everyone? And how should such compensation be determined? Suchquestions, however difficult, lie at the heart of the dilemma between developmentand preservation of forest resources for economic and environmental security.

39. This global issue also has implications for the Bank. How should theBank's lending reflect global concerns (loss of tropical moist forests) andnational interests? How should projects with significant global concerns befinanced? Under what conditions would grant financing or financing of asignificantly higher percentage of the total project costs be justified? To whatextent can the proposed Global Environmental Facility be used to deal with thecompensation issue, as discussed above, and to finance forestry projects whichinclude components (preservation of some primary tropical forests) benefitingthe world community at large?

Forest and Non-Forest Policies

40. Bank experience in developing countries show public policies are amajor determinant of how forests are used and managed. Over 80% of tropicalforest lands are publicly owned, the uses of which are usually suDject todiverse, multi-sectoral and often conflicting policy objectives. Many studiesshow that nonforest sector policies and some development projects are frequentlymore influential in determining land use than forest sector policies. Oneimportant impact of public policy on forest resources is the incentive it oftenprovides for short-term exploitation of forests by distorting the true costs orprices of these resources. Project results have shown that public policies havefailed to provide adequate incentives for sustainable management of forests orto promote reforestation, but weak enforcement of existing regulations andconcession agreements has also encouraged up -stainable uses of forests. The

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absence of comprehensive land use policy, as shown by the Bank's experience,distorts resource allocation among various land-use activities. Moreover,inadequate land policy allows forests to be treated as an "open access" resourcesubject to the "tragedy of the commons". Correcting distortionary effects ofinefficient incentive policies with proper regulations and land use policies willhave positive effects on forest use and reforestation.

41. Sector studies and forestry operations show that concession policies(licensing, length of concession period, harvesting methods, size of concession,and concession renewal) have frequently resulted in inefficient use of forestsas renewable resources. Concession periods, usually less than 20 years, aresignificantly shorter than natural regeneration periods of a timber stand(averaging 20 to 100 years). As concession areas are often quite large(sometimes 100,000 hectares), adverse environmental impacts are likely to be moresevere and more extensive than they would be on smaller concession areas. Also,rents through royalties, license fees, and reforestation taxes are typically muchless than the real cost of replacing the timber stock and restoring logged-overareas. Aside from contributing to economic and environmental losses, deficienttimber concessions may promote corruption and result in progressivedecapitalization of the country's natural resource base.

42. Nonforest incentive policies (pricing, tax incentives, directgovernment outlays, and other subsidy instruments) encourage private investmentsin leading development sectors such as agriculture, energy, mining, industry,and transportation. For instance, incentive policies that directly andindirectly promote expansion of agriculture in tropical countries have had themost significant impacts on forests. Such policies -- by regulating prices andproviding tax shelters and subsidized credits to livestock and agriculturalproducers -- have expanded the agricultural frontier, often at the expense ofnatural forests. This dilemma is heightened by the relative importance ofagriculture in the GDP and total export earnings of most tropical countries.Conserving natural forests at the expense of agricultural expansion entailsshort-term costs that many developing countries perceive they can ill afford.But many incentive polices have led to desultory agricultural uses of forestlands and would be discredited on economic grounds with proper valuation of theenvironmental impacts. Finally, pressure on forest areas has also resulted fromlarge development projects.

43. Correcting market and price distortions raises some difficultquestions. One is that the externality costs (such as replacement costs andenvironmental costs resulting from harvesting) associated with forest use arenot borne by the domestic economy alone; some have regional and globalconsequences. Sovereign governments can be expected only to address domesticexternalities in their pricing and taxation policies. Global externalitiescould be addressed through inter-country cooperation and possible incometransfers from rich countries to poor (para 38 and 39). Another considerationis that forest land is used under a wide variety of land tenure arrangements,including indigenous tribal groups with long customary rights, illegal squatters,and freehold farmers with state-granted leases or titles. Customary tenuresystems also vary considerably and can be much more complex than open access

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systems. The rights that people have over forest lands significantly affect howthey will respond to particular incentive policies.

44. These coraplex issues raise a number of important questions: Canincentive policies and market forces guarantee sustainable use and conservationof forests? How should nonforest policies, which lead to destructivedeforestation, be addressed co?.sidering the trade off between short-term economicgains and long-term benefits from conservation and more sustainable use of forestresources.

Institutional and Legal Framework

45. Governments, as principal holders of forest property rights, oftenplay a dominant role in forest management. Various types of public institutionsregulate and manage forests in developing countries. These institutions facea multiplicity of objectives supporting revenue earning, development, andenvironmental goals. This broad set of objectives calls for a review of thelegal and institutional framework. Firm measures are also needed to developprograms for involving people in the management of forests.

46. Bank intervention in the forestry sector shows that forestryinstitutions operate within a larger multi-institutional framework in whichoverlapping jurisdictions and conflicting policy objectives often collide overforest land use. These institutions are, in most developing countries, mainlyadministrative organizations with limited capacity and resources for long-termplanning, implementing forestry projects, enforcing of existing regulations, andmonitoring the forestry situation. The effectiveness of these institutions isfurther weakened since governments generally place little priority on the forestsector and use forests mainly for short-term benefits.

47. Regarding informal institutional arrangements, governments havefrequently disregarded the traditional rights of local communities and tribalgroups, making forests more vulnerable to open-access problems. To what extentcan the Bank be involved in property rights and tenurial issues that relate toforest use and management?

48. Many Bank-financed forestry projects suffer from weak institutions.The shift in emphasis from industrial forestry to agroforestry, watershedmanagement, sustainable management of natural forests, and other social programshas burdened already understaffed forest institutions with additional unfamiliartasks. These organizations, with increased emphasis on conservation andsustainable development, have had to modify their traditional roles. These roleshave not always been successfully integrated into project implementation.Technical assistance and training are used to upgrade managerial and technicalperformance, but they need to be reinforced on a continuous basis.

49. There is an urgent need for institution building to increase thecapacity of countries for more efficient management of forests for multipleuses. Forestry institutions face a number of important challenges: First, theyhave to manage forests on a long time horizon. The mismatch of time horizons

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between forestry as an inherently long-term undertaking and forestry as a source

of short-term needs for revenue gene-ration and development rarely fosterseffective forest management. Second, they have to define the potential rolesof the private sector and the involvement of people as important partners insustainable forestry. Third, these institutions need to develop appropriatemechanisms for interagency coordination for addressing intersectoral policyissues and problems resulting from overlapping jurisdictions.

50. All this has policy implications for the Bank. What should be therole of the public sector in forest management? What would be the appropriateinstruments, including financial arrangements, for promoting comprehensiveinstitutional reforms? There are other implications as well. The Bank needsto develop detailed sector knowledge as a basis for better dialogue withgovernments. Also, more sociological research is needed to find out how toinvolve local people in forest management and in tree development and protectionschemes. Finally, significant increases in Bank staff in key disciplines areneeded to handle forestry sector work, technical supervision of complex projects,and institution building, and to support an interdisciplinary approach to

forestry.

51. More recently, there has been increasing demand by both internationaland national non-government organizations (NGO's) to play a more significant rolein helping to formulate forestry and environmental policies of donor agenciesand of governments at the country level, and in providing greater input into theway recipient country projects are designed and implemented. Some of thisenthusiasm has been constructive and helpful to both the donor and recipientcommunities and should be encouraged. However, some recipient countries pointout that this is not always the case, particularly in situations where NGO'srepresent strong political or religious interests. This raises the issue of NGO

participation in forest policy formulation of the donor agencies and governmentsand in the project cycle.

Economic Value of Forests

52. Many of the world's forests are undervalued as resources and for thevital environmental services they provide in natural and social systems.Forests, in terms of their contribution to the economy, are generally valued in

terms of timber (which may be under valued itself) without including the valuesof nonwood products and ecological services. The complex conceptual andempirical problems associated with forest valuation have resulted in countriesassigning a low priority to the forest sector because of its apparently smallcontribution to the economy. This tendency to undervalue forests has accelerateddeforestation.

53. Accurate valuation is essential for reliable design and appraisal of

both forestry and nonforestry projects affecting forests. Likewise, investmentdecisions among alternative land uses require accurate measures of costs andbenefits of different forest goods and services. Undervaluation of forestproducts due to distorted markets, and unpriced environmental services providedby intact forests may create a bias toward incentive policies favoring nonforest

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land use activities. Presently, only a fraction of the goods and servicesgenerated by forests are reflected in national income accounts Current nationalaccounting practices fail to treat the depletion of forest stocks as capitaldepreciation or consider the degradation of the environmental services associatedwith forest destruction.

54. Actual and potential market goods are, with availability of data,easier to quantify and value than environmental services because one can usetraditional economic analysis. On the other hand, assigning values toenvironmental serv-ices is more difficult because there are no observed pricesfor variables such as watershed rehabilitation or biodiversity wildlifeconservation, soil fertility and erosion control protection or global climatece-nge. In the past two decades, methodologies have been developed to assignvalues to these environmental services and applied in industrialized countries.But further work is needed to refine these methodologies and apply them indeveloping countries.

55. Bank operations call for further refinement of methodologies forvaluing environmental benefits and costs in economic analysis of forestryprojects. M4ulti-year research is urgently needed to develop techniques for theproper valuation of environmental resources of forests and depletion of forestresources and environmental degradation. Also improved research capability intropical forest countries is needed. It is expected that the Bank will play animportant role in refining methodologies for valuation of environmental goodsand services for practical applications.

Annex 1

Overview of Bank-Financed Forestry Proiects Since 1978

I. Introduction

1. This review is one of a number of background papers currently beingprepared to provide input in the preparation of the Bank's new forest policypaper.

2. Many developing countries now face chronic shortages of fuelwood,industrial timber, and other wood products for domestic use and export. Thesecountries also show an inereasing trend toward deforestation and landdegradation. By some estimates, forests in the developing countries have beenreduced by almost half in this century and about 40% of the closed forests havebeen either cleared or degraded. The loss of tropical moist forests is a seriousenvironmental concern with global implications. In recent years forestexploitation has increased significantly in intensity and scale, environmentaland economic issues have become more complex, and popular awareness ofenvironmental problems has increased. As a result, there is a strong push inthe world community for sustainable use and management of forests supportinggoals of both conservation and development.

3. The Bank's current Forestry Policy Paper, published in September 1977,was influenced by events in the early 1970s, a period marked by economicadversity and uncertainty. First, the collapse of the fixed exchange rate systemin 1971 was followed by an energy crisis in 1973-74, when oil prices quadrupled.Second, an economic recession in 1974-75 impaired the development efforts of manydeveloping countries. Third, in the midst of the economic and energy crisis,the world community was seriously concerned about food security and productionbecause of the food shortages of 1972-74. In the early 1970s more attention wasalso given to poverty programs; the Bank's investment lending shifted frominfrastructure to other sectors, with special emphasis on poverty alleviation.Priorities in the developing countries were to increase food production byexpanding the agricultural frontier and, in response to the energy crisis, toexpand fuelwood production.

4. The Bank's 1977 Forestry Policy Paper outlined an agenda for forestrydevelopment, reflecting the economic realities of the period. The Policy Paperconfirmed the trend away from industry oriented operations toward people-oriented projects. The Bank responded to the energy crisis by emphasizing theneed to increase fuelwood production. The expanded "social" forestry programproposed in the 1977 Forestry Sector Policy Paper was to complement efforts tosupport the Bank's renewable energy program' and rural development efforts. Inthe early and mid-1980s, comprehensive efforts were made to involve local peoplein tree planting and land and watershed management projects and to inject

l Described in "Renewable Energy Resources in the Developing Countries,"Washington, DC, World Bank, 1981.

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forestry components into rural development, agriculture, irrigation,agroindustrial, and area development projects. More recently, in response toincreased concern about the environmental implications of rapid degradation ofnatural forests, projects address intersectoral links, policies, institutionalarrangements, and the need for programs related to conservation. The recentemphasis on sustainable management of natural resources has brought new demandsfor national forestry strategies, better performance of forestry organizations(including extension and research), and even more community participation (ruraland urban) in tree planting and protection. The Bank is continuing and expandingits efforts to find solutions to ecologically destructive patterns of land use.

II. Bank Lending Program

2

5. Bank forestry lending began 40 years ago. Thus far Bank lending forforestry totaled US$2.3 billion through FY90, of which 94% has been committedsince FY78 and 56% since FY85 (see Table 1 and Annex 1). In the decade sinceFY78, Bank forestry lending has grown particularly rapidly -- to US$1.4 billionin 59 projects, compared with only 15 projects (nearly all for industrialoperations) totaling US$219 million in the three previous decades. Since FY78,28 rural development forestry projects have been financed with total lendingamounting to $765 million. There have been 13 conservation/environment projectswith commitments of $272 million. Industrial forestry projects were allocated$1.1 billion supporting 32 projects. These figures do not include lending forforestry components of agricultural and rural development projects, or lendingfor a small number of large-scale pulp and paper mills.

Loans made to Finland and Yugoslavia in 1949, primarily for loggingequipment.

Table 1 SUMMARY TABLE OF THE PAST AND FUTURE LBONO PROAM

FOR FREESTANDING FOREStRY PROJECTS

Actual Lending Projected Lending

Pro 1978 FY 1978-90 FY 1991-94

EstimatedCredit/Loan Amount Credit/Lo*n Amount Credit/Loan Amount

REGION No. of Total Avorag. Average No. of Total Average Av-rage No. of Total Average AverageProject Per Project Projects Per Project Projecto P-r Project

Year Size Year Size Year Siz;------- US3 million ------ -------- USS million ------ ------- US million-------

AFRICA 8 65.3 10.9 31 822.9 47.9 20.1 20 444.4 111.1 22.2

ASIA 3 36.5 12.2 28 1135.7 87.4 40.6 11 842.0 210.6 76.5

EMENA 3 26.0 8.3 7 258.7 19.9 38.9 4 172.0 43.0 43.0

LAC 7 137.8 10.6 19.7 9 .47.8 138.9 80.9

TOTAL. 12 L26.8 _ 10.6 73 2156.1 166.8 29. 44 2006.2 501.6 46.6

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III. The Bank's Lending Experience

6. This section highlights lessons learned -- both successes and

failures -- in Bank financed forestry projects. A sample of 36 completed orongoing forestry projects were reviewed, selected to cover the full spectrum of

forestry and forest-related projects, agroecological zones, and geopolitical

regions (see Annex 2). Project documents (including appraisal, supervision, and

project completion reports (PCRs)) were examined and analyzed. Other forestry

projects and agricultural projects with substantial forest components were also

examined briefly.

7. Overview: The Bank has substantially changed the thrust of its forestry

lending in the last 12 years (Annex 3). The 1977 Forestry Sector Policy Paper

called for less emphasis on industrial forestry projects and more emphasis on

social forestry, agroforestry, rural development forestry, watershed management,

and institution-building projects. The record shows that this was clearly taken

to heart by Bank staff responsible for formulating forest sector projects. At

first, new forestry projects emphasized broadening the afforestation and

reforestation aspects of forestry projects. After a comprehensive annual review

of Bank forestry lending undertaken in late 1986 , the emphasis shifted to

involving local people more in implementation and to forest sector management

in its broadest sense, including administrative structures, pricing and incentive

policies. Current concern about the continued loss of natural foz>sts and the

need for protection and sustainable management of these forests is beginning to

be reflected in recent Bank forestry projects and will be even more important

in the 1990s.

8. A survey of project completion reports and supervision mission reports

for ongoing projects shows that Bank forestry projects have on the whole achieved

most of their aims and objectives as measured by the achievement of physical

targets and post project economic evaluations.

| "World Bank Financed Forestry Activity, in the Decade 1977-86: A

Review of Key Policy Issues and Implications of Past Experience to

Future Project Design", AGR, World Bank, December 1986.

Table 2 Ecoomic Rate. of Return tor Bank-fltnaned Forestry Prolects, FY74-26

Completed projoctea/ On-golng projecta

Projects Range of Projects Range offinanced ERR financed ERR

Type of project (number) (percent) (number) (percent)

Social forestry 6 6-19 15 14-60

Industrial forest plantation 6 negativec/-18 8 10-66

Industrial forestry processing plants 2 17-100 2 25

Road construction, log extraction 2 .4-27 2 12-200

Conservation/watershed rehabilitation 1 N/A 7 13-40

ERR not availablo b/ a ---- 9 ----

TOTAL 19 43

b These are projects for which PCR's havo been completed./ Includes natural forost management, environment and other projects for which no ERR was

calculated.Only one project, Burkina Faso Forestry Project, had a negative ERR.

9. There have been notable exceptions -- the Upper Magdalena PilotWatershed Management Project in Colombia and government-managed MaliAfforestation Projects I and II, which have been implemented under adverseconditions. Specific components in other projects have not always realizedtheir objectives. For example, the profit-sharing component of the PhilippineWatershed Management Project and, possibly, the agroforestry component of theBrazil Minas Gerais Forestry Development Project. Reasons vary, but generallyinvolve administrative problems, lack of priority given by project managementunits to implementation, innovative ideas that prove to be unsuitable, or theborrowing governments' limited ability to implement programs in the mannerforeseen at appraisal. Farm forestry has been remarkably successful undercertain conditions, but this success has brought problems of marketing andextension services. Communal tree planting has been less successful, as haveattempts to address problems of equal access to woodfuel. The success rate offuelwood and timber plantation programs undertaken by forestry organizationshas been curtailed by the lack of strength and inexperience of theseorganizations. Technical problems in establishing plantations have beencommon -- poor species and site selection, lack of improved seeds and mycorrhizainoculum, absence of testing for trace element deficiencies, lack of species andfertilizer trials, poor genetic improvement research, and inadequate protectionmeasures against fire and pests. Results have been mixed for recent projectcomponents to protect and manage natural forests.

10. Forestry projects in the last decade have generally been more flexible

in design so as to better meet the needs of individual borrowers. In at least

two important ways, projects have broken new ground, particularly in South Asia.

First, local people have been much more involved in "social, forestry. Whatever

the ccntroversies about the Gujarat Community Forestry Project in India, the

project has got large numbers of trees planted and changed farmers' and

foresters' attitudes about planting trees. This experience with increasing

farmer involvement is being incorporated to a greater or lesser degree in many

other projects. The Nepal Hill Community Forestry Project, with its focis on

local user groups, represents another highly innovative step toward more

participation in forestry projects, although it is too early to assess its long-

term success. Another example is the Lesotho Land Management and Conservation

Project's efforts to involve local people in the formulation of Community

Resource Management Plans.

11. Second, more recent forestry projects -- in Cote d'Ivoire, Ghana,

Indonesia, and Tunisia -- have all broken new ground in addressing a ide range

of forest policy issues, especially pricing policies, and the broadest kind of

institutional support. For example, initial results in concession management

are encouraging, particularly in the Indonesia Forest institutions and

Conservation Project. It is too early to know how successful such broad-based

projects will be, but the initial project results in Tunisia, for example, are

encouraging because of the existence of good strategies for developing the

forestry sector.

12. Sector Information: The mismanagement of renewable resources becomes

more widespread as populations increase. But the institutional arrangements that

govern resource management are complex and sensitive as many are deeply rooted

in national cultures and government policies. Little is known of the

interactions between socioeconomic and natural systems but considering the

complexities involved, Bank experience suggests that a comprehensive rather than

an ad hoc approach to finding remedies will be more effective and efficient.

Enclave projects have limited ability to address structural imbalances as past

and ongoing efforts in Cote d'Ivoire (pricing and marketing), Mali (pricing

policy), and Madagascar (stumpage rates) show. By contrast, in the recent

Forestry Resource Management Project in Ghana, project design is based on

comprehensive sector information and the government's commitment to effect the

structural and organizational changes needed to support more efficient use of

forestry resources. The Ghana project arose out of the government's Economic

Recovery Program, which has been supported by a number of credits -- including

a Structural Adjustment Credit that was to be complemented by a series of

sectoral operations. The project's key policy reforms include consolidating

concession revenue collection within a single unit of government and increasing

stumpage rates and area fees to be paid by concessionaires.

13. The absence of comprehensive forestry sector work has been a marked

shortcoming in past Bank operations. Steps are now being taken by the Bank's

operational divisions to carry out ccmprehensive sector studies and to imDrove

the quality of national plans for forestry development and conservation.

14. Loan/Credit Conditionality: Adherence to loan/credit condicionaliLy

has been relatively good, especially where the terms were specific. Most

conditions involved administrative arrangements or policy changed. which are

not easy for governments to make quickly. As in most sectors, projects have

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faced delays because of shortcomings in the allocation of counterpart fundingand staff. Projects have also faced delays in the submission of projectaccounting and audit requirements and in the procurement of goods and services.

15. Institutional Performance: Institutional performance and insufficientefforts to strengthen institutions are still causes for concern. Institutionalweakness is reflected in failure to meet planting goals, generally weak projectmonitoring and evaluation, failure to complete staff training programs,ineffective research efforts, and questionable longer-term benefits fromtechnical assistance in strengthening forestry organizations.

16. many appraisal reports and PCRs draw attention to weak forestryorganizations, particularly in Africa, and to the dearth of professional manpowerand specialist knowledge. The shift in emphasis from tree growing towardagroforestry and other social programs, usually at the farm and village level,has burdened already understaffed forest organizations with additional,unfamiliar tasks. These organizations have had to change from their traditionalroles of managing and protecting forest estates to new activities of gettingfarmers and rural communities involved and the introduction of tree growing intoagricultural systems -- tasks most forestry organizations are ill-equipped tohandle. These new roles have not always been successfully adopted in projectimplementation, e.g., India, Malawi, Burundi, Burkina Faso. Technical assistanceand training are used to upgrade managerial and technical performance and whilethey appear to give positive results in the short term, doubts are oftenexpressed about their long-term benefits. Of course, government idministrativesystems are weak in many borrowing countries and it will take a sustained effortto effect real improvements.

17. There is now enough experience to determine the future role (if any)of forestry organizations in agroforestry and other social forestry programs andto determine where responsibilities lie for research (both technical andsociological) and extension in these activities. Past efforts, as in India(Gujarat, Uttar Pradesh), have not been particularly successful, however, indefining the individual roles of agriculture and forestry departments. It isall the more important to define responsibility now that forestry organizationswill be under increasing pressure to step up the management and protection ofnatural forests.

18. The results of project monitoring and evaluation have also beetimixed -- again, reflecting the general administrative capablities theorganization concerned. In projects in Nigeria, Liberia, Mali, anQ India,monitoring efforts have been weak. Monitoring systems that succeed usually doso as a result of technical assistance -- but it is uncertain how sustainablethese systems will be after project completion.

19. Forestry research in projects has been ad hoc, usually involving smallcomponents concerning species trials, nursery techniques, timing of silviculturaloperations and yield prediction. The outcome of these investments usuallyreflects the overall capabilities of the organization concerned, so results arevaried. A good example of a freestanding research project is the MalaysiaNational Forestry Research and Development Project. Including forestry withinthe International Consultative Group on Agricultural Research (and, for Africa,the Special Program for African Agricultural Research) should help to improvethe quality of research.

-8-

20. Environmental Safeguards Environmental safeguards are crucial.Each project appraisal report reviewed included a paragraph on environmentalimpact but few PCRs or supervision reports addressed environmental concerns.There is movement in the direction of identifying the environmental risks offorestry projects. Many of the projects reviewed started before the currentlevel of concern about the environment had developed. Recent projects havecontained some explicit conservation and environmental elements -- for instance,the Wonogiri watershed conservation component in the Indonesia ForestryIn3titutions and Conservation Project, Mexico (Forestry Development Project),China (National Afforestation Project), Zimbabwe (Forest Resources Managementand Development Project), and Sri Lanka (Forest Sector Development Project).But still more explicit attention must be paid to environmental issues xnforestry project design, appraisal, and surervision.

21. Technical Issues: In a number of projects technical problems haveaffected project outcome -- for example, Madagascar (moisture and trace elementdeficiencies), Zambia and Tanzania (silvicultural difficulties), Kenya (poor siteselection), Rwanda (absence of careful species selection), Mali (lack oftechnology for management of natural forest), and Nigeria (soil deficiency andsite selection). It is not clear where the fault lies in these cases butcertainly more technical supervision is needed during project implementation andmore comprehensive site selection studies should be carried out either as partof project preparation or before planting begins.

22. There are few technical packages for the sustainable management oftropical forests and woodlands that are socially and environmentally acceptable,particularly in areas of limited rainfall (such as Africa's Sahelian zone). Thisis a priority forestry research area, underlining the need for more comprehensiveapproaches to developing effective in-country research capabilities. Developmentof these technical packages is critical to controlled exploitation of naturalforests in a manner compatible with the conservation of genetic resources andbiolorical diversity.

23. There must be increased emphasis on forest inventories (that includetrees and woodlands outside forest areas), which are often lacking as forestryorganizations are slow to undertake the necessary surveys. Demand studies areparticularly needed. The Mexico Forestry Development Project, and the CARNatural Resource Management Project should provide insights on developingmaaagement plans based on a comprehensive environmental baseline survey.

24. Poverty Alleviation: Considerable effort has been made to encourageborrowing countries to shape forestry projects so they address such concerns aspoverty alleviation and the role of women in development. The following examplesillustrate this shift, although the results have sometimes been less than hadbeen intended. When it was realized that the Gujarat Community Forestry Projectdid rot reach as many of the very poor as had been hoped, the Indian NationalSocial Forestry Project was designed to include "tree tenure", which gave verypoor households rights in particular trees on government-owned land. ThePakistan Hill Farming Project also paid particular attention to very poor ruralhouseholds. Fuelwood projects .hat reduce the amount of time women must spend

4 See OD 4.00, Annex A, Enviromental Assessment, World Bank, October 31,1989.

-9-

searching for fuel should benefit women in Africa and Asia. And adding womento the forestry cadre ir the Indian National Social Forestry Project helped getinformation about more efficient stoves to village women.

25. Involvement of the Private Sector: In the past decade there has beena tendency to improve the relationship between borrowing governments and the

private sector. Transferring the responsibility for providing tree seedlingsto farmers or community groups in social forestry projects is one example of how

private individuals or groups do better at growing trees for fuelwood thangovernment organizations do. Recent efforts to strengthen governmentadministrationa have to a large extent focused on increasing the borrowers'ability to create incentives that encourage the private sector to become moreefficient and the government to capture more economic rents.

26. Credit las not been a large feature of forestry projects to date (withthe significant ex( eptions of the Brazil Minas Gerais Forestry DevelopmentProject and Mexico Forestry Development Project). In industrial or loggingactivities, firms seem to be able to get commercial credit through the bankingsystem so special efforts to increase credit availability are not necessary.

27. Beneficiaries: Foreatry projects have generally benefitted differenttarget groups. Rural development and social forestry projects have benefittedthe rural poor and landless populations. In fuelwood plantation projects, urbanpopulations have received benefits from increased fuelwood supplies, and therural populations from the employment opportunities and the reduction ofpressures on the natural forests. Watershed and environment-related projectshave benefitted the loal and regional populations by protecting theenvironmental services of forests for their production systems, as well as thecountry at large by conserving the natural resource base. Industrial-typeforestry projects have created employment for local populations but haveprimarily benefitted the commercial sector. Forestry departments have also been

the recipients of projects dealing with training, research and institutionalstrengthening. Recent projects that have focused on resource preservation andconservation will benefit local people and the world's community by protectingbiological resources.

28. Participation of Nongovernmental Oroanizations: Nongovernmentalorganizations (NGOs) have not been prominent in Bank-financed forestry projects.Exceptions include the use of CARE to help develop a social forestry extensioncompetence in the Uganda Forestry Project (which proved satisfactory, given theeconomic environment), and the use of national NGOs in the Himalayan Watershed

Development Project in India. Where NGO participation in project implementationhas been encouraged, the results have generally been beneficial.

29. Coordinatina Donor Efforts: In most countries, many small bilaterallyfunded efforts parallel Bank activities. Some appear to complement projectefforts but others burden already overextended, weak national forestryorganizations. Efforts of donors operating in the forestry sector need bettercoordination; however, several PCRs and supervision reports indicate that co-financing and parallel financing have contributed substantially to forestryprojects. Examples include the bilateral provision of consultants in the SecondBurma Forestry Project, and the willingness of bilateral agenciFa tc supportstrengthening of national park administration in Cote d'Ivoire. At a time whenBank relations with Zambia were at a low ebb, FINNIDA support to the Third Zambia

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Forestry Project was crucial. The inevitable &roblems of coordination andcooperation associated with co-financing and parallel financing are hardlytouched upon in formal Bank documents. But the added resources that co-financing or parallel financing can bring to forest projects and the way grantfunds increase a government's willingness to send staff for training are worththe added effort.5 The Tropical Forestry Action Plan was designed to improveinter-donor coordination; present efforts to restructure and strengthen thatprocess could help address this problem.

30. Sociological Concerns: Farm forestry programs have been successfulin India, Rwanda, Sudan, and the Philippines -- in cases where favorable soilconditions and climate encouraged quick tree growth, where returns for treeproducts were financially attractive and where land tenure was secure. Successat establishing rural forestry programs at the village level has provedconsiderably more elusive (as in India). This is because there is insufficientunderstanding of how to deal with common property resources and commonly ownedland. These projects have proved to be more -omplex institutionally, legally,politically, and socially than originally anticipated. The need for detailedsociological and legal studies to ,ncertain peoples' attitudes and rights beforeproject preparation and during Jmplementation has become more obvious withincreased efforts to protect e>i izig forest areas. Sensitivity to individualand community needs and percept:i.>cn3 is eBsential for success.

31. A few Bank-financed forestry projects have involved the involuntarydisplacement of human populaticns. This may be an issue in the future whereforests are designated as clasEifie3 forests, national parks. 'iosphere reservesor other prctected areas to achie-i conservation and enviroinental objectives.Bank guidelires on involuntary set,lement call for fully developed resettlementpJ.ans as part of projects.

32. Where possible, of course, :.tocal populations should be incorporatedin the design and management of fory-a-ry projects rather than displaced. TheBank's experience on how to do this effectively is somewhat limited, althoughseveral recent projects (Mexico Forestry Development Project and the Brazil MinasGerais Forestry Project) are efforts> i.n this direction. Project impacts onindigenous people can result from direct restrictions on the range of activitiespermitted within the forest area or, moru indirectly, such as when project roadsinduce competition with indigenous people over access to forest resources. Whatemerges from this experience is the need tor more, in-depth sociological analysisduring project preparation in order to better understand the potential impactson indigenous peoplee and other forest dwellers. Of particular importance isobtaining a thorough undarstanding of juridical issues regarding rights to timberand, especially, otheir non-timber forest products. It should also be noted thatsome of the most detrimental impacts on forest dwellers for which the Bank hasbeen severely criticized have occurred not as a consequence of forestry projectsbut rather as a result of other investments, aspecially road construction, thathave significc-nt secondary effects on forests.

A good example of cooperation is the jo'int Bank/UNDP Energy Management

Assistance Program (ESMAP), which is donor financed. This programundertakes various supply/demand studias, country strategy work, andenergy efficiency projects in develccii:g countries. Many of thesestudies are forestry related as woodfuel is the dominant energy form.

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33. Economic Evaluation of Bank Proiects: The economic impact of Bank

projects has often been questioned in Project Audit Reports. Evidence tends to

disprove the commonly held view that forestry projects are highly profitable,

certainly when using the present methods of evaluation. To persuade countries

to invest more in order to slow down or stop the current rate of deforestation,

their national planners will need to be convinced of the economic, financial,

environmental, and social benefits of conservation and environmental protection

programs.

34. Some of the projects reviewed had quantified expected benefits.

Sometimes what was quantified were intermediate targets such as the number of

seedlings to be distributed instead of the quantity of additional fuelwood or

other wood products to be realized. Some project documents discussed non-valued

environmental benefits but, in the future, proper valuation of these benefits

should be emphasized more. For example, in the Tunisia Forestry II Project, the

direct benefits from forests were estimated to be sixty-six times the official

government figures in 1983. Environmental impacts should be valued where

possible in Staff Appraisal Reports and other project documents, to ensure that

sufficient attention has been paid to social and environmental concerns.

35. Concerns have been expressed about the problems associated with

incorporating externalities into economic analysis using current methodologies

and in dealing adequately with inter-generational effects. Economists are

working to assign values to environmental benefits, mostly for use in developed

countries. They are using such techniques as assessing willingness to pay for

the use of park facilities, or assessing what people spend on travel to enjoy

aesthetic values. As these methodologies become more appropriate for use in

developing countries, they could be incorporated in the analysis of Bank forestry

projects.

36. Lessons Learned and Implications for the Future: Arising from the

above review there are a number of key areas of implementation which merit

special attention in the proposed Forest Policy Paper if future investments are

to reflect growing concerns about environmental degradation and the sustainable

management of forests and trees:

(a) Develop sound national forestry strategies (emphasizing inter alia

policy, legal, regulatory and institutional aspects) by doing

comprehensive sector work before investment.

(b) Pay more attention to environmental safeguards and introduce higher

levels of conditionality particularly in regard to concession and

pricing policies, fiscal incentives, land tenure legislation, and

non-forestry policy matters that affect forest conservation and

management.

(c) Contain deforestation, particularly of the tropical rain forest,

through the measures outlined in (b) and by helping to introduce

sound forest management and silvicultural practices that would ensure

sustainability of the resource base.

(d) Strengthen national institutions (including those concerned with

research and extension) and training facilities.

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(e) Continue broadening the scope of forestry projects to incorporateincreased people's participation in natural resource management,watershed rehabilitation, the preservation of bio-diversity andecosystems, and other environmental concerns.

(f) Continue to shift responsibility for implementation from the publicto the private sector by promoting policy and legal reforms and byfostering more involvement of local people, women, and NGOs in themanagement of natural forests and the establishment of industrialplantations and expansion of agroforestry.

(g) Refine valuation methodologies in order to quantify environmentalcosts and benefits in economic analysis of forestry projects.

37. It is obvious that there are gaps in Bank's knowledge of how to addresthe above key areas and more research is needed. The proposed Forest PolicyPaper will examine the above points and outline recommendations.

IV. Current Five-Year Leudinc Proqram

38. The FY90 Program: During FY90, the Bank financed eight freestandingforestry projects amounting to US$535.0 million -- in the Central AfricanRepublic (US$19.0 M), Guinea (US$8.0 M), Cote d'Ivoire (US$80.0 M), Zimbabwe(US$14.5 M), China (US$300.0 M), Indonesia (US$20.0 M), Morocco (US$49.0 M), andMexico (US$45.5 M). In addition, the Bank funded forestry components in twelveagricultural projects, for a total of US$91.0 million. Total lending for FY90was US$627.0 million or more than four times the lending for FY88 and FY89 (seeAnnex 1). This was primarily because of the large China and Cote d'Ivoire loans,and the increased number of agricultural projects with forestry components. Banklending was also a catalyst for additional funding from bilateral sources,amounting to US$40.5 million in FY90, a significant increase over the figuresfor FY88 (US$17.5 M) and FY89 (US$30.6 M).

39. Seven of the credits/loans (excluding China) have much in common inthat they are countrywide and broad-based, and provide for more conditionalityon policy reform and approaches to natural forest management than was common inthe past. These projects also recognize the growing importance of involving NGOsand women in forestry development and involving local people in the design andimplementation of projects. They include institution-building, training, andresearch components. In addition, some projects address environmental concernsthrough activities involving buffer zone development, management of naturereserves, soil conservation activities, watershed rehabilitation, rangelandimprovement, and plantation establishment. They provide for rural forestrythrough agroforestry, community forestry, and farm forestry interventions. Moreimportant, these projects view forestry as a critical element in natural resourcemanagement, not as an isolated sector as has been customary.

40. In short, these projects all strive to strengthen sustained yieldmanagement and to conserve the natural resource base while improving the databaseand developing sound long-term policies and strategies. So the shift away fromsingle-objective projects (such as social forestry, fuelwood production, andindustrial plantations) to more balanced projects continues. Two projects --

- 13 -

Guinea and Cote d'Ivoire -- have elicited substantial criticism from NGOe andthe Bank's Board about whether proposals to curb the exploitation and degradationof natural forests were adequate and appropriate.

41. The FY91-94 Proeram: The list of freestanding forestry/ environmentprojects proposed for the four-year period FY91-94 shows a considerable increasein the number of operations and the amount of lending. Again, there is a shiftin emphasis toward environmental management and resource conservation, withinterventions proposed in a number of countries that have not figured previouslyin Bank forestry lending (Algeria, Belize, Benin, Bolivia, Dominican Republic,Equatorial Guinea, Gabon, Lao, Papua New Guinea, PDR, Somalia, Togo, Venezuelaand Zaire).

42. There is no doubt that the emphasis in Bank lending has shifted toconservation and development priorities and to promotion of sustainable forestmanagement in response to worldwide concern about tropical deforestation andenvironmental degradation. This concern reflects two potentially conflictingdemands. One, is the demand placed on forest ecosystems to conserve and protectgenetic resources and to maintain biological divers'.ty. The other demand is forland, food, timber and fuel by rapidly expanding populations in the developingcountries and demand for revenue to support national development efforts. Theproposed Forest Policy Paper will examine how development and conservationefforts can be reconciled in future Bank operations.

V. Conclusions

43. The change of direction in Bank lending operations since 1978 hashelped some developing countries develop patterns of land use emphasizing broad-based national forestry programs, including agroforestry, fuelwood, environmentalforestry, and institutional improvements. More needs to be done, however. TheBank needs to develop detailed sector knowledge as a basis for better dialoguewith governments, for promoting policy and institutional changes, and fordetermining priority investments. More attention needs to be paid to identifyingthe environmental risks associated with forestry projects and to investing inenvironmental safeguards. The Bank needs to help strengthen forestryorganizations, particularly for forestry research and the development of plansfor the sustainable management of natural forests. Special attention is alsoneeded to assist developing countries to carry out forest inventories and todevelop a ccmprehensive data base. More sociological research is needed to findout how to get communities to support tree development and protection schemes.Finally, increases in Bank staff in key disciplines are needed to handle theincreasing demands for forestry sector work, technical supervision ofincreasingly complex projects, and to support an interdisciplinary approach toforestry.

Annex 1Page 1 of 5

FREESTANDING IFORESTRY PROJECTS FUNDED DURING FY70-74

LOAN/CREDITUS$ MILLION

FY 70

Kenya Forestry 2.5Malaysia Forestry I Jengka 8.5

11.1

FY 71

N/A

FY 72

N/A

rr 73

Finland Forestry 20.020.0

FY 74

N/A

GRAND TOTAL US$ 31.1 MillionAVERAGE/YEAR US$ 6.2 Million

1/ This excludes forestry components of other agricultural and energyprojects.

Annex 1Page 2 of 5

FREESTANDING FORESTRY PROJECTS FUNDED DURING FY7S-79

LOAN/CREDITUS$ MILLION

FY 75

Burma Forestry 24.0Kenya Forestry II 20.0Madagascar Forestry I 13.6

57.6

FY 76

India Forestry Technical Assistance 4.0

4.0

FY 77

Tanzania Forestry I 7.0

Zambia Industrial Forestry II 16.823.8

FY 78

Niger Forestry Technical Assistance 4.5

Pakistan Hazara Forestry Preinvestment 1.7Turkey Forestry Development 86.0

92.2

FY 79

Burundi Forestry 4.3

Cote d'Ivoire Forestry 18.0

Greece Forestry Development 25.0

Guyana Forestry 10.0India UP Social Forestry 23.0Jamaica Forestry I 12.0

Liberia Integrated Forestry Development 6.0Mali Afforestation I 4.5Nigeria Forestry I 31.0

133.8

GRAND TOTAL US$ 311.4 Million

AVERAGE/YEAR US$ 62.3 Million

Annex 1Page 3 of 5

FREESTANDING FORESTRY PROJECTS FUNDED DURING FYBO-84

LOAN/CREDITUSS MILLION

FY 80

Bangladesh Mangrove Forests 11.0Burkina Faso Forestry 14.5Burma Forestry II 35.0India Gujarat Comm. Forestry 37.0Nepal Forestry I 17.0Portugal Forestry 50.0Rwanda Integ. Forestry & Livestock 21.0

185.5

TY el

Burma Wood Industries I 32.0Madagascar Mangoro Forestry II 20.0Philippines Watershed Management I 38.0Senegal Forestry 9.3

99.3FY 82

Cameroon Forestry 17.0Colombia Upper Magdalena Watershed 9.0Haiti Forestry 4.0India West Bengal Social Forestry 29.0Kenya Forestry III 37.5Morocco Forestry 27.0Niger Forestry II 10.1Tanzania Sao Hill Forestry Phase II 12.0

145.6FY 83

India Haryana & J.K. Social Forest. 33.0India Himalayan Watershed Dev. 46.2Sri Lanka Forestry I 9.0Zimbabwe Rural Afforestation 7.3

95.5FY 84

Benin Forestry 5.4Bhutan Forestry I 5.5Burma Wood Industries II 25.0India Karnataka Social Forestry 27.0Nepal Forestry II (Terai) 18.0Zambia Forestry III 22.4

103.3

GRAND TOTAL US$ 629.2 KillionAVERAGE/YEAR US$ 125.8 Million

Annex 1Page 4 of 5

FREESTANDING FORESTRY PROJECTS FUNDED DURING FY8S-89

LOAN/CREDITUSS MILLION

FY 85

China Forestry 47.3Cote D'Ivoire Forestry II 31.3Guyana Forestry Suppl-A 8.8India Kerala Social Forestry 31.8India National Social Forestry 165.0Malaysia Sabah Forestry TA 6.5

290.7FY 86

Bangladesh Forestry II 28.0Bururdi Forestry II 12.8Malahi Wood Energy II 16.7Mali Forestry II 6.3

63.8IY 87

Ethiopia Forestry 45.0Malaysia Nat'l Forestry Res. & Dev. 9.0Nigeria Forestry II 71.0Rwanda Forestry II 14.1Uganda Forestry/Fuelwood 13.0

152.1eT 88

Bhutan Forestry II 1.1Brazil Minas Gerais Forestry 48.5China Da Xing An Ling Forest Fire Rehab. 56.9Indonesia Forestry Inst./Conserv. 34.0Madagascar Forest Mgmt. & Conserv. 7.0Tunisia Forestry 20.0

167.5

zY 89

Ghana Forestry Resource Mgmt. 39.4Nepal Hill Community Forestry 30.5Sri Lanka Forestry Sector Development 19.9

89.8

GRAND TOTAL US$ 763.9 MillionAVERAGE/YEAR US$ 152.8 Million

Annex 1Page 5 of S

FRZESTANDING FORESTRY PROJECTS FUNDED DURING FY90

LOAN/CREDITUS$ MILLION

FY 90

CAR Natural Resource Management 19.0

China National Afforestation I 300.0Cote d'Ivoire Forestry II 80.0Guinea Forestry & Fisheries Management 8.0Indonesia Forestry Instit. & Conserv. II 20.0Mexico Forestry Dev. 45.5

Morocco Forestry II 49.0Zimbabwe Forest Resources Mgt. & Dev. 14.5

536.0

GRAND TOTAL US$ 536.0 MillionAVERAGE/YEAR US$ 536.0 Million

Annex2

PROJECTS REVXEWED

Completed oroiects

Burma Forestry II

Colombia Upper Magdalena Pilot Watershed Management

Greece Forestry Development

India Gujarat Community Forestry

Mali Afforestation I

Rwanda Forestry-Livestock

Turkey Northern Forestry

Onaoina oroiects

Brazil Minas Gerais Forestry Development

Brazil Third Agro-Industries Credit

Cote d'Ivoire Forestry

Ethiopia Energy I

Ghana Forestry

India Himalayan Watershed Development

India National Social Forestry

Indonesia Forestry Institutional Development and Conservation

Kenya Forestry III

Lesotho Land Management and Conservation

Madagascar Forest Management

Malaysia National Forestry Research and Development

Nepal Hill Community Forestry

Niger Forestry II

Niger Household Energy

Pakistan Integrated Hill Farming Development

Philippines Watershed Management

Senegal Forestry

Sri Lanka Forestry II

Tunisia Forestry Developym ct

Uganda Forestry Rehabilitation

Zambia Forestry III

Annex 3

WORLD BANK FORESTRY PROJECTS BY TYPE

FY78 - FY90

INDUSTRIAL SOCIAL/RURAL CONSERVATIONI TOTAL

FORESTRY DEVELOPMENT bl

FY78-79 9 3 ---- 12

FY80-84 13 10 6 29

FY85-89 6 12 S 24

FY90 4 3 1 8

TOTAL 32 28 13 73

Including natural forest logging, industrial plantations, saw,ply and veneer wood mills.

Including fuelwood, agroforestry, community and farm forestry.

Si Including watershed management, institution strengthening,research and forest resource management.

Glossary

Afforestation: Establishing of trees on ground that has not recently carried

any.

Biological Diversity: The diversity of species of plants and animals in a forest

ecosystem.

Closed Broadleaved Forest: Those forests which, when not recently cleared by

shifting agriculture or heavily exploited, cover with their various storeys

and undergrowth, a high proportion of the ground and do not have a

continuous dense grass layer allowing grazing and spreading of fires. They

are often, but not always, multistoreyed. They maybe evergreen, semi-

deciduous or deciduous, wet, or dry.

Coniferous Forests: "Forests with predominance (more than 50 percent of crown

cover) of trees of coniferous species." (FAO, Forest Resources Assessment

1990: Guidelines for Assessment, FAO, Rome, March, 1989)

Conservation Forests: Forests that are managed for human use to benefit present

and future generations.

Deforestation: The clearing of forests and the conversion of forest land to

nonforest uses.

Forest Degradation: The biological, physical, and chemical processes that result

in the loss of the productive potential of forested areas (such as soil

erosion and the loss of valuable or potentially valuable genetic types).

Forest Fallows "All complexes of woody vegetation derived from the clearing of

natural forest for shifting agriculture. It consists of a mosaic of

various reconstitution phases and includes patches of uncleared forests

and agriculture fields which cannot be realistically segregated and

accounted area-wise, especially from satellite imagery. Forest fallow is

an intermediate class between forest and non-forest land uses. Part of

the area which is not under cultivation may have appearance of a secondary

forest. Even the part currently under cultivation sometimes has appearance

of forest, due to presence of tree cover. Accurate separation between

forest and forest fallow may not always be possible." (FAO, Forest

Resources Assessment 1990: Guidelines for Assessment, FAO, Rome, March,

1989)

Forests: "a) (General). An area managed for the production of timber and other

forest produce, or maintained under woody vegetation for such indirect

benefits as protection of catchment areas or recreation.b) (Ecological). A plant community predominantly of trees and other

woody vegetation, growing more or less closely together.c) (Legal). An area of land proclaimed to be a forest under a Forest

Act or Ordinance." (F. C. Ford Robertson, ed., Terminoloay of Forest

Science Technology Practice and Products, Society of American Foresters,

1983)

Open Forestse "Formations with discontinuous tree layer but with a coverage ofat least 10 percent. Generally there is a continuous grass layer allowinggrazing and spreading of fires. Examples are various form of "cerrado"and "chaco" in Latin Americal tree and wooded savannas and woodland. inAfrica; dry dipterocarps forests and "foret claires" in Asia." (FAO, ForestResources Assecament 1990: Guidelines for Assessment, FAO, Rome, March,1989)

Primary Moist Tropical Forests: "Evergreen or partly evergreen forests, in areasreceiving not less than 100mm of precipitation in any month for two outof three years, with a mean annual temperature of 24-plus degrees C andessentially frost-free; in these forests some trees may be deciduous; theforests usually occur at altitudes below 1300 meters (though often inAmazonia up to 1800 meters and generally in Southeast Asia up to only 750meters); and in mature examples of these forests there are several moreor less distinctive strata." (N. Myers, Conversion of Tronical MoistForests, Natior.al Research Council, Washington D.C., 1980)

Protective Forests: A legal term for a forested area subject to limitedprotection -- usually areas where logging is prohibited by law, includingparks and protected areas.

Reforestations Establishment of trees on ground that has been cleared of trees.

Secondary Tropical Moist Forestst Comprised of logged over areas and managedforests.

Shrubs: "Vegetation types where the dominant woody elements are shrubs with morethan 50 cm and less than 5 meters height on maturity. The height limitsfor trees and shrubs should be interpreted with flexibility, particularlythe minimum tree and maximum shrub height, which may vary between 5 and7 meters approximately." (FAO, Forest Resources Assessment 1990: Guidelinesfor Assessment, FAO, Rome, March, 1989)

Tropical Forests: Includes both the moist rainforests and the dry tropicalforests. The rainforests are lush, lie near the equator, have high annualrainfall and average temperature, and generally have nutrient-poor soil.The drier forests in the tropics have more seasonal variation and includeopen forest (trees cover at least 10% of the ground) and woodlands.