Can money save forests?

Since 1990, the area of primary forest in the world has shrunk by 81 million ha. The erasing of forests compromises essential ecosystems, biodiversity, water regulation and carbon sequestration, and threatens the well-being of people who rely directly or indirectly on forests for their livelihoods, food security and fuel, about one-fifth of the world’s population. Deforestation and the destruction of natural habitats also significantly increases the risk of pandemics caused by zoonotic diseases like COVID-19.  

A recent World Bank discussion paper, Mobilizing and Managing Public Forestry Revenue, considers the role that improving revenue administration could play in strengthening domestic resource mobilization while supporting sustainable forest management. Globally, estimates of the market value of illegal logging activity range from $30 billion to $157 billion, with foregone tax revenue in the neighborhood of $6 billion to $9 billion. Revenue leakage from otherwise legal forest activity is also significant. These are vital resources and revenues that are being lost, predominantly from developing countries that need them the most. 

As countries continue to pursue and promote better law enforcement, effective regulation, stronger forestry institutions and sound sectoral planning, a more robust approach to revenue management could reinforce those efforts.  Building a comprehensive revenue management system requires good information on existing forest resources and ongoing and planned revenue-generating activities. This information allows governments to project, collect, report on, and audit revenues, thereby generating data that is a critical input into land management decision making, which often involves tradeoffs between competing land-use priorities (e.g. forestry vs. agriculture). 

Improving revenue administration can boost industry accountability and plug the gaps to prevent corruption and illegality. Securing additional revenues from the sector may raise the profile of forests for Ministers of Finance and other key decision makers—and in turn promote stronger and adequately funded forest management.

To illustrate the kinds of challenges that revenue management can pose, a study of Nepal’s 18,000 Community Forest User Groups (CFUGs) that manage around 30 percent of Nepal’s forest found that the lack of a coherent fiscal framework led to confusion around tax jurisdictions, creating a non-level playing field and enabling traders to exploit the discrepancies to their own advantage. In some countries, such as the DRC and Cameroon, taxes or “contributions” collected outside the formal tax regime can undermine the revenue management system. 

The paper extracts lessons from reports and country experiences on revenue management in other sectors (particularly the extractive industries) and applies it to forestry.  It suggests a set of components to support sound forecasting, capturing, and reporting of forest revenue. These include establishing a database of forest users and improving forestry revenue projections. There are also procedural components related to billing, payment, reporting, control and compliance, audit, and dispute resolution. 

Countries have pursued a variety of reforms and steps in these areas. In Indonesia, for example, the One Map initiative aims to reduce conflicts over land and forestry concessions by working toward a single database of land use for the entire country. Finland has demonstrated the potential of ICT to improve forestry management and sustainability. To assist countries seeking to define and prioritize possible reforms, the paper presents a new diagnostic questionnaire (see Annex 2 in the paper) for authorities to assess the state of forest revenue management in their country. 

There is no single institutional arrangement that appears most beneficial, but following certain principles seems to promote better results. For example, one general principle is the importance of clearly defining roles and responsibilities across the various agencies that have a hand in managing forest revenue. The goal is to avoid duplication, complexity, or inconsistencies in rules and requirements, which create scope for revenue leakage and corruption. 

Besides strengthening revenue administration, there is a need for clear priorities for forest management , as underscored in the paper, that are consistent with the country’s environmental, social, and economic objectives, and coordinated with other policies outside forestry. Countries can potentially improve revenue collection and ensure that forests are protected for generations to come by tackling forest revenue management challenges[[/tweetable]] in the context of land use and development planning more broadly, in a transparent way that engages a wide spectrum of stakeholders.