Investments: an introduction
Investments Goods and services
Payment Sources
Goal:Increment Revenues
Types:Environmental ServicesGoods (timber, NTFP)Tax reduction
Sources:Society, State, consumers, NGO etc.
SFM by forest owner/
Manager(Communities, State,
NGOs, private enterprise)
Financing (distribution) mechanism
StateBankFundProject/Programme
(Bundling)
Payment (revenue) mechanism
MarketNegotiated dealsStateFund(Bundling)
Plantations/Natural Forests/ National Parks /Agroforestry
Enabling environment for financing strategy
Guided by national forest programme (nfp) principles
Financing Sources
Goal:Reduce CostsLiquidity provisionRisk Mitigation
Types:SubsidiesTax reductionCreditsInvestmentsFunds
Sources: State, Donors, Banks, institutional investors, pension funds, stock market
Source of concept: Savenije & van Dijk, persComm. 2007
National Forest Financing Strategy:
a multi stakeholder process
‘Investments’: characteristics
Encourage willingness of others to invest in forests Reduce cost of investment Remove structural barriers
Sometimes direct investment Focus on purchase, establishment or
maintenance of forest Often government or international
agencies involved
Investment financing: What it is not
Financing not directly related to volume of output of products and services,
No buyer and seller of the forest product or service
No market for products and services, but:
Yes, sometimes a market for the capital flows
Investments versus goods/services financing
Seems ‘traditional’ versus ‘innovative’
Innovative not better because it’s new
Selection of proper channel depends on local circumstances
Also depends on politics: role of the government
Investments Sources & Mechanisms
Government fundingDonations, bilateral multilateral aid,
multilateral agencies and agreements Environmental fundsTaxation measuresFavorable creditsSubsidiesCapital market
Government funding
Support to forest owners by forest service Advice Seedlings
Provision of funds to buy forestsGovernment provides funds to
manage the state forests
Bilateral and multilateral aid (1)
ODA: a major source for financing SFM But only 10% of world wide spending on
forest management (which is not necessarily SFM)
Focus on poverty alleviation, MDGs Catalyzing role, leverage function Sometimes debt-for-nature swap as an
instrument
Bilateral and multilateral aid (2)
Multilateral agencies and agreements: Sources of funding with their specific
mechanisms Examples: GEF; ITTA and ITTO; UNCCD;
NFP facility; PROFOR at Worldbank Mostly project based Favored beneficiaries: government and
civil society
National Environmental Funds
In more than 30 countries, since 1990ies
‘Investment’ but not ‘traditional’Examples:
National trust funds; Foundations; Endowment funds; Conservation trust fund (independent from government)
Taxation measures
Costs of forest establishment & management deductible from tax Land rent Personal income tax
Fiscal transfers: polluter pays to sustainable producer
Ecological value-added-tax (VAT): Part of a tax is transferred to a fund for
forests or water management
Favorable credits
Low interest, long period to pay credit back, period of grace
Not always exclusively directed at forest sector: Agricultural sector Enterprises
Subsidies
For forest establishment, MaintenanceProtectionMany examples e.g. in Costa Rica
Capital market (1)
A company acquires immature forests and plants new forest, makes contracts for management and maintenance and
even long term contracts for harvesting and selling the timber.
based on these contracts securitized financial instrument will be issued backed by the net cash flows generated from the harvest and commercialization of the forest products.
Advantages: Fund investors will receive dividends and a return of capital. important environmental impact Small and medium landowners significantly increase their
current income and can monetize and optimize the value of their current landholdings.
Capital market (2)
A pension fund example: Swiss pension fund buys a forest
concession in Brazil Hires expertise to manage the
concession Establishes a saw-mill Looks for international marketing
expertise
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