Recent trends in fiscal policies in the
forest sector in Africa

As interest in sustainable forest management has grown, so has the importance of finding ways to finance it. Indeed, one of the main points of agreement at various international meetings on forestry has been the need for support for it (UN, 2000). Little progress has been observed, however, and considerable differences of opinion remain as to how funding for forestry can be obtained.

The present chapter is based on 32 country reports on forest finance produced by African national experts between 2000 and 2002, with the assistance of a joint European Commission/FAO project on sustainable forest management in Africa (FAO, 2001, 2002a) (see Box for list of countries covered). It presents recent trends in public expenditure on forestry and revenue collection from the sector, and then describes some recent innovations in related fiscal policies. It concludes by suggesting how fiscal policies in the sector might be improved and offers comments on the broader debate on financing sustainable forest management.

PUBLIC EXPENDITURE ON FORESTRY

NEW FISCAL ARRANGEMENTS

RECOMMENDATIONS FOR IMPROVING FISCAL POLICIES

BROADER IMPLICATIONS FOR FINANCING OF SUSTAINABLE FOREST MANAGEMENT

REFERENCES

PUBLIC EXPENDITURE ON FORESTRY

Public expenditure on forestry is likely to be the driving force for implementing sustainable forest management in Africa. Although public funding supports the management of protected areas and a few small production forests, most public expenditure is used to monitor and control private sector operations. It is in this latter regard that an increase is particularly needed if forest management is to improve on the continent.

Public expenditure on forestry usually comes from two main sources: domestic financing, including government revenue from taxes and duties, as well as government borrowing; and, in the case of developing countries, international financing through grants and loans. In addition, an important component of domestic financing in some countries is revenue collected in the form of charges, fees and levies.

Trends in total public expenditure on forestry

Faced with many demands for public services, most governments assign a low priority to financing of forestry. In fact, several country reports noted that public expenditure on forestry accounted for less than 1 percent of the total, and it seems likely that this is the case throughout Africa. On the basis of 24 country reports, the average total public expenditure on forestry in 1999 was US$0.82 per hectare (FAO, 2002a). However, international financing accounted for about 45 percent, making the average level of domestic financing only US$0.45 per hectare.

Figure 7 shows total public expenditure on forestry per hectare in countries where information was available. The countries with the highest levels of public expenditure on forestry per hectare were those with relatively small forested areas (Lesotho and Burundi). Others with high levels of public expenditure included the Niger, Ethiopia, Côte d'Ivoire and Ghana. In the Niger, the high expenditure is explained by high levels of international financing, but this is not the case in Ethiopia and Côte d'Ivoire. In general, there is little correlation between total public expenditure on forestry and the level of international financing.

About half the countries in the study also presented information about recent trends in total public expenditure on forestry. As Table 11 shows, it has increased in all countries except two. However, increases in most countries failed to keep up with inflation, so that in real terms total public expenditure on forestry grew in only five countries.

FIGURE 7 Public expenditure on forestry per hectare in African countries, 1999
Average level of government expenditure on the forest sector in US$ per hectare:
	more than US$2/ha
	US$1-$2/ha
	less than US$1/ha
Average level of government expenditure on the forest sector in US$ per hectare:

Trends in international financing

Further details about the sources of financing for public expenditure on forestry in Africa are given in Table 12. Although this table shows a wide variation in international financing among countries, countries tend to fall into three categories.

• A few countries with relatively large and well-developed forest sectors have high levels of public expenditure on forestry and relatively low levels of international financing (e.g. Côte d'Ivoire and Ethiopia).
• A few more countries have quite high levels of public expenditure on forestry but have much higher levels of international financing as well (e.g. Madagascar, Mali and the United Republic of Tanzania).
• Most countries have generally low levels of public expenditure on forestry with proportionately high levels of international financing. In most, the forest sector is not a major part of the market economy, although forests have enormous value for subsistence and for social and environmental benefits. These priorities are generally reflected in the types of project and programme that international agencies tend to finance.

The average contribution of international financing to total public expenditure on forestry in 1999 was 41 percent. On the basis of limited information about trends in international financing since 1990, it appears that this figure has varied by an average of 35 to 40 percent over the past decade and that it declined from a peak of US$132 million in 1995 to US$110 million in 1999, a fall consistent with broader global trends, as reported by Madhvani (1999) and the Organisation for Economic Co-operation and Development (OECD, 2000).

Activities supported by public expenditure on forestry

An important aspect of public expenditure, in addition to its total amount, is the contribution it makes to sustainable forest management. Based on information provided by 17 countries, the following general observations can be made.

• Most public expenditure from domestic financing goes to current expenditure rather than to investment (86 percent in 1999).
• Most current expenditure covers staff costs. About half the countries reported that these costs accounted for more than 70 percent of the total.
• In contrast, nearly all expenditure supported by international financing was spent on investment (73 percent in 1999), mostly on relatively small and specific areas.
• Only five countries reported investment programmes supported by domestic financing of more than US$1 million per year in the forest sector.

Given that public expenditure covers a wide range of activities in forestry, most countries could not easily identify how much was devoted to sustainable forest management. Only community forestry and protected area management were distinguished. The most commonly reported areas for investment were projects related to infrastructure and to reforestation for community forestry, commercial forestry and desertification
control.

Revenue collection

Where forests are owned by the State, it has been suggested that one way to increase public expenditure is to increase forest charges and revenue collection. However, a number of studies have shown that the forest revenue collected is low in many countries (FAO, 1983; Repetto and Gillis, 1988; Grut, Gray and Egli, 1991). Low forest revenue not only has a negative impact on total government revenue and expenditure, but also sends incorrect price signals to the market about the value of forests and wood. Such messages are damaging to sustainable forest management in that low prices can result in overharvesting and undervaluing of the resource, both of which contribute to deforestation and forest degradation.

Analysis of the data from Africa reveals the following.

• Forest charges are complicated and duplicated in many countries. If general taxes and levies are included, it is quite common for producers to pay more than ten different taxes and charges.
• Most countries levy charges on several types of forest output from among, for example, woodfuel, industrial roundwood, processed products, non-wood forest products (NWFPs) and forest services.
• Forest charges are reviewed every three to four years on average, but four countries had not reviewed their charges since 1990. Since 1990, charges had increased by more than the rate of inflation in only four of the countries studied.
• Governments set most forest charges by using market-based formulae or by consulting with interested parties. When market-based methods have been used, forest charges have tended to increase. Consultation, often with the forest industry, has tended to restrict increases.
• Of the 22 countries that provided adequate data on the total revenue collected, 17 had increased it since 1990, although only 13 had done so by more than the rate of inflation. Given that forest charges generally fell over the period, most countries have become more efficient in revenue collection
  (O.I. Ajewole, in preparation).

The average revenue collected per cubic metre was calculated by dividing total revenue collected by total production. Using total roundwood production, the average revenue collected in Africa in 1999 was US$0.19 per cubic metre. However, excluding woodfuel production, the figure is US$2.42 per cubic metre.

These results show little improvement in this area. Forest charges remain low, complicated and difficult to collect. Countries suggested a number of reasons for this, including staff shortages, poorly motivated staff, infrequent revision of charges and poor governance. However, in some cases, low revenue collection is a deliberate policy of governments that want to subsidize wood consumption – in the form of woodfuel, for example – for social reasons.

NEW FISCAL ARRANGEMENTS

Given the limitations of public finances, many African countries are attempting new and innovative ways of drawing or retaining finance. The most notable of these are a move towards greater decentralization and financial autonomy for forest administrations, experiments with cost and benefit sharing with stakeholders, increased use of forest funds and privatization of forest resources.

Fiscal decentralization and financial autonomy

In terms of fiscal decentralization, most African countries have followed one of three models.

• Complete decentralization. In a few countries, notably Ethiopia and Nigeria, forestry has been almost entirely decentralized to the state government level. Both countries report some disadvantages, such as wide variations among states in forest charges and revenue collection. However, some states in these countries have implemented effective models of forest financing.
• Decentralization within a common national framework. Many of the Sahelian countries (e.g. Mali and the Niger) have partly decentralized fiscal policy in the forest sector. Thus, for example, local communes are involved in the development of areas for forest harvesting and revenue collection
  and keep a share of the revenue collected. At the national level, the government determines the rules and regulations for forest harvesting and sets the level of forest charges to be applied across the country.
• Centralized administration with revenue sharing. The central administration maintains control over forest management and revenue collection but shares some of the revenue with local authorities. This model has been applied in Uganda and Zambia, and to a lesser extent in Ghana. It seems to have few benefits, except that it might create a stronger link between forest protection and the collection and use of revenue for local services and facilities.

At a recent workshop on forest finance in Abuja, Nigeria (FAO, 2002a), countries reported that the current trend towards decentralization was generating some concern about the future for forest financing. In brief, it was felt that if local and regional governments collected revenue and had authority for spending it, even less attention would be paid to the need for public expenditure on forestry.

Another innovation that is becoming more common is the granting of greater financial autonomy to forest administrations. More independent and, in some cases, self-financing forest administrations have been launched or are under consideration in several countries, including Ghana, Uganda and Zambia. A number of countries have also experimented with having regional or state forestry offices retain a proportion of the revenue they collect, for use in implementing local forestry projects and programmes.

Many countries reported problems with access to agreed budget allocations from State treasuries, so greater autonomy in collection and retention of revenue may improve the administration of public finances in the sector. However, it is too early to tell whether these schemes will be successful.

Cost and benefit sharing

Thirteen countries reported that they had developed or implemented various mechanisms to increase the involvement of local communities in the management of forests, including sharing some of the costs and benefits from forest harvesting.

A few countries have given communities complete control over forest resources, including responsibility for collecting revenue (e.g. the Gambia). In return, they must return a share to the forest administration and, in some cases, must spend some of the money on forest management. However, most countries have introduced simpler systems, under which the forest administration retains control and gives a share of the revenue it collects to communities or the local government.

Most of these schemes have been introduced recently, driven by specific pilot projects that were donor-funded and -managed. Thus, the institutional capacity to sustain them is often lacking. Other problems noted in the reports include: identifying who should benefit from revenue sharing; the lack of capacity in communities to manage funds; obtaining funds held at the central level; the lack of public awareness; and reporting, monitoring and accountability. As with decentralization, it is still perhaps too early to tell whether cost- and benefit-sharing arrangements will do much to improve the financing of sustainable forest management.

Forest funds

The third way in which countries have recently tried to improve the financing of sustainable forest management is through forest funds. These can be organized in many ways (Rosenbaum and Lindsay, 2001) but they are generally raised through contributions from specific sources and are to be used only for specific purposes.

Forest funds are often derived from special fees or levies in the forest sector, although in some cases these are supplemented from other sources. Forest funds in Africa are used for various purposes, including: forest industry development; monitoring of forest operations; research, training and education; conservation; purchase of equipment; and wildlife management. More general funds have also been established to support revenue sharing and self-financing forest administrations, as already noted.

Fifteen countries reported that they had at least one forest fund. However, most also indicated that these funds had done little to improve access to timely and adequate amounts of public finance to support operations. This finding was confirmed by a statistical analysis of trends in revenue collection and public expenditure on forestry, which showed that in countries without forest funds, roughly 52 percent of past increases in the revenue collected were returned to the forest administration in the form of higher domestic public financing. In countries with forest funds, this figure was only slightly higher, at 56 percent, suggesting that forest funds have done little to strengthen the link between revenue collection and public expenditure in the sector (O.I. Ajewole, in preparation).

Privatization of forest resources

A number of countries in Africa are examining options for privatizing parts of their public forest estate, mostly consisting of forest plantations rather than natural forests. A move in this direction is being considered particularly in Southern Africa, by Malawi, South Africa and Zambia. Many countries are promoting new and innovative forms of private sector management in their natural forests as well.

The driving force for privatization is likely to be the inefficiency of the public sector in managing many of these areas. Several countries reported that they could not afford to manage and replant their forest plantations with the revenue that they were obtaining from the sale of forest products. As a result, encroachment and selective cutting of the most valuable trees is degrading these resources. If current attempts at privatization are successful, other African countries may follow suit. Alternatively, if the circumstances are right, countries may clear their forest plantations and then rent or lease the land to private tree growers, as has happened in Uganda (see Box below).

It is also important to note that the area of privately owned forest land in Africa is extremely small, with only Uganda, South Africa and a few other countries recognizing significant areas of privately owned forest. A few countries maintain that all forests belong to the State. In most, however, ownership and control remain unclear and uncertain.

RECOMMENDATIONS FOR IMPROVING FISCAL POLICIES

Public expenditure on forestry in Africa is low compared with that of other regions, and a lack of available financial resources suggests that sustainable forest management will not be achieved on the continent in the foreseeable future. The following suggestions are made with a view to improving this situation.

Public expenditure. An analysis of public expenditure on forestry (O.I. Ajewole, in preparation) has shown that population has the greatest impact on total spending, which suggests that forests are valued largely for their subsistence, social and environmental benefits rather than purely for their financial benefits. Countries should therefore stress the socio-economic benefits of forests, including poverty alleviation, to attract more public spending.

Efficiency of expenditure. The huge proportion of public expenditure allocated to wages leaves little for investment or operations. Fewer employees, with adequate funding to carry out tasks, might be more effective. In addition, more attention should be paid to supporting the vast number of small-scale producers in the region.

International financing. The declining trend in international financing for forestry might be reversed if donors made their applications for assistance more transparent and user-friendly, and if forest agencies took a more proactive approach to obtaining international financing. In addition, greater coordination of international assistance to the forest sector could avoid duplication and repetition.

Forest charges. Forest charges should probably be increased in most countries, and this analysis suggests that market-based mechanisms rather than consultation should be used in setting them. Any increases in charges should be accompanied by measures to avoid such problems as corruption.

Efficiency of revenue collection. Countries should move towards simpler and more efficient charges, in light of experiences showing that area-based charges often collect more revenue. With a large number of producers, transaction costs are high and countries should consider contracting the collection of charges and fees through such arrangements as cost and benefit sharing.

Decentralization. Experience from various countries suggests that the decentralization of revenue collection and expenditure functions can be effective, but that this should be done within the framework of a national fiscal policy.

Cost and benefit sharing. Local populations should be involved in revenue collection through cost- and benefit-sharing arrangements, inasmuch as these increase efficiency. Although existing local government structures may be used, it is sometimes necessary to create new structures, and this can be difficult.

Forest funds. Although forest funds have been successful in other regions, this has not been the case so far in Africa, except in one or two countries that have made considerable investment in capacity building (e.g. the Niger). Greater attempts should be made to address cumbersome bureaucracy, inefficiency and corruption if forest funds are to be more successful. They must also be managed more independently from the rest of public finances.

Privatization. Given the current performance of the public sector in forestry, it may be desirable to transfer more control and ownership of forest resources to the private sector, including local communities. This will reduce transaction costs and increase the likelihood that private forest owners will be more successful at setting prices that the market can bear and at collecting revenue. In many countries, this may do more to achieve sustainable forest management than current underfunded and inefficient public systems.

First and second Conference of Ministers in Charge of Forests in Central Africa

As a follow-up to the 1999 Summit of Central African Heads of State on the Conservation and Sustainable Management of Forests and the adoption of the Yaoundé Declaration, ministers responsible for forests met in Yaoundé, Cameroon, in December 2000 and again in June 2002. They signed statutes establishing the Conference of Ministers in Charge of Forests in Central Africa (COMIFAC) as the body to provide guidance and make decisions on forest-related initiatives in the region. The ministers also adopted resolutions on medium- and long-term financing, an action plan for implementing the Yaoundé Declaration, a common position to take to the World Summit on Sustainable Development, and a resolution requesting development partners to help finance protected areas and promote alternative livelihoods for people affected by their establishment. The ministers also approved the Executive Secretariat of COMIFAC and clarified links with the Conference on Humid High Forests of Central Africa. The next COMIFAC meeting is scheduled for June 2004 in Libreville, Gabon.

BROADER IMPLICATIONS FOR FINANCING OF SUSTAINABLE FOREST MANAGEMENT

In the global debate about financing sustainable forest management, emphasis is being placed on increasing domestic and private, rather than international and public, financing (UN, 2000). The results of the analysis presented in this chapter suggest that there is little chance that either of these objectives will be met in Africa
in the near future, given that the region is one of the least equipped to address such challenges.

There is a great difference between developed and developing countries with regard to the practice of sustainable forest management, largely because of the disparity in income, which in turn affects the levels of available public and private financing. Although forestry's share of total public expenditure is probably very similar in both categories, in absolute terms it is negligible in developing countries because of much lower public spending. If there is a genuine desire to implement sustainable forest management on a large scale across many developing countries, then international financing for the public sector will have to increase.

The extent to which sustainable forest management can be financed from private sources depends very much on the profitability of the sector. In the few countries in Africa with significant and well-developed private operations (e.g. in West African countries and South Africa), it may be possible to encourage the private sector to finance a significant proportion of the investment needed for this purpose. However, in most countries, production comes mainly from small-scale and informal producers or from people harvesting forest products for their own use, so it is unrealistic to expect them to finance sustainable forest management to any great extent. It therefore seems likely that the public sector will continue to have an important role in implementing sustainable forest management and will remain its most important source of financing.

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