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V. - Integration of planning and financing


A preliminary draft was prepared for the symposium by O.A. D'ADAMO (Argentina). The final revised chapter was written by A.J. LESLIE.

THE SURVEY on world trends and prospects for wood (FAO, 1966) has inter alia two very significant implications for man-made forests. Firstly, there is clear evidence of the increasing extent to which man-made forests, in tile sense defined in Appendix 1, will have to be called upon to meet rising levels and changing patterns of wood consumption in the future. Secondly, there is evidence of a changing international distribution of wood-surplus and wood-deficit regions. The implications and interactions of these trends complicate very greatly national planning for the man-made forests whose establishment needs to be started now in order to meet future demands.

Solutions to the technical, social, economic and organizational problems limiting the rate of progress with large afforestation programs in many countries warrant the urgency given to them in the discussion in preceding chapters. But it is clear that ultimately the viability of any man-made forests program depends on the availability of finance. Hence, the integration of planning and financing is, in the final analysis, the critical phase of any forestry development program.

Some of the papers and the associated discussion in preceding sections were closely related to the field covered by this section, and in fact the section itself was barely separable from the one on policy. However the distinctive feature of this section was the emphasis on the need for the planning of man-made forests to be closely linked with the rest of the economy.

Three dominant themes reflecting the need for integration of planning and financing emerged. There was general consensus that:

1. Man-made forests and the industries associated with them cannot be treated in isolation, either from other land use planning in the country, or from other activities in the country, or from other countries in the world.

2. Projects for the establishment and development of manmade forests in developing countries particularly face enormous difficulties involving financing, sociological, political, technical and commercial problems which must be co-ordinated at national and international levels.

3. Man-made forest programs in developing countries on any large scale will need the utmost degree of international, including FAO, assistance in identifying, analyzing, preparing, financing and implementing them.

It is apparent that existing man-made forests have in many instances been developed without sufficient appreciation of such relationships as those, for instance, between location and utilization, between national and regional development, between industrial and social factors, or between industrial development and infrastructure.

The planning of future man-made forests, within the framework of national and regional economic policies, must be based on a sound analysis and knowledge of the complex system making up the socioeconomic and physiobiological environment. This will be indispensable for developing realistic programs which serve the true interests of each country, and attract the financial backing to turn them into realities.

Co-ordination of trends and planning

It is becoming more and more evident that the establishment of man-made forests, and in fact forestry in general, constitutes a part of the national land and resource use policy. The promotion and development of man-made forests are therefore closely bound up with the objectives of national economic development and particularly with the agricultural and industrial policy each country intends to develop.

The planning and implementation of man-made forests need to be considered therefore in relation to many other aspects than those relating primarily to the forestry and forest industries sector of the economy. It is not always possible, however, for the integration of forestry programs with overall policies to take place because of the absence of national land use policies or realistic plans for economic development. In such cases forestry authorities and agencies should be prepared to go ahead with their planning and programs on the basis of what they consider an integrated national policy is likely to be.

In formulating a policy for man-made forests in a country, the possible effects of projected future consumption of wood must be analyzed. It is also evident that, besides the internal prospect and effects, each country must analyze the regional and world prospects which may influence and be influenced by its decisions. These two interrelated problems necessitate a close connection between those responsible for forest policy and those responsible for general economic policy, even though there may be no formal long-term plans for national economic development.

FIGURE 70. - The need for compensatory plantations to replace the timber removed from natural forests: towing 340 cubic meters of timber from indigenous forest to clearing, Bulolo, Papua and New Guinea. The species is Araucaria hunsteinii. (DEPARTMENT OF INFORMATION, PAPUA AND NEW GUINEA)

FIGURE 71. - The need for compensatory plantations to replace the timber removed from natural forests: young plantations of Araucaria cunninghamii at Bulolo, Papua and New Guinea, aged 11 years. (DEPARTMENT OF INFORMATION, PAUPA AND NEW GUINEA)

In discussing the interplay of national and international trends in wood consumption, Richards (1967) clearly shows that the relationships between the sets of interacting factors - forecasts of consumption and forecasts of production - are neither simple, clear-cut nor static. The problems that consequently arise are of particular significance to developing countries. There is EL marked tendency for the pattern of wood consumption to be highly responsive to relatively small rises in the standard of living at low and medium levels of income. Thus, with economic development, very sharp and marked permanent changes in the demand for various wood products may occur within the length of even the short rotations of man-made forests.

It is necessary to analyze trends in terms of a number of classes of wood products and end uses, since the levels and pattern of consumption of the various wood products may vary considerably according to changing factors affecting demand. In turn, these are reflected in the basic assumptions; which must be adopted for demand projections. It is equally essential, therefore, that forecasts of trends and prospects be reviewed periodically in the light of additional information affecting not only the basic statistical data, but also the underlying assumptions from which these projections are derived.

The need for periodic review also applies to the appraisal of supply prospects. Inventories of forest resources, with predictions of their possible increments in the different assortments, are affected by the needs of industry, the raw material specifications of which can be greatly modified by changes in the commercial environment and technological processes.

Initial projections and subsequent reviews depend very heavily on a supply of relevant statistical data regarding forest resources, the consumption of forest products, the demographic, social and economic factors affecting present levels, and their rates and directions of change. Much of the information needed for a realistic appraisal at all stages of trends and prospects can only come from a close association with other authorities and institutions which are concerned with economic statistics and forecasting, or whose policies may affect the factors under consideration.

In countries where the statistical services are inadequate but where policy decisions cannot be deferred until the relevant data are available, the problem of appraising national trends and prospects, either alone or in relation to international trends, becomes extremely acute. Comparisons of trends and prospects in other countries at comparable or more advanced stages of economic development apparently offer the only guide. The statistical, technical, social and cultural qualifications that must be applied in making such necessary extrapolations again imply the closest cooperation with national and international agencies in all fields and at all levels.

At the same time as the effects of the interdependence of the man-made forests with the other sectors in a country is beginning to be appreciated, plantation policy, as part of forest policy in general, is being forced to take account of the trend toward regional economic planning. The advantages offered by complementing national economies, especially with regard to decisions on the scale and siting of manufacturing plants to utilize the raw materials from manmade forests, are too great to be lightly ignored.

As the discussion at several points during the symposium showed, there is little economic justification for all countries to pursue the goal of national self-sufficiency in forest products. Possibilities in the future of using the surpluses of some regions to correct the deficiencies of others - already the basis of an extensive world trade in wood and forest products - can certainly be exploited. In this respect the role of the developing countries is crucial. Their problems in developing man-made forests on a scale appropriate to regional or world needs rather than merely national ones are much more formidable than those of the advanced countries and they are therefore of international concern.

Problems of co-ordination

A wide range of problems and interests has to be accommodated in the successful integration of plantation development and the utilization of man-made forests. The lessons learned from the experience of the Usutu forestry enterprise in Swaziland as analyzed by Hastie and Mackenzie (1967) are particularly significant for developing countries. Factors affecting the utilization and marketing of processed forest products should be assessed at the start of the project - siting of the plantations, choice of the species, scale and timing of the planting program - just as carefully as the technical and organizational factors. This is no easy matter. The marketing aspects are likely to be greatly affected by technological and economic developments in prospective export markets, as well as in the country concerned. Hence, the longer that the final decision can be deferred as to the precise nature of the products to be manufactured and their destinations, the longer can some flexibility be retained for meeting changed circumstances. The emphasis given to flexibility relation to the Usutu project was strongly endorsed as a key factor in the successful development man-made forests.

Although general trends and prospects can be projected with considerable confidence, the degree of uncertainty regarding a specific project in a given country is much higher. This is particularly important in situations where the project is substantially oriented toward export markets, which are much less amenable to control than domestic markets. The type of association with an industrial or commercial complex operating on an international scale, such as the Usutu project, seems to offer tangible economic advantages in the integration of man-made forests with industry. The co-ordinated development of the raw material base, the associated industrial plants, and the extensive infrastructure. are all likely to be more effective the wider the range of interests included in the initial planning. On those grounds the prospects and problems of partnership between public and private sector enterprises, international as well as national, warrant detailed study.

There is no doubt that problems with political implications are inherent in the dual nature of the international company's responsibilities to its shareholders and to its host countries. These political obstacles will, of course, affect both the company and the country concerned, although from different angles. However, the economic advantages - in terms of access to international pools of private sector capital, technology, research, marketing systems, and skills - are too great for the possibilities of this type of partnership to be passed over by developing countries without careful and continuing consideration.

The advantages to be gained from co-ordinated public-private sector development of man-made forest projects are not restricted to the type of combination exemplified by the Usutu project. A co-operative program for the establishment of man-made forests in Ecuador illustrates another way of combining private landowners' and state capital with international support (under the World Food Program and Oxfam) so as to channel small-scale private resources, under a complex landownership pattern, into a successful enterprise. In this case the objectives are to provide forest cover for the control of soil erosion on degraded land and to increase the production of fuelwood and utilitarian constructional timber for the rural communities.

The evolution of co-ordinated planning and implementation of man-made forests and forest industries will involve exchange of information and interchange of ideas over a wide range of interests. The cost of transport, for instance, is so overwhelming in the economics of wood- based industries that a great deal of weight must be placed on the requirements and management of national transport systems, particularly in relation to plantation and mill siting. Much the same goes for the development of power and water supply systems, and public services in general. In some cases, silvicultural factors such as site quality may have to take second place to considerations of accessibility to factory and markets, since the cost of growing wood is often much less than that of harvesting, converting and transporting it.

FIGURE. 72. Pulp and paper mill at Maryvale, Gippsland, Australia, with Mount Erica in the background. Plantations of various ages can. be seen surrounding the mill. (AUSTRALIAN PAPER MANUFACTURERS)

Important as the economic effects of technical and physical factors may be, it should be realized that some of the major problems of co-ordination arise out of the human relations aspects within industrial and commercial enterprises. Attitudes and procedures which emphasize, for example, the divisions between forestry and industry rather than their common objectives can lead to costly breakdowns in co-ordination. It must be emphasized that vertical integration does not in itself guarantee that the differences will be resolved, but it does create an environment which makes it easier to reconcile the different points of view.

The sociological problems of relatively undiversified communities, dependent on a single industry and organization, can become of major significance where the location of the manufacturing plant involves the construction of virtually a "company town." The extent to which these problems can add to the economic handicaps associated with the additional capital and operating costs, as compared with location in or close to an established town, is all too easily overlooked. Special attention needs to be paid to this aspect in any man-made forest project, but particularly in developing countries where the need, in the early stages of industrialization at least, to use nonindigenous technical, professional and managerial staff aggravates an already difficult social situation.

Important factors in planning and operating the industrial development of a modern forest products industry in a developing country are the level and capacity of the education system. The establishment by the enterprise of facilities for in-service technical training and education to supplement the existing national system may be a necessary part of an integrated project. A very wide range of technical, administrative, professional and managerial skills is involved in the operation of a modern forest products industry. The development of the potential of local staff in these directions may, in the long run, play an important part in the success of the project.

As a case study of how a large-scale man-made forest project can be successfully integrated with an export-based wood pulp industry in a developing country and of the benefits for development that can flow from it, that of Usutu is most instructive. As a pattern and a hope for the future it is invaluable.

Planning and financing

The problems of financing large-scale programs for man-made forests and the associated industrial complexes are common to economically advanced countries and developing countries, and to the private and public sectors alike. The potential sources of finance, however, vary greatly in the extent to which they are able or willing to invest in the various phases of such pro grams; they differ according to the economic and political outlook in differing countries.

In economically advanced countries, internal financial sources can generally be induced to support large-scale projects for the expansion of man-made forests and wood-processing industries. In developing countries on the other hand, internal sources of finance in both the private and public sectors may take a pessimist) view of the potential of man-made forests relative to other investment opportunities and demands, or of the capacity of domestic forest-based industries to compete with imports.

There is no doubt therefore that, as far as developing countries are concerned, the problems of financing manmade forests are to a large degree those associated with attracting international financial support. Certainly much can be done by improving the efficiency with which internal resources are directed toward investment in development. Systems for the self-financing of forestry programs can channel internal finance that might otherwise be dissipated. But, as D'Adamo (1967) points out, the scale of the investments needed in Latin America alone over the next decade inevitably implies large-scale international capital inflow.

One potentially substantial source of international finance lies in forest products enterprises operating on an international scale. Aspects relating to the utilization of this source of finance have been mentioned previously, and it is evident that the prospects can be greatly affected by national policies adopted to encourage or discourage this type of investment. Some measures, such as tax relief, direct and indirect subsidies which have been adopted or advocated in some countries to increase the flow of internal private finance into forestry, can also encourage external private investment in man-made forest enterprises. In an example from Argentina described by D'Adamo, the Forest Fund provides resources to planters for projects approved by the forest service by means of credits which cover up to 80 percent of the cost of the plantation, at 4 percent interest per year; this interest can be reduced to 2 percent if the plans outlined are accomplished within the period envisaged in the project. In New Zealand, government loans up to £25 per acre (£62 per hectare) for the establishment phase and up to £15 per acre (£37 per hectare) for thinning and pruning are made; if the work is done well, repayment of half the loan is waived.

On the other hand, measures to encourage private capital investment, whether national or international, can virtually be nullified by an unstable economic or political situation. For example, the inflationary process which many Latin American countries are under-going obviously conspires against afforestation projects because of the slow development of the investment.

The problem of inflation, however, is only one of several factors which can inhibit the flow of private finance into long-term projects such as forestry and the major forest industries.

In view of the limited availability of internal finance, and because of the sensitivity of external private finance to what may be relatively short-term adverse factors, it seems certain that the developing countries will have to rely on international financing institutions, such as the International Bank for Reconstruction and Development (IBRD) and its associates, for much of the substantial funds needed for the development of industrialization programs based on manmade forests.

As a general rule therefore - apart from whatever evaluation processes a large-scale project for man-made forests passes through within a country - its ultimate investigation by an external international agency concerned with the allocation of financial support may be anticipated by developing countries. In this respect the critical but constructive analysis by Spears (1967) of the process of evaluating afforestation projects is of great practical value to developing countries in their identification and presentation of proposals.

FIGURE 73. - Ashley forest, New Zealand, showing forest headquarters on left and housing on right, with adjacent agricultural land. (NEW ZEALAND FOREST SERVICE-JOHNS)

Projects for the establishment of man-made forests sometimes compare unfavorably with projects in the agricultural sector when evaluated by the internal rate of return, a criterion frequently used by such international agencies. In assessing projects so as to identify those likely to be of interest to international financing and industrial organizations, considerable attention should therefore be paid to this criterion. The proposals should be prepared and presented so as to maximize the expected internal rate of return. For specific man-made forest projects it has been found that the internal rate of return can be raised to levels approaching those of agricultural projects by spreading cost elements such as land acquisition, buildings and roading over the whole of the establishment and harvesting phases, by reducing other costs through more rational use of expensive materials, equipment and staff, and by the integration of agriculture and forestry, as in the taungya system, where it can be applied with adequate control. These measures, of course, appear to involve little more than common sense. The fact that it has been found necessary to draw specific attention to them suggests, however, that their economic effects can easily be overlooked.

FIGURE. 74. A young plantation of Cryptomeria planted to replace low-value hardwood stands in China (Taiwan) with the assistance of the World :Food Program. (CHINA (TAIWAN) FORESTEY BUREAU)

In addition, as a man-made forest provides only the raw material for wood-based industries, it is logical for the economic prospects of the forest-industry complex to be assessed as an integrated program. This sort of approach can make a considerable improvement in the profitability of projects. For an integrated project to be prepared satisfactorily and convincingly, a very wide degree of consultation and co-ordination with industrial enterprises and other government agencies is therefore essential throughout the planning and presentation stages.

The current policies relating to the provision of international financial support for development projects are, to some extent, biased against relatively labor-intensive, long-term projects in developing countries. International financing agencies normally finance the foreign exchange component (mainly equipment) rather than the internal currency component (mainly labor). A government may therefore prefer projects which require less financing from its own resources, that is to say, those in which the foreign exchange component is higher. Projects involving man-made forests are less handicapped in this respect when they are integrated with associated industrial developments. The foreign exchange component, of an integrated project may be as much as 50 percent) compared with about 20 percent for the afforestation phase alone, as shown by Spears (1967).

Clearly any tendency for projects to be evaluated by financing institutions from a substantially commercial point of view does not necessarily discriminate against well-chosen and prepared proposals for man made forests. The features of forest-based development programs which inherently limit their prospective earning capacity in financial terms can, however, only be minimized, never eliminated. It is therefore important to consider the benefits from man-made forest programs which are not covered by the internal rate of return. calculations.

The comprehensive project evaluations made by international financial institutions take into account other considerations than the direct benefits, particularly those which relate to the broader aspects of economic development. The extent to which projects are likely to contribute to foreign exchange earnings or import replacement amortization of infrastructure l investments, diversification of employment and improvement of economic and social conditions in rural areas, technical training, and linkage effects, for instance, need to be evaluated fully and objectively. Forest industries, as Westoby (1962) has shown, have considerable potential in these aspects of economic development. There could also be favorable opportunities for developing countries to amplify these effects, in view of the long-term prospects for international trade in wood.

Most projects for man-made forests at present reflect the general situation of world timber trends and prospects. Many of them will inevitably provide other services such as catchment protection, erosion control and amenity. In fact, some projects are deliberately designed to provide such services, either primarily or in conjunction with regional industrial development and employment. An example of this type of project, the proposed establishment of a forest of 25,000 hectares over 25 years in Colombia, is described by Illencick and Falla Ramirez (1967). The aims are to:

1. carry out reforestation in catchments supplying water for town hydroelectric plants;
2 develop a sufficient supply of raw material for wood-based industrial enterprises;
3. convert the investment into a stable capital which will produce a permanent revenue;
4. provide work, in areas of surplus or unemployed labor.

It is clear that projects of this type - which counter erosion, ensure the regular flow of water necessary for towns and industries, produce essential raw materials for the national economic development, and guarantee a source of work in regions where the level of employment is tending to decrease - represent a high priority investment within a country. The financing of such projects raises special problems unless other criteria than those based directly or indirectly on monetary benefits are applied. Greater recognition of the importance of this type of nonmonetary benefit during the process of evaluation of such a project was obviously considered necessary.

On the whole it is evident that there is room at all levels of economic development for improvement in the coordination and integration of man-made forest programs with industry and other sectors, at all phases of planning, preparation and implementation. The need is serious enough in advanced countries; but it is of critical importance in developing countries where there is little margin for error in the choice of projects or in the efficiency of their implementation.


Growing world consumption of industrial wood is encouraging large-scale afforestation plans in order to supplement production from natural forests. In the past, lack of co-ordination between forest authorities and other agencies and industries concerned with national development has often produced imbalances between the man-made forest resources and the developing infrastructure and industrial potential. To some degree the same sort of situation has tended to develop in relation to the possibilities for integrated regional planning.

The formulation of a policy for the establishment of manmade forests should therefore be based on clearly expressed objectives determined in line with national land and resource use policies. Timber trend studies obviously occupy a key position in the whole process of integrated planning and development of programs for man-made forests and their utilization. Where wood production is an important objective, the basic appraisals and projections need to be kept under continual review in the light of improving knowledge and changing circumstances affecting national, regional and world trends and prospects. National policies based on such appraisals can have worldwide implications. There is therefore a clear need for continued, and indeed expanded, participation at the international level in the development of methods and techniques, as well as in the conduct of regional studies, appropriate to a wide variety of situations.

FIGURE 75. - A low-value hardwood stand Heng-chun working circle in southern China (Taiwan) of the sort which is being converted into plantations of conifers. (CHINA (TAIWAN) FORESTRY BUREAU)

In transforming general programs into specific operating projects, one of the biggest needs seems to be for a better integration of forest aspects with industrial and commercial aspects. The cost of growing the raw materials is often only a relatively minor part of the total cost of the end product in its ultimate market. The scale and siting of a man-made forest resource, the choice of species and related aspects may, in fact, be more dependent on economic and social factors affecting the manufacturing side than on silvicultural factors affecting forest growth. Then, in the development of a project after the establishment phase, it is essential to maintain a high degree of flexibility for the final decisions regarding the utilization of the forest. This may mean that forest management considerations are again no longer dominant. For this reason the widest possible range of interested parties should be brought into the consultations at all stages from the initial conception of a project.

FIGURE 76. - Farm forestry: a stand of Pinus radiata aged 25 years at Wairarapa, New Zealand. Thinning is in progress and a pile of manufactured posts and strainers is in the foreground. (NEW ZEALAND FOREST SERVICE-JOHNS)

No matter how well the planning of a program for manmade forests and the associated industries has been coordinated, its ultimate fruition must depend on its own ability to attract the necessary long-term financial support. As far as developing countries are concerned, the magnitude of the investments confronting them inevitably implies a large element of international finance. The integrated planning and development of projects, in association with international business enterprises in the forest products industries, can go some way toward meeting this need as well as providing a number of important operational and marketing advantages. But, even if the necessary conditions for success in such partnerships existed more widely than they now do, there would still be a need to draw heavily on the international financing institutions.

There is no doubt that by the financial criteria commonly applied by international financing agencies in project evaluation, proposals involving man-made forests are handicapped by the long-term deferred returns inherent in the investment. Still, much can be done to minimize the effects of this characteristic, by careful phasing of the establishment cost elements and by planning from the start, on the basis of an integrated forest-industry project. On the other hand, integrated man-made forest programs can have a high potential in terms of the other criteria by which the agencies assess a project's contribution to economic viability and development in general. In the identification and presentation of proposals, the capacity to contribute in this way should be assessed and developed to the maximum. It seems however that the current evaluation procedures may not make sufficient allowance for the social value of the nonwood services, such as catchment protection and amenity, that afforestation programs can provide. Social benefits such as these may be the main objectives of some projects and, in fact, prerequisites for the development of agricultural and industrial potential.


*D'ADAMO, O.A. 1967 Financiamiento de las plantaciones en América del Sud. Canberra.

FAO. 1966 Wood: world trends and prospects. Unasylva, Nos. 8081.

*HASTIE, W.F. & MACKENZIE, J. 1967 Planning an integrated forest program. Canberra.

*ILLENCICK, G. & FALLA RAMIREZ, A. 1967 Ante-proyecto de inversión en establecimiento de bosques industriales en zonas altas de Colombia. Canberra.

*RICHARDS, E.G. 1967 Appraisal of national wood production and consumption trends and their interplay with regional and world trends. Canberra.

*SPEARS, J.S. 1967 Feasibility studies and financing of man-made plantation forests. Canberra.

WESTOBY, J.C. 1962 Forest industries in the attack on economic underdevelopment. Unasylva, No. 67: 168.

NOTE: *Paper submitted to World Symposium on Manmade Forests and their Industrial Importance, Canberra, April 1967.

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