Policy Support and Governance Gateway

Issue paper

Promoting legality within the private forest sector: obstacles and incentives to formalization

Informal forest sector micro, small and medium-sized enterprises (MSMEs) are often equated with being “illegal” when their mode of production, source of raw materials, or even their legal existence does not conform with their country’s regulatory requirements. This characterization fails to recognize the complex circumstances many MSMEs faces, especially in countries where the requirements for legality compliance and achieving formal status are not clear. This situation raises a question frequently faced by practitioners who work with forest sector MSMEs – should MSMEs be encouraged to formalize to avoid being labeled as ‘illegal’?

Acknowledging that MSMEs have valid reasons to either pursue or avoid formalization, this brief does not judge this question but instead argues that it is more important to ensure that MSMEs receive concrete benefits when deciding to become formalized. It is the task of practitioners, governments, and stakeholders to contribute towards the creation of an enabling environment that rewards MSMEs for formalizing. By doing that, practitioners enable MSMEs to reap the expected benefits of formal status, such as securing livelihoods and opportunities for economic growth and decent employment.