Journal Issue
Finance & Development, December 1979

Forests in development: The rapid depletion of forests in the developing world emphasizes the need for comprehensive forestry policies

International Monetary Fund. External Relations Dept.
Published Date:
December 1979
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John Spears and Montague Yudelman

Forests cover one third of the world’s land area and provide the foundation for an industry that is worth more than $115 billion in global terms. By far the larger part of the forest products industry is situated in the developed countries. The ecological role of trees as a renewable natural resource is even more vital than their economic role. They are essential to maintaining productive watersheds, protecting soils from erosion, and preventing excessive flooding or the silting of waterways. Their ecological role is becoming increasingly important as more and more land areas in the developing world are threatened by “desertification.” The urgency of this situation has led the Bank both to shift its focus to, and to increase its lending for, forestry projects from an average of about $10 million a year in the period 1968–77 to more than an estimated $100 million a year in 1978–80 (see table).

The twin uses of forests—ecological and economic—are widely recognized in the industrial countries, which contain roughly half the world’s total forest area and which tend to have policies that manage forest resources for multiple uses. Important scientific advances have improved the use of forests through pest control, genetic improvement, better harvesting techniques, and a better understanding of the ecosystem in which forests exist. As a result, timber yields have increased greatly, millions of acres of topsoils have been protected, and the recreational use of forest areas has increased. Most important, the aggregate harvesting of trees is well below an “allowable cut,” which means that the total forest inventory is increasing.

Forests in the nonindustrialized developing countries, however, are in a fundamentally different situation. There, wood resources are used primarily as a source of energy, providing more than 1.5 billion people with the means to keep warm and to cook their meals. Eighty-four per cent of all wood harvested in developing countries is used this way, generating roughly one quarter of the total energy they use. The developed countries, by contrast, use less than 10 per cent of all wood for fuel, providing only 1 per cent of their total energy. The rural areas of the developing countries often depend almost exclusively on firewood as a means of energy. About 85 per cent of their total noncommercial energy comes from wood.

Controls in the developing world on exploiting forests are difficult to enforce, and both reforestation and forest management are inadequate. This places great strains on local forest reserves. As in other parts of the world, forests play a vital role in preserving the environment in the developing countries, and where the land’s protective covering of trees has been removed, this has had dire results. Scavenging for wood has created virtual desert conditions in parts of West Bengal and central India, for example. For up to 70 kilometers around Niamey, the capital of Niger, the land has turned into a desert because of wholesale removal of forest cover to provide firewood. Destruction of forests has also contributed substantially to desertification in many parts of the Middle East, central Spain, and the western coast of South America. The recent flooding in southern Asia, estimated to have taken a thousand lives, is partly the result of deforestation.

Even more alarming than deforestation is the fact that tropical forests—which provide most of the wood used for trade—are being consumed much more quickly than they are being regenerated. The Food and Agriculture Organization of the United Nations (FAO) has estimated that roughly 6,000 square miles of forest are destroyed each year. At the present rate of encroachment and destruction by man the tropical forests of many developing countries will disappear within the next 50 years unless steps are taken to protect remaining resources, to increase the efficiency of present consumption, and to initiate reforestation programs on a massive scale.

Against this background of a deteriorating ecology, dwindling supplies of commercial timber, and the spread of rural poverty, the World Bank has been evolving a new policy on forestry. The bulk of Bank lending for forestry used to be allocated primarily for industrial forestry projects, with four pulp and paper projects accounting for 85 per cent of total Bank lending in this sector in 1977. However, in line with the change in emphasis in Bank lending which oriented investments to affect directly the rural poor, and recognizing the urgency of arresting further decline in soil productivity and of improving water control and general environmental conditions, the Bank expanded its lending program (see table). Its focus has shifted, moreover, to helping the small wood producer who is dependent on wood for fuel and income and to protecting forests in water catchment areas in the context of rural development.

Bank lending

How does the Bank’s strategy in forestry development work in practice? This can best be illustrated by outlining some of the new projects that have been designed and financed in conjunction with member governments. The examples illustrate the Bank’s concern to increase the productivity of forested areas in the developing world within a framework that takes into account several requisites: (1) to meet the basic needs of small farmers for firewood, building poles, and other forest products; (2) to renew and manage forests as a valuable resource; (3) to involve the small producer in the benefits of exploitation; (4) to protect land from deforestation; and (5) to strengthen national institutions and practices to translate these concerns into effective policies.

Firewood. In India (Uttar Pradesh and Gujarat States), the Republic of Korea, and Malawi, for example, the Bank has recently financed forestry projects that are primarily concerned with meeting the requirements of rural populations for firewood and charcoal through the establishment of community woodlots and farm homestead planting. The projects in India and Malawi incorporate the use of more efficient wood-burning stoves. The design of these projects has included strong emphasis on institution building, and early projects have incorporated pilot approaches to alternative rural afforestation strategies, which will be expanded as experience is gained.

Tree farming. Another interesting, and profitable, project was launched under the second loan made by the Bank to assist smallholder tree farming in the Philippines in 1977. The return to farmers from their forestry investments will exceed 25 per cent, which compares favorably to the average rate of return of 9 per cent for North American forest product companies. A loan of $0.2 million was made six years ago on an experimental basis to see if it was possible to provide credit and technical services to small farmers engaged in wood production. The success of this program, which is similar to landowner assistance programs in the southeastern United States that are financed by private forest product companies, exceeded expectations. It led to a second credit of $8 million, which finances half the total cost of involving some 7,000 smallholders on 28,000 hectares of land to produce firewood, charcoal, leafmeal (for cattle feed), and wood chips (for particle board production), as well as an 8,000 hectare plantation of fast-growing pulp-wood trees.

Water catchment protection. The Bank has taken on a somewhat different role in Nepal, where the conditions make it imperative to plant more forests to preserve the environment. In the past decade, a quarter of this country’s forests have been destroyed. If present trends continue, the Himalayan ranges in Nepal will be denuded within 25 years. Over half the total soil erosion in this huge watershed is caused by man, and the rate of erosion is sure to increase unless corrective action is taken. River beds in India and Bangladesh, flowing from catchment areas in Nepal, are rising at the extraordinary rate of 15–30 centimeters a year. The impact of chronic flooding problems in eastern India and Bangladesh is immense, affecting hundreds of millions of small farmers and landless laborers.

The forests have been consumed primarily for fuel or fodder and provide 87 per cent of Nepal’s energy needs. The only alternative energy sources at present are animal fodder and dung, and these are being used increasingly instead of timber. But when dung and other wastes are not recycled into the soil to increase nutrient levels, food production suffers seriously. If current trends continue, by the turn of the century, dung and residue energy use could result in the loss of one million tons of grain production annually in Nepal—a quarter of current total production. (On a global basis, the diversion of animal dung to burning has been estimated to result in the loss of 20 million tons of grain—enough to feed 100 million people.) The Bank, along with other international agencies, has helped the Nepalese Government understand the nature of the problem it faces. Targets have been established for future afforestation programs needed to support the production of firewood and fodder, and the Bank is currently assisting in the formulation of a project that will initiate a large reforestation program in the hill districts to be closely associated with ongoing soil conservation and rural development projects. Similar catchment area projects have been appraised for financing in India (Punjab State) and Thailand.

Desertification. The crisis of increasing desertification faced by the countries of the Sahel has received great attention. The causes of the crisis are, perhaps, not as well known as they are in Nepal, but it seems certain that the destruction of the forests of the central highlands of Ethiopia and the savannah woodlands of the countries in the Sahel through overgrazing have been major contributing factors. The Bank has already taken steps, along with other donor agencies, to help to reverse the ecological degradation in this region. A credit extended to Niger to assist it to develop its diminished forest resources while protecting its environment was made this year, and more are in the pipeline for Mali, Upper Volta, and other countries of the Sahel. As part of a project begun in Chad, fragile savannah woodlands will be better managed and protected through rotational grazing schemes and construction of tree nurseries.

Improved earnings and employment. Turkey, a country with a temperate climate, is relatively far along the path of economic development; its forest sector, however, faces serious threats. The Bank initiated a comprehensive review of Turkey’s land use policies in 1973 and discovered that the cultivation pattern of total arable lands needed to be changed if output was to be increased, and that about four million hectares of land should be retained as forest. After discussions with the Bank, Turkey instituted important changes in the sector which the Bank supported through a seven-year integrated forestry development project in northern Turkey. The Bank committed $86 million in 1977 out of a total cost of $915 million. This project will cover some 100,000 square kilometers, an area including about 9,000 forest villages with five million people, most of whom have extremely low incomes. The project’s major aim will be to increase the road network with the construction of 26,000 kilometers of roads over seven years to enable more intensive utilization of natural forests and more intensive afforestation with fast-growing species.

The project will create 165,000 new jobs, keep 3,500 small sawmills operating, and provide revenues to support a program to improve forest villages that will increase farm output in the areas adjacent to the forest villages. This latter component, based on an initiative taken by the Ministry of Forestry, is a deliberate attempt through project design to encourage closer integration between forestry and agriculture and to provide small farmers living in the forest villages with improved local fodder supplies as an alternative to continued overgrazing of forest lands.

Whilst the Bank’s most recent concerns have been to make the small wood producers, such as those in Turkey, more productive, and to support projects that use forests to arrest land degradation, a major aim is still to increase the effectiveness and profitability of forestry projects. The Bank has continued to support ecologically sound logging industries that meet growing world demand for tropical hardwoods. This means assisting the forest surplus countries of the developing world in managing their resources for maximum gain and in introducing harvesting patterns that ensure a sustained yield from the tropical forests. The Bank has also given assistance to governments of countries where the utilization of forest resources is largely in the hands of foreign contractors and multinational companies.

For example, the Bank is helping the West African countries with forest surpluses to develop timber allocation policies that will result in greater returns from existing commercial forestry activities—a sector which, in some instances, accounts for up to 50 per cent of current export earnings. In Guyana—a country with a huge underutilized resource base of natural tropical hardwood that will rot if it is not harvested—the Bank has recently financed the construction of a $30 million forest industries complex with special emphasis on trying to broaden the range of tropical hardwood species to be marketed in the United States, Europe, and elsewhere.

In addition to the expanding market for logs and other wood products, there remains an important potential for increased production of pulp. The difficulties of harvesting natural tropical rain forests, given the incredible variety in natural vegetation, are great, but Brazil, Chile, and other countries have demonstrated that it is possible to develop privately financed, fast-growing pulpwood plantations and pulp, paper, and lumber industries. The International Finance Corporation (IFC) has assisted by providing equity capital for new private companies that are taking advantage of the commercial forestry opportunities in developing countries. It has provided the technical know-how needed to ensure that these ventures prove profitable to entrepreneurs and the countries where they operate. In the past 10 years, the IFC has made some 26 investments in pulp, paper, and wood products and committed approximately $150 million for projects with a total cost of $680 million. Several investments were small and were made in pilot projects. Others were in plywood, sawn lumber, fiberboard, boxboard, and so on. The bulk of the ventures were in pulp and paper, which had a combined planned capacity of almost a million metric tons a year of new output (equal to 30 per cent of total developing world production in 1975).

Bank lending for forestry, 1968–80
1968–721973–771978–80 (Estimated)
Number of forestry projects financed14720
Number of agricultural or rural development projects including a forestry component01717
Total amount of forestry lending (in US$ million)3661300
Forestry as a percentage of total Bank lending for agricultureless than 113

Excluding three industrial loans for pulp and paper mills valued at US$170 million.

Excluding three industrial loans for pulp and paper mills valued at US$170 million.

The developing world has great potential in industrial forest products. The growth potential of the tropical forests may sound incredible—20 to 30 cubic meters per hectare of wood growth per annum, which compares with an average of 3–5 cubic meters in interior Canada and 5–8 cubic meters in the coastal areas of the Pacific northwest. The growing cycle for a hardwood pulp tree is 6 years, for a Caribbean pine it is 12 years. Despite the obvious technical problems, the forestry sector has great potential to grow and to benefit the world economy, the developing countries involved, and the poor, underemployed inhabitants of forested areas.

A broader approach

The rapid escalation of Bank lending for forestry activities faces a number of constraints. One main issue is the increasing realization that forestry development cannot be viewed in isolation from other aspects of rural development. The needs of rural people, particularly those living in remote areas, include roads, water supplies, health clinics, schools, improved seed, fertilizers, access to credit, and agricultural extension services. Frequently, these will have a higher priority for them than longer-term afforestation or soil conservation programs. In short, rural forestry programs will be most likely to succeed in areas where an integrated approach is being taken to rural development, where needed goods and services are being supplied, and where forestry is included as part of an overall development package.

The importance of integrating forestry projects into rural development as a whole has affected Bank forestry project work in two main ways. First, as an integral part of preparing and appraising forestry projects it has been increasingly necessary to include sociological studies at the village level to ascertain the people’s own priorities for development and to examine ways and means of motivating their interest in rural afforestation schemes. Second, the range of components in forestry projects financed by the Bank has been expanded to include components that will give small farmers a viable alternative to continued overgrazing and the destruction of forestry resources. This includes, for example, financing agricultural inputs; credit and extension services for increasing production of fodder on the farm (so providing an alternative source of livestock feed to that derived from destroying forests); the introduction of innovative wood-saving technology, such as more efficient wood-burning stoves, and alternative rural energy systems—such as biogas (obtained from burning agricultural or forest-crop residues), solar energy, and small-scale hydroelectric or wind-powered generators—which can help lead to significant savings of wood and so ease the pressure for development of new forestry resources.

As a result tf the sociological and design factors that have influenced Bank forestry lending, not only had 11 forestry projects been financed by the Bank by the end of 1977, but also significant forestry components had been included in some 17 agricultural or rural development projects (see table).

Looking ahead

It is planned to increase Bank lending for forestry projects fivefold over the five-year period 1979–83 and to reach a target of half a billion dollars by 1983. Also by 1983 the Bank plans to help in the further development of integrated and sustainable forestry programs in some 40 to 50 developing countries. Priority will be given to:

  • Environmental forestry—protection of forests located in watersheds; stabilization of sand dunes in arid areas; forest inventories to determine future utilization; and land use and soil surveys as a prerequisite for balanced agricultural settlement in tropical regions.
  • Rural development forestry—establishment of village woodlots containing species suitable for production of a variety of products, such as firewood, fruit, fodder, fiber, poles, and timber; and creation of new employment opportunities in small-scale wood using industries in rural areas.
  • Institution building—training; education; research on tropical forestry (which is decades behind research on the temperate coniferous forests of the industrialized countries); and extension services that enable new techniques to be effectively applied in the field.
  • Industrial forest projects—continuing support for industrial forestry and export programs in the developing world, including joint efforts with the private sector, provided such efforts are consistent with the economic and social priorities of developing countries.

The development of the tropical forests of the world is a vitally important concern, one that affects the well-being of at least one billion people. The major use of these forests at present is for fuel—a necessity, given the endemic poverty and the limited supply of alternatives that do not cut into food production. The Bank will give high priority to reforestation of firewood species. At the same time, the Bank will continue its work in environmental forestry through capital investments, technical assistance, research, institution building, and innovative pilot projects. The Bank is ready to finance joint ventures when the private sector is willing to take on the responsibility for using forest resources productively in developing regions. The Bank’s role is important, but not central. The countries themselves must attack the problems in their rural areas before they become socially and environmentally unmanageable.

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