How to boost investment in locally controlled forestry in Mexico
Greater investment in locally controlled forestry in Mexico has potential to bring social, environmental and economic benefits, says Mario Bringas Avila.
Mexico’s forests – and the extent to which local communities control them – offer great potential for sustainable forestry. What has long been missing is investment, but what’s now becoming clear is how to encourage new flows of finance.
Investing in locally controlled forestry is a fairly new way to do business, one that brings social and environmental benefits in addition to the economic ones. It is founded on the principle that people who live near forests have an interest in ensuring the sustainability of the forest resources on which they depend. This makes it very relevant in Mexico, where forests cover about 31.5 per cent of the land and where communities own half of all forested land and control it through systems known as ejidos and comunidades.
These two structures have their roots on a land redistribution policy implemented almost 100 years ago: Ejidos could be granted to groups of landless laborers, whereas comunidades recognised indigenous peoples' claims to their land. These systems, of which there are about 30,000, comprise Mexico’s basic decision making unit about issues such as land use, production and natural resource management.
For Mexico’s forestry to reach its potential, these systems of local control will clearly have a key role to play. To date though, forestry has been a minor contributor to Mexico’s GDP, providing roughly 20 per cent of what the livestock sector does, and just 10 per cent of agriculture.
It is easy to see why. Only 7 million hectares out of the 22 million hectares with productive forest potential are actively managed overall, and there are only 1,000 micro, small, and medium forest enterprises (MSMFEs) in Mexican ejidos and comunidades.
An example of forms of local control seeking to reach their financial potential is FINDECA, a financial enterprise in Oaxaca that was born in 2007 out of coffee growers’ need for flexible credit and low interest rates. FINDECA now provides credit to more than ten forestry and agroforestry-related industries, such as timber, mango and papaya, in South-eastern Mexico. In the forest sector, FINDECA has provided 111.7 million pesos (about US$8.6 million) in two types of credit:
- Long-term credit for developing roads, wood drying equipment, and establishing agroforestry systems with sapodilla (Manilkara zapota), Maya nut (Brosimium alicastrum), and pepper;
- Working capital, oriented mainly to production.
The solution may seem obvious — to increase public, private, social and philanthropic investment in such enterprises. What has been less clear until now is how to achieve this.
Barriers to investing in locally-controlled forestry in Mexico
To analyse shortcomings in investment in the Mexican forestry sector, Reforestamos México organized a workshop in June with support from the British Government, IUCN, The Resource Foundation and Deutsche Bank.
We wanted to present our Spanish translation of the Guide to Investing in Locally Controlled Forestry —to 40 national and international stakeholders from civil society, the private sector, government and MSMFEs — and define ways to better align investments with needs.
We used the workshop to assess the state of investment in locally controlled forestry in Mexico, build a network of interested experts, and identify risks, benefits, success stories, stakeholders and the steps needed to promote such investment in MSMFEs.
The participants identified common concerns about investment conditions. One challenge they identified is that most Mexican MSMFEs are informal businesses and so they cannot interact easily with the formal finance sector. Another is that while the private sector and government do invest in MSMFEs (in supplier development and creating infrastructure, for example), they do so on a case-by-case basis. This raises costs in terms of both time and money, which means fewer enterprises can benefit.
Most importantly, though, forest rights-holders and the investment community don’t understand each other’s needs and motivations. These concerns led the participants to envision a long-term scenario of successful investment in Mexican MSMFEs.
For this to happen, MSMFEs must recognize themselves as businesses. This is something that, in Mexico, hasn’t yet occurred (the ILCF Guide mentions this as: "individual enterprises must aspire to eventually be mainstream clients of banks or desirable investment destinations for equity investors").
Second, the government and private sector must align their investments. This means that the government, as the stakeholder that ensures the necessary conditions for investment to happen, must invest in infrastructure development. The private sector, on the other hand, serves as a "commercial anchor" for MSMFEs, so it must invest in the development of successful business models.
Third, non-governmental organisations, as dialogue enablers, must identify and develop human capital in local forests. They must act to strengthen the knowledge and skills of those MSMFEs willing to do so, so they are more able, not only to attract investment, but to retain it as well. By making this happen, NGOs are able to catalyse the relation between investors and enterprises, swiftly taking it one step further.
The workshop identified two main elements of what it would take to make this vision a future reality:
- synergy among stakeholders, and
- a realignment of what are now separate actions, in order to improve the business environment.
Through our workshop we have developed a framework for promoting greater investment in locally controlled forestry in Mexico. Next steps include pointing out public policies such as subsidies that inhibit investment in locally controlled forestry and doing advocacy to remove them; and detecting the real “size” of demand for financial products from MSMFEs, since there is little information about it.
In early November, we will share the results of the workshop and launch our translation of the ILCF Guide, at a breakfast meeting for decision makers from government and investment sectors. With no effective management in place for two-thirds of Mexico’s potentially productive forest land, the opportunity for investment to bring multiple benefits is very real. The big question is whether or not rights-holders in ejidos and comunidades aspire to manage the forest beyond their actual conditions.
Download the Guide to Investing in Locally Controlled Forestry published by Growing Forest Partnerships in association with FAO, IIED, IUCN, The Forests Dialogue and World Bank.
Download the Spanish translation Guía para invertir en bosques localmente controlados