Demand for verified legal and sustainable tropical forest products (“good wood”) is increasing rapidly in markets around the world. Lao PDR can access these growing opportunities by transforming its forestry sector into a central pillar of a new green economy. Buyers in major international markets such as the European Union and United States increasingly demand proof of the legality and sustainability of imported wood products. There is also emerging interest in legal and certified wood within Asia: China, Vietnam and Thailand are all establishing standards for legal, sustainable wood. Lao PDR has an opportunity to reap substantial rewards if it can meet these standards.
The economic potential for Lao PDR’s forests is significant
- The changing market demand for “good wood” coincides with a global revolution in wood technology - the use of “engineered wood” in modern buildings – and with increased adoption of green procurement policies that require proof of sustainability and legality.
- Meeting the growing demand for “good wood” could be highly profitable for planted forests and natural forest management in Lao PDR. Internal rates of return for Laos’ main forest production models are internationally competitive at between 6 and 24 percent.
- About 67 percent of the Lao population is rural and depends on forests for their livelihoods. Over 39 percent of rural family income derives from Non-Timber Forest Products, which in 2010 contributed 9 percent of GDP.
Economic growth and revenues from good wood depend on good governance
- A modern forestry sector has the potential to drive Lao’s new green economy if facilitated by an enabling environment characterized by good governance, clear and consistent regulations and procedures, sustainability, inclusivity, decentralization, and profitability.
- The 2019 Forestry Law is a step forward, creating an enabling environment for sustainable tree plantations on degraded land and decentralized management of forests by villages. 108,000 hectares of state production forests have been independently certified, and systems for tracking timber legality throughout the value chain are being developed.
How to earn up to US$2 billion: Investment potential that can benefit local people
- About 650,000 hectares of degraded or barren land could benefit from socially and environmentally sustainable plantation investment. Several international companies are scaling up investment in forest plantations. The government is currently identifying about 400,000 hectares of such land in state production forest areas for investment, in line with the 2019 Forestry Law. The challenge will be to build strong partnerships among people, private firms and public institutions for sustainable local benefits.
- An estimated 300,000 jobs could be created by restoring 300,000 hectares of degraded or bare land, and via processing industries such as furniture making.
- Forests could be key to post-COVID-19 economic recovery given the 200,000+ laborers who returned from neighboring countries during the pandemic.
- Village-managed forests are important to a new green economy, providing opportunity for communities to partner with the government and plantations for multiple benefits such as revenue, food and environmental services.
- In Lao PDR and neighboring countries, smallholders are taking on a bigger role with commercial wood. Global experience shows that successful smallholder engagement requires clear and unequivocal ownership of trees by smallholders, reliable markets, enabling policies and a robust technical package.
Good partnerships and good investments can create good jobs from good wood.
Lao PDR can harness the opportunity for green growth by strategically positioning itself as a global center of green production and investing in natural capital (forest) and human capital (people)
- Lao PDR can benefit from implementing participatory sustainable forest management for both planted and native forest. This would improve the short- and long-term availability of timber and provide a long-term vision for credible domestic and international investors, smallholders and communities. It would also allow national and international forest enterprises to create jobs by investing in processing quality and capacity, worker skills and certification.
- Lao PDR can access the growing international market for legal wood by committing to certain goals to ensure legal timber including sustainable forest management, a certification process for forest management, and chain-of-custody. Such a system would attract potential investors with sustainability standards.
- Boosting private-sector investment will need good public policies and planning that reduce risks, for example by bringing authorities and communities together on decision-making processes.
Ensure that local people are partners in production and receive economic benefit
- Decentralized forest management by villages can restore degraded land and boost timber and non-wood incomes in appropriate areas. This is known in Lao PDR as village forestry and can, with the right empowerment, technical inputs and financing, enable villagers to reap multiple benefits.
- The government would benefit from strengthening efforts to promote local rights to plant trees and harvest wood for commercial and household use under clear requirements, in line with the 2019 Forestry Law.
- “Public-Private-People Partnerships” offer a viable approach for villages to participate in forestry via direct employment, production and partnership agreements. This approach works best with clarification and formalization of land-use rights and land-access agreements, transparent decision making, plus robust and fair contracts with access for all parties to mediation, arbitration and dispute resolution.
- Revitalizing smallholder plantation development would diversify land use, improve socioeconomic conditions and provide environmental benefits. Smallholders need clear tree tenure, harvesting rights, reliable markets and technical support.
Carefully set policies and incentive
- Lifting the timber harvesting and export bans for natural production forests could be carefully considered once sustainable forest management, appropriate licensing procedures, and strengthened government capacity for revenue management and distribution are firmly in place.
- While participatory sustainable forest management and planted forests can be profitable for villagers, smallholders and enterprises, carefully considered fiscal measures are necessary for future forest management. A stronger understanding of the fiscal impacts of policy and regulatory reforms would also be beneficial.
- To develop and sustain the forestry sector, investment is needed in research institutions, universities and technical colleges. These institutions can create a knowledgeable and capable workforce.
- Tangible benefits accrue from allocating resources to continuous support for regulatory and extension capacity at central, provincial and local levels.
- A government-led, long-term, large-scale investment program to manage forest landscapes in an integrated way would generate multiple benefits, not only in the forest sector. This program, now being established, will bring together the various stakeholders and financing sources, enhancing incentives.