A requirement of an effective forest revenue system is that forest revenue is generated from all possible sources (i.e. marketed and non-marketed forest goods and services) and that this money is then reinvested the sector for the sustainable production of forest goods and services. At the moment, this is not the situation in Ethiopia.

The state forestry sector generates revenue from state owned natural forests and forest plantations, mostly in the form of stumpage fees. In addition, before decentralisation, forty percent of the value of sales by private forest owners was collected as a service charge. This money was used to support the sector, but nowadays the revenue collected by the forestry administration is deposited in the general government accounts at the federal and regional levels of government.  The amount of money released back into the sector again is not sufficient for investment in the future development of the forest resource or even for the sustainable management of the forest resource.

Most forestry sector activities are currently financed by development funds from the Federal Government of Ethiopia. The level of these funds often falls short of requirements. For example, the total forestry development budget is tiny compared to the total national development budget. Thus, the sector largely depends on foreign assistance to secure modern forestry equipment and other facilities that are important from the implementation of sustainable forest management. Furthermore, under the current fiscal arrangements, there is no link between the costs and benefits (to the government) of improved forest management and there is very little scope to use modern management techniques.

The current market structure in the forestry sector in Ethiopia is also a problem. On the one hand, processed product markets are unregulated and the free market gives rise to many different prices based on wood quality, species and rarity. However, the sale of harvesting rights to roundwood by the state remains heavily regulated and this distorts the prices of roundwood in the private-sector and reduces the incentives for good forest management.

In addition, there has been very little monitoring and evaluation of the impact of previous development efforts in the forestry sector. For example, the rehabilitation of degraded land by afforestation has not been evaluated systematically.

To improve the effectiveness of the forest revenue system, the following recommendations are proposed:

Each regional state should conduct a study on forest products pricing, using the methodology developed by SIDA in 1990 in collaboration with the Ministry of Agriculture. This should take into account the need to recover tree replacement costs and the need for a little additional money to cover future development expenditure in the sector. The aim of this should be to produce appropriate stumpage fees and royalties for each state.

Following this, states should closely monitor forest product prices in order to update their stumpage prices, royalties and other charges.

The responsibility of managing trees and forest resources should be supported more clearly by the provision of supportive policies and adequate incentives in the sector.

Stumpage fees and royalties should be put into a revolving fund rather than the general government accounts so that it becomes easier for the sector to invest in the development of forest resources. This should enable the forestry sector to play a more active role in the development of the country.

The present levels of funding for sustainable forest management are insufficient to address all of the threats to Ethiopia’s forests and the shortage of funds is a major constraint to the effective management of the remaining forest resource. For example, most forest plantations in Ethiopia have not been tended properly and are stunted or deformed due to lack of silvicultural treatment (as result of financial constraints). In addition, there is no infrastructure in most natural forests, which cases bottlenecks for the control of forest fire hazards. Under these circumstances, it is almost impossible to think about how to implement sustainable forest management.

Funding from government sources is mostly limited to recurrent costs, such as staff salaries and administration, and is equal to only a fraction of the revenue that the sector generates. Most forest revenue is used by government for other sectors that do not have direct links with the forestry sector. Steps must be taken to allow forest revenue to flow back to the forestry sector.  

Market prices of many forest products fail to reflect their full economic costs, due to the open access to the forests and woodland resources.  For example, most of the woodfuel collected from these open access forests has an (implicit) stumpage price of zero, which results in waste and inefficiency in the production and consumption of energy. 

In order to ensure sustainable forest management, the following actions and improvements are suggested:

The forest revenue collection system should be revised to guarantee that forest revenue will be reinvested in forest conservation and development.

Stumpage prices should be raised to a level that recovers the tree replacement costs plus an additional amount to cover future development expenditure.

Stumpage fees should be based on replacement costs, cross-checked with market prices.

Innovative financing mechanisms for the forestry sector should be introduced and promoted. 

At both the federal and regional levels, less than 10% of the budget of the Ministry of Agriculture is spent on forestry and the total budget for the ministry is only a tiny fraction of total government expenditure. Most of this expenditure is spent on salaries and allowances and very little is spent on investment. Furthermore, a high proportion of this expenditure is spent on extension services.

In general, funding to the forestry sector is very low. This is due to the following:

The exclusion of the forestry sector from the national development planning process.

The underestimation of the contribution of forestry to GDP.

The frequency of institutional changes in the sector.

The lack of adequate land-use and forestry policies.

These factors have all contributed to the low level of support for the sector, which is reflected in the very low level of funding allocated to the sector.

Given the high degree of dependence on natural resources and the environment in Ethiopia, there is a need to integrate environmental protection and sustainable forest resource management, in order to achieve economic and social development in the country. At the national level, there is a growing realisation of the value of forests as a renewable resource and of their role in the production of a range of goods and services. However, at the practical level, this realisation is not being turned into action.

For example, despite the growing public concern about forests, the increases in population and pressures for social and economic development continue to drive the trend towards more forest clearance. This problem is further increased by the domination of short-term economic and market forces over environmental considerations, which frequently results in the acceptance of unsustainable activities.

Most of the natural forest in Ethiopia has been lost during the past three to four decades and the major reason for this has been the lack of proper policies for forests, land-use and population pressure. These failures have been exacerbated by the traditional farming practices used in the country and increasing poverty, which have resulted in very strong forces to expand agricultural land in the country by clearing forests.

This increasing demand for more food and farmland remains point of conflict between agricultural development and sustainable forest management. The core of the conflict is that agricultural areas have to expand to increase the production of food and farmers are continuously looking for land to clear for agriculture. The result of this is that farmers clear vast areas of forest every year.

Furthermore, the current approach to increasing agricultural production in the country is largely based on the expansion of agricultural areas. This is further exacerbated by the development of cash crops (the expansion of private coffee and tea plantations is a prime example of this) and the absence of secure land tenure. For example, farmers currently have little incentive to intensify production because this requires investment in land improvement. Farmers are unlikely to make such investments as long as land tenure remains uncertain.

The loss of access to common property resources (such as forests) is another major problem in the country. Traditionally, forests belonged to local communities, but over time they have lost the sense of ownership and responsibility for these resources.

The absence of a clear land-use policy prevents the development of a capacity in land-use planning at all levels of the administration. The development of a clear land-use policy could help to improve the co-ordination of activities in different land-use sectors and contribute to the achievement of sustainable forest management.

Improved forest management and the conservation and protection of genetic resources are embraced in the overall conservation strategy of the Ethiopian Government. The government has issued a number of proclamations about the conservation and development of forest resources, including several proclamations about revenue sharing with local communities living in and around protected forest areas. Furthermore, the Ministry of Agriculture is currently developing policies and legislation for the management of protected areas and wildlife. The government is committed to conservation through the development of an efficiently managed protected area system, including: national parks; wildlife sanctuaries; and state forests; and the government is currently developing of policies and legislation to turn this commitment into action. 

The needs of forest dependent people are gradually being given more attention, in line with the international trends that stress the benefits of involving local population in forest management. Indeed, participatory forest management is now seen as a means to encourage sustainable forest management. As a first step, the government has decentralised the forestry administration and the responsibly for managing forests has been handed over to the regional administrations. Other developments in this area include the proposals to start to issue long-term leases to the private-sector for the management of forests.

Currently, policies and policy related issues are probably the most important constraints that restrict progress towards sustainable forest management in both the public and private‑sector. For example, Ethiopia has never had a forestry policy or a policy on land-use. Various development programs have been tried in the past to promote the development of the forestry sector, but they have met with very limited success due to lack of an adequate policy environment in the country. This limitation has been recognised as a concern by both the government and non-governmental organizations, but there remains a lack of political will to implement radical changes. It seems likely that this situation can only be rectified if policymakers develop a better understanding the role that could be played by the forestry sector in the development of the country.