This report presents the outcome of a macroeconomic survey of the forest sector of the Republic of Latvia. The survey is a product of the first two inputs of a macroeconomic consultancy integrated into the ROL/FAO "Strengthening the Institutional Capacity of the Latvian Forest Authority" project. It presents issues and parameters facing public and private sector decision-makers in their respective attempts to develop this sector. It identifies opportunities and constraints to investment and proposes measures to, accordingly, either engage them or remove them. It also attempts to introduce simple methodologies to undertake analysis currently constrained by the absence of more comprehensive data.
In the early part of this decade the Republic of Latvia underwent a not so quiet revolution, which eventually resulted in a shift from a centrally planned command economy to a more market, oriented competitive economy. The country has achieved many milestones since then, though in many respects it is still "emerging" from the former conditions and in "transition" to the latter. As a consequence, the governance instruments, institutions and economic systems and practices of even the recent past are less able to serve the needs of society’s expectations for its forest resources as well as they could.
The dominant form of pre-1991 socio-economic organisation and practices in the ROL forest sector reflected the common soviet approach to forest management. As elsewhere in that former regime, this provided a rigid doctrinaire style of prescriptions and interventions. It presented extremely limited scope for responding to, amongst other variables, differences in forestland productivity, species and age class distributions, manufacturing infrastructure and to changing market circumstances. Debatable "norms" and "decrees" prevailed over more defendable principles widely accepted and in effect in more mature forestry constituencies elsewhere. It is now well known, in spite of the above, that Latvian forest managers effectively conspired to thwart soviet efforts to harvest local forests by understating forest yields, and a variety of other mechanisms.
On most fronts – though not all – there appears little reluctance to modernise Latvia’s forest sector. As much as possible, efforts have been undertaken to return to previous owners pre-1940 private lands that were confiscated and collectivised. For now – and maybe forever – the state has chosen to retain ownership in lands that it has traditionally held – at least to the extent that this was the case before WWII. In respect of public forestlands in the ROL, the state retains the full range of responsibility for forest management – from crop establishment to harvest. The post-harvesting re-establishment of forest crops on private lands is also prescribed by the state.
There is significant evidence of recent dramatic changes in the forest industry in Latvia. A variety of firms are producing and exporting manufactured products, and not just roundwood – though those volumes do remain very high. Aside from sawnwood, capacity improvements have been achieved in veneer, chipboard, fibreboard and plywood. With IFC assistance, an information memorandum has been produced presenting a prospectus-like review for the construction of a new green-field 500,000 or 600,000 Adt/a pulp mill.
A token of the recent approach to enhancing the capacity of the country’s forestry authorities and related institutions (organisations and practices) is seen in the recruitment in the SFS and SFD of several new management and professional staff. The previous order of socially and economically questionable approaches and results is being rejected – here and in society at large. The shift in focus is obvious and directed towards the goal of reorienting public and private sectors alike towards effective and efficient sustainable forest management.
The ROL/FAO project, of which this consultancy is a part, is largely focused upon providing a model for reshaping the institutional, governance (legal) and economic structures covering Latvia’s forestry sector. It is guided by the country’s forest policy and its current (post-October 1998) government’s legislative and social platform regarding the state’s role in this sector.
This report describes forest sector parameters, activities and outcomes and relates them to "macro" issues that, because of their scope, generally involve state initiatives in their resolution. It describes certain sectoral outcomes and what they could potentially be. It describes the significance of both the existence of certain practices and of the absence of others. It accomplishes this to the extent existing sectoral statistics and data permit.
As mush as possible, basic macroeconomic observations were derived for existing configurations within the forest sector (timber supply, processing capabilities, relevant infrastructure, products and their markets, etc.).
The principal constraint to conducting a more comprehensive economic (macro or micro) survey of the forest sector relates to the absence of already processed or even raw data on industry structure and performance. Frequently where data is available, its providers quite openly and accurately identify many reasons for considering it incomplete and, to different degrees, unrepresentative.
The economic survey presented in this report can only be considered a "first approximation" though it surpasses previous efforts to examine the macroeconomics of Latvia’s forest sector.
Statistics collection in Latvia has progressed considerably since independence. Aspects of it are, in fact, very well advanced and comparable to the best found elsewhere. Standard EU and UN approaches, as well as others, are in place and already facilitate some useful comparisons with other international constituencies.
A major problem still to be adequately addressed lies less with data processing or documentation and more with data collection. For a variety of reasons, (historical mistrust of authority, tax evasion, non-enforcement, etc.) it is conceded that sampling procedures currently do not result in a complete or accurate representation of the population parameters they are meant to monitor.
As much as possible during this consultancy, attempts were made to collect the most current and comprehensive data potentially available to it. Generally this effort was accomplished – and further emphasised what data was actually not available.
The ROL/FAO project is comprised of two phases. The first phase conducted analyses of major economic, institutional and legal issues within the forest sector. These will provided a "snapshot" of sectoral parameters and a starting point for the second phase. The second phase synthesis options for optimising the structure of state forest authorities. The immediate objective is to stimulate the development of, i) a more productive forest resource base and of, ii) a competitive forest industry able to maximise its potential contribution to the Latvian economy.
To provide a context for the project activities and its analysis and observations, existing national forestland development objectives are discussed in Chapter 2 along with how these relate to key issues of optimising forest use.
Chapter 3 describes the forest land resource base and presents concepts related to its valuation. Chapter 4 presents specific macroeconomic indicators defining the economic context within which the forest sector operates.
Chapter 5 reviews forest sector value-added activities and levels to the extent permitted by the credibility and representativeness of existing data. A simplified value-added model was developed for this project to demonstrate its potential flow amongst claimants. The outcomes it produced derive from preliminary analysis which the economic component of the ROL/FAO project will continue to develop beyond the term of this specific consultancy.
Constraints to, and opportunities for, sectoral development are presented in Chapter 6. This section includes brief observations of political and economic risk for the sector. Though a greater depth of investigation into potential investors would be useful to broaden this discussion - generally overall indications are positive.
Key recommendations and conclusions are provided in Chapter 7. A glossary of terminology and a list of references appear at the end of this volume.
