The management of revenue collection involves proper planning, target setting and a management information system, to allow the monitoring of progress against set targets.
According to Omwami (1992), the ground scaling and standing volume methods of volume assessment recover, on average, 26 percent and 55 percent respectively of the total expected royalties per hectare. Low volume assessments translate into low royalty collection, so the efficiency of revenue collection was increased by eliminating the inefficient ground scaling method of volume assessment and replacing it with the current system of standing volume (stumpage) assessment. This assessment procedure is also easy to implement and sawmillers have developed a sense of the cost of individual standing trees.
The cost of revenue collection by the FD is small, as sawmills normally pay for produce at the station level where production occurs. In the case of lump-sum payments, sawmills usually pay by banker’s cheque through the local district treasuries. With this arrangement, the cost of revenue collection is small compared to the total revenue collected.
As mentioned elsewhere, the current royalty payable to the FD is rather low and does not reflect either the cost of production or the value of roundwood in international markets. Under these circumstance, sawmills are ready and willing to pay the royalties.
If the process of wood allocation is based on merit and the standards in FDGO No. 232 are met, then the current system could be viewed as fair and transparent. However, if there are cases where some are paying less (e.g. due to collusion and under assessment), the general tendency is for others to also devise mechanisms to pay less for the produce. This under-collection and non-collection of revenues is one area where the FD has major weakness.
Since 1995, the FD has taken various actions to improve revenue collection and recommendations for further improvements are described below.
Updating inventories: Accurate inventory data is essential for good management of the forest resources (i.e. for the determination of allowable cut, scheduling timber supply to the market in an orderly way and producing good advance data in the timber trade to facilitate development and growth of the industry). The current plantation inventory data was collected in the early 1990s. Since then a lot of developments have occurred, rendering this information obsolete. Therefore, inventory data should be updated on a continuous basis to establish a database on clearfelling, establishment, stand allocation records etc. This should be a basic parameter in sound forest management, which will eventually lead to improved revenue collection.
Mapping: Information about forest plantations is based on the sub-compartment area and this is currently a major source of most of the errors in the inventory database. Therefore, it is recommended that new maps should be produced to correct information about forest plantation areas.
Funding: Budgetary provision should also be increased for the inventory and mapping units in order to facilitate rapid updating of measurements before plantations are allocated to licensees.
Supply and demand reconciliation: Currently, the allowable cut from forest plantations is not known. There is also limited knowledge about current demand and supply. In order to improve the revenue collection, a starting point would be to develop a single sales decision process (KFMP, 1994) where cutting plans are institutionalised in the Forest Management Plans office. This office should monitor industrial plantation growing stock at the national level through the development of a national data bank. Based on this process, when sawmills request roundwood, the FD should allocate roundwood to consumers based on management plans and merchantable stock information. Any significant discrepancies between the expected volumes (based on management plans) and actual inventory assessment should be clarified through an independent revenue-monitoring unit before the wood is cut and removed from the forest.
Developing an efficient marketing strategy: The current practice (where wood consumers are allocated forest stands close to their wood processing factories) is not an efficient marketing strategy, because it restricts the utilisation of various roundwood assortments. If the FD is to maximise returns from the resource, then future wood allocation should be based on the consumer’s ability to efficiently extract all the assessed merchantable volume from the forest, regardless of the assortments.
Royalty revision: The current royalties paid for sawnwood and pulpwood are low compared to the value of the roundwood in international markets. This has, in part, resulted in significant inefficiency in the wood industry. Therefore, royalty (stumpage) rates should be reviewed and a regime should be developed to increase these prices to recover the full cost of production. In addition, at the moment there is also a big scope for improved revenue collection by more intensive collection of the arrears owed by some major customers.
Public auction: Open bidding and auctioning of roundwood could also be helpful, by setting market-based prices and improving the supply situation. It could also result in a pricing system that would correctly reflect the costs of extraction and delivery. For an auction system to succeed, the widest number of participants would have to be involved and the auction would have to be opened to others currently outside the industry. The FD would have to establish procedures to limit the possibility of collusion between major firms in the industry, but if this system was introduced, it is likely that revenues would improve, leading to enhanced sustainable forest resource utilisation.
Improved licensing process: The problems of licensing and low royalty rates are closely related. In response to the supply and demand situation in the industrial roundwood sector, the FD has been restricting the license period from five years to one year, cancelling the licenses of sawmills who are in arrears and withholding or delaying the issuance of other licences. Higher royalty rates would encourage sawmills to improve their conversion efficiency and would reduce the amount of trees cut in the forest plantations. Sawmills with low recovery rates would have a considerable incentive to improve technology and if there were genuine market competition for supplies and free trade in sawlogs, allocation inefficiency could be reduced. However, for this to work, it would be necessary to introduce a transparent licensing mechanism that would reflect the long-term nature of private sector investments in wood processing.
Integrated harvesting: Integrated harvesting should be tried (first on a pilot basis and especially in areas used for pulpwood production), so as to improve resource utilisation and revenue collection. At the moment, large quantities of wood are pulped for paper production, when it would be more appropriate to use them in sawmills or the plywood industry. In addition, there is a need to lower the top merchantable diameter limits from 15cm to 10cm for cypress and 20cm to 15cm for pine in order to recover extra industrial roundwood that would otherwise be marketed as fuelwood. The sale of cypress and pine tops as fuelwood is an inefficient marketing strategy and the FD could increase plantation sales revenue substantially in future by marketing softwood tops as pulpwood material.
Management information system: Finally, a strong management information system will be needed to collect and organise silvicultural and economic data related to stand-level forest management (especially: estimated growing stock; increment and yield; labour productivity; trade in forest products; forest revenue; and expenditure).
To a large extent, forests and forestry issues are the responsibility of the FD. In broad terms, the duties of the FD can be divided into:
§ protection and improvement of indigenous forests;
§ provision of alternative sources of fuelwood and poles; and
§ development of forest plantations to satisfy the ever-increasing needs of the forest industry.
From the financial point of view, the requirements for the performance of the above duties differ from each other greatly.
Protection and improvement of indigenous forests: Indigenous forests are protected mainly for the benefit of water catchment functions, soil conservation and general environmental protection functions (for present and future generations). It has been suggested that this should be considered as an investment in the future (KFMP, 1994). It is difficult to quantify these benefits, but it is assumed that the value of protection is greater than that of exploitation. Thus, it is taken for granted that protective duties must be performed and no annual revenues to the FD can be expected from these activities.
This has been the case since 1985, when a ban was placed on the exploitation of indigenous forests. However, the demand for these species is great, especially in the furniture industry. Due to this demand, there is illegal felling in nearly all the blocks of natural forest in the country. According to KFMP (1994), as much as 50,000 m3 of wood is produced in these forests each year, without the FD realising any revenue.
Provision of fuelwood and poles: Individual farmers and communities are most directly involved in these activities. However, the FD provides support through the provision of extension services. Currently, FD activities are mostly orientated towards social objectives in this part of the forestry sector. Government investment is rather low and mostly covers the payment of salaries and other related costs to extension staff.
Development of forest plantations: The industrial plantation development programme is the financial backbone of the FD. However, although estimates show that revenues from these operations should be sufficient to cover the cost of all operations, only about 29 percent of these revenues are actually collected (Omwami, 1992). There have been problems of low royalties (stumpage prices), under-collection and non-collection of forest revenue.
As a government department, the FD is financed through the government budget system. Operational expenses are normally covered from central government tax revenues, but the bulk of development projects are funded by external financing. The release of budget funds for forest management is not pegged to the collection of forest revenue, so there are no incentives for increased revenue collection as there are no arrangements to apportion or reinvest some of these revenues in forest management. Therefore, this arrangement has constrained the mobility and performance of the FD to implement sustainable forest management. Furthermore, the government has also not been able to fulfil its financial obligations towards the funding of the local costs of a number of development projects.
Based on the above, it is concluded that the government is increasingly unable to invest in forest management. The long-term implications of this for the timber industry and for the overall economy are, of course, disturbing because of the very considerable expenditure that has already been invested in both sawmilling and pulping in the country and the very large costs that would be incurred if these products were to be imported into Kenya.
In order to address the above problems, the following recommendations are suggested.
Financial independence: The revenue generating capacity of forestry operations is the key to improving performance in the sector. The FD should be a financially independent organisation, so that it can take full responsibility for the capital already invested in the sector. If the FD were allowed to retain a certain percentage of royalties, it is likely that it could raise enough money to finance its operations and meet the costs of forest protection, extension and administrative costs (and leave some profits from operations for the government).
Public-private partnerships: In forest plantations, the government should consider the alternative of letting the private sector lease land for commercial forestry development, with the FD performing a supervisory and monitoring role. Greater involvement of non-governmental organisations (especially in farm forestry development) could also be crucial. In the future, farmers will be a driving force for tree planting (and, thereby, increasing forest cover and associated environmental benefits). However, for this to be achieved, economic and non-economic incentives will be required.
It is notable that the overall government budget provision to the FD has been inadequate over the past several years. This situation is demonstrated by increased backlogs in silvicultural operations and uncontrolled and unsustainable use of forest resources.
In terms of investment in the forestry sector, the government has put most emphasis and resources into the development of forest plantations. In terms of area, industrial forest plantations account for only a small part of total forest cover, but their economic significance to the country is considerable. The raw material requirements for pulp and paper and other wood products needed for construction come mainly from forest plantations and they also play a key role in easing the pressures of exploitation in the natural forest.
In an effort to increase wood production from the forest plantation sector, the government has solicited loans from external sources since 1970. The main financial institutions funding development have been the World Bank and other bilateral donor. So far, approximately USD 153.5 million has been invested in the forest plantation development programme.
In spite of all these development, the forest plantation resource appears to have been neglected. Besides insufficient funds, there is serious imbalance in allocation between personnel emoluments and operational funds, leading to under employment (as employees have no tools and equipment to use for forest management duties).
In addition to industrial forest plantations, farm forestry is one area that has scope for development and could increase the supply of roundwood to the industry. Although the government’s investment in farm forestry has been limited to date, the results of farmers’ efforts can be seen from the KFMP (1994) wood biomass survey. This indicated that about 40 percent of the total wood biomass outside the closed-canopy indigenous forests is found in planted trees on farms. In order to improve the performance of this sector, a set of both economic and non-economic incentives should be put in place and the role of the government should be to create an enabling environment for these developments to occur.
Following the presidential decree that banned the commercial exploitation of indigenous forests, there has been no formal indigenous forest management. Since this ban, the main activities in these forest reserves have been limited to law enforcement activities geared towards protection and conservation, fire protection, game control and maintenance of paths and buildings. Other management activities include the restoration of degraded areas through enrichment planting.
The FD lacks adequate funding for the effective management of these forests and relies mainly on external grants from donor projects. Usually, the government’s contribution to forest management is only to pay forest guard salaries and a very small amount of operational and maintenance funds. Under these circumstances, natural forests face a lot of threats from human activity that include illegal encroachment, charcoal burning, poaching for timber and numerous forest fires originating from adjacent farmlands. If this trend persists, it is expected that the total area under natural forest will decline substantially as areas are converted to agricultural activities. Since the ban has not yielded the desired results and in view of the fact that sustainable management may offer limited returns, it is probably the right time to review the ban and allow limited exploitation on a sustainable basis.
Development of forestry in the arid and semi-arid lands is currently restricted, due to land tenure issues. The government investment in this sector is very low but it could be greatly enhanced by exploiting the high potential available, especially in the area of non-wood forest products development and marketing.
To summarise, the most critical problems in financing the FD are as follows.
Budgetary ceilings: These are the financial ceilings on FD expenditure set by the Treasury. They are quite rigid and constrain effective budgeting by the FD, leading to low implementation of work programmes.
Exchequer releases: Exchequer releases to the FD have not been timely, especially given the seasonality of forestry operation. These releases are also generally erratic and lower than the actual annual provision in the printed budget.
Delay in issuance of the Authority to Incur Expenditure: These authorities are required before the FD can spend money and it often takes a long time for the FD to obtain these authorities. In addition, in relation to the employment of casual labour, permission is also required from the Directorate of Personnel Management. Problems with these authorisations and permissions cause long delays in the implementation of annual work programmes.
Delay in disbursements: For some donor funded items, it is necessary for the Ministry to spend its funds first and then seek reimbursement through the Treasury. This system greatly impedes programme implementation, because the Treasury does not always have enough liquidity in the exchequer.
Lack of reforestation performance bonds: The timber processing sector is characterised by a small number of medium-sized sawmills and a large number of very small-scale sawmills. Apart from the only pulp and paper mill, these mills now operate on a one-year license, which has resulted in little incentive for long-term investment in the sector. Due to these problems, private sector involvement in plantation development has been lacking. There are no arrangements for specific funds other than the normal government funds for sustainable forest management functions and this situation has meant that the government is the only investor in the production and management of roundwood.
The solutions to the above problems include the following.
Budget allocation: In view of the size of the challenge of natural resource management and the direct and indirect contribution of forests to the general economy, the budgetary ceilings for the FD should be increased.
Revenue retention: The Treasury should allow the FD to retain a certain percentage of forest revenue collected, in order to reinvest this in operations and management.
Operating procedures: The FD should be allowed to open and operate a commercial bank account, in order to reduce the bureaucratic delay in disbursements
Agriculture: The current status of forest management in Kenya is rather discouraging. Forest cover is decreasing rapidly and this decrease is accelerated by the increase in population that, in turn, brings about the need for more agricultural land to produce food.
Although government policy is to intensify agricultural production, some fiscal policies dealing with input procurement, marketing and credit facilities have not resulted in increased land productivity. Therefore, some of these policies have resulted in “horizontal” expansion, where more and more land is opened up for agriculture. In nearly all cases, such land is converted from forest (or bushland in arid and semi-arid lands). Currently, this is resulting in a downward spiral of natural resource degradation, declining productivity and increasing poverty.
Urban development: The increase in population is also resulting in increased demand for housing, settlement schemes, schools and other public amenities. At the moment, the construction industry is growing rapidly, especially in peri-urban zones. This is leading to increases in land value that are exerting a lot of pressure to convert forests to other uses through both legal and illegal forest excisions. This trend is now very common in both rural areas and in forests near to urban areas.
Energy: The lack of an appropriate energy policy (e.g. with respect to tariffs and other charges) has resulted in a majority of the population relying on woodfuel as a source of domestic energy. Over 80 percent of Kenya's population is currently dependent on woodfuel and it is estimated that 80 percent of household woodfuel demand in urban areas is met by charcoal. Therefore, the use of woodfuel is exerting a lot of pressure on forests and this is resulting in over-exploitation and unsustainable forest management. A more supportive fiscal policy in the energy sector (especially to encourage urban households to consider alternative types of energy) could contribute to sustainable forest resource management.
Trade and industry: The government has recently authorised the importation of commercial timber and has put in place incentives and subsidies on duties and other taxes. This measure is expected to reduce pressures on the already meagre forest resource, which will eventually assist sustainable forest management.
The sawmilling industry in Kenya is characterised by a lot of waste. On average the recovery rate in sawnwood production is about 25 percent. This is largely attributable to the use of old, inappropriate and inefficient machinery for sawmilling. While most sawmillers are aware of the existence of modern and more efficient equipment and are willing to invest in them, high taxes levied on such machinery have been a disincentive. As part of a wider restructuring of the timber industry, the government should explore the possibility of lowering or waiving duties levied on such machinery (as they already do with other agricultural implements).
The development of ecotourism as a non-extractive use of forests is currently improving the level of forest management. Supporting fiscal measures, such as user charges and mechanisms to facilitate access and benefit sharing by local communities will greatly promote sustainable forest management through collaborative and participatory mechanisms. Introduction of water use charges for the main utilities (based on the volumes used), could also contribute immensely to sustainable forest management if they were reinvested in catchment management. In future, the use of appropriate supportive fiscal policies such as these could be an important tool to enhance the sustainable use of natural resources and promote environmental sustainability.
Forestry policy in Kenya can be traced back to 1957 (White Paper No. 1 of 1957) and was restated after independence in 1968 (Sessional Paper No. 1 of 1968). These documents provided continuous guidance on sustainable forest management and included the following policy objectives for the sector:
§ the reservation of forest areas for catchment protection, production of timber and other forest resources;
§ the protection of forests by strict control of fire and grazing and by the eradication of private rights in gazetted forests;
§ the management of state forests on a sustainable yield basis as far as is consistent with the primary aims of forest reservation;
§ the development of forest industries;
§ the provision of adequate funds for the implementation of forestry policy;
§ the provision of employment in the forestry sector; and
§ the promotion of research and education.
Due to significant changes that have taken place in the country and the rest of the World (especially after the Rio-Summit of 1992), the government has now started to update the policies and legislation related to natural resource management (including forests) in Kenya.
In recognition of the inadequacy of existing policies, the government has been reviewing forest policy and legislation since 1991. It has realised that sustainable forest management requires the involvement of all citizens and adjacent forest communities. It is also now clear that forestry issues are no longer a narrow sectoral issue, but a component in overall integrated development efforts that aim to raise the living standards of the people, create employment and increase industrial output for both local and export markets.
A new forestry policy has now been approved by the government and is currently ready for submission to parliament. This policy has been prepared through wide consultation and participation of all stakeholders and has taken into consideration other existing related policies. This policy includes the following:
§ an increased role for the private sector and other stakeholders in sustainable forest management and utilization;
§ greater participation of local communities and recognition of gender issues in planning, programming and implementation of forest programmes and access to benefit sharing from forest resources;
§ an increased role for farm forestry and dryland forestry in the expansion of forest resources, services and products; and
§ recognition and adherence to global conventions and other protocols related to sustainable forest management.
The new policy, together with the Kenya Forestry Masterplan, will form the basis of the forestry component of the National Development Plan and is expected to guide the development of the forestry sector into the new millennium.
In order to support the new policy, the government has also embarked on a revision of the current Forest Act (Cap 385). After consultation, a draft Forests Bill has already been prepared for enactment by parliament and, when approved, the new legislation will provide the legal basis for implementation of the new policy.
There have also been numerous other government proclamations on the need for sustainable forest conservation and management. For example, the government has pledged to allocate more funds for reforestation programmes and has recently authorised the importation of timber for commercial use so as to reduce the pressure to exploit the remaining meagre forest resources.
The government has also produced a number of studies to review the role of forestry in the socio-economic development of the country, including the following:
§ Economic aspects of forestry development (1992).
§ Review of forest industrial plantation methods, of royalty assessment and revenue collection (1993).
§ Development of separate accounting system for plantations grown wood (1993).
§ Plantations forest inventory and management planning project (1993).
§ The Kenya Forest Masterplan (1994).
§ The National Environmental Action Plan (1994).
§ The reorganization of management of industrial plantations and restructuring options for the Forestry Department (1997).
The list of studies above shows that a lot of information and recommendations have been generated that, if implemented, could lead to enhanced and efficient forest management. However, the commercialisation of forest plantations can not be implemented in a single step and this remains an issue that needs careful study. There are also other issues related to forest valuation, operations, economics and social equity that have to be resolved and where FAO could assist (e.g. by organising a donor round table consultation to review the sector and recommend ways forward).
The government has recently (January 2000) enacted the Environmental Management and Co-ordination Act, which includes comprehensive environmental legislation with overriding legal authority with respect to other land-use laws. A National Environmental Action Plan has also been produced, which includes an overall strategy for all natural resources (including forestry) that will harmonise the activities in different sectors.
The government has also embarked on a programme of rationalisation (including “right-sizing” the number of staff working in the forestry administration). In order to enhance efficiency and improve productivity and the quality of service delivery, the existing imbalance between budgetary provisions for personal emoluments and operations and maintenance has been addressed under this programme by the intended divestiture of non-core functions and a proposed reorganization of the FD. The aim of this programme is to improve the effectiveness and productivity of forestry operations in order to ultimately achieve the goal of sustainable forest management.
Despite all of the above initiatives, there are still some problems in forest management that are a serious course for concern. Consensus exists among forestry professionals that strong political support is still required in order to reduce interference with forest operations and management. There is also a strong feeling that there is still almost no participation by stakeholders in the planning and development of forest resources. Stakeholders should be sensitised to enable them to participate fully in forest issues and this could be achieved through round table discussions in workshops and other appropriate meetings. As the leading global forest agency, the FAO could spearhead such an endeavour.