Mongolia : Forest Sector Development Program

Agriculture, natural resources and rural development / Forestry

Sector performance. Mongolia has about 18.5 million hectares of forest land which accounts for approximately 11.8% of the country's land area. There are two types of forest, the northern boreal forest accounting for about 85% of the national forest estate across fourteen aimags with 145 soums and about 154,000 households. The southern saxual forests are in the southern Gobi Desert and desert steppe regions. They consist of scattered trees and are limited in growth and biomass yet are important for stabilizing arid zone land and reducing desertification. All forest resources in Mongolia are state property. The Ministry for Environment and Tourism (MET) provides oversight for forest development and conservation, while aimag and soum administrations are responsible for forest management at the local level. Private forest enterprises (PFE) and community forest user groups (FUG) by law may have some contract forest management and use rights. Currently, only approximately 2.9 million hectares of boreal forest, less than 30% of the total area, is managed by about 100 PFEs and 900 FUGs.

The forest sector is conventionally defined as commercial activities relating to the extraction, production, processing, sale, and consumption of wood products and sometimes non-timber forest products. In 2017, revenue generated from the forestry sector was around $78 million, of which approximately 26% is captured by the government, and the rest is net profit for the private sector. This limited economic contribution can be attributed to the dominance of livestock and mining sectors, the lack of statistics on forestry, as well as the inclusion of only formal commercial activities and the exclusion of the informal activities where the value added by the forest sector takes place outside formal markets and is not reported. As a result, official statistics underestimate massively the actual value of the forest sector to the national and local economy. The net value-added from boreal forests may be in the range of $310 million a year, from timber and fuelwood, non-timber forest products and hunting, pasture, tourism, carbon sequestration, disaster mitigation, water regulation, and pubic revenues of which only around 8% of this is accrued as public revenue while the remainder is received from key users of forest goods and services. Recent policy changes have indicated an interest to build a stronger forest industry and increase forest utilization, however this is currently constrained by lack of investment, unclear development pathway and low quality of forest resources and management.

Core development problems. The institutional issues involve several interrelated areas such as policy, institutional structures, legislation, decentralization, research and extension, human resource development, and inter-sectoral coordination. Organizational structures that define the institutions and/or agencies required for translating policy directions into action on the one hand, and the authority for enforcing legislation on the other are constrained due to policy conflicts and gaps, limited qualified staff with technical capacity, institutional fragmentation and lack of clear mandates, and poor coordination. As a core function in sector management, this negatively influences on the operational quality and the sector development potential.

The depleted forest resource base is due to limited management which increases the risk from forest fire, deforestation, and damage from insect pests. The constraints which inhibit proper management include: (i) shortage of financial sources to invest in forests for government, PFEs, cooperatives and FUG activities; (ii) limited technical knowledge and skills; (iii) unclear policy and regulatory framework for benefit sharing and livelihood opportunities; (iv) insufficient technical skills and capacities at the local level for forest management planning and forest mapping; (v) limited support from local governments to FUGs and PFEs in the implementation of forest management plans; (vi) weak cooperation between FUGs and local government organizations in forestry activities; and (vii) natural resources conflicts between pasture lands in forest areas for management and responsibilities. As a result, there is limited effective engagement across all levels for forest planning, management, application of good silviculture practices, law enforcement, and opportunities for improving livelihoods.

Presently, the productivity, modernization, and commercialization of the Mongolian forest industry is limited, with the equipment and technology used being inefficient and outdated or obsolete due to lack of operation and maintenance and without investments during the past 1015 years. The limited interest has been driven by industry insecurity due to unstable supply of raw materials due to unstable harvest quotas and unclear forest development strategy which has caused frequent interruptions in production. Mongolian forest products have limited market opportunities due to low quality products caused from bad equipment, lacking skilled tradespersons, and without having certified products are excluded from certain high-value markets. Furthermore, investment in the sector has been constrained due to two key external factors namely, (i) cheap and high-quality imports of timber and other wood based raw materials from Russia; and (ii) cheap imports of processed wood products.

Opportunities. Sustainable forest management (SFM) is important to address several of Mongolia's development challenges, promote green development and deliver the Sustainable Development Goals as it aims to maintain the economic, social, and environmental value of all types of forests for the benefit of the present and future generations. At the social level, sustainable forest management contributes to livelihoods, income generation, and employment. At the environmental level, it contributes to important services such as carbon sequestration and water, and soil and biodiversity conservation. SFM requires a comprehensive approach covering inter-alia the following aspects: (i) forest land use and management; (ii) forest protection and land rehabilitation; (iii) forest resource and product utilization; (iv) socio-economic contributions from forestry; (v) adequate institutional arrangements including institutional restructuring; changes in laws, rules, and regulations; planning, monitoring, and evaluation; investment and financial matters; (vi) human resource development focusing on forestry; and (vii) forestry research. Against this context, the Mongolian forest sector development problem requires a comprehensive policy and fiscal response in the form of a properly sequenced institutional reform, as well as investment for improved forest management and protection and industry development actions.

Forestry development for Mongolia economically and environmentally sustained

Strategy for enhancing sustainability and productivity of forestry in Mongolia improved

Capacity for institutional, governance, management, and financial management enhanced

Arrangements for inclusive sustainable forest management implementation enhanced

Forest industry business and value chain opportunities improved

The project is supporting the Government of Mongolia to strengthen reform of the national forestry sector. A two-year knowledge and technical assistance project (TA) funded by a grant of $0.8 million from the Japan Fund for Poverty Reduction (JFPR) of the Government of Japan is being implemented to support this objective. The MET is the executing agency, acting through the Department of Forest Policy and Coordination (DFPC). Project preparation was conducted in 20192020. The TA was originally intended to design a loan-funded project, but at the Governments request the TA was revised to form a smaller, stand-alone project. The TA became effective on 4 August 2021. A consultancy venture, FCG Finnish Consulting Group Oy in association with the Mongolian Forest Research Association (the Consultant), has been recruited to lead the TA and was mobilized on 9 August 2021. The TA Midterm Mission was held in May 2022. The estimated physical completion date of the TA is 30 April 2023.

STATUS FOR OUTPUT 1: ON TRACK.

The targets in the DMF are that by 2023: 1a. Sector organization and restructuring plan drafted; 1b. Sector financing strategy drafted; 1c. Forest management information system design and framework drafted; and 1d. A report containing policy recommendations to enhance law on forest drafted. Progress against DMF targets: on track. Status: 1adraft outline prepared for the Forest Agency including institutional structure, staff positions, roles. The following tasks are a high priority to support MET needs: strengthen the draft outline; reduce number of positions; estimate costs for O&M; prepare implementation schedule to transition from current to future government structure and phasing out of government funding. 1banalysis started; draft report by Q3 2022; will include identification of financing needs and funding sources, a template for future costings, and draft budgets for the two model aimags. 1cbackground analysis completed; framework to be drafted by Q3 2022. The framework will be tailored for use by DFPC (national level) and Forest Units (local level) for monitoring, reporting and planning. It will be aligned with other relevant national databases and will include the conceptual design, scope, objectives, key functions, recommendations to strengthen laws and regulations, and an implementation plan for detailed design, installation and testing of the FMIS. 1dinitial review completed; present interim findings and recommendations to MET by Q2 2022; final report by Q1 2023.

STATUS FOR OUTPUT 2: ON TRACK.

The targets in the DMF are that by 2023: 2a.SFM implementation roadmap drafted; 2b. A report on mainstreaming SFM including financial incentives for FUGs drafted; 2c. Guidelines supporting new forest-based livelihoods drafted; and, 2d. Recommendations for enabling policy support to enhance SFM mainstreaming drafted. Progress against DMF targets: on track. Status: 2areviews and analysis completed; first draft outline of roadmap prepared; due by Q3 2022. 2b, 2c, 2danalyses started; reports due by Q3 2022.

STATUS FOR OUTPUT 3: ON TRACK

The targets in the DMF are that by 2023: 3a. A report on enabling forest-based private forestry enterprises (PFEs), including access to finance drafted; 3b. Guidance note to strengthen access to finance for forest-based PFEs; and, 3c. Policy recommendations for promoting private sector and forest industry drafted. Progress against DMF targets: on track. Status: 3aconsultations completed; analysis underway; report due Q3 2022. In accordance with MET guidance and the study findings, measures and recommendations are being developed to support clusters of enterprises working in forestry value chains. 3bnot yet started; due Q4 2022. The topic, content and format of the guidance note will be discussed and agreed with MET. 3canalysis started; due Q4 2022.

An extensive series of stakeholder consultations and site visits has been completed and the results presented in three workshops.

Preparation is underway for the the TA Final Review Mission (scheduled for February 2023) and TA Final Report (scheduled for April 2023). This will include a national strategy and action plan for proposed reform of the forest sector.