Investment encouragement mechanisms in forestry sector: Analysis of global experience and its viability in Russia

Abstract

Undoubtedly, a forestry sector is an integral element in the economy of Russia. A forestry sector is defined to be a set of industries, including forest industry and forestry, and its relevant tasks today are to improve the competitiveness of the forest industry and to provide the advanced growth for the sector on the whole. One of the barriers preventing the Russian forestry sector from development is a low recycling degree of raw wood, which, in its turn, is determined by a deficit of wood processing enterprises and underdeveloped investment encouragement mechanisms. Efficient investment strategy should account for the national and international practices, which supports the relevance of this research. The purpose of the study is to systematize the best global practices in investment encouragement in the forestry sector to reason their application in national context with regard to the institutional and natural climatic features of the development in the forest industry and forestry in Russia. Methodology of the research includes general scientific methods, as well as a comprehensive approach aimed to analyze the most relevant national and international materials and reports from the specialized institutions dealing with the issues concerning the forest and forest resources management. The scientific novelty of the research focuses on the classification of the best global practices in investment encouragement in the forestry sector of economy, the classification summarizes the experiences of the leading countries in forestry. The study identifies the most popular investment encouragement methods, including administrative and economic measures, in the leading countries in the respective forest resource reserves. The programs of non-financial support for the forest land users, consultations, and educational programs, R&D encouragement are among the administrative measures. Economic measures cover the fiscal and monetary policy tools, including concessional taxation, public subsidies, joint investment of the projects, and soft loans. The paper proves that direct transfer from the international practices will not give any significant positive effect and development in the forestry sector of Russia and will not improve the competitiveness of the national forest processing companies as the investment encouragement measures should account for the natural climatic, social economic and institutional features of the forestry sector. One should take into account that the forest land property rights belong to the state in the Russian Federation. With these features in mind and the classification of the best global practices in investment encouragement in the forestry sector of economy in hand, it has been found that the support measures which work in Canada are likely to be the most efficient ones under the national conditions because Canada runs similar forest land property rights. Canada practises R&D encouragement and public subsidies which could be implemented in Russia as a type of public-private partnership or other types of joint investment of the projects in the forestry sector. Therefore, the research carefully looks at the public measure started back in 2007 and aimed at large-scale investment projects in forest exploration and identifies a number of associated problems. The most burning issues are as follows: national investors are not sufficiently interested in the project completion, the products from the forest processing enterprises have low profitability, which is determined by high electricity and railway tariffs, there is no spatial distribution scheme for particular types of production with regard to the availability of forest resources and the needs of the domestic market in timber and paper products, wood is harvested illegally on the rented plots designed to be used for the priority investment projects, the forest resources are not sufficiently applied and recovered, the deadlines and other project’s parameters are violated, and the feedback links between the enterprises and the authorities monitoring the projects are underdeveloped. Along with that, the practices of public subsidy programs show that acquiring the status of a priority investment project in forest exploration is seen to be one of the most efficient measures in investment encouragement in the forestry sector. Further research should focus on the development of a comprehensive approach to the analysis of the efficiency of the priority investment projects to justify the offers in investment encouragement mechanism improvement in the forestry sector in Russia. This approach should be based on the analysis of the econometric factors which determine the success of the projects.