Mongolia’s Forest Sector is Good Value for Money

Most people associate Mongolia with vast open plains and rolling hills of steppe grassland, but it also contains significant forest cover. The UN-REDD Programme recently completed a study to calculate the economic value of the forest sector and assess key financing constraints. This work forms part of the targeted support requested by the Government of Mongolia to assist in starting implementation of the National REDD+ Readiness Roadmap.

The study found that forests are worth hundreds of billions Mongolian Tugrik (MNT), or hundreds of millions of US dollars, a year to the Mongolian economy and people.

Unfortunately, as is the case in so many other countries, most of these important values remain “invisible” in official development statistics. The recorded share of the forest sector is estimated to be less than 0.5% of GDP. However, the reality is that its value is far higher than this. Just the net value-added to rural households from fuelwood use, non-timber forest products collection and forest grazing is equivalent to more than 12.5% of per capita GDP. Meanwhile, conserving the forests that lie to the north-west of Ulaanbaatar, Mongolia’s capital city, adds water values worth around MNT 60 billion a year (or US$35/hectare) to downstream water users.

Furthermore, investing in sustainable forest management brings high development returns. The government earns fiscal revenues of almost MNT 3 for every MNT 1 of public budget allocated to forests, and each MNT 1 of government and donor funding helps to leverage broader benefits to the Mongolian economy worth just under MNT 30.

Another key message was that investment in sustainable forest management remains very low, as compared to the economic importance of the sector. Budgets also tend to be concentrated on a fairly narrow range of “traditional” forest production and protection activities. The sector has an economic impact and potential which extends far beyond the current management and budgetary focus. This means that potential investment sources and revenue streams remain untapped, and opportunities to further enhance the economic value-added of forest goods and services are missed.

Stakeholder meetings were convened with the Ministry of Environment and Green Development (MEGD) to discuss these findings in April. Participants included Mr. J. Batbold, State Secretary of MEGD, as well as technical staff from both environmental and economic development agencies, academic institutions, NGOs and the private sector.

One of the key discussion points was: how can we make forest sector funding more effective, and raise its priority among decision-makers? There was a lively exchange of opinions among participants concerning how these goals might be achieved. Various factors in addition to an overall lack of funds were highlighted as obstacles to more effective forest sector financing and value-addition. These included: weak application of user pays and cost recovery principles, uneconomic pricing and costing, a lack of financial and economic incentives for stakeholder engagement and investment, and a disconnect between financial planning and actual operational management needs. It is clear that many instruments can be used to help transform the way in which the forest sector is currently managed and interacts with other sectors. REDD+ can be catalyst in helping such transformations.

The challenge, now, is to set in place the policies, markets and investments that can help to mainstream the forest sector into sectoral agendas and budgets, and help it better achieve its potential as a key development sector in Mongolia. Over the coming months, the UN-REDD Programme will work with the Government of Mongolia to assess the institutional context and entry points for these instruments, and integrate them into national strategies for REDD+ and green development.