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3 rd High Level Market Dialogue Sultan Hotel, 21 st August 2013 Agus P. Djailani, MFP

Improving business enabling environment in support of SVLK; improving access to international markets. 3 rd High Level Market Dialogue Sultan Hotel, 21 st August 2013 Agus P. Djailani, MFP. SVLK is not only a forestry problem.

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3 rd High Level Market Dialogue Sultan Hotel, 21 st August 2013 Agus P. Djailani, MFP

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  1. Improving business enabling environment in support of SVLK; improving access to international markets 3rd High Level Market Dialogue Sultan Hotel, 21st August 2013 Agus P. Djailani, MFP

  2. SVLK is not only a forestry problem Successful implementation of SVLK requires improvement in business enabling environment

  3. Lessons learned from SVLK technical assistance: slide-1 • Legality (Principle 1): • Incomplete permits, different addresses, different capacity, or already expired • Disturbance/HO or environmental permit/EIA Rp. 12 million (Jepara, Surabaya) • Sawmill permit (IUIPHHK) officially Rp 700,000 in Jepara but Rp. 500 million (Pasuruan) • Small scale producers are afraid of getting business permit/SKU and Tax ID/NPWP; don’t want to deal with bureaucracy and tax. • SME must provide additional staff to deal with permits, timber administration, financial & tax reports

  4. Lessons learned from SVLK technical assistance: slide-2 • Timber Administration (TUK) in accordance to PUHH: • More issuers of FAKB from Timber Traders to sawmill • Only 3 issuers of FAKO (GANIS) di Jepara; cost of up to Rp 400.000/rate • Only 2 GANIS Supervisors in Jepara overseeing >800,000m3 • Record of timber invoice is kept for outstanding ‘credit’ but disposed when settled • Difficulty in making timber reconciliation report (LMKO); unable to calculate ‘recovery’ Training of Technical Specialist > FAKO issuers for Jepara. Semarang, February 5-21, 2013

  5. Lessons learned from SVLK technical assistance: slide-3 • Facilitation: • Well managed companies easy to facilitate • Those exporting to EU are more ‘motivated’ to be certified • Group certification requires extensive facilitation >3 months; horizontal group more difficult vs vertical one • “SVLK Help Desk” is needed at every ‘production centre’ Training of SVLK Facilitators; Solo, April 4-8, 2013

  6. Wood product export highlights: • Slight recovery in total wood product exports (excluding pulp & papers) by USD 29 million, but not significant! • Significant increase/recovery in wood furniture exports by USD 152 million from 2011 to 2012 • No change in plywood export • Recovery in woodworking product in 2011 (HS 4409.290000) led by Teak friezes for parquet flooring & other non coniferous other Teak strips

  7. Issuance of V-Legal document by LIUas of 21st May 2013; 08:00

  8. Classification of timber based SMEs facilitated for SVLK by MFP & Partner • SME furniture ready for certification > “Low Hanging Fruit” • Group certification– Horizontal: a collection of independent small scale producers establishing a legal entity (group) • Group certification– Vertical: Exporter having regular suppliers and independent subcontractor

  9. 1) SME ready for SVLK Profile: • Already have ‘voluntary’ certification: LEI, VLO, FSC, TFT, member of WWF-GFTN • High level commitment by owner/management for certification; and request by buyer • Complete and up to date business/operational permits • Experienced staff in timber administration and or COC Examples: • JAWA FURNI: LEI, TFT, VLO & FSC • CV KWAS: a member of WWF GFTN, FSC • RAPI FURNITURE: well established Production Planning & inventory Control (PPIC) system

  10. 2) Group certification– Horizontal External Factor The biggest problem found in the field is in establishing legality of the business. It requireshigh cost and complicated procedures. As an example in the disturbance permit/HO, more than the time needed, at every phase from village level to the regent they asked for money from hundred of thousands to million rupiah. Internal Factor Main problem is the quality of human resources, availability of staff who understands SVLK from each micro enterprise. This is the main problem in preparation of supporting documents for permits/licenses.

  11. 3) Group certification - Vertical

  12. Preparation for SVLK audit Legality aspects: Letter of Incorporation, SIUP, TDP, NPWP, HO, AMDAL, IUI, ETPIK Timber administration: Purchase orders, invoices, transport documents, etc Legality of finished products: Export declaration (PEB), Packing List/ Invoice Labor laws: Work safety Officer (K3) Fire extinguisher (APAR) Industry accident reports Company’s Regulation (PP) No underaged labor

  13. KOMPAS-27/2/2013 > a letter from reader on cost of EIA in Surabaya

  14. Lessons learned from IFC Access to Finance - A2F PENSA (2003-2008) • Largest portion of 45+millions SMEs have no formal licenses • Financial institutions only deal with ‘formal business’ leaving out ‘non-formal’ ones • Formalizing businesses require improvement in ‘business enabling environment (BEE)’ • Supported establishment of One Stop Shop (OSS/PPSA- PelayananPerizinanSatuAtap) at Provincial and Regional levels • Supported establishment of Promoting Enterprise Access to Credit (PEAC), BDSP • Principle 1 of SVLK requires support from PPSA in formalizing the enterprises through “SVLK CLINIC”

  15. Jepara SVLK CLINIC Visit of ChairulBasri, Director General of Foreign Trade SVLK CLINIC – collaborative efforts by Associations and Jepara Regency

  16. Recommendations: • Facilitation from beginning is crucial and determine success of SVLK audit. • Further facilitation required in business management and market development > entrepreneurship. Based on failure of “Surveillance” • Timber trader is an important player in SVLK, however remains ‘untouched’, especially in establishment of registered logyards (TPT) which can issue FAKB; provide credits • Ease of business/operational permits at Provincial and Regional levels, such as establishment of One Stop Shop = “PelayananPerizinanSatuAtap (PPSA)” in support of < SVLK CLINIC > • SVLK is a mandatory national regulation > technical and financial assistant needed for small scale forest and industry. Closer coordination with Ministry of Cooperatives and UMKM • Incentive for smallholder forest (UMHR) > guaranteed market for certified timber > Public Procurement Policy = LembagaKebijakanPengadaanBarang & JasaPemerintah (LKPP) • International and national promotion of SVLK products

  17. Thank youaguspd@mfp.or.idwebsite: www.mfp.or.id

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