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

Improving business enabling Improving business enabling environment in support of SVLK; environment in support of SVLK; improving access to international improving access to international

marketsmarkets

3rd High Level Market Dialogue

Sultan Hotel, 21st August 2013

Agus P. Djailani, MFP

SUCCESSFUL SUCCESSFUL IMPLEMENTATION OF SVLK IMPLEMENTATION OF SVLK REQUIRES IMPROVEMENT REQUIRES IMPROVEMENT IN BUSINESS ENABLING IN BUSINESS ENABLING ENVIRONMENTENVIRONMENT

SVLK is not only a forestry problem

Lessons learned from SVLK technical Lessons learned from SVLK technical assistance: slide-1assistance: 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

Lessons learned from SVLK technical Lessons learned from SVLK technical assistance: slide-2assistance: 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

Lessons learned from SVLK technical Lessons learned from SVLK technical assistance: slide-3assistance: 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

Wood product export highlights: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 exportRecovery in woodworking product in 2011

(HS 4409.290000) led by Teak friezes for parquet flooring & other non coniferous other Teak strips

TOTAL ISSUED 28,731

DESTINATION COUNTRY

139

MEMBERS of EU 26

HS CODE 36

SHIPPING PORTS 61

PORTS OF DESTINATION

749

WEIGHT (KG) 2,841,641,605VALUE (USD) 2,229,106,781

Issuance of Issuance of V-Legal V-Legal document by LIU document by LIUas of as of 21st May 21st May 2013; 2013; 08:08:0000

Classification of timber based SMEs Classification of timber based SMEs facilitated for SVLK by MFP & Partnerfacilitated for SVLK by MFP & Partner

1) SME furniture ready for certification > “Low Hanging Fruit”

2) Group certification– Horizontal: a collection of independent small scale producers establishing a legal entity (group)

3) Group certification– Vertical: Exporter having regular suppliers and independent subcontractor

1) SME ready for SVLK1) SME ready for SVLKProfile:Already have ‘voluntary’ certification: LEI, VLO, FSC, TFT, member of WWF-GFTN High level commitment by owner/management for certification; and request by buyerComplete and up to date business/operational permitsExperienced staff in timber administration and or COC

Examples:JAWA FURNI: LEI, TFT, VLO & FSCCV KWAS: a member of WWF GFTN, FSCRAPI FURNITURE: well established Production Planning & inventory Control (PPIC) system

2) Group certification– Horizontal2) Group certification– Horizontal

External FactorThe biggest problem found in the field is in establishing legality of the business. It requires high 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.

3) Group certification - Vertical3) Group certification - Vertical

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:1. Work safety Officer (K3)2. Fire extinguisher (APAR)3. Industry accident reports4. Company’s Regulation (PP)5. No underaged labor

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

Lessons learned from IFC Access to Lessons learned from IFC Access to Finance - A2F PENSA (2003-2008)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- Pelayanan Perizinan Satu Atap) 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”

SVLK CLINIC – collaborative efforts by SVLK CLINIC – collaborative efforts by Associations and Jepara Regency Associations and Jepara Regency

Jepara SVLK CLINICVisit of Chairul Basri, Director General of Foreign Trade

Recommendations: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 = “Pelayanan Perizinan Satu Atap (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 = Lembaga Kebijakan Pengadaan Barang & Jasa Pemerintah (LKPP)

International and national promotion of SVLK products

Thank youThank [email protected]: www.mfp.or.id