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African log export bans and Chinese timber value chains: Examples from Gabon and Mozambique
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African log export bans and Chinese timber value chains: Examples from Gabon and Mozambique

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Demand for timber has surged recently, particularly from China, creating investments into the timber industry in Africa. However, weak national forest governance systems exist in the supplier …

Demand for timber has surged recently, particularly from China, creating investments into the timber industry in Africa. However, weak national forest governance systems exist in the supplier countries.

This presentation covers the log-export ban in both Mozambique and Gabon. With evidence from these two cases supporting the same conclusion: log-export bans are ineffective.

CIFOR Scientist Sigrid Ekman and Anne Terhegen, a representative of ICRAF as our partner on this project presented.

Published in Education , Business
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  • Significant contribution to the countries’ national economies
  • 2007 export ban : reflected in moz records, not so much in Chinese records.
  • Answer is: Chinese manufacturers LOVE logs. Much more demand – higher priceNumbers are in Chinese yuan /m3About 100 USD price differenceWhy?Not because of labour costs: Mozambican minimum wage is about half of that in ChinaProduction of antique furniture - efficiency higher in China, -skills and craftmanship lacking in Mozambique, -carved directly out of the logs
  • Rough calculations comparing the illegal export and legal Just to show you the huge incentive to illegally export logsDoes not include cost of running a sawmillExport wood legally as sawn timber: not only higher input costs, but also a LOWER price on the Chinese market.There is no incentive what so ever to conduct honest business
  • Of the total global tropical log trade = 68% consumed by China (11% OECD) = 14 mln cum China (2 mln cum)@ Gabon = start imports 1995/6, rapid increase@ Gabon = processed = sawnwood in particular since intro Forestry Code and lowest entry barriers (no spwp; ppwp largely EU driven)
  • Of the total global tropical log trade = 68% consumed by China (11% OECD) = 14 mln cum China (2 mln cum)@ Gabon = start imports 1995/6, rapid increase@ Gabon = processed = sawnwood in particular since intro Forestry Code and lowest entry barriers (no spwp; ppwp largely EU driven)
  • Value-added = normal behaviourUnit profits = highest in extractive sub-chain (positive in plywood but this is the chain with the highest entry barriers, currently EU dominated)
  • Log ban: to stimulate domestic procesisng: move up the value chainTake something and transform it to something that is valiued less on the market: value creation or destruction?Is the employment generated enough to make up for the loss of taxes and increased corruption? 30 per sawmill approx.-logs easier to trace than sawn timber. More difficult to control the origin of the timber. Could this have a negative impact on the fight against illegal logging?Illegal loging more serious at least from an environmental perspective than illegal export of timber as logs. Given rapid depletion of Mozambique’s forests, this should be a more immedaite concern.

Transcript

  • 1. THINKING beyond the canopyAfrican log export bans and Chinese timber valuechains: Examples from Gabon and MozambiqueAnne Terheggen & Sigrid-Marianella Stensrud EkmanAnne Terheggen & Sigrid-Marianella Stensrud Ekman
  • 2. THINKING beyond the canopyAfrican log export bans andChinese timber value chains LEB (to increase domestic value-added, employment) Is it effective for countries whose main market is China? Context Case Studies- Mozambique- Gabon Impact of LEB
  • 3. THINKING beyond the canopy1. Context Surge in demand for timber, particularly from China Timber important export commodity Influx of investments into the timber industry inAfrica, particularly from China Weak national forest governance system in thesupplier countries
  • 4. THINKING beyond the canopy
  • 5. THINKING beyond the canopy2.1 Mozambique China: 90%Timber exports per destination (m3) 2010
  • 6. THINKING beyond the canopy2.1 Mozambique: structure of timber industrySLH = Simple License Holders Ch = Chinese Mz = Mozambican
  • 7. THINKING beyond the canopy2.1 Mozambique: Trade in timber2007: Log Export BanDiscrepancy between Mozambican and Chinese dataExport of logs and sawn Jambire timber (% of total exports)(German & Werts-Kanounnikoff, 2012)
  • 8. THINKING beyond the canopy2.1 The Chinese preference for logs Logs fetch a much higher price than sawn Jambire timberin ChinaCNY/m3
  • 9. THINKING beyond the canopy2.1 Mozambique: illegal timber activity Two main types of illegal activity:-cutting timber illegally-illegal export of logs (violation of LEB) Bribes per container- Forestry officials: $70 x 2- Customs official: $70- Provincial Department of Agriculture: $200- Facilitator: $100 Huge incentive to export timber illegally as logs
  • 10. THINKING beyond the canopy2.1 Mozambique: Incentives for illegal trade in logsIllegal export of logs Export of sawn timberExtraction: $300/m3Container (11m3 of logs):$3300Bribes: $510Shipping cost: $2000Chinese market: $750 /m3Revenue: $8250Extraction: $300 /m3Chinese market: $650 /m3Revenue: $7150Sawmill:1m3 sawn timber → 1.4 m3 logs1 m3 sawn timber: $420Container (11m3) : $4620Shipping cost: $2000Profit: $530 / containerProfit: $2420 / container
  • 11. THINKING beyond the canopy
  • 12. THINKING beyond the canopy2.2 China as a Final Market0200,000400,000600,000800,0001,000,0001,200,0001,400,0001,600,000logs products logs products Gabon’s export distribution (1997-2008, m3 in RWE)Source: Terheggen (2010, 2011) & Kaplinsky et al. (2011)
  • 13. THINKING beyond the canopy2.2 Foreign investors’ value chain functionForest stockCompanyinventoryLogTreePortinventorySawnwoodInventory atfirm or portVeneerPlywoodPortPortb.iiib.iib.iadryingplaningvarnishingpeelingsteamingdryingPortcuttinggluingpressingtrimmingvarnishingoptionaloptionaloptionalsawingInventory atfirm or portPortInventory atfirm or portChina / EU EU and others China EUSource: Terheggen (2010,2011) & Kaplinsky et al. (2011)
  • 14. THINKING beyond the canopy2.2 Simulation exercise Test of the viability of domestic processing (all logs arechanneled into a single sub-chain) Extractive sector = economically ‘superior’ Processing sector = economically ‘inefficient’Source: Terheggen (2010, 2011) & Kaplinsky et al. (2011)
  • 15. THINKING beyond the canopy2.2 Value added & unit profitdistributionValue-addedUnitprofits(πu)Source: Terheggen (2010, 2011) & Kaplinsky et al. (2011)
  • 16. THINKING beyond the canopy3. Conclusion Should the log-export ban be maintained?- Value creation or destruction?- Employment creation?- Loss of tax revenues /increased corruption- Effect on the capacity to control illegal logging
  • 17. THINKING beyond the canopy3. ConclusionEvidence from these two different cases support the sameconclusion: LEB is ineffectivePursuing the wrong development strategy, especially in lightof the Chinese economic environment.