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Gene Birikorang: The formal face of the informal forest industry in Ghana
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Gene Birikorang: The formal face of the informal forest industry in Ghana


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Day 3, Session 6: Experiences with conventional and alternative tenure and wood-based enterprises …

Day 3, Session 6: Experiences with conventional and alternative tenure and wood-based enterprises

Presentation by Gene Birikorang, Hamilton Consulting

Published in: Business
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  • 1. Forest Tenure, Governance and Enterprise New Opportunities for Central & West Africa Yaounde, May 25 – 29, 2009 THE FORMAL FACE OF THE INFORMAL FOREST INDUSTRY IN GHANA : Presentation of A Ghana Case Study By Gene Birikorang, Chief Consultant, HAMILTON Resources & Consulting (May, 27)
  • 2. THE GHANA CONTEXT FOREST PARADIGM-AN UNEASY EQUILIBRIUM THE THREE-SECTOR MODEL: Modern sector (Integrated Logging-Wood Processing Industry) • Liquidation of natural capital for profits • Generating negative externalities (social costs not included in financial analysis) Rural sub-sector (Forest Communities, Forest Users) • Dependent upon natural capital for livelihood • Lack of tenure and inadequate reward from ownership • A general discrimination against forest users/SMFEs • Contributes 50% of the national harvest volume from illegal sources • Immediate recipient of negative impact of environmental degradation (transaction costs) • Lack of interest in SFM Institutional sector • Conflicting roles • Industry patronage • Failure to deal with transaction costs • Little investment in regulatory capacity
  • 3. POLICY FAILURE FROM 3-SECTOR MODEL: Forests have been lost Statutory arrangements have not brought about Poverty Reduction Forests “YESTERDAY”(1980s) FORESTS TODAY (2001)
  • 4. Big SMFE presence and value added contribution in the market economy • The informal wood sector owns 75 percent of the wood-processing entities • The informal sector with its “small capital” is generating a turnover that equals 70 percent of the formal sector’s total export earnings • Formal sector’s tertiary processing for export only amounts to 40 percent of the informal sector estimate. • Studies show that an investment of US$100,000 in informal SMFEs could generate high value-addition with a high return. Potential GDP contribution under present conditions is about 5 percent cf. 2 percent of the formal wood industry [The formal wood processing rather subtracts from economic value added in primary and secondary processing on account of its low recovery efficiency by global standards] • Cane and Rattan business case study registered 80% of sales price as value added (20 percent profits + 60 percent labour costs); Furniture and Joinery Case Study registered 60 percent of sales value as value added (40 percent profits + 20 percent labour
  • 5. Potential competition in NTFPs Generally, Interpretation of 1995 economies of scale survey of 8 NTFPs are not a condition Traded value in 2007 for competition prices = US$50m • NTFP Harvesting, Potential consumption handling and cleaning tax = 75 percent of • Primary processing of stumpage paid by a large spectrum of formal industry NTFPs performance • Potential entry point for export development
  • 6. The Employment and livelihood impact of SMFEs SMFEs are the solution to • 60,000 hands potential by the urban employment Cane and Rattan Weavers generation “paradox” Association in five years – [Park & Todaro Model] about 1.5x the formal wood industry employment in E{w} = n/N 1999 E{w}: expected urban wage • Cane and rattan harvesters rate earned in 2008 US$7 per n: number of urban job day (3.5x official minimum opportunities available wage) N:Number of people looking • SMFEs: A more viable for jobs option of future employmentThe urban job paradox: generation Creating jobs worsens the unemployment situation
  • 7. THE MAJOR RISKS FOR SMFE DEVELOPMENT ARE TENURE & ACCESS HOW THE RISKS RISKS NEED NOT BE MANIFEST MANAGED. THEY CAN • Criminalization of chain sawing BE AVOIDED • Higher costs of Input wood • Case of Modified Taungya material input System of plantation is a potential solution (2001- • Loss of Turnover 3:16,000ha established – 2x • Loss of potential value added public sector performance) (currently estimated at 6% of • Increased tenure can allow GDP) SMFEs to compete successfully • Loss of livelihoods • Polices that encourage business opportunities (About 60,000 cf propositions, including size of Civil Service: 40,000) appropriate technologies for informal chain sawyers
  • 8. WAY FORWARD 1. ALLIANCE WITH BIG TIMERS TO GENERATE SHORT-TERM APPROACH TO POVERTY REVENUES HAS NOT REDUCTION WORKED…… • State removes cash from illegal private pockets to share with • Teak plantation has been sold at informal sector US$200 p.m3 cf. US$80 p.m3 • State keeps economic rent stumpage • Informal sector adds value and • The state did not have the means share with labour. to monitor • Cash ended up in illegal pockets • Wood partly ended up in informal sector …ALTERNATIVE APPROACH TO BRINGING ABOUT POVERTY REDUCTION IS DIRECT SMFE ACCESS TO WOOD .
  • 9. WAY FORWARD Model: RADEB ENTERPRISE 2. HELPING SMFEs TO Transformation from rudimentary GROW BY PROMOTING to formal enterprise DOMESTIC MARKETS • SMFEs can compete in lower grade markets for joinery and finished products and transform into formal operators • The State (construction, education and health sectors) is a major consumer - must remove discrimination against SMFEs in contract awards
  • 10. WAY FORWARD Cash outflows for financing 3. JOINT VENTURES AS 100 ha Teak plantation over BUSINESS first 20 years PROPOSITION • Modified Taungya System (Timber Plantation) – is a policy that works • Communities as joint owners with attractive shares in benefits from replanted forest reserves • Potential partnerships with SMFEs YEARS
  • 11. WAY FORWARD SAMARTEX BUSINESS 4. BUSINESS PROPOSITION WITH FOREST PROPOSITIONS WITH COMMUNITIES CONCESSIONAIRES Samartex is the largest SMFEs come with potentials timber operator in Ghana for competition •Samartex has found it • Value added in NTFP unprofitable to operate in off- processing reserves • Economies of scale have •Company is engaged in agro- limitation in a large forestry systems with forest selection of NTFP communities in off-reserves businesses (potential •Business propositions include export entry point) export of NTFP based non- • Opportunities for traditional exports horizontal integration •Company is pursuing an between NTFP and adaptation of forest certification in manufacturing and tourist collaboration with the Global sectors Forest Trade Network
  • 12. WAY FORWARD 5.INTRODUCING COMPETITION THROUGH HYBRIDS OF COMMUNITY OWNERSHIP CURRENT SITUATION: Consolidation of industry and loss of employment………….. results in 2 competitors: the state and the big guys: The State and forest owners have been the losers PROPOSED SHIFT IN PARADIGM (FUTURE SCENARIO): Under Community ownerships + other policies ………………. • State sets the rules, acts as referee • Private sector plays according to the rules • Incentives bring under control deforestation • Opportunities for transforming SMFEs increase, and with it, • Opportunities for employment, improved livelihoods and poverty reduction