Day 3, Session 6: Experiences with conventional and alternative tenure and wood-based enterprises Presentation by Gene Birikorang, Hamilton Consulting

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