Investing in the economy

Summary of operational performance

Forestry and Wood Products SBU
Performance   2010   2011   2012   2013  
Total value of financing approved (Rm)  279   273   363   397  
Total number of jobs expected to be created or saved   2 662   889   6 551   4 646  
Impairments as a % of outstanding book (at cost excluding undrawn commitments)  34%   33%   34%   27%  
Focus areas  
Forestry value chain – Forestry, sawmilling, pulp and paper, packaging and other value-added products  
 


Highlights  

2009   2010   2011   2012   2013  
  • Department of Agriculture, Forestry and Fisheries (DAFF) instituted
  • Forest Sector Charter Gazetted
  • Land restitution forestry settlement model approved
  • SBU drafted strategies and key action plans as input to IPAP for the forestry, pulp and furniture industries.
  • Funding approved to distressed companies in the forestry sector
  • SBU approved a facility for a large furniture manufacturer to support import replacement and job creation
  • SA government signs an MOU with Mozambique government in respect of forestry-based industries
  • 1 111 Water licences issued (389 in 2010) by Department of Water Affairs
  • Fibre processing and Manufacturing SETA launched
  • IDC approved R20m grant funding for a rural forestry development. A panel of service providers was established to provide project development support, resulting in four projects reaching the scoping phase
  • SBU approved distress funding to one of SA’s largest furniture manufacturers to save over 5 500 jobs and to improve financial viability while most companies wrestled with a strong Rand and stalling global economic recovery
  • Department of Agriculture, Forestry and Fisheries (DAFF) re-launched its Agri BEE fund, an equity grant facility
  • SBU has seen an increase in the number of projects in Mozambique as a result of an MOU between SA and Mozambique governments in 2011
  • Concluded an MOU with a furniture retailer to create opportunities for smaller furniture manufacturers
  • Increased pipeline of community forestry projects in KZN and EC

 

Recent performance  

The year in review proved challenging for the forestry industry. Timber sales for 2012/13 (14.8m tons) were 3.2% less than the previous year (15.3m tons) due to deteriorating trade conditions and a delayed recovery from the economic downturn. Nonetheless, the sector managed to contribute a positive R2.2 billion to the country’s balance of trade and remains key towards facilitating rural economic development.

In addition, chronic under-utilisation of land in rural areas is depriving local communities of potential job-creation opportunities. At present, the sector contributes a modest 1% to GDP, yet that could be higher if available land was utilised to capacity. Furthermore, forestry plantations have, over the years, declined from a high of 1 518 million ha in 1997, to approximately 1 273 million ha in 2011, a loss of 245 000 ha over the period.

Yet while these challenges persist, IDC in partnership with Hans Merensky, an investment company whose other interests include forestry, wood and agricultural industries, are developing 45 community owned projects based in the Eastern Cape. To date, total land potential utilisation by these projects stands at 35 000ha resulting in the creation of
1 750 jobs. In KZN, IDC provided funding to nine community owned projects that have since utilised about 6 070ha of land, creating 304 jobs.

Challenges  

A significant portion of forestry land is currently subject to claims under the land restitution process, a factor which is stunting growth of the industry. Furthermore, the resultant effects of the economic downturn have seen the timber products market becoming more sluggish both in price and volume. The sector is also battling to offset other challenges including deteriorating rail and road infrastructure which is critical to transporting timber and wood to manufacturers and markets, respectively.

Even more challenging is the fact that compliance with the various regulatory frameworks including onerous water licences and Environmental Impact Assessments (EIA) required to develop commercial forestry discourages entrepreneurs from venturing into the industry. It further leads to a lack of investment in the upgrades of machinery, equipment, investment design skills and the country’s liberal trade regime that has contributed to the influx of cheap Asian imports that has further strained the industry’s growth prospects.

Strategy and prospects  

In line with supporting projects that compliment IPAPs strategy of increasing timber supply, the SBU will fund forestry projects focusing on planting and harvesting trees, thus ensuring increased industrial capacity within the sector. The unit has also adopted a proactive approach in developing the pulp, paper and packaging sector, value-added industries and office furniture manufacturing. However, it has adopted a passive approach in developing the sawmilling sector whilst the IDC, in partnership with industry, seeks to explore solutions to unblock constraints faced by this sub-sector.

Interventions such as the preferential procurement status requiring government departments and institutions to source goods locally manufactured are expected to have a positive bearing on the furniture sector.

It is also important to note that, in a bid to eradicate the water use licensing backlog, government through the Department of Water Affairs (DWA) in October 2009 initiated the Letsema Project. Although the project has helped to address the backlog on water use licence applications, more has to be done to ease the water licensing regulatory burden or providing support in order to facilitate compliance. To further assist afforestation through rural community projects, the IDC has developed a community planning support grant and with the assistance of the dti’s EIA support programme could prove pivotal for rural communities to realise their aspirations.

The prospects for the sector are significant even beyond South African borders, hence the need for IDC to support both local and external companies looking for expansion opportunities in the rest of Africa. The African Union's intention to increase regional trade prompted the SA government to sign an MOU with the Mozambican government in November 2011, aimed at growing cooperation on forestry-based industries’ development including trade, research and development.

Coega Dairy Holdings

The IDC has identified increased competition in the dairy value chain and import substitution in the cheese industry as key sector development goals. We also singled out the need for increased farmer (and specifically B-BBEE) participation in dairy value-adding initiatives.

Windtown Lagoon Resort 

The newly built Windtown Lagoon Resort and Spa reflects the IDC’s focus to funding community-based projects that have potential to create employment opportunities in far-flung regions.


APPROVALS
R13.1 billion
DISBURSEMENTS
R16.0 billion
JOBS FACILITATED
18 922
JOBS SAVED
3 950
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