South Sudan: Is All Well in the Teak Forests of South Sudan?
By Aly Verjee, 15 March 2013
Analysis
Think of tropical hard wood - ebony, mahogany, teak - and you probably don't
think of South Sudan. One of the country's lesser-known natural resource
superlatives is its relative abundance of forests.
Government <
http://www.agfairsouthsudan.org/agriculture-in-south-sudan>
figures suggest that there are almost 200,000km2 of forested lands in South
Sudan, covering 29 per cent of the country's total land area. Most of this
is less valuable soft wood - hard woods are a relatively small part of the
forests.
But they are a valuable component. A 2007 assessment by the
<
http://www.unep.org/sudan/post-conflict/> United Nations Environment
Programme (UNEP) concluded "existing teak plantations alone could
potentially generate up to USD 50 million per year in export revenue." The
same government
<
http://www.agfairsouthsudan.org/agriculture-in-south-sudan/> website
exclaims "the teak plantation [in South Sudan] is the largest of its kind in
the world."
<
http://www.fao.org/docrep/005/AC773E/ac773e07.htm> Natural teak forests
occur in only four countries: India, Laos, Myanmar and Thailand. Logging is
heavily restricted in all but Myanmar, the leading supplier of teak
worldwide. Indonesia is also a major producer, from plantation stock.
But a planned export
<
http://www.mmtimes.com/index.php/national-news/2867-govt-plans-log-export-b
an-targets-value-added-growth.html> ban on unfinished teak logs from Myanmar
from April 2014 will likely push up world prices, and intensify the search
for alternative suppliers.
Enter South Sudan, and renewed interest in its teak resources. Teak is not
indigenous to Africa. Seedlings were planted in the colonial era across the
continent, from
<
http://africanarguments.org/2013/03/14/is-all-well-in-the-teak-forests-of-s
outh-sudan-by-aly-verjee/finnfor.catie.ac.cr/admin/documents/105> Benin and
Nigeria to <
http://bft.cirad.fr/cd/BFT_279_5-10.pdf> Tanzania and South
Sudan.
Forestry expert Abdalla Gafaar dates the first plantation in South Sudan to
1919, at Kagelu, Central Equatoria. Planting activity intensified in the
1940s, across the Equatorias and Bahr el Ghazal. In 2004, thirteen teak
plantations were found and mapped by satellite, and in 2007, a further five
plantations, covering a total of 7,680 hectares (76.8 km2), were found with
different satellite technology. Most of the mature trees standing today are
between 35 and 50 years old.
Timber in the wars: 'blood' teak
Teak has played a role in South Sudan's various conflicts. In a 2007 Small
Arms Survey
<
http://www.smallarmssurveysudan.org/fileadmin/docs/working-papers/HSBA-WP-0
8-LRA.pdf> report, Mareike Schomerus documented "the [Uganda People's
Defence Force] cuts down teak trees to take them into Uganda," during its
operations to fight the Lord's Resistance Army in Southern Sudan.
Writing in the Norwegian People's Aid (NPA) 2011
<
http://www.oaklandinstitute.org/understanding-land-investment-deals-africa-
south-sudan> report on land deals in South Sudan, David Deng quotes a
Southern Sudanese parliamentarian who asserts the Sudan Peoples' Liberation
Movement/Army (SPLM/A) used timber to finance its military activities
against Khartoum: "For the North, there was blood petroleum - GoS
[Government of Sudan] was drilling in the South to purchase weapons from
Korea, China, Iraq and the Soviet Union. For us [in the SPLM/A], there was
blood teak."
Regardless of who was responsible for the damage to the forests, Abdalla
Gafaar, writing for the African Forest Forum,
<
http://www.sifi.se/wp-content/uploads/2012/02/Forest-plantations-and-woodlo
ts-in-Sudan.pdf> concludes "the plantations in Central Equatoria are
currently in a degraded state with most of the best quality teak logs
removed by concessionaires. Most of the plantations in Bahr el Ghazal are in
a similar condition.
The best option for those degraded plantations is to clearfell and
regenerate. The plantations in Western Equatoria are generally fully stocked
but due to lack of thinning they are slow growing and relatively small in
size, but they are of good quality due to the slow growth rate."
Initial investors: CDC/Actis and Maris Capital
Like most sectors of the South Sudanese economy, the forestry industry is
not well developed. In 2006, the <
http://www.equatoriateak.com/> Equatoria
Teak Company Limited (ETC) obtained a 32-year, renewable concession for five
land blocks near Nzara, Western Equatoria, on a total area of 18,640
hectares (186.4 km2), of which 1,319 hectares are teak, and 170 hectares are
cassia.
The concession was granted by the
<
http://www.goss-online.org/magnoliaPublic/en/ministries/Agriculture-and-For
estry.html> Ministry of Agriculture and Forestry of the Government of
Southern Sudan and approved by the Council of Ministers, but appears to have
been non-competitively awarded.
In 2010, majority ownership of ETC passed from
<
http://www.act.is/content/Home> CDC/Actis Capital (itself formerly owned by
the British government and controlled by the Department for International
Development) and the <
http://www.finnfund.fi/en_GB/> Finnish Fund for
Industrial Cooperation (Finnfund) to private investment firm
<
http://www.mariscapital.com/> Maris Capital.
As the Oakland Institute documents in its 2011 report on land deals in South
Sudan, CDC/Actis found its investment commercially unviable, and looked to
sell. Maris, by contrast, argues that its hub of investments in South Sudan,
and improved security conditions in Western Equatoria, makes ETC a much
better business proposition.
From CDC/Actis, Maris also bought the separate Central Equatoria Teak
Company (CETC), with concessions in Lainya and Yei River counties of Central
Equatoria. Maris has a number of other business interests in South Sudan,
including the high-end <
http://www.acaciavillage.com/> Acacia Village
residential compound on the outskirts of Juba.
Acacia's residents are more discerning than most: the establishment has
historically been home to several foreign ambassadors without suitable
residence elsewhere in town.
I interviewed <
http://www.mariscapital.com/?page_id=6> Coco Ferguson, a
director of Maris Capital, for this article. (Ferguson subsequently invited
me to visit ETC in Nzara to see the operations first hand.) By Ferguson's
own admission, ETC had limited activity in recent years, due to political
uncertainties in South Sudan before and after the referendum.
But in January 2013, via
<
http://www.bloomberg.com/news/2013-01-25/south-sudan-plans-to-start-teak-ex
ports-to-cut-dependence-on-oil.html> Bloomberg News, ETC announced that it
was ready to start teak exports, beginning with a container load destined
for the United States. ETC estimated that the processed timber would sell
for $750-$1500/m3. A 2011 NPA
<
http://reliefweb.int/report/sudan/new-frontier-baseline-survey-large-scale-
investment-southern-sudan> report provides figures for the royalties due to
South Sudan on exports: $110/m3 for ETC and $155/m3 for CETC, plus lump-sum
cash payments termed "social contributions."
Ferguson stated that ETC paid no royalties to the government in 2012, as
there were no exports in that year. Of the $100,000 lump sum social
contribution outlined in ETC's concession agreement, $71,000 was allocated
to Nzara Secondary School.
Ferguson said the remainder is under the control of the Nzara Social Fund
Committee, chaired by Nzara's parliamentary representative in the National
Assembly, Bernardo Kpasira, and should be allocated soon. $5/m3 will be
contributed to the local social fund on any exports made in 2013. ETC
employs about 150 workers in the Nzara area, and projects that will rise to
200 by the second quarter of this year. (In 2009, ETC employed 246 staff.)
ETC's Forest Stewardship Council (FSC) certification: environmental ethics
or premium prices?
One particular statement in the January 2013 Bloomberg article drew my
attention.
ETC claimed to be the first teak company in Africa to obtain certification
from the <
https://ic.fsc.org/about-us.1.htm> Forest Stewardship Council
(FSC), the industry leading certification body for ethically and sustainably
harvested timber and related products. FSC certification is highly valued by
forestry companies, and generates higher prices for compliant products. The
claim to be FSC certified was repeated on ETC's website:
The FSC, founded in 1994, maintains a database of all registered certificate
holders. ETC obtained certification in 2009, following an
<
http://www.sgs.com/en/Agriculture-Food/Forestry/Forest-Management-Certifica
tion/Forest-Management-Reports-and-Standards/Sudan.aspx> evaluation by
accreditation company
<
http://www.sgs.com/en/Agriculture-Food/Forestry/Forest-Management-Certifica
tion.aspx> SGS Qualifor.
But, as of 2013, neither ETC nor Maris was in the database. (CETC has not
submitted an application for FSC certification.) The FSC secretariat
confirmed in February 2013 that "certificate SGS-FM/COC-007104 for Equatoria
Teak Company Limited has been terminated... We are investigating the claim
the company is still making on the website, as well as the recent article on
Bloomberg; and we will be in touch with SGS, Equatoria and/or Maris Capital
regarding this."
In fact, ETC lost its certification in January 2011, years before the
interview with Bloomberg. The FSC was able to supply a letter (extract
below) from SGS Qualifor, the company that originally performed the
certifying audit, informing ETC of the withdrawal of its certification, and
consequently a restriction on the use of the FSC trademark and name.
Speaking for ETC, Ferguson stated that the company only became aware of the
loss of FSC certification in November 2012, and hadn't seen the letter from
SGS. ETC believed its certification would continue until 2014, as originally
stated in the SGS issued certificate. SGS did not reply to written enquiries
asking whether its January 2011 letter was signed by ETC and returned, as
the letter requests.
Inquiries to Maris and ETC in February 2013 resulted in a swift modification
of the text on the ETC website. On February 7, ETC updated its
<
http://www.equatoriateak.com/fsc-teak> website to read, in part: "ETC's
teak products have previously been certified by the Forest Stewardship
Council (FSC)...ETC is currently re-seeking FSC certification and aim to
conclude the process in 2013 ...
The FSC certification recently lapsed due to inactivity but ETC plans to
reapply for certification." Later in the month, the FSC tab on the website
was removed, and the text was nuanced further.
Maris argues that retaining the FSC claim in ETC publicity was merely an
oversight, and the loss of certification occurred not because of a change to
the fundamental dynamics of company operation, but only because an annual
compliance audit had not been conducted by SGS. Ferguson told me "given that
the management, environmental and forestry procedures remain in place, I
hope it is a simple certification process - we are sticking to the same
Forest Management Plan."
Ferguson further explained that the logs due to be exported in the first
container had not been cut recently, and had in fact been harvested when FSC
certification was still in force. Though the company has been certified for
less time (December 2009 - January 2011) than it has been uncertified (prior
to December 2009, and January 2011 - present), the Bloomberg article makes
clear that holding FSC certification was a major selling point for the
company.
Ferguson confirmed that Maris shareholders expected ETC to maintain FSC
certification, and benefit from the resulting product price premium. She was
unable to put a monetary value on the FSC premium ETC hoped to obtain, and
the subsequent loss, given that current exports cannot be marketed as
FSC-compliant.
But losing FSC certification would not necessarily stop exports, Ferguson
said. The loss of the FSC premium was an annoyance, but business would
continue.
Re-certification and the EU Timber Regulation
Was ETC's loss of FSC certification only a procedural technicality? While
Christian Potgieter, forestry operations manager of SGS's South African
subsidiary, did confirm that ETC's certification was withdrawn due to an
interruption of operations, with the consequence that no annual audit was
conducted, Maris/ETC statements to Bloomberg do appear to be misleading.
And speedy re-certification is not guaranteed. Potgieter of SGS wrote in
mid-February: "There are no shortcuts with certification and as we are
concerned about certain aspects of certification in Southern Sudan such as
legality, we cannot accept the information on the previous report on face
value and have scheduled a Pre-assessment to determine GAPS [sic] in their
management system, High Conservation Values and legality before commencing
with a Main Assessment."
Ferguson appears to accept this possibility: "FSC was achieved before under
Sudan law - post independence it will be under South Sudan law and they
[SGS] are scrutinising the new Forestry Law to this end."
The FSC is not the only regulatory regime forestry companies must now
consider. Indeed, there are strong critics of the FSC, and those that
suggest that voluntary mechanisms led by the industry itself are
insufficiently robust. New EU timber import
<
http://ec.europa.eu/environment/forests/timber_regulation.htm> regulations
(the
<
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32010R0995:EN:N
OT> EUTR, Regulation 995/2010), came into force on March 3.
David Young, team leader for forestry sector transparency at
<
http://www.globalwitness.org/> Global Witness, an NGO specializing in
natural resource and accountability issues, observes that "[some] timber
that might previously have passed the FSC test as 'legal' will not pass the
Timber Regulation (EUTR) test."
Young further explains: "The EUTR provides a stronger control in that it
requires a level of risk assessment (by importers) that is appropriate to
the risk that timber may be from an illegal source.
Almost all timber from tropical forests where broad governance indicators
(such as the Corruption Perception Index) are low would fall into a 'high
risk' category and therefore the importers would be expected to look at the
way by which the exporter obtained the original logging permit. Second, the
EUTR has legal sanctions. Certifications schemes do not; if someone breaks
the rules of certification, not much happens..."
Young took pains to indicate that he was speaking generally, and not in
relation to ETC or the industry in South Sudan, where Global Witness has not
investigated or researched the timber industry.
Ferguson of Maris Capital didn't seem particularly concerned by the
introduction of the EUTR, stating that "any exports to the EU will need
FLEGT [Forest Law Enforcement, Governance and Trade Action Plan of the
European Union, the overall system in which the EUTR is a part] and CITES [
<
http://www.cites.org/> Convention on International Trade in Endangered
Species of Wild Fauna and Flora] certification - the main onus is on buyers
to know exactly where the timber is from - which means there's considerable
overlap with FSC. Limited uncertified imports is good for the likes of
us..."
Who benefits, and is this the best value for South Sudan?
Outside of the sustainability regulations, questions remain about the
process that led to the land deals originally secured by ETC and CETC, the
make-up of the ownership group, and the generosity of the terms of the
concession arrangements. Maris was unwilling to divulge details of minority
owners, citing shareholder confidentiality.
The Oakland Institute's 2011 report provides an ownership chart dating from
the CDC/Actis period - Actis and Finnfund together controlled holding
company Afriforest Investments, which in turn held a 63 per cent stake in
ETC, which then passed to Maris; "Ugandan and Sudanese equity" held the
remaining 37 per cent.
In his report for NPA, David Deng cites "officials in the state level
ministries of agriculture and forestry have expressed dissatisfaction with
these terms, complaining that the amount being paid for the [ETC] concession
is insufficient compared to the price that Sudanese teak earns on
international markets." Over a concession that will last for several
decades, the lump sum offered by the company's social contribution seems
modest at best.
Still, outside of the activities of ETC, CETC, and a number of other small
companies, most production of timber in South Sudan has been haphazard,
small-scale and unauthorised. Ferguson rightly observes "the scandal of
naturally grown chainsaw cut timber with a 10 per cent recovery rate being
used for most construction in Juba."
The imminent threat to the forests of Equatoria comes from two directions:
Juba's ongoing construction boom, and South Sudan's continuing revenue
crisis, as wrangling with Sudan over resuming oil production drags on.
<
http://www.theniles.org/articles/?id=1081> Akim Mugisa wrote in 2011 that
"the teak forests of South Sudan take centre stage in the fledgling nation's
efforts to build up revenues other than oil," but the figures to date
suggest this assessment is still too optimistic.
When I first visited Yei and Lainya in 2006, I do remember local discussion
(and pride) in the enormous trees that could be found nearby: I'm not sure
most South Sudanese then had an accurate sense of the forest's commercial
value.
More recently, the CETC concession, has in particular suffered from illegal
logging, which has contributed nothing to government revenues and has
provided at best uncertain employment for the local population.
Having responsible and transparent forestry companies would appear to be the
best option for the development of the sector: the challenge will be for
companies like ETC and CETC, and their owners, to prove that they are.
Aly Verjee is senior researcher at the Rift Valley Institute.
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Received on Fri Mar 15 2013 - 11:52:28 EDT
