Broad Based Black Economic Empowerment in

the Forest Sector

Presentation to the Portfolio Committee

19 October 2005Barbara Schreiner, Senior Executive

Manager: Policy and Regulation, Department of Water Affairs and Forestry

Contents

• The Context– Forest Sector– BBBEE tools and requirements

• Progress to date with development of the Forest Sector Charter

• Work programme• Strategic issues to be addressed in the

Charter• Way forward

The Forest Sector• Forest sector contributes R14 billion annually to

economy (2%), provides 170 000 jobs• Substantial increase in demand for pulp, paper, saw

timber, timber board and charcoal over next 25 years

• Non-timber forest products (firewood, building poles, medicinal plants, edible fruits) critical to livelihoods of rural poor

• Provides eco-tourism and rural development opportunities

• Very low levels of black ownership and senior management in all sub-sectors

• Limited information, but low levels of participation by women and disabled

Commercial Forest SectorPulp and paperoGDP contribution: R6 billiono4 Major companiesoEmployment: 24 000

Wood ChipoGDP contribution: R0.96 billiono3 Major companiesoEmployment: <500

Board ProductsoGDP contribution: R0,85 billion o4 Major companiesoEmployment: 6 000

Treated PolesoGDP contribution: R47 milliono4 Major companiesoEmployment: 5 000

Mining TimberoGDP contribution: R90 milliono10 larger saw millsoEmployment: 2 200

CharcoaloGDP contribution: R46 milliono160 small scale producersoEmployment: 5 500

SawmillingoGDP contribution: R1.33 billiono80 larger millso240 small scale millsoEmployment: 20 000 - 30 000

Commercial Forestryo1,37 million haoContribution to GDP: R2.9 billionoEmployment: 107 000

Emerging Growers43 500ha (2.1%)

State Land221 000ha (16%)

Private Farmers305 000ha (22.1%)

Corporate Growers812 300ha (58.8%)

Forestry contractorso324 ContractorsoEmployment: 32 600

WHAT IS BBBEE?The economic empowerment of all black people including women, workers, youth, people with disabilities and people living in rural areas through diverse but integrated social or economic strategies that include:

•Increasing the number of black people that manage, own and control enterprises and productive assets•Facilitating ownership and management of enterprise and productive assets by communities, workers, cooperatives and other collectives enterprises•Employment equity-all occupational categories/levels •Human resources and skills development•Preferential procurement•Investment in enterprises development owned & managed by black people

BBBEE Strategic Objectives• Contribute to the economic transformation of South Africa• Significant increase in number of black women and men who

manage, own and control the country’s economy– new and existing enterprises;

– including community enterprises

• Significant decrease in income inequalities• Contribute to first and second economies, poverty

eradication and job creation• Significant increase in number of

• new black enterprises, • black empowered enterprises and • black engendered enterprises

• Increased black ownership of land and other productive assets.

• BBBEE and economic growth are complementary processes

BBBEE Tools• The tool for ensuring BBBEE achievement is the scorecard that

applies to individual enterprises• Generic scorecard for those not falling under a Charter• Sector specific scorecards for sectors with Charters• To develop Sector Charters it is necessary to:

– Formulate a vision for the sector– Develop key principles for the Charter– Know the current status of empowerment in the sector– Agree on the challenges facing the sector and possible solutions– Agree on targets and timeframes for BBBEE in the sector– Identify and develop the (financial, legal, and institutional) instruments

for implementing the scorecard– Identify roles and responsibilities for implementation– Establish mechanisms to monitor implementation

BBBEE Generic ScorecardCore Component of BEE Indicators Indicator

weighting

Direct Empowerment Score

Equity Ownership % share of economic benefits 20%

Management % black persons in executive management and/or executive board and board committees

10%

Human Resource development and employment equity score

Employment equity Weighted employment equity analysis 10%

Skills development Skills development expenditure as a proportion of total payroll

20%

Indirect empowerment score

Preferential procurement Procurement from black owned and empowered enterprises as a proportion of total procurement

20%

Enterprise development Investment in black owned and empowered enterprises as a proportion of total assets

10%

Residual

To be defined To be determined by sector/enterprise 10%

Total Score out of 100%

Charter Process Requirements

• BBBEE Act and Code of Good Practice defines Charter as a partnership agreement between government and the private sector, including trade unions and community based organisations

• Charter must be developed through consultation and negotiation between sector stakeholders

• Code of Good Practice provides for the establishment of a Charter Steering Committee to drive the Charter development process & Working Groups to assist the Steering Committee

• Wider public consultation required to input into the Charter process

Progress to date

• Official launch of Charter by Minister Sonjica at the National Forestry Indaba in Midrand on 18th April 2005.

• Stakeholders agreed to develop a Forest Sector Charter and to establish a Steering Committee assisted by Working Groups to drive the process.

• Minister accepted nominations from sector stakeholders and appointed the Charter Steering Committee on 18 May 2005.

• Steering Committee met on 17 June and agreed on work programme, budget and establish support infrastructure

Progress to date• Steering Committee also established Working

Groups:

– Delineation Working Group

– Sub-Sector Working Groups for:

• Growers (chair:Mike Edwards, FSA)

• Contractors (chair: Thami Zimu, Independent Grower)

• Sawmillers (chair: Vince Erasmus, Hans Merensky)

• Charcoal and Pole Treatment (chair: Angus Currie, SAWPA)

Progress to date

• First tasks assigned to the Sub-sector Working Groups:– Develop a Charter Vision for the Sub-sector– Identify Key Principles to guide the Charter– Determine the Current Status of empowerment

in the sub-sector– Determine the Challenges facing the sub-

sector and recommended solutions

• Results of work to-date were presented at regional stakeholder workshops during the third week of September

Progress to date• Workshops offered the opportunity to receive

comments and input from stakeholders

• Key issues raised at the workshops:

– Training and Skills Development– Alignment of the Forest Sector Charter to Agri-BEE– Women empowerment needs special attention– Procurement system– HIV/AIDS impact

• The Working Groups will finalise their tasks based on the inputs received and written inputs

• The updated inputs will be submitted to the Steering Committee that will put it together for the Charter

Progress to date

• Sector Delineation Working Group recommended inclusion of pulp and paper manufacturing sub-sector in the Charter & following a meeting with the Minister this was agreed to by all stakeholders at the Steering Committee on 13 October 2005.

• Fibre Working Group has now been established and commences its work on 21 October 2005.

Progress to date

• The Steering Committee established guidelines for the Working Groups to develop Scorecard proposal for the sub-sectors

• Second tasks assigned to the Sub-sector Working Groups on 13 October 2005:– The development of scorecards for the sub-sectors

– The identification of instruments required for scorecard achievement

Sub-sector Challenges• Growers

Land Availability and land title.Afforestation Licensing.Profile and awareness about Forestry.Skills development and transfer.Forest Protection.HIV/AIDS.

• Contractors– Viability issues – low profit margins, price undercutting etc– Empowerment issues – lack of bargaining power in determining contract

fees, lack of financial management and difficulty in accessing credit due to shirt-term nature of contracts

– Labour issues – low wages, insecure employment, poor working conditions and HIV/AIDS

• Sawmilling– Fragmentation and lack of organisation– Inadequate and irregular sawlog supply– Inadequate access to finance, skills technology and inadequate

participation in the timber value chain– HIV/AIDS

Work Programme• Working Group meetings

– key principles, vision, challenges & recommendations

– Scorecard discussions

• Charter Steering Committee meeting – 10 Nov– consider scorecard proposals and set guidelines for BBBEE

instruments

• Consultation workshops– Eastern Cape – 22 Nov

– KwaZulu-Natal – 24 Nov

– Limpopo – 29 Nov

• Working Group meetings– BBBEE instruments development

• Charter Steering Committee meeting – 6 Dec– To consider BBBEE proposals and set guidelines for completion

of draft Charter

Strategic Issues for Charter• Shortage of roundwood supply inhibiting future growth

and opportunities for BBBEE in the sector

– Support to new afforestation opportunities by:• Expediting afforestation authorisation - Sector funding and

support to identify areas suitable for afforestation under the Enterprise Development Component of the Scorecard

• Secure land rights and land holding structures for new afforestation - implementation of the Communal land Rights Act, 2004, to support the Enterprise Development Component of the Scorecard

• Community facilitation, extension support and training for land holding communities – sector funding and support for the establishment of a small-grower support facility under the Preferential Procurement and Enterprise Development Components of the Scorecard

• Access to funds and business support services – as above • Infrastructure development to support afforestation –

extended public works programme linked to private sector investment in social infrastructure investment under the Residual Component of the Scorecard

Strategic Issues for Charter• Shortage of roundwood supply inhibiting future growth

and opportunities for BBBEE in the sector (continued)

– Improved utilisation of existing plantation resources by:• Restoration of existing state forest resources – restoration

and transfer of DWAF’s remaining state forest plantation under the Ownership and Enterprise Development Components of the Scorecard

• Application of yield enhancement guidelines affecting 50 000 - 60 000ha – Government initiative under the Residual Component of the Scorecard

• Combating plantation losses caused by forest fires pests and diseases – Sector investment in combating plantation loses under the Residual Component of the Scorecard

Strategic Issues for Charter• Sustainable supply and better utilisation of saw timber

– Sustainable sawlog supply – Industry agreement within Charter on a sawlog growing strategy and programme for the Forest Sector as part of the Residual Component of the Scorecard

– Improved utilisation rates in the sawmilling sector (dealt with hereafter)

• Promote value adding in the pulp and paper sector– Further engagement with the pulp and paper sector

necessary in this regard• Greater equity in the forestry value chain

– Targeted enterprise development support in value adding enterprises - under the Enterprise Development Component of the Scorecard

– Targeted ownership participation of new black entrants from the sectors second economy in established value adding enterprises - under the Ownership Component of Scorecard

Strategic Issues for Charter• Empowerment and sustainability in the forest small-

scale enterprise sector – Forestry contractors

• Establish Code of Good Conduct for Contracting work – under the Preferential Procurement Component of the scorecard for contracting companies and the Employment Equity Component of the Scorecard for contractors

• Strengthening the contractor organisation (SAFCA) - under the residual component of the scorecard

• Increasing skills development and training for small scale and emerging contractors - under the Preferential Procurement or Enterprise Development Components of the Scorecard for contracting companies & under the Skills Development Component for contractor companies

Strategic Issues for Charter• Empowerment and sustainability in the forest small-

scale enterprise sector (continued)

– Sawmillers• Establish body that represents and lobbies on behalf

of millers – under the Residual Component of the scorecard for sawmillers

• Support capital investment in new technology by addressing the sawlog supply problems that will support long term sawlog contracts referred to earlier

• Supporting access to skills, technology and research for small millers:

– Skills development training and bursary programmes for sawmillers

– Skills and technology transfer through mentorship schemes linking large and small millers

Strategic Issues for Charter• Empowerment and sustainability in the forest small-

scale enterprise sector (continued)– Small charcoal producers

• Establish a body representing charcoal producers in the industry – under the Residual Component of the scorecard

• Increased skills development and training for small charcoal producers – under the Preferential Procurement or Enterprise Development of the scorecard for large producers and under Skills Development component for small producers.

Strategic Issues for Charter• Strengthening the Sector’s role in rural development

– Private sector support:• Support to the non-timber forest product sector to support rural

livelihoods (access to firewood, building poles, medicinal plants and eco-tourism ventures) through the issuing of permits and licenses and enterprise development support - under the Enterprise Residual Component of the scorecard for growers

– Public sector support • Ensure that communities have the right to access state forest land

and benefit from forest land held in trust for them:– Confirmation of land rights on state forestland to create

opportunities for new afforestation in the hands of BBBEE owners

– Confirmation of land rights with regard to Category A plantations to enable the release of the accumulated rentals intended for the right holding communities

– transfer of the 25% state-held shareholding in Category A companies that is earmarked for labour and communities

Key Opportunities• Greater weighting for Direct & Indirect

Empowerment Components of the scorecard could provide strategic leverage to support BBBEE linked to growth in the sector

• Possible instrument to support these would include:

– Afforestation authorisation support facility– FED support fund– FED facilitation and business support facility– Technology transfer and mentorship

scheme– NTFP support programme

Way Forward

• The next step will be the development of the Scorecard(s) for the Charter

• These proposals will be considered by the Steering Committee early in November

• Stakeholder meetings are planned for the third week in November to consult on the proposals

Way Forward• In the meantime DWAF will be working

on developing the instruments required for the implementation of the Scorecard

• This includes:– instruments to fund BBBEE transactions; – implement skills development & training; – employment equity; – support enterprise development; – secure preferential procurement etc.

• Attention also needs to be given to institutional arrangements needed to implement and monitor the Charter

Way Forward

• Draft Charter to be available for public comment early next year

• Final Charter will be submitted to the Minister of Water Affairs and Forestry and thereafter to the BEE Council and the Minister of Trade and Industry for approval