THINKING beyond the canopy

African log export bans and Chinese timber value chains: Examples from Gabon and Mozambique

Anne Terheggen & Sigrid-Marianella Stensrud Ekman

Anne Terheggen & Sigrid-Marianella Stensrud Ekman

THINKING beyond the canopy

African log export bans and Chinese timber value chains

LEB (to increase domestic value-added, employment)

Is it effective for countries whose main market is China?

Context

Case Studies

- Mozambique

- Gabon

Impact of LEB

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1. Context

Surge in demand for timber, particularly from China

Timber important export commodity

Influx of investments into the timber industry in Africa, particularly from China

Weak national forest governance system in the supplier countries

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2.1 Mozambique

China: 90% Timber exports per destination (m3) 2010

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2.1 Mozambique: structure of timber industry

SLH = Simple License Holders Ch = Chinese Mz = Mozambican

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2.1 Mozambique: Trade in timber2007: Log Export BanDiscrepancy between Mozambican and Chinese data

Export of logs and sawn Jambire timber (% of total exports) (German & Werts-Kanounnikoff, 2012)

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2.1 The Chinese preference for logs Logs fetch a much higher price than sawn Jambire timber

in China CNY/m3

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2.1 Mozambique: illegal timber activity

Two main types of illegal activity:

-cutting timber illegally

-illegal export of logs (violation of LEB)

Bribes per container- Forestry officials: $70 x 2- Customs official: $70- Provincial Department of Agriculture: $200- Facilitator: $100

Huge incentive to export timber illegally as logs

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2.1 Mozambique: Incentives for illegal trade in logs

Illegal export of logs Export of sawn timber

Extraction: $300/m3

Container (11m3 of logs):$3300

Bribes: $510

Shipping cost: $2000

Chinese market: $750 /m3Revenue: $8250

Extraction: $300 /m3

Chinese market: $650 /m3Revenue: $7150

Sawmill: 1m3 sawn timber → 1.4 m3 logs

1 m3 sawn timber: $420

Container (11m3) : $4620

Shipping cost: $2000

Profit: $530 / containerProfit: $2420 / container

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2.2 China as a Final Market

logs products logs productsChina France

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Gabon’s export distribution (1997-2008, m3 in RWE)

Source: Terheggen (2010, 2011) & Kaplinsky et al. (2011)

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2.2 Foreign investors’ value chain function

Forest stock

Company inventory

Log

Tree

Port inventory

Sawnwood

Inventory at firm or port

Veneer

Plywood

Port

Port

b.iiib.ii

b.i

a

drying

planing

varnishing

peeling

steaming

drying

Port

cutting

gluing

pressing

trimming

varnishing

optional

optional

optional

sawing

Inventory at firm or port

Port

Inventory at firm or port

China / EU EU and others

China EU

Source: Terheggen (2010, 2011) & Kaplinsky et al. (2011)

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2.2 Simulation exercise

Test of the viability of domestic processing (all logs are channeled into a single sub-chain)

Extractive sector = economically ‘superior’ Processing sector = economically ‘inefficient’

Source: Terheggen (2010, 2011) & Kaplinsky et al. (2011)

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2.2 Value added & unit profit distributionVa

lue-

adde

dU

nit p

rofit

s (π

u)

Source: Terheggen (2010, 2011) & Kaplinsky et al. (2011)

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3. Conclusion

Should the log-export ban be maintained?

- Value creation or destruction?- Employment creation?- Loss of tax revenues /increased corruption- Effect on the capacity to control illegal logging

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3. Conclusion

Evidence from these two different cases support the same conclusion: LEB is ineffective

Pursuing the wrong development strategy, especially in light of the Chinese economic environment.