South African Forestry Company Limited Diversification Strategy and Land Claims briefings

Meeting report

South African Forestry Company Limited (SAFCOL): Diversification strategy
Ms Nomkhita Mona, Chief Executive Officer, SAFCOL, briefed the Committee firstly on the key strategic priorities of SAFCOL, which spoke to land claims, employment rates, education and skills level in the forestry sector, competitor advancement in upgrading the technology in their operations, climate change and legislation such as the National Forestry Act, the Competition Act and national policies, including the National Development Plan.

She noted that SAFCOL wanted to modernise its technological base, extract maximum value from high quality logs and growth exports. Other important factors that were crucial for SAFCOL as a state-owned entity included, but were not limited to, profitability, plantation forestry management, enhanced developmental contribution and understanding customer and stakeholder needs. There were several initiatives planned over the short term aimed at organisational re-alignment, market diversification, cost reductions and optimisation.

She expanded that SAFCOL wanted to enhance its organisational streamlining, revenue diversification, cost efficiencies. It wished to make strategic investments to develop new products and promote socio-economic projects. Economic growth in Africa included infrastructure investments. The rising middle class and growing construction sector were both driving demand for structural lumber and poles.

SAFCOL sought to train its management to perform better. It was aiming to oversee rural socio-economic development and actively facilitate land claims. It wished to add knowledge to the plantation forestry industry. It would be further establishing new relationships, and enhancing existing strategic partnerships, with private and public sector parties for plantation forestry activities. It would enhance proactive customer and stakeholder relationship management, and effective after-sales service. The main goal for SAFCOL was to enhance its revenue through log exports, lumber sales to SADC markets and export of custom produced boards to international markets.

The recently planned high-value added plant in Sabie was key to the development of new products. Total investment in this plant was R924 million. It was expected that there would be 11% payback of a period of ten years, and there were more potential external funding discussions taking place.

The South African market was positive in terms of buying logs, and she noted that use of wood is still prominent in the Middle East and European Union. New product lines included a Timbadola upgrade with a possible cooperation with China, the Sabie complex, with potential for the production of high value products by 2018, pole production, and products from commercial programmes such as agro-processing and timber-frames.

Discussion
Ms D Rantho (ANC) said she had a question for every line in the presentation, and she proposed that it would make sense for the Committee to visit SAFCOL, as it was important for the Committee to have real knowledge and be able to exercise oversight over the matters it was speaking about. She asked what exactly would the plan be for changing targets. She noted that at present, SAFCOL was only exporting 25% instead of 75% target. She asked what exactly was being referred to in relation to Middle East or EU markets. She wondered if there was a way to process the raw material in the country and then export finished goods. She also asked what the economic value of the leasing agreement of the entity was.

Dr Z Luyenge (ANC) said that trees are seen everywhere across the country, SAFCOL was an important entity that must be sustained, and it must respond positively to the National Development Plan, which it had shown was possible, from this presentation. Indeed a visit to the entity would help the Committee to understand the full conditions. Dr Luyenge also pointed out that roots of trees could probably also be used by traditional healers. One question that had not been addressed was the human resources in the entity.

Mr R Tseli (ANC) said that it was clear that SAFCOL had social responsibility projects, most evident in Limpopo, but asked who would decide on the priority of each project, and whether, for instance, a community hall should be built instead of a school. People did not know much about SAFCOL and hard work would be needed to correct that. He asked what exactly the trade challenges with Mozambique were.

Ms Mona responded that a visit by the Committee would be most welcomed as this would definitely give Members a better understanding of the entity. As a state-owned entity, it faced some difficult challenges. For instance, private companies might tend to approach the Competition Court and claim that SAFCOL used its dominant position, as a state entity, to extract more raw materials than were warranted.

She explained that the trade with the Middle East and European Union comprised of logs that were cut and sent there, but she pointed out that in fact exportation of raw materials should not be happening at all as more would be gained from finished product. 61% of the land was leased from communities under the Department of Rural Development and Public Enterprise, and there were trusts set up for the benefit of the communities, so that R59 million would be paid to a trust for the land use.  It was very important to link SAFCOL's work with the National Development Plan, and it was very aware of where linkages could be achieved. There should be no waste and full money gained from each part of each tree.

She noted that it was unfortunate that the brand was weak at the moment and there was consideration whether this would be strengthened by putting SAFCOL and Komati together. The main problem with Mozambique was that the markets there are not regulated at all, so competition became a problem, and quality was another issue.

Ms Zoliswa Mashinini, Chief Financial Officer, SAFCOL, indicated that there were acquisition processes that were weighted against the budget of the entity. Great attention was paid to the disposal of assets. SAFCOL was insistent that it must try to achieve clean audits, clearing accounts and proper accountability for all expenditure. Due to the dispersed location of the entity, and where it fulfilled its mandate, the Mpumalanga Central Office was doing all the accounts for the entity. 

The Chairperson asked about the biomass resources. SAPPI had made a bid with the Department of Energy, and she wondered what sort of relationships existed with partners and whether this also comprised use of shared resources.

Ms Rantho followed up on the leasing issues, asking if the communities could partner with the entity to do business. She also asked if there was any sort of monitoring system with Mozambique, to change what was happening there.

Ms Mona responded that eco-tourism was not their core business of SAFCOL and the entity was thinking of perhaps outsourcing it, and the task had been handed over already to draw up some plans. Indeed, she stressed that much planning was taking place, so that SAFCOL's business could be inclusive of communities. Partnering with SAPPI was a problem, as competition laws were restrictive. Contracts had been signed with other, individual people, who came and cut logs. She cited the example that York Timbers could not be the only beneficiary and it would only be fair to share the resources. For this reason, a tendering process would take place, and contracts were renewed every year. She offered to come back to the Committee to explain more issues in more depth, if needed. She said that doing business with surrounding communities was regarded as crucial.

Following up on the issue of Mozambique, she explained that because Mozambique does not regulate what comes in to that country, it was impossible for another country to do anything about that. Internal laws applied there. There were some tight monitoring mechanisms.

The Chairperson said there seemed to be quite a lot of money lost through the black market.

Ms G Nobanda (ANC) asked about the human resources of the entity.

Ms Julia Mphafudi, Senior Executive: Human Capital Management, SAFCOL, said that there were about 6000 employees in South Africa, and around 500 in Mozambique, and SAFCOL recognised the need to recruit black women into forestry careers. There were strategies to train already existing employees, to qualify them for senior positions. SAFCOL would meet with various communities prior to the implementation of any projects. Transformation was being done on a continuous basis and SAFCOL was working with unions, to address issues of concern to employees, and to ensure that the communities are not isolated. It had approached a lot of entities to form partnerships with them, in terms of skills development. It would shortly be handing over a school in KwaNongoma in KwaZulu Natal, and the school was due to be finally completed on 9 June.

Ms Mona added that there had not been a great record of transformation in the forestry industry, but SAFCOL had managed to appoint two black women as production managers. The industry was really changing its demographics at the moment, and considerations into how to transform the actual business were ongoing. Industrialisation would assist in this regard. There were serious strategies to keep people in the entity.

Land Claims update briefing

Ms Mona said approximately 61% of the state forest land under SAFCOL forest plantations was faced with land claims. The main risk to its operations was the unresolved land claims, and SAFCOL was deeply affected by the whole process of the management of the land claims.

The Department of Rural Development and Land Reform (DRDLR) played a pivotal and leading role in the management and resolution of land claims, although SAFCOL was a preferred partner for successful land claims. There were three provinces where the main land claims had taken place, and the status was: 

Limpopo – 14 claims, 13 negotiated and 3 settled

Mpumalanga – 17 claims and 4 negotiations

KwaZulu Natal – 1 claim and 1 negotiation

Recently there was a inter-ministerial task team meeting, facilitated by the Department of Rural Development and Land Reform, where issues discussed included the payment of rentals to the land claimants, establishment and implementation of a suitable settlement model. Arising from this meeting, a close relationship was developed, and there were focus teams formed to deal with individual claims. To date, SAFCOL had developed a draft settlement model deemed suitable for settling land claims that affected state forest.

SAFCOL operations had also already received threats from communities due to unresolved land claims, increase of temporary unplanted areas resulting from community conflicts, whilst illegal occupation of operated land was a challenge as well.

In terms of possible settlement models, SAFCOL had looked at various options, through lease-break and strategic partnerships, such as the transfer of tittle and rights to the land to successful claimant communities for ownership, or another option might be for government to acquire shares in the trees, or ensure a strong partnership in land rental, depending on the business and political will of the people.

SAFCOL currently was obliged to pay rentals for lease of the state forest land that it used for its plantations. Currently, it was paying, under the lease, R48 million per annum, which was paid to the Department of Agriculture, Forestry and Fisheries.

Ms N Mazzone (DA) asked if there was anything said about SAFCOL in the Appropriation Bill, and anything in particular of which the Committee needed to be aware.

Dr Luyenge asked about the inactivity of forestry rental in the Eastern Cape, saying that communities did not benefit from the arrangements.

Mr Tseli asked if the R48 million set out related to all the land claims at the moment. He wanted to know what form of communication was followed to tell people about SAFCOL, and what was being done to publicise its work.

Ms Nobanda asked how illegal occupants of the land were being dealt with.

Ms Mona responded that the Legal Counsel was dealing with all the legal matters faced by the entity. She explained that the figure of  R48 million was a business payment for it covered the rental of collective use of lands in different communities. Communication was a major challenge for the entity, and although it was possible to use community radio and newspapers, this was not really that useful, because they tended to want to focus on immediate events and the long-term plans for the entity did not come across well. She agreed that illegal occupation could be a problem, particularly since SAFCOL did not own the land, but only had a use right, and careful negotiations were needed when this happened.

A representative of the Department of Public Enterprises mentioned that this Department would continue to support SAFCOL in the achievement of its strategic objectives.

The Chairperson noted that the Committee would make a plan to visit SAFCOL.

Minute adoption
The Committee considered and adopted minutes from meetings on 13 and 20 May 2015.

The meeting was adjourned.