Safcol 2019/20 Annual Report; with Deputy Minister

This premium content has been made freely available

Public Enterprises

17 March 2021
Chairperson: Mr K Magaxa (ANC)
Share this page:

Meeting Summary

Annual Reports 2019/20

The Committee convened virtually to receive a briefing from the South African Forestry Company Limited (SAFCOL) on its annual report and financial statements for 2019/20. The Deputy Minister of Public Enterprises was in attendance.

The South African Forestry Company Limited Board’s review of the first year in office showed that the Board was coherent, focused, professional, and worked well in delivering the mandate. A stable financial performance was delivered under difficult Covid-19 conditions and management was supported through the journey. As attested by the reports of the Auditor-General (AG), the entity has gone far in ensuring that financial irregularity and wasteful expenditure were limited. An unqualified audit opinion was achieved through hard work, thanks to the leadership of the chairperson of the audit and risk committee.

In the financial year under review, 14 of 25 Key Performance Indicators (KPIs) were achieved and 11 were not achieved, which equates to an achievement of 56% against the plan – this was an improvement from the previous financial year. There was fruitless and wasteful expenditure of R52 million, due to suppliers being unfairly disqualified, minimum number of quotes not obtained, and non-compliance of Supply Chain Management (SCM) policy. However, improved internal controls, early detection, awareness and implementation of consequence management and leadership commitment to improve company culture resulted in decrease in irregular expenditure.

SAFCOL achieved an unqualified audit opinion during the year under review.

One area of concern from Members was on the land settlement claims. Members wanted an update of the model for the settlement claims. They also asked when the entity would transfer the community’s shares and what plans were in place for areas where there are challenges of the community claiming land.

Another area of concern was on steps taken to mitigate irregular and wasteful expenditure. Members asked for the findings into the investigation of the alleged financial mismanagement, and the consequence management against those found guilty of such misconduct. Members were concerned about the performance on KPI targets that were not met.

The Committee also asked on the plans of diversifying, since trees take long to nurture, but selling only raw wood does not bring much benefit.

Meeting report

Opening Remarks by the Chairperson

The Chairperson opened the virtual meeting, welcoming Members, the Department of Public Enterprises, Ministry and the delegation from the South African Forestry Company Limited (SAFCOL), to the meeting. The Deputy Minister would represent the Ministry. This meeting would get the annual report and financial statements from SAFCOL for 2019/20.

Apologies were received from Minister Pravin Gordhan, Mr N Kwankwa (UDM), Mr G Cachalia (DA) and Ms O Maotwe (EFF).

The Chairperson asked the Deputy Minister to provide remarks in relation to the report.

Opening Remarks by Deputy Minister

Mr Phumulo Masualle, Deputy Minister of Public Enterprises, said that while there are many challenges imposing a gloomy environment, he was happy to present the SAFCOL Board Chairperson to present the financial performance of the institution. This is different because there is visible change in fortunes of the organisation. Their submission will attest to the optimism. The organisation has scored an unqualified report, suggesting that work is being done in improving financial management.

He invited the Board Chairperson to make remarks and go ahead with the presentation. He requested to leave the meeting at 11:45 to attend to other matters.

Remarks by SAFCOL Board Chairperson

Mr Mpho Makwana, Chairperson, SAFCOL Board, said that it was a privilege to present the report to the Committee. It is widely established among cooperate strategists that on the one hand “culture eats strategy for lunch”, while on the other hand “cooperate strategy is to be responsive to a volatile, uncertain, complex, and ambiguous (VUCA) environment”. COVID-19 has presented a perfect storm for that VUCA environment. For the financial year under review, the current Board sought to correct cooperate culture to avoid having the culture that “ate strategy for lunch”. Secondly, the Board sought to set the correct tone of cooperate governance at the top. Much effort was placed in achieving optimal cost competitiveness relative to other players in the forestry sector. It is a small sector, and mostly limited to a few key customers. This impacts revenue growth. Within this tight environment, the Board is mindful that they are custodians of state assets, which means there is need for sustainable value for the fiscals. This meant minimising losses that have been recurring and as part of setting the tone at the top, all reckless expenditure and corruption were eliminated – although SAFCOL was not hard hit by corruption. The Board invested in a due process of building and driving a long-term strategy that imbedded a new culture of high performance while ensuring that value erosion was eliminated. The Board continuously ensures that the strategy is aligned with the objectives of the Forestry Masterplan, which includes encouraging sector growth, investment and job creation competitiveness.

In the year under review, there was solid partnership with the Board and the Deputy Minister, who provided oversight, with the Minister of Public Enterprise. The Board’s review of the first year in office showed that the Board was coherent, focused, professional, and worked well in delivering the mandate. A stable financial performance was delivered under difficult Covid-19 conditions and Management was supported through the journey. As attested by the reports of the Auditor-General (AG), SAFCOL has gone far in ensuring that financial irregularity and wasteful expenditure were limited. An unqualified audit opinion was achieved through hard work, thanks to the leadership of the chairperson of the audit and risk committee, Ms Zimkhitha Phaphama Zatu. There was positive financial turn-around for subsidiaries like IFLOMA. This shows the sense of working together as a culture within the Board and Executive.

He asked the CEO, Mr Tsepo Monaheng, to make the presentation.

Briefing by the South African Forestry Company Limited (SAFCOL)  

Mr Tsepo Monaheng, SAFCOL CEO, presented the annual report and financial statements for 2019/20. Among the highlights for the financial year was an unqualified audit opinion; IFLOMA achieved breakeven after a long care and maintenance period; successful Log Customer Conference was conducted with all logs clients, and FSC achieved for the 23rd consecutive year. SAFCOL is still working to replace old technology and equipment in forest and processing, replacing Enterprise Resource Planning (ERP) system, reviewing the Timbadola cost structure and combating timber theft. However, there were two fatalities in operation, and the budgeted revenue per employee was not achieved.

In the financial year under review, 14 of 25 Key Performance Indicators (KPIs) were achieved and 11 were not achieved, which equates to an achievement of 56% against the plan – this was an improvement from the previous financial year. In the year under review, an external service provider managed the SAFCOL Fraud Hotline. A total of 28 fraud and corruption allegations were recorded. There was fruitless and wasteful expenditure of R52 million, due to suppliers being unfairly disqualified, minimum number of quotes not obtained, and non-compliance of Supply Chain Management (SCM) policy. However, improved internal controls, early detection, awareness and implementation of consequence management and leadership commitment to improve company culture resulted in decrease in irregular expenditure.

The Chairperson asked the Deputy Minister and Board Chairperson for SAFCOL to make comments on the presentation before the contributions from Members.

Mr Makwana, SAFCOL Board Chairperson, said that the Board and Executive have five priorities in looking ahead from the report – firstly, to sustain revenue diversity. As earlier indicated, there is a revenue concentration challenge with a handful of key customers. The Board and Executive have been working together to start building new capacity and to learn how to become more export oriented, because there are global opportunities that can be pursued in other markets. A second priority is maintaining momentum to improve the liquidity of the organisation. The third one is focused on improving and maintaining momentum on the quality of internal controls. There might appear to be an increase in reporting of irregularities, which the Board believes is a good thing, because in the past this was suppressed. Although there are a number of irregularities on slide 23, where it was mentioned that the hotline had 28 new reports, what is pleasing is that it does not necessarily mean that there has been deterioration in the culture and integrity in the organisation. It simply means that more reports are coming through and more reports are being investigated. But fewer reports were found to be worth pursuing as actual irregularities that took place. A forth priority is to embed a new culture of high performance and being more data-driven. There is a good old, adage that “numbers do not lie.” The Board has invested in a performance management system that is allowing Board and Management to start being more data-centric in driving performance culture. Lastly, the Board continues to look at building a robust, high quality Board that continues to focus on the key priorities and the business at hand.

SAFCOL Board Investment Committee Chairperson, Mr Neeshan Balton, said that while the most significant thing is the attempts to diversify income streams. Several critical projects have already commenced. Once these are fully implemented, there will be more diversified income streams that will enable SAFCOL to weather a range of storms that might be coming in future.

Discussion

Mr S Gumede (ANC) thanked SAFCOL for the presentation and said the unqualified audit report is pleasing to the Committee. How does the Board plan to sustain SAFCOL’s performance? Often, some entities perform better with unqualified audits, but they simply go down. Does SAFCOL have any plan to tackle the matters raised by the AG? The performance on KPIs has not been good, with 53% achievement. What could have been the obstacles? Many of the key performance areas were not achieved; that is critical. When does SAFCOL plan to finalise the land matters? It is a risk if they continue doing business on land that does not belong to them.

He thanked the Department for managing to settle the debt and address some other liabilities.

Ms M Clarke (DA) said it was refreshing to have a presentation from an entity that is not on the verge of bankruptcy. What contracts caused the wasteful and irregular expenditure? Has this been corrected to mitigate such henceforth?

She noted that the chairperson of the board said that the entity wants to become more data-driven to ensure that the viability of the company proceeds. Would this objective be realised with the current IT system that is available? The presentation mentioned that the IT (Information Technology) system needs serious upgrading. This is like what Denel presented, whereas its staff works on spreadsheets. That is not a viable system to get correct statistics.

SAFCOL embarked on a scenario planning project during COVID-19, what was the outcome of this planning project and what do they aim to achieve in relating this project? What has been put in place to ensure that SAFCOL is able to maintain critical skill sets that are needed for the organisation? Has that been realised through the HR? What steps have been taken to ensure that the irregular and wasteful expenditure is mitigated within the current financial year? What consequence management has been put in place for those who offend? Have there been any disciplinary cases? How many of those have been realised? What was the outcome of those disciplinary cases?

Ms R Komane (EFF) thanked SAFCOL for the good report presented but pointed out that there were important KPIs that were not met. Why were they not able to meet the targets on these KPIs?

Can SAFCOL update the Committee on the model for the settlements? What steps are taken to prevent the irregular expenditures of around R9 million? Most of the irregular expenditures were due to non-compliance with SCM processes on the entity.

It is very promising that SAFCOL had an unqualified audit. However, there is cause for concern because of the repeat findings by the AG on annual statements, that there was lack of transparency and fairness, and there was contravention with the 2017 Preferential Procurement Regulations. There were companies that met the requirements but were not shortlisted. What are the findings into the investigation of the alleged financial mismanagement, and the consequence management against those found guilty of such misconduct? When will the community’s share be transferred by SAFCOL? It was presented that the CFO resigned last financial year; it is now towards the end of another financial year. How far is the replacement process of the CFO?

Ms C Phiri (ANC) said that the presentation gives relief to the Committee because of the good performance. SAFCOL is showing positive strides in dealing with all issues of finances. On land claims, SAFCOL still has some shares that belong to the community. When will they be transferred back to the communities? What are the plans in place for areas where SAFCOL is experiencing challenges of the community claiming land? The Board Chairperson indicated that Venda in Limpopo work is going well, but in some instances the issue is not the same. How is SAFCOL dealing with this? How does it affect the process or working environment in the institution?

She noted that SAFCOL set their own target of 80% for Black Economic Empowerment (BEE) but only achieved 52%. What plans are there to reach that target? What is the plan to assist black-owned women business, youth and disabled people? There is only ever small take of six percent for black-owned entities. This is not looking good for empowering small businesses.

On irregular expenditures, this is the scenario for all entities under this Committee, where the mitigation strategy is always to go to court when one is not satisfied with the tender process. How do the management and the Board handle that issue to avoid always being taken to court? The courts only give a mandate to award a certain percent. This could be avoided if the right processes are followed in the first place. How is SAFCOL planning to eliminate such incidents? Otherwise, it ends up giving no unforeseen expenditures.  

Mr NE Dlamini (ANC) said that the report is showing a positive picture. The concern that is there is on the land claims, since they can be a stumbling block to progress. For example, in KZN a project that was supposed to help the entire province crumbled because of land claims. There needs to be a way of resolving this since it will also help in future planning. Currently, it looks like the company is on an upward trajectory of being profitable and sustainable. But there needs to be a contingency plan for the land claims.

Ms J Mkhwanazi (ANC) commended the work that has been done by the Board and management, and the oversight being done by the Department, under the DG and DM’s leadership. The report is refreshing. Other SOEs should be encouraged to learn from this story. Can SAFCOL give an update on the land claims? How far are they with the targets on Preferential Procurement? Are they happy with the progress? What is the plan going forward? On the AG’s findings, what is the process in place to reduce and overcome fruitless and wasteful expenditure on things that can be avoided in future?

Ms V Malinga (ANC) said she was covered by the questions asked the Members.

Ms J Tshabalala (ANC) said there is a lot of progress by SAFCOL that has to be noted. Can the entity give an update on the model for the settlement of claims? What is SAFCOL’s engagement with customers to ensure customer satisfaction? What is causing the delay in the Timbadola upgrade? What is the progress on SAFCOL’s request to manage government forests? SAFCOL is part of government, why is it difficult for this to be granted? On BEE procurement, 51% was achieved against the target. Can there be a breakdown of the workforce by demographic? What is the entity doing to ensure it meets its preferential procurement spent target? SAFCOL decided to discontinue extended sales contracts. Why was this decision taken? How has this impacted on the operations of the entity?

SAFCOL should also update the Committee in findings into investigations of alleged financial mismanagement and the consequence management mechanism instituted against those found guilty of this mismanagement. What processes has been put in place to reduce and overcome irregular, fruitless and wasteful expenditure? SAFCOL still holds minority shares on behalf of communities. When will these chares be transferred to the communities?

The Chairperson appreciated the unqualified audit and the steps that SAFCOL has taken.  Hopefully in the next also financial year there will not be retrogression but rather an improvement on the issues raised by the Members. On prioritising the programme to diversify, he said that it takes ten to 20 years to nurture the trees but they end up being sold at very low prices. The customers get the wood and manufacture very expensive material that will enrich them. There seems to be limited ideas for SAFCOL to develop. SAFCOL could have been using the raw materials for the benefit of the country. Schools require desks. The ones currently being used are bought from private sector, which makes them very expensive, while SAFCOL is producing trees. Can there not be equipment for producing desks, coffins, or hospital and office furniture? All state institutions can buy cheaper products from SAFCOL and save a lot of money. Is there a possibility of prioritising that programme?

Responses

The Deputy Minister appreciated the words of encouragement from the Committee, and said they were received with caution so that there are no regressions going forward. SAFCOL will keep the acceleration, moving forward. On the issues raised by the Chairperson, he said he hope these could be dealt with extensively in the sessions on Mondays. There are several other impediments such as competition issues that get into the way. It is very easy to consider SAFCOL as a monopoly of a kind. Diversification is being considered even for the logs that are produced.

He asked the Board and the management to address matters raised by Members and requested to leave the meeting at 11:45, as he had another meeting to attend.

Mr Makwana, SAFCOL Board Chairperson, thanked Members for the words of encouragement. He said he wanted to give a context to the issue of irregular and wasteful expenditure. It is mostly what was inherited when the Board assumed its term. But in the tenure that they have been in office, there has not been any spiralling of irregular and wasteful expenditure. The team in Finance, Audit and Risk would explain more on this.

On diversifying revenue, the Deputy Minister covered some of the dimensions in terms of ensuring that SAFCOL stays within its regulated space. They have been looking at how to diversify revenue from a top line point of view. Countries like India, China and in some parts of Asia have approached SAFCOL because they have a shortage of the kind of logs and timber made by SAFCOL. There is room to explore those possibilities. But an exporting culture comes with risk. As mentioned earlier, in building capacity from mid-2020, SAFCOL embarked on a process that ended with the appointment of a Chief Operating Officer, Mr Sibalo Dlamini, who came with a broad background from manufacturing private sector experience. His leadership of SAFCOL operations team will help embed the requisite culture to ensure that the company become savvier in manufacturing and SCM. On the vacancy for Chief Finance Officer, he said that there is a new person who was appointed, who will begin work on 01 April 2021. This was not highlighted because the presentation was referring to the previous financial year. SAFCOL went through a competitive process of search and advertisements. The appointment was confirmed three or four months ago with a concurrence of the shareholders.

On the shareholders, he said that the period under review and even now in the financial year 2021/2022 SAFCOL continues to operate in a “one-in-100-years” environment of the global pandemic. This has slowed down the economy, not just in South Africa. Various leaders recently made it clear in Parliament that South African GDP has declined by 7%. Organisations that are listed as performing well have started off by indicating that their headline earnings dropped by 53 to 60%, depending on which sector they are in. The money sector has so far been the only buoyant sector, but also with limited headline earnings. SAFCOL is not different, because the delivery of the shareholder compact is a direct link to the economy. Since the key customers are struggling through the economic challenges, SAFCOL has also invariably reduced ability to draw revenue. It is when SAFCOL has revenue that they can deliver on most of the key dimensions of the shareholder compact that were not delivered on. As the CEO mentioned, many times SAFCOL had to preserve cash and ensure that they are robust in the efforts of cost containment. This is the context on the KPI shareholder compact performance. It is not for lack of effort, but simply the current difficult volatile, uncertain, complex, and ambiguous environment.

On being data driven, the key point is that SAFCOL has always been investing in ongoing improvement on ICT, including the reporting that the Board uses, which is based on a digital platform. The organisation has been migrating to Office 365 and its requisite systems. Transnet poached the Chief Information Officer (CIO). Hopefully that speaks of the capabilities she had that the bigger SOE felt they could deploy her and offer her a more attractive package. Since the Board started their term of office, she has been working hard in ensuring that there is systems integrity.

On the performance culture, SAFCOL has invested the South African Online Performance Management System, which is a system that adds value at a minimal fraction. It costs about R40 000 annually and allows any member of the Board to have user rights to log in and see the Performance Management against the approved strategy in real time. The Board Chairperson has fortnightly status meetings with the CEO, the Acting CFO and the Company Secretary. Other executives are also invited to attend as assigned by the CEO. The Board Chairperson gets to see the system in real time and these fortnightly discussions are based on tracking performance against those outcomes. The scenario project that was invested in together with University of Stellenbosch Business School came because of looking for various navigation points in the early stages of the hard national lockdown. At that time, it was quite clear that SAFCOL would be hit hard in terms of revenue and where to look for opportunities. A set of scenarios helped to figure out general global trends around the forestry business, especially as a state-owned entity. In the first quarter of the Board’s term of office, a delegation of Executives and the Board went to Finland, at the invitation of the Finnish government, to look at best practices in the business. This was a subsidised visit and did not cost as much. There is need for inculcating a culture in South Africa, where wood is seen as part of material that can be used to build houses – including an RDP houses or a small modern house.  There is no culture of building wood cabins or using wood in high-rise buildings. In other countries like Scandinavia and Japan, this is an established culture. As such, SAFCOL Executives are engaged with Council for Science and Industrial Research (CSIR) and other partners to consider building a showcase building out of wood, to become part of the new head office in Pretoria. The CEO will give more detail about these plans. The scenario project was a very important risk that helped to achieve the R96 million cash reserves, as the CEO mentioned. During the hard lockdown, the Board convened weekly, and later convened with management, while navigating that difficult phase. The meetings then became fortnightly, monthly, and then reverted to the quarterly programme. These scenarios were a product of joint sessions between Executives and the Board. In terms of critical skill sets, those scenarios also helped in anticipating what the forestry company of the future looks like, the future SAFCOL’s role in carbon reductions and the extent to which wood can become central to the economy in the national infrastructure of the country. There is an opportunity for SAFCOL to become a key player.

On the talent mapping, much work has been done through the human resources committee in ensuring that a key succession plan is mapped out. This is a plan for how recruitment will be done once the organisation becomes more profitable, against the strategy of building a forestry company that will be fit for purpose in the future.

On customer satisfaction, the SAFCOL Chief Strategy Officer, Mr Vishal Harichund, came from a colourful background. He has embedded new systems for SAFCOL to become more customer-facing. One of the reasons for accelerating the appointment of a Chief Operations Officer (COO) was the recognition that the CEO was stuck in the changing room fixing the organisation and spending little time outside on the customers. A robust customer interaction programme has been rolled out. The CEO will explain more on this.

Since the Deputy Minister is away, the DG would also respond to the question on the Research and Development (R&D) expenditure, and the broader role of SAFCOL in forestry management, including where the Department of Public Enterprises (DPE) interfaces with the DEFF (Department of Environment, Forestry and Fisheries) because SAFCOL can only operate within its defined competency in terms of Forestry management. In 2019, the Board has spent most of its meetings in the bush. A day was spent at Timbadola. The Board physically visited every SAFCOL facility to see the capabilities of SAFCOL on the ground. The Board was pleasantly surprised upon visiting the R&D environment where there was a lot of insight around how SAFCOL is investing in knowledge of ensuring that trees are cured, and new species are captivated among other technologies. South Africans should be proud of the calibre of SAFCOL’s R&D facility. The Chairperson of Audit will respond to the questions on land claims, settlement claims, community shares and the repeat audit findings. As it was pointed out earlier, these relate to 2017 matters – before the tenure of the current Board. The current Board has cleaned up as much as they possibly could.

Ms Zimkhitha Phaphama Zatu, SAFCOL Board Audit and Risk Chairperson, thanked Members for the questions. On irregular expenditure and consequence management, she said the fact that SAFCOL have been able to turn around five years of qualifications into an unqualified opinion this year does not mean that all the problems of the previous five years have been solved. It just affirms that the internal controls are sufficiently working and are picking up areas of concern, which are being rectified.

On the question of the kind of contracts that led to regular expenditure, she said that the most significant of the contracts was the customs cut contract, which has come to an end, but had to run its course. That is why there was the recurring big irregular expenditure. SAFCOL is moving in the right direction in terms of the control environment, including improving the culture so that when people see something wrong, they are confident to report because they believe that action will be taken. This is a positive move.

Disciplinary procedures have been instituted on staff members that were found in the wrong. There is a very detailed report on this, which can be shared with the Committee. In the past three years, about nine employees have been dismissed. There were written warnings, final written warnings and counselling, among others. The Chief Audit Officer will respond on the audit recovery plan and see how SAFCOL is dealing with the repeat audit findings. Many of them are SCM related. The idea is that by improving the discipline and showing that there is action on misconduct, correction would easily happen.

On why standing sales were stopped, she said the challenge was that it was good to record the revenue, but the problem was that it was taking over a year for the money to be recovered, yet liquidity was more important. This was a bold decision, and in the periods where there was a cash crunch in the country and there was no production, SAFCOL had sufficient cash reserves to sustain its operations. The motto was that “Cash is King” and it helped in times where there was a crunch.

On IT systems, she indicated that SAFCOL has a very old JDE system that requires an upgrade. The cost of that upgrade is quite exorbitant, as it costs about R100 million. SAFCOL is looking for ways to finance this. Discussions about financing were started with the banks. On a quarterly basis, the Audit and Risk Committee gets a report from IT on the emerging IT risks and where there are difficulties. Much of these come back to the need to upgrade the IT system, since there is vulnerability on a cyber security point of view. It also compromises preparation of some financial statements, as pointed out by Members that some SOE’s use spreadsheets. This was previously the case for SAFCOL, but they have now started using CaseWare, which will help in the quality of the preparation. SAFCOL is vulnerable from an ICT (Information and Communication Technology) perspective, but the Audit and Risk Committee is managing this on a quarterly basis. However, until the funding of the upgrade is solved, the risk will still be there.

Mr Ntsatsi Rapoo, SAFCOL Chief Audit Officer, responded on the audit recovery plan. He said that this is based on the shortcomings that the AG identified in the 2019/20 reports. The AG identified the root causes for the challenges; as such, the plan has been compiled and split into short-, medium- and long-term elements, with a key forecast being control drivers as identified by the AG in the audit. There are three key control drivers, firstly leadership, which is aligned to governance and compliance; financial reporting, which is split into preparation of financial statements and procurement; and finally, performance reporting. For leadership as a control driver, the high-level measures in place for the audit recovery plan are the capacitation of all top management, apart from the CEO. This is an ongoing project.

The processes are taken, and they will be submitted to National Treasury to ensure that issues are addressed from a governance compliance perspective. On financial reporting, one of the measures in place is that as part of the reviews for the next financial year, the Internal Audit Unit will carry out a review of the interim financial statements. There will be technical updates for all staff that are involved in the preparation of financial statements. Management will have continuous engagement with the AG before, during, and after all the audits have been carried out. As already mentioned on the automation for preparation of annual financial statements, this will include a module for asset management.

On procurement, he said that there is capacitation of SCM functions, which are continuously monitored to ensure that these effective and efficient procurement systems, and compliance with the relevant prescriptions. There is a plan to automate the SCM processes. It was also identified that there was lack of automation in the performance reporting process. This is being addressed. In the long-term, many of the shortcomings with these control drivers that have been identified as key will be addressed.

Mr John Maruma, SAFCOL Acting Chief Financial Officer, said, on sustaining and maintaining the Audit Department from a finance perspective, that there has been capacitation of the finance team through weekly trainings. This is enforced to keep fruitless and wasteful expenditure at a minimum.

Mr Monaheng, SAFCOL CEO, responded to the question on land claims. He said, although SAFCOL is not responsible for the land claim process, they are participants in the process. It is an opportunity for SAFCOL to partner with communities to derive more value out of the assets. The strategy is to create relationships and partnerships with communities, even before the land has been transferred, so that by the time the claim has been declared as successful, an economic relationship can be pursued. SAFCOL is talking to communities broadly – the one in Entabeni, in Venda, is being settled. The community is just waiting for the handed over ceremony. SAFCOL is working on areas of partnership to continue so that communities can benefit from the forest. After SAFCOL’s departure with them, it is critical for that the forests continue, rather than being harvested and destroyed after the land is transferred. The agreement is that the communities want SAFCOL to continue operating the forests, but they should be local beneficiaries in either supply chain or processing opportunities such as Agro-forestry.

In processing opportunities, the communities could set up furniture manufacturing or other advanced processing facilities with SAFCOL’s support. SAFCOL is currently working with CSIR and Stellenbosch University. Two researches have already been concluded. With CSIR, a research has been concluded on Cellulose Nanocrystals (CNC), where products are extracted out of the wood instead of waiting for the tree to be harvested and then 50% of it thrown away. This project will be implemented jointly with the communities. With Stellenbosch University, a research was concluded on engineered wood. As the Board Chairperson referred to it earlier, the aim is to have wood that can build model housing and office space as it is in other countries in the world. These are opportunities where the communities can partner with SAFCOL in the businesses. SAFCOL can carry the responsibility of the plantations and real estate, and then partner with the communities the beneficiation. The communities like this. For the area on the other side of Tzaneen, which was referred to by Members, the community received their land. A partnership agreement is being worked on where the community will continue benefiting, not just on CSIR but also economically. There will be bonus of businesses that derive value from the timber.

On how SAFCOL keeps critical skills, he said SAFCOL is very fortunate because there is knowledge of taking the asset from where it is to another part of the country. The colleagues are committed to this. The hope is that the rewards will improve in the future. There are very interesting strategic projects being worked on, and the colleagues want to be part of this journey. There is need for a culture that South Africans can be proud of SAFCOL.

On the KPIs that were not met, he said that SAFCOL ended up at 56%, although the desire was to be over 70%. It was a very tough year economically, and SAFCOL had to change plans in the middle of the financial year to postpone some of the costs. Another area where targets were not achieved is the revenue element, which cascades through three elements. It is because a decision was to clean up revenue and make it sustainable rather than living on year-on-year. This affected the company. On preferential or transformational targets, it was realised that there were difficulties in searching the market for enterprises that SAFCOL can work with. In being proactive, a training programme was started to train suppliers in partnership with a United Nations based entity. Suppliers are trained to become full participants in the industry. There is also a partnership with Mpumalanga University for training on enterprises. This was a new environment of operating in the higher level in the forestry space. The trainings are being done and the hope is that the benefits will be realised soon. These trainings are aimed at making it easy for suppliers to participate in supply chain and execution of projects. Otherwise, if they fail in the contracts, SAFCOL also fails.

On when shares will be transferred to the communities, he said SAFCOL has been working on this project for the past two years, and that the sooner the shares are transferred to the communities, the better. SAFCOL may probably need to take the communities along so that the transferred shares are not lost. SAFCOL is ready to transfer the shares. The process is to work with the National Empowerment Fund (NEF) to hold the shares in an interim facility, so that when the communities have been identified and shares are transferred, it should be clear where exactly the shares are going so that there are no repercussions. The identification is still in the process, but SAFCOL is currently running the process of evaluating the shares for each of the four entities, so that there can be a fair transaction. SAFCOL is ready to transfer the shares anytime.

On land settlement model, he said that the model at a high level is detailed – that the communities, including those that are not claimants, must be part of the economic activities around the plantations. They must be part of supply chain process and part of the beneficiation companies or manufacturing companies by adding value to the wood. SAFCOL is considering cooperatives and strategic partnerships with communities. At the right time when they are fully running, SAFCOL can exit. The communities like that model, and they want it to be implemented quickly. As such, SAFCOL is busy, starting with Venda next week, and other areas will follow.

On the business to be placed with transformed companies, he indicated that SAFCOL wants to appoint transformative companies as the first line of procurement. To ensure that the companies do not fail, SAFCOL provides support to the enterprises, so that there can be a successful industry.

On customer engagements, SAFCOL believes that if the market is not created there will be no business. It was realised a few years ago that SAFCOL was not customer centric. Market opportunities were not identified, since it was just about selling logs. However, the problem with selling logs is that it does lead to growth; it just gives the base load of revenue. SAFCOL is now driving the customer centric approach by interacting with the customers weekly to understand their preferences, to strengthen what the customers are happy with and immediately correct what they do not like. The CEO meets with colleagues on Friday mornings, fortnightly, to identify the challenges and where to improve based on the feedback from customers. SAFCOL has really changed in how customers are treated and responded to.

On the Timbadola Project, he explained that this project has taken long and SAFCOL considers it to be a very urgent project. There is consideration of raising funding to raise reinvest in the Sawmill, and strategic partnership with a partner that would probably bring in financing and technical solution. The plan is to later transfer the Sawmill fully back to state after recovering the funding. Documentation is currently being done. There was a market assess which brought very good responses from companies that want to participate in the partnership with SAFCOL. SAFCOL is on the right track on this.

On why SAFCOL is not given other state-owned forests to manage, he said that there is a process, together with DPE and DEFF, to look at the plantations next to Bushbuck Ridge, where there are plantations that are not managed properly. This will be tested as a pilot project as SAFCOL takes over management. All the partners are on the same wavelength; there just needs to be certainty that this will not be a burden, but that SAFCOL can make a difference for people, the business and the communities around. The plan is to involve the communities when plantations are taken over.

On the diversification strategy, he reiterated the Board Chairperson’s words, that strategy is key. The current strategy is that there will not be growth if the focus remains on logs or sale of raw material; there must be beneficiation. The initial conclusion is that SAFCOL can use 90% of the tree, but currently just over 50% is being used. The current processing being done is for furniture and construction of timber, but there is the advanced processing that will start in the next financial year to get other products. There has already been an advertisement for strategic partnerships for the use of residue to generate energy, which will be placed in Limpopo. There is also consideration of getting other products together with CSIR to industrialise extraction of the nanocrystal out of the trees, so that multiple products can be produced. This is where private sector partnerships come in through production of the different products. It is believed that this is where the growth of the company is going to come from. The diversification strategy has already been implemented. Furniture manufacturing companies owned by young people were developed and they are already operational. However, more needs to be done. There needs to be a factory probably in Tzaneen or in Sabi to produce school desks for the country and other property for export. There was discussion a week ago with the Department of Economic Development in Mpumalanga to have a Techno Park in Sabi to produce wood-based products by involving women-based and youth-owned businesses. The market is already huge, and an MOU (Memorandum of Understanding) is already in place; it just needs to be actioned to implement the Techno Park.

Mr Makwana requested that the response with the information on the breakdown of employees, as requested by Ms Tshabalala, be sent to the Committee in writing. The information is already there on the Employment Equity Reporting. On the question of broader Government forestry management, the DPE would be able to address that.

The Chairperson said the Committee accepted the request to have the response to Ms Tshabalala’s question sent in writing.

Ms Clarke asked that the Department send a report to the Committee on the disciplinary matters. The Committee was informed that staff members who commit fruitless and wasteful expenditure are deducted from the salaries. Can this report be submitted?

The Chairperson permitted the Department to submit the report at a later time. He then thanked the Deputy Minister, the Department, Board and Executive of SAFCOL for the presentation. It was extremely comprehensive and detailed. He said the team from SAFCOL was free to leave the meeting so that Members could conclude the business of the day.

Mr Makwana thanked the Committee for the opportunity. In response to the question raised on SAFCOL’s plans to sustain performance, he said that having been part of this organisation’s Board since October 2018, most of the work done so far should give the Committee confidence that there is commitment and devotion to ensuring that the momentum is not lost. Hopefully by this time in 2022, SAFCOL will continue to have a palatable story to tell.

Committee minutes were adopted.

The Chairperson then thanked Members for attending the meeting.

Having no further discussion, the meeting was adjourned.

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: