COMPANION TO THE DRAFT FOREST SECTOR TRANSFORMATION CHARTER

FIRST DRAFT FOR PRESENTATION TO STAKEHOLDERS

MAY 2007

Prepared by the Charter Steering Committee

Launched for public comment at the Forest Sector BBBEEE Indaba held on

25 June 2007

�

Table of ContentsAcronyms 2

1 Chronology of the Development of the Forest Sector Transformation Charter 3

2 Profile of the Forest Sector 6

3 Current State of Empowerment in the Sector 9

�.1 EquityOwnership 9�.2 ManagementControlandEmploymentEquity 10�.� OtherKeyElements 10�.4 Conclusions 11

4 Sector Challenges 12

4.1 Increaseroundwoodsupply 124.2 Sustainablesupplyandbetterutilisationofsawlogs 1�4.3 Localbeneficiationinandthroughthefibreproductionsub-sector 134.4 Equityintheforestryvaluechain 1�4.5 Empowermentandsustainabilityofsmallforestsectorenterprises 144.6 Linkingforestrywithpovertyalleviationandlocaleconomicdevelopment 15

5 Details on Undertakings in the Charter 16

5.1 Streamlineandexpediteafforestationlicensingprocedures 16

5.2 SawloggrowingstrategyandprogrammeforSouthAfrica 17

5.� Forestprotectionservices 18

5.4 CharterCouncil 19

6 Explanatory notes to the Charter 22

6.1 CalculationofoverallOwnershipProfilefortheSector 22

6.2 ComparisonbetweenScorecardfortheForestSectorandtheGenericScorecard 2�

6.� FurtherdetailsonSkillsDevelopmentStrategy/Plan 25

6.4 FurtherdetailsonIndustryCodesofConductonContractingandEmployment 27

6.5 Motivationtofundand/orsubsidisetheinterestburdentodevelopemergingforestry

enterprises ��

6.6 Motivationforseedfundingtodevelopfireinsuranceschemesforemergingforestry

enterprises �6

7 Financial requirements for Forest Sector Transformation 36

7.1 IndustryCosts �6

7.2 GovernmentCosts 40

8 Key Outcomes of the Forest Sector Transformation Process 44

9 Charter Implementation Plan 45

Appendix: Forestry Funding models

4

Acronyms

ABET AdultBasicEducationandTraining

ASGI-SAAcceleratedandSharedGrowthInitiativeforSouthAfrica

B-BBEE Broad-basedBlackEconomicEmpowerment

BEE Broad-basedBlackEconomicEmpowerment

CEPPWAWU Chemical,Energy,Paper,Printing,WoodandAlliedWorkers’Union

CRLR CommissiononRestitutionofLandRights

DEAT DepartmentofEnvironmentalAffairsandTourism

DoA DepartmentofAgriculture

DLA DepartmentofLandAffairs

DoL DepartmentofLabour

DPLG DepartmentofProvincialandLocalGovernment

DoT DepartmentofTransport

DTI DepartmentofTradeandIndustry

DWAF DepartmentofWaterAffairsandForestry

EAP EconomicallyActivePopulation

ESMEs ExemptedMicro-Enterprises

FAWU FoodandAlliedWorkers’Union

FIETA ForestIndustryEducationandTrainingAuthority

GDP GrossDomesticProduct

IDC IndustrialDevelopmentCorporation

ITAC InternationalTradeAdministrationCommission

MOU MemorandumofUnderstanding

NSF NationalSkillsFund

NPAT NetProfitafterTax

NSF NationalSkillsFund

SALGA SouthAfricanLocalGovernmentAssociation

OSHA OccupationalSafetyandHealthAct

PGDS ProvincialGrowthandDevelopmentStrategy

QSE’s QualifyingSmallEnterprises

SAFCOL SouthAfricanForestryCompanyLtd

SALGA SouthAfricanLocalGovernmentAssociation

SANAS SouthAfricanNationalAccreditationSystem

SAQA SouthAfricanQualificationAuthority

SETA SectorEducationandTrainingAuthority

SFRA StreamFlowReductionActivity

SGB StandardsGeneratingBody

QSE QualifyingSmallEnterprise

WfW WorkingforWater

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1.ChronologyoftheDevelopmentoftheForest SectorTransformationCharter

Launch 18 April 2005

Charterofficially launchedby theMinisterofWaterAffairsandForestryatan indabaheld inMidrand.StakeholderspresentagreementtodevelopaB-BBEECharter,andestablishaCharterSteering Committee assisted by Working Groups to drive the process.The Minister acceptsnominationsandappointstheSteeringCommittee.

Working Groups 1st Tasks June/November 2005

Four sub-sector Working Groups established: Growers, Forestry Contractors, Sawmillers, Char-coal and Treated Pole Producers, and a group to examine the Sector delineation. Working Group tasks were to:

• DevelopaChartervisionforeachsub-sector;

• IdentifykeyprinciplestoguidetheCharter;

• Determinethecurrentstatusofempowermentineachsub-sector;and

•Determine the challenges facing each sub-sector and recommend solutions to thesechallenges.

Regional Public Consultation September 2005

ThefindingsoftheWorkingGroupspresentedatregionalpublicconsultationmeetingsinEastLondon,DurbanandNelspruit.InputsreceivedfromstakeholdersusedbytheWorkingGroupstoupdatetheirsubmissions.

Draft Charter – Preliminary Sections

WorkingGroupsubmissionsformthebasisforthedraftingofthepreliminarysectionsofthedraftCharter,withtheSteeringCommitteeplayinganoversightrole.

Working Groups 2nd Tasks October/November 2005

A5thWorkingGroup,theFibreWorkingGroup,established.TheSteeringCommitteedevelopsguidelinesfordevelopmentofScorecardsbyeachsub-sectorWorkingGroup.WorkingGrouptasksinclude:

• DevelopingScorecardsforeachsub-sector;and

• IdentifyinginstrumentsrequiredforachievingScorecardtargets.

Regional Public Consultation – 2nd Round November/December 2005

AsecondroundofregionalpublicconsultationmeetingsheldtoreviewthedraftScorecardsandinstruments. InputsreceivedusedtoupdatetheWorkingGroupsubmissions,whicharethenusedasabasisforcompilingtheremainingsectionsoftheDraftTransformationCharter.

First Conveners Retreat January 2006

Conveners of theSteeringCommittee andWorkingGroupsmeet to cross-check sub-sectorScorecardsanddevelopTORfortaskteamstoexaminecross-cuttinginstrumentstosupporttheachievementofScorecardtargets.

DWAF/DLA Workshop January 2006

6

WorkshopwithDLAheldtoreachagreementonhowtofast-tracklandreformissuesinforestryareas.An action plan developed, and agreement reached onmodalities for DWAF/DLA co-operation.

Implementation Task Teams February 2006

Implementation Task Teams develop financial and non-financial instruments to support theachievementoftheScorecardtargets,takingintoaccountexistingGovernmentframeworks(B-BBEECodesofGoodPractice,skillsdevelopmentframeworks,landreformetc).

Refining Sub-sector Submissions March 2006

WorkinggroupsrefineScorecardsandinstruments,basedontheinputsreceivedandtheDTICodesofGoodPracticeforB-BBEE.Furtherregionalconsultationsheldtargetingthetwosub-sectors:Sawmillers,andCharcoalandPoleProducers.

3rd Round of Regional Consultations March 2006

Anotherroundofregionalconsultationstargetingthetwosub-sectors:Sawmillers,andCharcoalandPoleProducers,heldinfourprovincesinMarchtoelicitgreaterparticipationintheCharterprocessbythesesub-sectors.

2nd and 3rd Draft Transformation Charter April 2006

Transformation Charter revised to produce a 2nd and later a �rd draft, incorporating outputsfrom Working Groups and Implementation Task Teams. The document details governmentundertakingsandcommentsreceivedfromtheSteeringCommitteeandotherstakeholders.Keyissuesthatrequirefinalisationareidentified.Sub-sectorWorkingGroupsandtheFinancialandSkillsDevelopmentImplementationTaskTeamsaretaskedtoaddressthese.

Second Conveners Retreat May 2006

Conveners of the Working Groups meet to integrate the submissions on outstanding issuesfrom the Implementation Task Teams and Working Groups, and to review the consolidatedScorecard.

4th , 5th and 6th Draft Charter May/July 2006

TheCharterfurtherrevisedtoincorporateasubmissionfromorganisedlabour(CEPPWAWUandFAWU),outputsfromthesub-sectorWorkingGroups,TaskTeamsandtheconvenorsretreat.SubmissiontoSteeringCommitteeforfurtherinputsandfinalapproval.

Alignment with Final Codes of Good Practice

CabinetapprovesfinalCodesofGoodPractice inDecember2006.WorkingGroupmeetingsheldinJanuary2007toconsidertheimpactofCodesandupdatetheScorecardandCharterdocument.SteeringCommitteemeetingson8Februaryand7MarchtofinaliseCharter.

Launched for Public Comment June 2007

ThedraftfinalChartersubmittedtotheMinisterofWaterAffairsandForestry,whowilllaunchtheCharterasadraftdocumentforpubliccommentsatanationalstakeholderIndabaon25June2007.

Finalisation of the Charter and Gazetting

FollowingcommentsreceivedthedraftCharterwillbefinalisedbytheCharterSteeringCommitteeandanalysedbyanindependentpartyasprovidedforundertheCodesofGoodPracticeforthedevelopmentandgazettingofTransformationCharters.ThefinalCharterwillbesubmittedtotheMinisterofTradeandIndustryandCabinetforapproval,whereafteritwillbegazetted.

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2 ProfileoftheForestSectorTheForestSectormakesamajorcontributiontotheSouthAfricaneconomy.Thecommercialplantationresourceofsome1.33millionhectaresformsthebasisforawell-developed,highlyintegratedanddiversifiedforestproductsindustryinSouthAfrica(Figure1).

Thefibresub-sectorisdominatedbyasmallnumberoflarge,corporateenterprisesthatareinvolvedinthecapital-intensivepulp,paperandcompositeboardindustries.Theseindustriesarecharacterisedbytheirbackwardlinkagesintoplantationforestry,motivatedbytheneedtosecurereliableroundwoodsupply.These,togetherwithasmallnumberinvolvedinsawmilling,own58.8%oftheplantationforestresource.Alargernumberofmediumandemergingenterprisesislocatedinthesub-sectorsofgrowers,forestrycontractors,sawmilling,poletreatment,charcoalmanufacturingandpaperprocessing.

Contribution to GDP

ThecontributionoftheSectortoGDPfor2006wasaboutR14.0billion.Thisequatestoabout1%contributiontothetotalRSAGDP.

ContributiontoForeignTrade

Theforestproductsindustryranksamongstthetopexportingindustriesinthecountry.Onaverageoverthepastfewyears,sectorexportsamountedtoR11.0billionperannum,which,afterdeductionofimportsofforestproductsofR4.0billiongaveanetforeignexchangeearningtothecountryofR7.0billionperannum.TheForestSectorcontributed15.6%ofthecountry’stradebalance.

ContributiontoEmployment

TheForestSectorgeneratesemploymentformorethan170000workers,ofwhich6�%areincommercialforestry,whichincludesthesub-sectorsofgrowersandforestrycontractors.TotalremunerationamountedtoR4.6billionin2006.Mostofthejobscreatedareinruralandremoteareaswhereunemploymentishighandalternativeemploymentopportunitiesscarce.

Includingfamilydependants,anestimated870000peoplerelyontheSectorfortheirlivelihood.

Contributiontolivelihoodsubsistenceandinformaltrade

ThemajorityofSouthAfrica’sruralpoormakeextensiveuseofforestproductsfromwoodlandsandplantationsfordailyconsumptionandsmall-scaletrade.Firewood,buildingpoles,medicinalplantsandediblefruitsarecriticaltolivelihoodsofthepoorandprovideasafetynettothemostvulnerablehouseholds.

ThemajorchallengetogrowthandsustainableequityintheForestSectoristheshortageinroundwoodsupply,whichisnotkeepingpacewiththeincreaseinthelocaldemandforforestproducts.Ifthischallengeisnotaddressed,growthandemploymentprospectsandopportunitiesfortransformationintheForestSectorwillbeseriouslyconstrained.

8

The forestry and forest product sub-sectors covered by the Charter and their linkages with downstream industries is illustrated in figure 2. Figure 2

9

10

�.CurrentStateofEmpowermentintheSector

Thefollowingtablespresentanoverviewofthecurrentsstateofbroad-basedblackeconomicempowermentintheSectorwithregardtokeyelementscoveredbytheSectorScorecard.TheinformationintheTablebelowisfromasurveyofenterprisesineachsub-sectorduring2006.

�.1 EquityOwnership

Sub-sectorWeighted Average

Black Total Black Women

PlantationGrowers

- Corporate

- PrivateFarmers2)

- EmergingGrowers2)

8,0%1)

<5%

>95%

0,1%1)

<5%

>80%

Fibre[Pulp,PaperandCompositeBoardProducers]

10,5% 0,0%

Sawmilling

- LargeMillers

- MediumMillers

- SmallMillers2)

20,1%

5,1%

>80%

0,�%

2,1%

<20%

PoleProducers 7,6% 0,5%

CharcoalProducers

- Corporate

- SmallProducers2)

1,�%

>80%

0,0%

>50%

ForestryContractors �9,8% 6,7%

1) Figuresestimatedfromsurveydataoffibreandlargesawmillinggroups(i.e.integrated forestryandforestproductsprocessingcompanies)

2) Estimated

Note: The fibre sub-sector comprises a number of large groups with international share-holding and asset profiles (e.g. Sappi, Steinhoff, Sonae, Masonite). The sawmilling sub-sector has large sawmilling participants that are wholly or partly state-owned (SAFCOL, Komatiland Forests (Pty) Ltd, MTO Forestry (Pty) Ltd, Singisi Forest Products (Pty) Ltd, Siyaqhubeka Forests (pty) Ltd, Amathole Forestry Company (Pty) Ltd) or owned by a trust (Hans Merensky Holdings). All other sub-sectors mostly comprise medium-sized or emerg-ing enterprises in private hands.

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�.2ManagementControlandEmploymentEquity

Sub-sectors

Board LevelExecutive

Management LevelMiddle Management

Level

Black Total

Black Women

Black Total

Black Women

Black Total

Black Women

PlantationGrowers1) 2�,0%1) �,8%1) 1�,0%1) 2,7%1) 17,6%1) 4,7%1)

Fibre[Pulp,PaperandCompositeBoardProducers]

26,7% 6,7% 18,5% 0,4% 19,8% 2,1%

Sawmilling-LargeMillers

-MediumMillers

19,6%

8,6%

�,9%

2,5%

20,5%

5,7%

7,0%

1,2%

�0,5%

�0,7%

9,8%

1,2%

PoleProducers 0,0% 0,0% 1,6% 1,1% 4,7% 0,5%

CharcoalProducers 1,�% 0,0% 47,0% 15,8% 8�,8% �1,4%

ForestryContractors ��,0% 7,1% ��,8% 12,�% 52,9% 14,2%

1) Figures estimated from survey data of fibre and large sawmilling groups (i.e. integrated forestry and forest products processing companies)

�.�OtherKeyElements

Sub-sectorSkills

Development1

Preferential

Procurement2

Enterprise

Development3

Social

Investment4

PlantationGrowers 1,4% �1,0% n/a n/a

Fibre[Pulp,PaperandCompositeBoardProducers]

2,4% 19,8% 0,6% 4,2%

Sawmilling

- LargeMillers

- MediumMillers

1,0%

1,0%

n/a

n/a

n/a

n/a

n/a

n/a

PoleProducers 0,8% 7,5% 0,0% 0,5%

CharcoalProducers 0,5% 25,0% n/a n/a

ForestryContractors n/a n/a n/a n/a

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1) SkillsDevelopment:Investmentaspercentageofpayroll

2) PreferentialProcurement:Discretionaryprocurementspendonblacksuppliers

3) EnterpriseDevelopment:Investmentinenterprisedevelopmentaspercentageofnetprofit

aftertax

4) SocialInvestment:Investmentinsocial/economicdevelopmentaspercentageofnetprofit

aftertax

Note: The high level of ‘not available’ data is mostly a reflection of the inability by companies to access/ gather reliable data due to lack of systems and that the data provided in the survey forms is not compatible with the Scorecard definition. Only in the case of larger companies in the fibre sector can the data be regarded as representative.

�.4ConclusionsTheweightedaverage(accordingtosectorsize)BEEstatusfortheForestSectorasawholeisshownbelow.

Forest Sector Weighted Average BEE Score

EquityOwnership

BoardLevelMembership

ExecutiveManagementLevel

MiddleManagementLevel

SkillsDevelopment

PreferentialProcurement

15%

25%

20%

25%

1.8%

16%

EquityOwnership

BoardLevelMembership

ExecutiveManagementLevel

MiddleManagementLevel

SkillsDevelopment

PreferentialProcurement

15%

25%

20%

25%

1.8%

16%

Importantfindingsfromtheanalysisare:

q SignificantdifferencesareapparentfromtheuniquestructureoftheSector;comprising corporateenterprises,mediumsizedenterprisesunderprivateownershipandsmall producers.

q Participationbyblackpeopleisachallenge.

q Broad-baseparticipationisachallenge

q Smallproducers(growersandprocessors)intheSectorhaveasignificantBEEprofile; medium-sizedenterpriseshavelimitedBEEstatusandcertaincorporatesalready havemadegoodprogresstowardsgreaterBEE.

q BlackwomenownershipandemploymentequityintheForestSectorisatverylowlevels.

q Relativelyhighlevelsofspendbylargecorporatecompaniesinskillsdevelopmentand corporatesocialinvestment.

1�

4.SectorChallenges

4.1IncreaseroundwoodsupplyForestSectortransformationdependstoalargeextentongrowthoftheSector.Thisgrowthdependsinturnstronglyinincreaseddomesticroundwoodproduction.Themainlimitationtoincreasedproductionisthecurrentslowrateofnewafforestation.This,inpart,isowingtoslowgrantingofafforestationlicences.

MostoftheremaininglandsuitablefornewafforestationiscommunallyownedlandintheEasternCapeandKZN,whichoffersdirectopportunitiesforB-BBEE.

Key Challenge Requirements

Newafforestation

Expediteandstreamlineafforestationauthorisationprocesses

Securelandholdingrightsandstructuresoncommunalland

Communityfacilitation,extensionsupportandtrainingfornewentrants

Accesstofundsandfinancialservicesfornewentrants

Infrastructuredevelopment(roads,telecommunication,electricity)

Improvedyieldsinexistingplantations

Restorationandtransferofremaining(CategoryBandC)Stateforestplantations

Expediteapprovalprocessforriparianzone,jungleandspecies/genusexchangeorconversion

Improveforestprotectionservicestocombatplantationlossesthroughfire,pestsanddiseases

Ongoingproductivitygainsthroughimprovedsite-speciesmatching,planningandgeneticimprovements

Expeditethesettlementofrestitutionclaimsonprivateforestlandtoencouragere-investmentinforestassets

Ensurecontinueduseofplantationareasfortimberproduction

Secureagreementswithrestitutionclaimantsandotherbeneficiariesoflandreformonthecontinueduseofplantationareasfortimberproduction

Providepostsettlementsupporttolandreformbeneficiariestoensurecontinuedproductivity

EnsureaPropertyTaxregimethatsupportssustainableforestryoperations

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4.2SustainablesupplyandbetterutilisationofsawlogsWhileSouthAfrica facesashortfall in roundwoodproductionoverall, theshortageof sawlogs iscritical.Thelongrotationperiodforsawlogsmakesthislessattractivetotheprivatesectorthanotherroundwoodproduction,anduntilrecentlytheStateplantationshaveprovidedmostofthecountry’ssawlogs.WiththeState’sexitfromcommercialforestryoperations,measuresareneededtoensureasustainedandincreasedproductionofsawlogs

Key challenge Requirements

SustainablesupplyofsawlogsIndustrywideagreementonasawloggrowingstrategyandprogramme

Improvedutilisationratesbysawmillers

Focus on medium to small scale saw millers

Skillsdevelopmentandtraining

Capitalinvestmentinnewtechnology

Importingsawlogsasabridgingarrangement

4.3Localbeneficiationinandthroughthefibreproductionsub-sector

Substantialopportunitiesexisttosupporttransformationthroughtheestablishmentofbeneficiatingenterprisesinandthroughthefibreproductionsub-sector.

Key challenge Requirements

Maximisingopportunitiesforlocalbeneficiationofrawmaterials

Note that local beneficiation opportunities in the Forest Sector are subject to international market conditions

ImproveaccesstoventurecapitalandappropriatetechnologytosupportnewpulpandpapermanufacturingopportunitiesTightenanti-dumpingmeasuresinpulpandpaperproducts

Extendtheblackengineeringandartisanskillsbase

Expeditetheprocessingofwaterpermitapplicationsformanufacturingplants

Developopportunitiesforlocalmanufacturingofchemicalandtechnologyinputsprocuredbypulp,paperandfibreboardindustries

Improveaccesstoventurecapitalandappropriatetechnology

Extendtheblackengineeringandartisanskillsbase

Establishindustriesbasedonwasteproductsfrompulp,paperandfibreboardindustries

Improveaccesstoventurecapitalandappropriatetechnology

Extendtheblackengineeringandartisanskillsbase

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4.4EquityintheforestryvaluechainDespiterecentadvancesinblackownershipinthepulpandpapersub-sector,blackownershipintheForestSectorremainshighlyskewedtowardsthelowerendofthevaluechain(smallscaletimbergrowing and contracting). Moreover the number of black women who manage, own and controlenterprisesandproductiveassetsoutsidethesmallgrowersub-sectorisverylimited.Actionsarerequiredtopromotegreaterequityinallofthesub-sectors.

Key challenge Requirements

Equity ownership in the forest products industry

Increaseblackownershipofexistingenterprises

Saleofequityownershipacrossallsub-sectors

Growthinbeneficiationactivities

Newtechnologytosupportthedevelopmentoflow-volumeenterprises(paper)

Improvequalityofproductsamongstsmallerproducers(poles,charcoal)

Improvedpackagingandmarketingopportunities(charcoal)

Saleofbusinessassets Limitedopportunitiesasaresultofverticalintegration

Smallgrowerparticipationinforestryvaluechain

Applymechanismstoprovidegrowerswithashareofprofitsthataccruefromdownstreamprocessing

Equity ownership in the growers sub-sector

Increaseblackownershipofexistingenterprises

Saleofownershipshares,particularlyinlargeforestryenterprises.

Saleofbusinessassets Saleofplantationstoblackpeople

Growthinnewenterprises PromotenewafforestationinEasternCapeandKwaZulu-Natal

RestructuringofStateForests

Implementthe10%equityshareholdinginleasedstateforestlandearmarkedforblack-economicempowermentoflocalcommunities

Implementthe9%equityshareholdinginleasedstateforestlandearmarkedforblack-economicempowermentofworkers

Confirmland-holdingrightsandestablishlandholdingstructurestoenablethetransferofownershipandleaserentalstocommunitiesinrelationtoleasedstateforestland

Confirmland-holdingrightsandestablishlandholdingstructures,whereapplicabletotheremaining(CategoryBandC)stateplantations

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4.5Empowermentandsustainabilityofsmallforestsectorenterprises

Toensure long-termsustainability,growthandequity in theForestSector,attentionneeds tobegiventogreaterempowermentandprofitabilityofexistingsmallenterprises intheSub-sectorsofGrowers;ForestryContractors;Sawmillers;andCharcoalandTreatedPoleProducers

Key challenge Requirements

Empowermentandincreasedprofitabilityofsmall-scaleforestenterprises:

-ForestryContractors

-Growers

-Sawmillers

-TreatedPoleProducers

-CharcoalProducers

Strengthenrepresentativeorganisationswheretheyexist(Growers,ForestryContractorsandTreatedPoleProducers)andestablishthemwheretheyareabsent(Sawmillers,CharcoalProducers)

Regulatecontractingandemploymentrelationshipsthroughindustrycodesofpracticeandtheapplicationofexistinglegislativeprotections

Establishmechanismstosecureadequateandregularsuppliesofrawmaterials

Improveaccesstofinanceandinsurance

Improveaccesstoskillstrainingandtechnologyforimprovedproductivityandaddedvalue

Improveaccesstomarketsthroughcertificationandbetterinfrastructure

4.6 Linkingforestrywithpovertyalleviationandlocaleconomicdevelopment

Mostforestenterprisesarelocatedinruralareaswherethemajorityofthecountry’spoorlive.ThelongtermgrowthandstabilityintheForestSectorcanonlybesecuredifalignedwithinterventionstoaddressdeep-seatedinequalitiesandbridgethegapbetweenthefirstandsecondeconomy.ASGISA,Government’sPovertyAlleviationAgenda,RuralDevelopmentStrategyandLocalEconomicDevelopment(LED)strategyarekeyinterventionswhereintheForestSectorcanmakemeaningfulcontributions.

Key challenges Requirements

Toprovideimprovedlivelihoodopportunitiesfortheruralpoorinforestryareas

Assurefairandequitableconditionsofemployment

Promotelocaleconomicdevelopmentthroughimprovedviabilityofexistingenterprisesandestablishmentofnewenterprises

Ensurerestructuringofstateforestassetssoastobenefitlocalcommunities(refertopar.4.4above)

Promotelivelihoodopportunitiesforruralhouseholdsbyprovidingaccesstonon-timberforestproductssuchasfirewood,buildingpoles,medicinalplantsandediblefruits

Usebuyingpowerofforestindustryasacatalystfordownstreamlocaleconomicdevelopment

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5 Details on Undertakings in the Charter

5.1Streamlineandexpediteafforestationlicensingprocedures

Par. 1�.2.� (a) of the Charter contains the undertaking to streamline and expedite afforestationlicensing procedures to facilitate the establishment of a minimum of 100 000ha net increase inplantedareaovertenyears,basedonatargetaverageof10000haperannum,whileatthesametimeensuringthatforestry’swateruseisconsideredandweightedfullyagainstcompetingproponentsforwaterallocationinlicensingdecisions.Thiswillcomprisethefollowingmeasures:

(a)Createanenablingregulatoryenvironmentthatrendersthecostsofthewateruselicenceapplicationprocessaffordabletoemerginggrowers.

(b)Supportandadviseemerginggrowersinthewaterlicensingapplicationprocess,incompliancewithenvironmentalandotherafforestationauthorisationrequirements.

(c)Takestepstoensurethatlegislativeandregulatoryrequirementsdonotresultinforestryandtheplantingoftreesforcommercialandsubsistenceusebeingdisadvantagedinrelationtootherformsoflanduse.

(d)EnsurethatallapplicationsforafforestationareprocessedexpeditiouslybydevelopingaMemorandumofUnderstanding(MoU)withandratifiedbyotherpertinentauthorisingregulatoryauthorities.TheMoUshouldensurestrictenforcementoftheStreamFlowReductionActivity(SFRA)applicationproceduresandadherencebyallparticipatingpartiestothelaiddowntimeframesprescribedforrelevantinterventions,suchasinspectingsites,receivingandattendingtocomments,andprocessingapplications.

(e)Implementaproactiveapproachtoforestrydevelopmentinareasthathavesubstantialopportunitiesforafforestation,namelyaco-operativegovernmentinitiativetoauthoriseswiftafforestationlicensinginareas thathavebeenidentifiedanddemarcatedasbeingsuitableforafforestationintheEasternCapeandKwaZulu-Natal.ThiswillbeprovidedforintheMemorandumofUnderstandingreferredtoinpar(d)above.

(f)DevelopaprotocoltobeincludedintheMemorandumofUnderstandingreferredtoinpar.(d)abovetofacilitatelawfulconversionoftreegenusorspecies,specifiedasapermitorlicencecondition,wherethischangeshouldbeinformedbyforestrypracticeoreconomics.Thekeyprinciplegoverningsuchchangewillbethewateruseconditionoftheapplicableauthorisation.

(g)MakeprovisionforwaterusebysubsistenceandhomesteadwoodlotsbyprovidingfortheconsiderationofaSchedule1provisionand/orGeneralAuthorisationforsuchsmall-scalewoodlots.

(h)Facilitatethetransferortradeofawateruseallocationorexistinglawfuluseofwater,andtheissuingoflicencesintheeventofconversionofalandusefromirrigatedcropping(includingsugarcane)totimberplantations.

(i)Allowwaterusebydrylandsugarcanetobeallocatedtotimberplantations,basedonanequitablewateruseexchangeratioforthesecrops,providedthatsuchdrylandsugarcanehasbeenanexistinglandusepracticeforatleastfiveyears,andthatthisdoesnotcompromisetheavailabilityofwatertotheReserveandotherlawfulwaterusers.

18

(j)Allowthewateruseattributedtowattle,pineandeucalyptusjunglesthatarerehabilitatedorconvertedandcorrectlymanagedascommercialtimberplantations,tobeallocatedthroughanSFRAwateruselicencetosuchtimberplantations.GeneralAuthorisationswillbeconsideredincatchmentswherethereissufficientavailablewatertoallowsuchconversion.

(k)Developanefficientandeffectiveframeworktoauthorisethere-allocationofwater,wheretimberasanexistinglawfulwateruseinariparianzoneisexcised,toalternativeplantationareaswithinthesamequaternarycatchmentsorelsewherewithinthewidercatchment.

(l)EnsurethatemergingtimbergrowerswhohavelawfullylicensedtimberplantationsareincludedinDWAF’sdefinitionof“resourcepoorfarmers”andsubjecttothesamebenefitsasotherssoclassified.

5.2SawloggrowingstrategyandprogrammeforSouthAfrica

Par.15.2.2oftheChartercontainstheundertakingtodevelopasawloggrowingstrategyandprogramme.Thisstrategyandprogrammewillincludethefollowingmeasures:

(a)EnsurethatemergingtimbergrowerswhohavelawfullylicensedtimberplantationsareincludedinDWAF’sdefinitionof“resourcepoorfarmers”andsubjecttothesamebenefitsasotherssoclassified.

(b)ReviewtheStateForestExitStrategyinSouthernandWesternCape.

(c)Createincentivesforemergingblackgrowerstoinvestinlongrotationsawtimbercrops.

(d)Developgovernmentconditionsonleaseofstateforestlandtoensurethecontinuedproductionofsawlogs.

(e)Promotegreaterinvestmentbythesawmillingindustryinrawmaterialsupply.

(f)Createlanddedicationschemesforlongrotationcropslinkedto,interalia,taxincentives.

(g)Developsectorprogrammesinvolvinggovernmentandtheindustrytocombatsoftwoodplantationlosses.

(h)Developappropriatespeciesselection,growingandharvestingstrategiesthatmeetthestructuredmarketrequirementsforadiversityofsaw-timberproductsinthecountry.

5.�ForestprotectionservicesPar.15.2.�oftheChartercontainstheundertakingtodevelopaforestprotectionstrategytoreducethecurrentlyescalatinglossesbeingexperiencedthroughfires,pestanddisease.Thisstrategyandprogrammewillincludethefollowingmeasures:

(a) Pestsanddiseases

a. Government,throughDWAF,andtheIndustryundertaketo:

b. ProfilepestanddiseaseissuesasaGovernmentpriority.

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c. Compileariskanalysisofthecurrentandpotentialthreatsfacingtimberplantationsandtomakerecommendationsastothebestwaytomitigatethese.

d. Developandagreeuponanintegratedstrategytoimplementtherecommendations,includingprovidingforincreasedlevelsofsupportthroughinfrastructure,humanresourcecapacityandfunding.

e. PrioritisepestanddiseaseresearchaspectsintheForestSectorR&Dstrategy.

f. NegotiatewiththenationalDepartmentofAgriculturetoexpeditetheproceduresforimportationofBiologicalControlAgentstoassistinthecontrolofpestanddiseaseoutbreaks.

g. EnhancephytosanitorymonitoringandcontrolatportsofentryintoSouthAfrica.

h. Enhancepublicawarenessaboutthethreatsposedbyforestpestanddiseases.

(b) Forestfires

Government,throughDWAF,undertakesto:

a. EnsurethatpoliciesandstrategiesareinplacetoensurecompliancebylandownerswiththeprovisionsoftheNationalVeldandForestFireAct,1998(ActNo.101of1998)asamended.

b. EnsurethatcapacityexiststoenforcetheprovisionsoftheNVFFA.

c. EnsurethatmeasuresareinplacetoencourageenrolmentandparticipationinFireProtectionAssociations.

d. EncouragetheprovisionofresourcestoFireProtectionAssociations,particularlythoseservicingcommunalareas,toenablethemtoprovideimprovedlevelsofservice.

e. AssistIndustrythroughtheprovisionof‘seedfunding’toimplementemerginggrowerfireinsurancecoverasoutlinedinpar.1�.2.5oftheCharter.

f. Implement,onanongoingbasis,NationalFireAwarenesscampaignswithparticularemphasisonhighfireriskareas.

g. Supportresource-poorFireProtectionAssociations.

h. EnhancecapacityofWorkingonFireprogrammetofightveldandforestfires.

Industry,inturn,undertakesto:

i. IncreaseenrolmentandparticipationinFireProtectionAssociations.

j. Increasecollectivesupportofequipment,personnelandtrainingforFireProtectionAssociations.

k. EnhancecooperationandsupporttotheWorkingonFireprogramme.

l. Provideaccesstofirefightingtrainingforemerginggrowers.

m.Implementanemerginggrowerfireinsuranceschemeasoutlinedinpar.13.2.5oftheCharter.

n. Implementfireawarenessprogrammesinforestareas.

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5.4CharterCouncilPar.16.1oftheChartercontainstheundertakingtoestablishaForestSectorCharterCouncilthatwilloverseeandfacilitatetheimplementationoftheCharter.Thefunctions,composition,constitutionandfundingarrangementsfortheCouncilareoutlinedhereunder:

(a) Functions

a. MonitortheimplementationoftheCharterandreviewtheCharterasoutlinedinpar.16.2oftheCharter.

b. ProvideinterpretationandguidancewithrespecttotheCharter.

c. FacilitatethecommunicationandpopularisationoftheCharter.

d. Facilitatecross-industryandgovernmentnegotiationstopromotetheapplicationandimplementationoftheCharter.

e. Provideguidanceonsector-specificmattersaffectingB-BBEEinentitieswithintheSector.

f. ShareinformationwiththenationalmonitoringmechanismandapprovedaccreditationagenciesthatarerelevanttotheSector.

g. ImplementprogrammestoensurethatsufficientindependentcapacityofverificationagenciesexisttosupporttheCharter.

h. InitiateprocedurestoconverttheForestCharterintoSectorCodes.

i. Issueguidelinesforsector-specificenterprisedevelopmentandsocio-economicdevelopmentcontributionsundertheScorecard.

(b) Composition

a. TheCouncilshallconsistof19members,withthefollowingcomposition:

oAChairperson,whoshallbeanindependentperson,appointedbytheMinisterofWaterAffairsandForestryinconsultationwithstakeholderconstituencies.

oAChiefExecutiveOfficer,whoshallberesponsibleforthedailyadministrationandoperationsoftheCouncilandserveontheCouncilinanex-officiocapacity.

oNine(9)membersrepresentingindustry,appointedfromthevarioussub-sectorsintheForestSector.

oTwo(2)membersrepresentingorganisedlabour.

oThree(�)membersrepresentingbroaderstakeholdersassignedbytheMinisterofWaterAffairsandForestryinconsultationwiththestakeholderconstituencies.

oThree(�)membersrepresentinggovernment,oneeachfromtheDepartmentsofWaterAffairsandForestry,TradeandIndustry,andLandAffairs.

b. ThecompositionoftheCouncilshallfairlyreflectthestakeholdersintheSectorandberaciallyandgenderrepresentative.

21

c. ThetermsofofficeformembersoftheCouncilshallbe3years,andmembersshallbeeligibleforre-appointment.

d. TheChiefExecutiveOfficershallbeappointedjointlybythepartiesthatfundtheCharterCouncilasoutlinedinpar.5.4(d)below.

e. TheChiefExecutiveOfficersshallmakeotherstaffappointments.

(c) Constitution

a. TheCouncilshallbeguidedbythefollowingfivebasicprinciples:

o Transparency

o Fairness

o CorporateGovernance

o Consultationandinclusivity

o Socio-economictransformation

b. DecisionsoftheCouncilshallbetakenonaconsensusbasis.IfonanyissuetheCouncilisunabletoachieveconsensus,therewillbeadisputebreakingmechanismasspecifiedintheConstitutionreferredtoinpar.ebelow.

c. TheCouncilmaycreatesub-committeestodealwithspecificmattersasandwhenrequired.

d. TheCouncilmayco-optexpertstoserveonoradvisesub-committeesascontemplatedabove.

e. AConstitutionoftheCouncilshallbetabledforadoptionatthefirstmeetingoftheCouncilandmustbeadoptedbyatwo-thirdmajoritywithin60workingdaysafterthegazettingofthisCharter.

f. TheCouncilmayamendtheConstitutionoftheCouncilfromtimetotime.

g. TheCouncilshall,inconsultationwiththeBEEAdvisoryCouncilandbyresolution,formulaterulestofurtherregulateitsproceedings.

(d)Funding

a. TheForestIndustryandGovernmentshallfundtheCounciljointly,withGovernmentcontributing60%andIndustry40%ofthebudgetrequirements.

b. Thefundingarrangementasoutlinedinpar.aaboveissubjecttoagreementbetweenthesepartiesontheinitialbudgetrequirementsfortheCouncilandanannualescalationofthebudgetbasedontheSouthAfricanConsumerPriceIndex,unlessotherwiseagreedtobytheparties.

c. TheCouncilshallprepareanannualbusinessplanthatwillincludeabudgetfortheworkoftheCouncil.

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6.ExplanatorynotestotheCharter

6.1CalculationofoverallOwnershipProfilefortheSectorReferencetopar.8.1oftheCharter

Expectedlevelsofoverallblackownershipfortheindustryasawholeintenyearstimeweredeterminedbyanalysingonlythegrower,fibreandsawmillersub-sectors,whichtogethercomprise95%ofthesector.

Forestry Ha % BEE by 2017

CategoryAplantations

CategoryB&Cplantations

Outgrowerschemes

MondiShanduka

Otherblackgrowers

Balanceofplantations

290000

70000

40000

�0000

20000

9�0000

40

75

100

40

100

25

TOTAL/WEIGHTED AVERAGE

1 380 000

34

FibreTurnover

(R billion)% BEE by 2017

MondiShanduka

MondiPackaging

Balanceofcompanies

1,0

�,0

16,0

40

40

25

TOTAL/WEIGHTED AVERAGE

20,0 28

SawmillingTurnover (R billion)

% BEE by 2017

Small-scalemillers

CategoryApackages

Balanceofcompanies

0,5

1,0

�,8

100

40

25

TOTAL/WEIGHTED AVERAGE

5,3 36

2�

Theweightedaverageexpectedlevelofoverallblackownershipfor2017fortheForestSectoristhusabout30%(weightingaccordingtosectorturnover;usingR5billionforthegrowersub-sector).Theapplicationofbonuspointstoincreaseblackownershipinexistingenterpriseswithablackownershiptargetof25%byafurther5%hasnotbeenincludedinthesecalculations

6.2ComparisonbetweenScorecardfortheForestSectorandtheGenericScorecard

ChangesfromtheGenericScorecardintheCodesofGoodPracticeandthejustificationforthesechangesarelistedbelow.

6.2.1QualificationsforESMEs

CompliancewiththeIndustryCodesofGoodConductisalsoappliedtoESMEs.ESMEsmust,whentheysubmitproofoftheirESME-status,alsosignacommitmentofcompliancewiththeIndustryCodesofGoodConduct.ESMEsthatdon’tcomplywilllosetheBEEstatusaffordedtothem,namelytheLevel�contributorforthosethatare50%ownedbyblackpeopleorbyblackwomenorLevel4contributorforotherESMEs.

6.2.2Bonuspoints

Additionalbonuspointshavebeenallocated(11insteadof7formediumandlargeenterprisesand10insteadof7forQSE)asanincentivetoachievehighersector-specifictargetsasfurtheroutlinedbelow.

6.2.�Medium/largeenterprises

Ownershiptargets

a)Thetargetforeconomicinterestinthehandsofbroad-basedblackownershipschemeshasbeenincreasedfrom2.5%to7.5%.ThisisjustifiedonthebasisthattheForestSector,asaruralbasedindustry,canmakeasignificantcontributiontobroad-basedBEEinthisregard.Thisdoesnotaffecttheoverallownershiptargets.

b)Twobonuspointshavebeenallocatedasanincentivetoachievehigheroverallownershiptargetsintermsofeconomicinterestinthehandsofblackpeople(�0%)andinthehandsofblackwomen(15%).

c) Therealizationpointsfornetequityinterestsforgrowersisbasedonfullpaymentinequaltranchesoverthecroprotationperiodandnotthe10-yearrepaymentperiodthatappliestotherestoftheSectorandtheeconomy.Thisreflectstherealityintreefarmingwherereturnoninvestmentisrealizedatharvesting.

ManagementControl

Theallocationofonebonuspointasanincentivetoappointnon-executiveboardmembershasnotbeenappliedintheForestSector.GreaterBEEimpactcanbeobtainedbyusingthisbonuspointasanincentivetosupportahigheroverallownershiptarget.

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EmploymentEquitytargetsandweightings

ThereisaneedtoensureequitableandsustainablecontractingandemploymentpracticesintheForestSectorthroughtheintroductionofIndustryCodesofGoodConduct.Thisisnecessarytoensurethatnotonlythequantitybutalsothequalityofblackparticipationintheindustryisimproved.CompliancewithIndustryCodesofGoodConductonemploymentpracticeshasbeensetasaminimumrequirementforscoringontheEmploymentEquityelementoftheScorecard.Notethatcontractingpracticeisdealtwithunderthepreferentialprocurementelement.

Preferentialprocurementtargetsandweightings

TheneedforIndustryCodesofGoodConducthasbeenhighlightedinthepreviousparagraph.Three(3)pointshavebeenre-allocatedtopromotecompliancewithIndustryCodesofGoodConductasitrelatestocontractingpracticesforenterprisesthatareengagedinforestrycontractingandcharcoalproductioncontractingandemerginggrowercontractingschemes.ForestenterprisesthatarenotinvolvedinanyofthesecontractingpracticeswillbesubjecttotheGenericScorecardweightingsforthepreferentialprocurementelement.

EnterpriseDevelopmentandSocio-economicDevelopmenttargetsandweightings

a)TheemphasisplacedintheGenericScorecardonpreferentialprocurementisbasedonthenotionofademand-driveneconomy.However,dueashortageofrawmaterialsupply,theforestproductsindustryinSouthAfricaislargelysupply-driven.ShortagesinlogandsawtimbersuppliesenableforestenterprisestoleverageB-BBEEthroughthesaleoftheseproductstoBEEenterprises.Forthisreasonthree(3)ofthefifteen(15)pointshavebeenre-allocatedtosupportthesaleoflogsandsawtimbertoBEE-compliantandblack-ownedenterprises.

b)Three(�)bonuspointshavebeenallocatedforadditionalspend(onebonusforevery0.25%NPATonsector-specificinitiativesinenterprisedevelopmentorsocio-economicdevelopment.ThisisaimedatdirectingB-BBEEinitiativestoaddresssector-specificchallengesfacingtheindustry,inparticular:

oTosupport,encourageandnurtureemergingblackenterprisesthatwillcontributeto:(a)increasedtimbersupply;and(b)beneficiationintheforestryvaluechain.

oToimprovethelivingconditionsandlivelihoodopportunitiesfortheruralpoor,includingForestSectorworkersandtheirfamilies,inforestryareas.Mostforestenterprisesarelocatedinruralareaswherethemajorityofthecountry’spoorlive.Thelong-termgrowthandstabilityintheForestSectorcanonlybesecuredifalignedwithbroad-basedpovertyalleviationandlocaleconomicdevelopment.

6.2.4QualifyingSmallEnterprises

Sector-specificmeasureshavebeenincludedinthisScorecardintandemwithwhatisproposedfortheScorecardformediumandlargeenterprises.TheneedforthisisunderscoredbythefactthattheQSEthresholdhassubstantiallyincreasedandthatamuchgreaterrangeofenterpriseswouldneedtobeadequatelycoveredbythisScorecard.

EmploymentEquity

TheneedtoensureequitableandsustainablecontractingandemploymentpracticesintheForestSectorthroughtheintroductionofIndustryCodesofGoodConduct(refertoinpar.9.2.�)alsoappliestoQSEs.Five(5)ofthetwenty-five(25)pointshavebeenre-allocatedintheScorecardtopromotecompliancewithIndustryCodesofGoodConductonemploymentpractices.Notethat

25

complyingwiththeseCodesislessdemandingformediumandlargeenterprisesandcompliancehasbeensetasaminimumrequirementforscoringontheEmploymentEquityelementoftheirScorecard.

Preferentialprocurementtargetsandweightings

Five(5)ofthetwenty-five(25)pointshavebeenre-allocatedtopromotecompliancewithIndustryCodesofGoodConductasitrelatestoforestrycontractingandcharcoalproductioncontractingandemerginggrowercontractingschemes.ForestenterprisesthatarenotinvolvedinanyofthesecontractingpracticeswillbesubjecttotheGenericScorecardweightingsforthepreferentialprocurementelement.

EnterpriseDevelopmentandSocio-economicDevelopmenttargetsandweightings

a)ShortagesinlogandsawtimbersuppliesenableforestenterprisestoleverageB-BBEEthroughthesaleoftheseproductstoBEEenterprises.Forthisreasonfive(5)ofthetwenty-five25pointshavebeenre-allocatedtosupportthesaleoflogsandsawtimbertoBEE-compliantandblack-ownedenterprises.

b)Aswithmedium/largeenterprises,threebonuspointshavebeenallocatedforadditionalspend(onebonusforevery0.25%NPAT)onsector-specificinitiativesinenterprisedevelopmentorsocio-economicdevelopment.

6.�FurtherdetailsonSkillsDevelopmentStrategy/PlanRefertopar.11.2.1oftheCharter

Keyelementstobeaddressedthroughaskillsdevelopmentstrategy/planfortheForestSectorincludethefollowing:

6.�.1Strengthenthenationalframeworkforskillsdevelopment

Theframeworkforskillsdevelopmentcomprisesofseveralelementsthatarenecessaryfortheoverallsystemtowork.Additionaleffortisneededtoensurethatthefollowingelementsareinplace:

a. Identifyscarce,criticalandcoreskills.Skillsdevelopmentgrantscanbeclaimedfortrainingthatmeetsidentifiedscarceandcriticalskills.ChambersneedtosubmitlistsofscarceandcriticalskillstotheDepartmentofLabourforthesepurposes.SomescarceandcriticalskillsfalloutsidethedirectinfluenceoftheFIETAe.g.1stlinesupervisionandLeadership/Managementdevelopment.ThesewillthereforequalifyasCoreskills.

b.Conductskillsneedsanalysisforeachsub-sector.ThestrategyandprogrammeforreachingScorecardtargetsneedstobebasedonananalysisofexistingskillsandskillsgapsforthespecifiedgroups.

c. DevelopmentofappropriateOutcomesBasedUnitStandards. Sub-sectorStandardGeneratingBodiestocontinuewiththeprocessofdevelopingandfacilitatingtheregistrationofUnitStandards,QualificationsandLearnershipsinaccordancewiththeirneeds.

d.QualificationstomatchtrainingneedsregisteredwithSAQA. RegistrationofUnitStandardsandQualificationsthroughSAQAhasbeenunacceptablyslow,aproblemcommontomostsectors.Theprocessneedstobeaccelerated.WithoutthisregistrationtheDepartmentofLabourcannot

26

registerLearnerships,whileregistrationalsoformsthebasisforthedevelopmentofcreditbearingshortcoursesandskillsprogrammes.

e. SectorwideABETinitiative. ABETisanationalimperative,andthereisaneedforadedicatedandsector-wideapproachtoensureeffectivenessandsustainabilityofsuchaninitiative.TheDepartmentofLabourhascommissionedaninvestigationintotheABETprogrammeandrecommendationsarenowavailable.Thisoffersabasisfordesigningasector-wideinitiativeonABET.

6.�.2Strengthensectorcapacityforskillsdevelopmentdelivery

a. StrengthencapacityofFIETA. Only10%ofSkillsLeviesmaybespentonAdministration.MoreandmoredemandsarebeingmadeonSETAsandthesmallerSETA’s,includingFIETA,arestretchedbeyondcapacity.MeasuresareneededtostrengthenthecapacityofFIETA,toenableittomeetitsstatutoryrequirementsinregisteringlearningprogrammesandtrainingserviceproviders.

b. Implementationmechanismsfortheadditionalskillsdevelopmentspend.Theskillsdevelopmentstrategy/planneedstoidentifyanddeploystreamlinedimplementationmechanismsfortheadditional�%skillsdevelopmentspendprovidedforinthisCharter.ItmustbenotedthatthisneednotbeimplementedthroughtheFIETAinthesamewayasthestatutoryskillsdevelopmentlevy.

c. Expandtraininginfrastructure.Thenetworkoftrainingserviceproviders,inparticularABETserviceproviders,needstobeexpanded.

6.�.�Promoteskillsdevelopmentopportunitiesforyouthandnew entrantsintheForestSector

SpecificmeasuresareneededtoattracttheyouthintotertiarystudiesinforestryandtoensurehigherpassratestoensureaflowofskillednewentrantsintotheSector.

a. Planforthepromotionofforestryascareerofchoice.ItisnecessarytoraisetheprofileoftheForestSectoras“EmployersofChoice”toprocurequalitystudentsandemployeesinthefuture.

b. Planfornewandenhancedbridgingcourses.Currentdropoutrateofstudentsfromsecondarytotertiaryeducationishighduetopoorsecondaryeducation.Bridgingcoursestopreparelearnersfortherequirementsoftertiaryeducationareneededtoreducethedropoutrate.

c. Enhancequalityofsecondaryeducationinmathsandsciences.ThequalityandquantityofMathematicsandPhysicalSciencelearnersatsecondarylevelneedsattention.WithoutqualitylearnersinthesesubjectstheSectorwillnotbeabletotraintherequirednumbersintotechnicalandmanagementfieldsspecifictotheSector.InitiativesinthisregardshouldlinkwiththoseunderASGI-SAandJIPSA.

6.4 FurtherdetailsonIndustryCodesofConductonContractingandEmployment

Refertopar.12.2.1oftheCharter.

TheForestCharterSteeringCommitteehaspreparedthefollowingguidelinesforthepreparationoftheIndustryCodesofConductfortheForestSector:

27

6.4.1Codesforforestrycontracting

TheaimoftheseCodesistoensurelonger-termstability,sustainablegrowthandequitablepracticesintheforestrycontractingsub-sector.TheseCodeswillcontrolanddirecttherelationshipbetweencontractingcompaniesandcontractors,andbetweencontractorsandsub-contractors.TheCodeswillprovideforlargerandlonger-termcontractsenablingcontractorstoimprovemarginsandinvestintheirbusinessesandstaff.Itwillalsoprovidefortransparentandaccessibletenderingsystemsandfairpricingthatwillsupportgoodgovernanceandfairlabourpractices.ThefollowingelementswillbedealtwithintheseCodes:

a. Contractualarrangements

• Theforestryindustrywilldevelopandfollowstandard(model)contractsthatspecifycontractterms,paymenttermsandcontractduration,risksharing,terminationandconflictresolution.

• ForestryenterpriseswillensurethatcontractconditionsenableandspecifycompliancewiththeCodesonemploymentpracticesintheForestSectorandthatmeasuresarestipulatedtomonitorandenforcecompliancewiththesecodes.

• ForestryenterpriseswillensurethatcontractconditionsenableandspecifycompliancewiththeCodesonhealthandsafetystandardsforforestrycontractworkandthatmeasuresarestipulatedtomonitorandenforcecompliancewiththesecodes.

• Forestryenterpriseswillsecureacontractingenvironmentthatisconducivetosuccessfulmeetingofcontractconditions(e.g.maintainingforestryroadstoreasonablestandard).

• Contractingpartieswillmaintainconfidentialityofcontractsandcontractterms.

b. Contractnegotiations

• Associationsrepresentinggrowersandforestrycontractorswillprovideaccesstoindustrydevelopedbestoperatingpracticesforstandardforestryoperations.Theseguidelinesareaimedatenablingcontractorstodeterminetheirmarketrelatedcostsintenderingforcontracts.

• Forestryenterpriseswillensurethatcontractorrateadequatelyreflectminimumstatutorylabourcostsandotherreasonableexpensestobeincurredinperformingtheworkandthatcontractorratesarenotestablishedattheexpenseoffairlabourandsustainablebusinesspractices.

• Contractingpartieswillprovideaccesstoperformancestandardsandunitpaymentinformationbyforestryenterprises,contractorsandworkers.

c. Tenderingandprocurement

• Forestryenterpriseswillestablishopen,transparentandaccessibletenderingandprocurementsystem.

• Forestryenterpriseswillincludeclearselectionandappraisalcriteriaintenderdocuments.

• Forestryenterpriseswill,whereverpossible,givepreferencetolocaloperatorsandcommunities.

• Theforestrycontractorsassociationwillestablishadatabaseofavailablecontractors(indicatingkeyskills).

28

d. Mediationandarbitration

• Associationsrepresentinggrowersandforestrycontractorswillformulateandimplementguidelinesforarbitrationandmediationintheforestrycontractingsector.

• Associationsrepresentinggrowersandforestrycontractorswillestablishanindependentdisputeresolutionmechanismand/orForestryContractors’ombudsman.

e. Safety,healthandenvironment

• Theforestrycontractorsassociationwillprovideaccesstobest-practicestandardsandworkmethodsforkeycontractingoperationsandequipment.Contractorswillcomplywiththesestandards.

• Theforestrycontractorsassociationwillprovideaccesstominimumacceptablestandardsforprovidingaccesstohousingfacilities(includingtransporttoandfromwork)andbasicfoodstuffforworkerswhohavetoliveon-site.Contractorswillcomplywiththesestandards.

• CertificationagencieswillensureadherencetocertificationrequirementsandimplementationofPrinciples,Criteria,IndicatorsandStandardsofSustainableForestManagement.

f. Industrygovernance

• AssociationsrepresentinggrowersandforestrycontractorswillsecureagreementthroughaMemorandumofUnderstanding(MOU)tojointlystabiliseandgrowtheforestsectorcontractingindustry.

• Thecapacityoftheforestrycontractorsassociationtoprovideadviceandsupporttosmallscalecontractorsoncontractnegotiations,labourlawsandallotheraspectsrelatingtotheeffectiveimplementationoftheCodesforestrycontractorswillbestrengthened.

• Theforestrycontractorsassociationwillimplementasystemofmembershipaccreditationandgradingofallcontractors.

g. Supportandtraining

• Theforestrycontractorsassociationwillestablishguidelinesformentorshipsupportandtraining.

• Forestryenterpriseswillmaintaincontractingconditionsthatfacilitateaccesstofundingsources.

6.4.2Codesforemergingforestgrowerschemes(EFGS)

ThepromotionofEmergingForestGrowerSchemesbycompaniesandcooperativesisanimportantmeanstosupportB-BBEEinforestry.Thereisaneedtoensurethatgoodpracticeisappliedinimplementingtheseschemesthatsupporttheaims,principlesandtargetssetoutintheForestSectorTransformationCharter.TheseCodeswillcontrolanddirectcontractswithemerginggrowersincompany-affiliatedschemes.TheCodeswillprovidetransparencyinthecostingofsupportservicesandmarketrelatedpricingarrangementsfortimberthatwillsupportsustainablebusinesspractices,goodgovernanceandfairlabourpractices.ThefollowingelementswillbedealtwithintheseCodes:

29

a. Fundingandcontractualarrangements

• TheorganizationpromotingEFGSmayinclude,amongthecontractingobligationsofthegrower,anundertakingbindingthegrowerto,inthefirstinstance,selltimberoranyotherproducttotheorganizationpromotingEFGS.Forestenterprisesnotpartytotheagreementwillrespectsucharrangements.

• Thepricepaidforthetimberorotherforestproductsmustbeafairmarketprice.Intheeventofapricedisputethematterwillbereferredtoanexpert.

• Ifrequiredbyanexternalfundingagency,theorganizationpromotingEFGSwillagreetoaminimumguaranteedpriceforthetimberandanyotherproductsatmaturityofthedevelopment.

• TheorganizationpromotingEFGScannotuse“statefundingagency’s”capitalaspartoftheirEnterpriseDevelopmentcosts.

• IftheorganizationpromotingEFGSguaranteesrepaymentoftheloansonbehalfoftheEFGS,thatportionnotrepaid–i.e.defaultby‘EFGS’canbeaddedtoEnterpriseDevelopmentcosts.

b. Transparency

•Allaccumulatedcoststobeincurredtodeterminethesellingpriceforthetimberorotherforestproductsmustbemadeknowninwritingandbeproperlyexplainedtotheemerginggrower.

•IntheprocessofimplementationoftheEFGS,theremustbetotaltransparencywithregardtothetermsofloansandanyotheraspectofthefinancialagreement.Effectivemeasurestoensureclearunderstandingamongstpartiestofinancialagreementoftheconditionsitcontainsandtheirimplications,needtobespelledoutintheEFGSCodeofConduct.

•Atharvest,afullandclearstatementofpricesandproductioncostsmustbecommunicatedtoallparties.

c. Plantationinsurance

• DuringthedevelopmentoftheEGFSandoverthefullrotation,the“promoter”mustensureadequateplantationinsurancecoverattheoptionoftheemerginggrowertomeettheemerginggrowers’plantationexpectationvaluethroughouttherotation.Ifthefundingagenciesrequireinsuranceasaconditionoffunding,theoptionwillfallaway,andinsurancebecomescompulsory.

6.4.�Codesforcharcoalcontracting

TheaimoftheseCodesistoensurelonger-termstability,sustainablegrowthandequitablecontractingpracticesinthecharcoalsub-sector.TheseCodeswillcontrolanddirecttherelationshipbetweensmallblackcharcoalproducersandthebrandnameproducersandindustrialusersofcharcoal.TheCodeswillprovideforjointventuresandpartnershipsbetweensmallscalesuppliersandlargescalebuyersofcharcoalandafair,transparentandstablepricingsystemthatwillsupportsustainablebusinesspractices,goodgovernanceandfairlabourpractices.ThefollowingelementswillbedealtwithintheseCodes:

a. JointVenturesandPartnerships

• Thecharcoalindustrywillprovideforjointventureandpartnershiparrangementsthatwillencouragetheestablishmentofviablecharcoalproductionenterprises.

�0

• Contracttermsandconditionsforjointventuresandpartnershipswillresultinthetransferofskillsandproductivecapacitytocharcoalproductionenterprises.

• Contracttermsandconditionsforjointventuresandpartnershipswillleadtotheestablishmentofindependentoperators(withoutlimitationsastoitsclientsandcustomers)withinadefinedperiodoftime.

b. Contractualarrangements

• Thecharcoalindustrywilldevelopandfollowstandard(model)contractsforprocurementfromsmallcharcoalproducersthatspecifycontractterms(suchasthesupplyofrawmaterialandequipment,transportofcharcoal,siteestablishmentandintellectualpropriety),paymenttermsandcontractduration,risksharing,terminationandconflictresolution.

• Thecharcoalindustryassociationwillprovideaccesstoindustrydevelopedbestoperatingpracticesforcharcoalproductionoperations.Theseguidelinesareaimedatenablingcharcoalproducerstodeterminetheirmarketrelatedcostsintenderingforcontracts.

• Largescalebuyersofcharcoalwillensurethatcontractorratesadequatelyreflectminimumstatutorylabourcostsandotherreasonableexpensestobeincurredinperformingtheworkandthatcontractorratesarenotestablishedattheexpenseoffairlabourandsustainablebusinesspractices.

• LargescalebuyersofcharcoalwillensurethatcontractconditionsenableandspecifycompliancewiththeCodesonemploymentpracticesintheForestSectorandthatmeasuresarestipulatedtomonitorandenforcecompliancewiththesecodes.

• LargescalebuyersofcharcoalwillensurethatcontractconditionsenableandspecifycompliancewiththeCodesonenvironmental,healthandsafetystandardsforcharcoalproductionandthatmeasuresarestipulatedtomonitorandenforcecompliancewiththeseCodes.

• Largescalebuyersofcharcoalwillmaintaincontractingconditionsthatfacilitateaccesstocapitalinvestmentincharcoalproduction.

c.Safety,healthandenvironment

• Thecharcoalindustryassociationwillprovideaccesstobest-practicestandardsandworkmethodstocomplywithsafetyhealthandenvironmentalstandardsforcharcoalproduction.Charcoalproducerswillcomplywiththesestandards.

• Thecharcoalindustryassociationwillprovideaccesstominimumacceptablestandardsinprovidingaccesstohousingfacilities(includingtransporttoandfromwork)andbasicfoodstuffforworkerswhohavetoliveon-site.Charcoalproducerswillcomplywiththesestandards.

• CertificationagencieswillensureadherencetocertificationrequirementsandimplementationofPrinciples,Criteria,IndicatorsandStandardsofSustainableForestManagement.

d. Industrygovernance

• ThecharcoalindustryassociationwillbestrengthenedwithkeycapabilitiesrelatingtotheeffectiveimplementationoftheCodesforestrycontractors.

• Thecharcoalindustryassociationwillimplementasystemofmembershipaccreditationandgradingofallmembers.

�1

6.4.4Codesforemploymentpractices:

TheaimoftheseCodesistoensureequitableemploymentpracticesintheForestSector.TheseCodeswillgivepracticaleffectandweighttofairlabourpracticesasprovidedforundertheBasicConditionsofEmploymentAct,1997,andotherlabourlegislationasitappliestoemployees,includingcontractworkers.ThefollowingelementswillbedealtwithintheseCodes:

a. Contractsandwages

• Employerswillensurewrittenemploymentcontractsforallworkers,includingcontractorworkers,thatcomplyingwithallrelevantlabourlegislationandregulations.

• Employerswillinformworkersoftheiremploymentrights,translatetheBasicConditionsofEmploymentActandtheSectoralDeterminationagreementintolanguagesunderstoodbytheworkforceanddisplaythesedocuments.

• Employerswillclearlyinformworkersofthetasksthatareexpectedfromthem.

• Employerswilladheretominimumwagestipulations.

b.LabourRelationsAct

• Employerswillrespectandpromotetherightofallworkerstojoinorganisationsoftheirchoiceandtocreateanenablingenvironmentfortheestablishmentandgrowthofworkerorganisations.

• EmployerswillinformworkersoftheirrightundertheLabourRelationsAct.

c. OccupationalInjuriesanddiseases

• EmployerswillregisterwiththeCompensationFundsothattheirworkerscanclaimcompensationforoccupationalinjuriesanddiseases.

• EmployerswillinformworkersoftheirrightundertheCompensationforOccupationalInjuriesandDiseasesAct.

d. UnemploymentInsurance

• EmployerswillregisterwiththeUnemploymentInsuranceFund(UIF).

• EmployerswillinformworkersoftheirrightundertheUnemploymentInsuranceAct.

e. OccupationalHealthandSafety

• EmployerswillensurecompliancewithOccupationalSafetyandHealthAct(OSHA),e.g.basicrequirementsregardingprotectiveclothing,noiseprotection,andquickaccesstoemergencytreatment.

6.5 Motivationtofundand/orsubsidisetheinterestburdentodevelopemergingforestryenterprises

Refertopar.8.2.1and1�.2.1(e)oftheCharter.

Thecost-of-capitalforemerginggrowerenterprisesisoftenprohibitivetotheenterprisebecause

�2

ofthelongcroprotation(oftenexceeding10years),andhencedeferredrevenue.Subsidisingthecost-of-capitalreducesthecashflowobligationoftheemerginggrowerenterpriseresultingfromcapitalloans.

Anumberofmodelshavebeenanalysed(refertoAppendix:ForestryFundingModels)todeterminetheeffectofinterestcostsonafforestationschemesandB-BBEEequitytransfersintheForestrySector.Alloftheseshowthat,ifinterestcostsaresubsidised,themodelsbecomesubstantiallymoreviableandarelikelytoimprovethechancesofsuccessofBroad-basedBlackEmpowerment.

6.5.1Rationaleforinterestsubsidisationforemerginggrowerschemes

a. Thesmallgrowerinitiativeisintendedtoprovideanincometopoorerpeople.Bytheirnature,povertyalleviationschemesaretargetedatpeoplewhodonothaveresourcestofundtheirlivingexpensesforthelengthoftimetimbertakestogrowtomaturity.Interestsubsidiesarerequiredtoimprovetheprofitabilityandcash-flowpositionforblackemerginggrowers.

b. Refertoappendedmodel1a(interestsubsidised)andmodel1b(interestnotsubsidised)forshort-rotationprojects(GumandWattle).Ifinterestisnotsubsidisedforemerginggrowers(2.4haperentity),suchschemesonlybecomeprofitableinyear16.Thismeansthatthecapitalandinterestrepaymentsareextendedto6yearsaftertherotationperiod.Itisunrealistictoexpectpeopletowaitthislongbeforethefullbenefitintheformofalivingwageispayable.

c. Refertoappendedmodel2a(interestsubsidised)andmodel2b(interestnotsubsidised)forlong-rotationprojects(sawlogs).Thesemodelsarebasedona25-yearrotation;400cubicmetresperhectareatclearfelling;anoverallpriceofR325-00percubicmetrestandingatmaturityorR125000netperhectarestanding;incomefromthinningscoversthecostofpruningandpartofannualmaintenance.Atthese(current)sawlogpricesthisrepresentsthebestpovertyalleviationmodel,butrequiresfundingat2.5timesthatofshortrotationcrop.

Withoutanyinterestsubsidybeingapplied(model2b)thisallowsdrawingsofR�500perannum(per2.4ha)fromyearfouronwards,withanadditionalR61855profitonclearfelling.Withinterestsubsidybeingapplied(model2a),thedrawingscanbeincreasedtoR6000perannum,withanadditionalR97739profitonclearfelling.Thismodelcouldworkwithoutinterestsubsidisation,butwiththecomplexitiesandriskassociatedwithraisingsuchalargeinvestmentoveralongperiod,wouldgreatlybenefitfromsomelevelofinterestsubsidisation.

d. Foremergingcommercialgrowers(40haperentity),theinterestratesubsidydoesnothaveasdramaticaneffectbutstillreducesthetimeperiodtobreakeven,andbringsthisclosertoafullrotation.Theeffectontheparticipantissignificantinthatitbringsthefullearningspotentialseveralyearsearlier.

Refertoappendedmodel�a(interestsubsidised)comparedtomodel�b(interestnotsubsidised),wherethebreak-evenincreasesfrom9yearsto12years.

e. Iftheinterestissubsidizeditwillreducetheriskcarriedbythefinancingbody,andwillpromotemoreoftheschemesthanwouldotherwisehavebeenthecase.

f. Finally,theneedforinterestsubsidizationisdemonstratedbythefactthatpresentout-growerschemesincludesubsidisationoftheinterestfactor.Theforestindustryhasacceptedtheneedbothinwordandactionforinterestsubsidizationtoensurethatemergingforestgrowerschemessucceed.

��

6.5.2Rationaleforinterestsubsidisationforemergingforestgrower schemes:

Existingsmallforestenterprisesintheformofacompanyortrustarenotlargeenoughtoaccessfavourablefundinginthesamemanneraslargegrowers(Corporates).Inaddition,theydonothavethemeanstoself-fundB-BBEEinitiativesanddonothavetheresourcestocarrytheinterestloadonloansovertherotation.TheconsequenceoftheseshortcomingsisthatsuchenterpriseswillbeforcedtoseekeliteBEEpartnerswhoarecapableofcarryingthecostoftheinvestment.ThishastheeffectofunderminingtheGovernment’sobjectiveofensuringthatownershiptransferisbroad-based.

Twomodelsofownershiptransferwereconsidered:

a. Outrightpurchaseof25%ofequityinenterprise

• Theappendedmodel4a(interestsubsidised)andmodel4b(interestnotsubsidised)showthatthebreak-evenincreasesfrom11yearsto16yearsifinterestisnotsubsidised.

• Theimplicationofthisisthatthe25farmworkers,whoareearningaminimalR1000perannumeachforthefirsttenyears,wouldnowearnR1000eachfor15years,whichstretchestherepaymentofcapitalbeyondtherotationage.

• TheabovetwomodelswerebasedontheassumptionthattheIDCPro-Jobschemeat5%belowprimewouldbeapplicableor,failingthat,asimilarschemeatthesameratewouldbeapplicable.

• Atpresent,however,theonlyfundingforthistypeofprojectfromtheIDCistheProForestryschemeatarealrateofreturnof2.5%.WiththecurrentlevelofCPI,thistranslatestoaneffective6.5%interest.Thebreak-evenfortheProForestryschemewouldbeinyear19(model4c)comparedtobreak-eveninyear11withinterestsubsidy(model4a).

• IfIDCfundingisnotavailable,thebestcommercialrateavailableis2,75%belowprimeandatthisinterest(model4d),break-evenextendsto24years,morethantworotations.

• Fromtheaboveitisclearthatwithoutinterestsubsidisation,theB-BBEE25%shareownershipmodelcannotwork.

b. PhasedtransferofB-BBEE25%participationinasmallcompanyortrustoveronerotation(10years)

Ananalysiswascarriedoutusingthismodel,andwasfoundtobecompletelyunworkableevenwiththesubsidisationofinterest.Thismodelisthusnotdiscussedfurther.

6.6 Motivationforseedfundingtodevelopfireinsuranceschemesforemergingforestryenterprises

Refertopar.1�.2.1(e)oftheCharter.

Thereisatpresenteffectiveplantationfireinsuranceavailable,whichiscurrentlyprovidingcoverforapproximately200,000hectaresoftimber.However,thereisaneedtoprovideseedcapitalforthedevelopmentofafireinsuranceschemeforemerginggrowers,tosupport10000haofafforestationannually,overtenyears.Theseedcapitalisrequiredtoreducetheinsurancepremium,requiredtocoverexpectedannualandcatastrophiclosses,toamoreaffordablelevel

�4

fortheemerginggrowersector.Growerswillcollectivelypooltheirrisk.Theseedmoneywillberequiredduringthefirst9years,whereafterthepoolwillbebigenoughtosustainthesebeneficialpremiumlevels.Forsuchaschemetobesuccessful,pre-planningandfireriskmanagementareessential.Pre-planningentailstheidentification,carefulconsiderationandmitigationoffirerisksbeforethetreesareevenplanted.Furthermore,thereisaneedforongoingfireriskmanagementafterthetreeshavebeenplanted.Pre-planningandfireriskmanagementarevitaltoensuretheviabilityoftheafforestationprojectandtoaccrueunderwritingprofitsforthebenefitoftheemerginggrowers.

7.FinancialrequirementsforForestSectorTransformation

7.1IndustryCostsThefinancialrequirementsforimplementingtheCharterbyIndustryareoutlinedinthetablebelow.

Cost item Cost calculation for Industry

Annual cost to the Forest Industry (R million)1)

Growing sub-sector

Fibre sub-sector

Other sub-sectors

Total for Sector

Ownershiptransformation

Costestimatedat7%ofvalueof

industry42

1546� 259

Skillsdevelopment�%ofestimated

payrollcosts�7,5

9042 169,5

EnterpriseDevelopment

�%ofNPAT 10,5 42 14,7 67,2

Socio-economicDevelopment

1%ofNPAT �,5 14 4,9 22,4

CharterCouncil40%oftotal

costofCouncilfunding

0,175 0,7 0,245 1,12

B-BBEEverification

Costsunknown

TotalknowCosts 9�,675 �00,7 124,485 519,22

Additional costs:

Bonus points of ownership

5% higher ownership target

8.4 30.8 12.6 51.8

Bonus points for sector initiatives

0.75% of net profit after tax

2,625 10.5 3,675 16,8

Note: 1) This is a total cost and is spread equally over 10 years to reflect an annual cost

�5

(a) CostcalculationforIndustrycontributiontoB-BBEEElementsoftheScorecard

ThefollowingassumptionsweremadeincalculatingthecontributionrequiredfromindustrytoB-BBEEElementsoftheScorecard:

i) Benchmarkfiguresfor10largeBEEdealsindicatethatthecostfor10%BEEshareholdingisequalto�%ofthemarketcapitalisationofanenterprise.Marketcapitalisationisthetotalvalueoftheissuedshares.Aslidingscaleappliesanditisestimatedthatthenetcosttogiveeffectto25%shareholdingwouldbe7%ofthetotalmarketcapitalisation.Thenetcosttogiveeffectto�0%shareholdingwouldbejustunder8.4%ofthetotalmarketcapitalisation.

ii) Analysisofavailablecompanyinformation(mainlyobtainedfromquotedcompaniesontheJSE)indicatesthatthemarketcapitalvalueofcompaniesrangesbetweenaratio1.0and1.�oftotalcompanyturnover.Thismeansifabusiness’sturnoverisR2billionitsmarketvaluewouldbebetweenR2billionandR2.6billion.

iii) Asageneralruleofthumb(basedonresultsofquotedJSEcompanies),netprofitbeforetaxisintheregionof10%–12%ofturnover.ThismeansifacompanyhasaturnoverofR1billion,pre-taxprofitwouldbeintheregionofR100milliontoR120million.Basedonataxrateof30%(rounded,ontheactualcompanytaxrateis29%),aftertaxprofitthenbecomes7%to8.4%ofturnover.

iv) EmploymentcostsintheSouthAfricanmanufacturingenvironmentaccountfor20%oftotalcompanyturnover.Thisobviouslyvarieswithcapital-intensiveindustriesatalevelof15%andlabourintensiveindustriesashighas25%.Aratioof20%ofturnoverhasbeenappliedtoestimatethecostofemploymentinenterprisesintheForestSector.

ThetablebelowsummarisestherelationshipsusedincalculatingthecostapplicabletodifferentScorecardelements.

Financial Factors Index

ßTurnoverßBusinessvalue(marketcapitalisation)ßProfitbeforetax(10%)ßProfitaftertax(7%)ß Labourcost(20%)

100100–1�0

107

20

Theseratiosarenowappliedtotheinformationobtainedforthevarioussectorsoftheforestryindustry,whichare:

SectorTurnover

(R billion)

Business Value

(R billion)

Profit before tax (R million)

Profit after tax

(R million)

Labour Cost2)

(R million)

Growersub-sector 5 6 500 �50 1250

Fibresub-sector 201) 221) 2000 1400 �000

Sawmillingandother 7 9 700 490 1400

ForestSectorTotal �2 �7 �200 2240 5600

�6

Notes:1) LHAestimates 2) Differentratiosassumed,i.e.25%forgrowers,15%forfibreand20%forsawmilling

EstimatesofaggregateturnoverofEnterprisesineachsub-sectorareasfollows

a. Growersector–annualharvest(2005)of20millionm³@R250/m³delivered=R5billion

b. Fibresector

ßPulpandPaper-PAMSAestimate: R14billion

ßBoardproducts: R�billion

ßChipexports: R�billion

c. Sawmillingandother

ßSawmilling(2,7millionm³@R1600/m³):R4,�billion

ßMiningtimber(0,8millionm³@R1200/m³): R1,0billion

ßCharcoal: R0,5billion

ßPoles(800000m³@R1000/m³):R0,8billion

ßMatches,other: R0,4billion

�7

(b) CostcalculationfortheForestSectorCharterCouncil

Thecostcalculationisbasedon:

i) AnestimatedannualrecurrentcostofR2786000andaonce-offcostofR250000overa10-yearperiodasoutlinedinthetablebelow.

ii) A40:60%fundingsplitbetweenindustryandgovernment.

iii) Sub-sectordistributionofcostbasedonturnover

DRAFTANNUALBUDGETFORFORESTSECTORCHARTERCOUNCIL

Budget Items

Salaries and Staff Costs Number Rate Annual Rand

ChiefExecutiveOfficer 1 680000

SeniorResearcher 1 �00000

AdministrationManager 1 200000

AdministrationClerk 1 80000

OfficeAssistant 1 55000

Independent Chairperson of theBoard

1R2400/dayx

�0days72000

Board members requiringfinancialassistance

9R1900/dayx

12days205200

Sub-Total

-R1 592 200

Other Operating ExpensesNo of Item

Cost RateAnnual

Rand

Accountingfees 20000

Annualreport 50000

Bankcharges 8000

Officeequipment(leased1)) 5 R6000 �0000

Consultancyfees 1 - 500000

Entertainment �0000

I.T.expenses 50000

Insurance 15000

Motorvehicleexpenses2) 50000km R�/km 150000

Officerental 200m² R40/m²/m 80000

Stakeholderliaison) 100000

�8

Photocopying, printing andstationery

25000

Publicity,circulars,etc 50000

Stafftravel R4000/ea 80000

Flights

Accommodationandmeals

CarHire

24trips

24nights

24cardays

R2000/trip

R600/night

R�00/day

48000

14400

7200

Counciltravel(GovtandIndustryAssociationspayforthemselves)

Flights(6meetingsX8flights)

Accommodationandmeals

Carhire

48flights

6meetings

48carhires

R2000/trip

R8000/meeting

R�00/day

96000

48000

14400

Telecommunication 65000

Sub-Total R1 480 600

TOTAL BUDGET R3 072 800

Notes: 1) Office establishment costs (once-off) are excluded. The following should be budgeted for:

- Officefurniture = R120000-00

- ComputersandITinfrastructure = R100000-00

- Boardroom,etc = R30000-00

= R250000-00

2)Assumenocompanyvehicles,onlyre-imbursementforownvehicletravelexpenses

7.2 GovernmentCosts

ThefinancialrequirementsforimplementingtheCharterbyGovernmentareoutlinedinthetablebelow.TheactualbudgetavailablewillbesubjecttoParliamentaryapproval.

(a) CostcalculationforGovernmentcontributiontoOwnershipTransformation

ThecalculationofGovernmentcoststoeffectownershiptransformationrelatestotherehabilitationandtransferoftheremainingDWAFplantations.ThisamountstoR716millionoveraten-yearperiod,basedonthefollowing:

i) Rehabilitationof46000haplantationsatatotalcostofR66millionoveraperiodoffiveyears.

ii) Costoftransfer(transfercostsfacilitationsupportandestablishmentoflegalentities)atR10millionpertransferpackagefor20packagesoverthe10-yearperiod.

iii)PosttransfersupporttonewownersatR90million/yearfromyear6-10.

iv)Theinterestratesubsidisationfor25%blackequityownershipin300000haof“small”forestry

�9

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40

enterprisesamountstoR920millionover10years,basedonR2�744�per60hatransferred(R�957/ha)-refertoModel4a,par.6.5.2a.Itisfurtherassumedthathalfoftheemergingforestryenterpriseswouldnotparticipate insuchanarrangement.Governmentcontribution to interestsubsidisationisthereforebasedon25%equityownershipof150000ha,whichamountstoR148million.

(b) CostcalculationforGovernmentcontributiontoSkillsDevelopment

Thecostofskillsdevelopmentisbasedon�%spendofpayrollbyDWAF,basedonaforestrypersonnelbudgetofR195552000in2006-07(approximately4200posts)

(c) CostcalculationforGovernmentcontributiontoEnterpriseDevelopment

Thisisbasedonthefollowingcalculationsandassumptions:

i) Interestratesubsidisationfor100000hanewafforestationover10-yearsiscalculatedatR6234per2.4hafamilyfarm(refertoModel1a,par.6.5.1b.),whichamountstoR2597/ha,orR9557�per50hacommercialfarmingoperation(refertoModel�a,par.6.5.1d.),whichamountstoR2�89/ha.AtanaveragecostofR2500/hathisamountstoR250millionrequiredforthe100000ha.Itisfurtherassumedthat50%ofthiscostwillbebornebytheprivatesectoreitheraspartoftheirenterprisedevelopmentcontributionsorlinkedtocontractualagreementsforthesupplyofrawmaterial.GovernmentcontributiontointerestratesubsidisationthereforeamountstoR125millionover10years.

ii) ThecostofprovidingseedcapitalfordevelopingfireinsuranceschemesforemerginggrowersisestimatedatR16milliontosupport10000haofafforestationperyearfortenyears.Thisamountisrequiredtoreducethepremiumofinsuranceforexpectedannualandcatastrophiclossestoanaffordableinsurancepremium.Itisestimatedthattheseedmoneywillberequiredduringthefirst9years,whereafterthepoolwillbebigenoughtorequireapremiumofunder1.2%tosustainthepool.

iii)Thecostofcapacitybuildingandbusinesssupportforemergingblackentrepreneursisbasedon15%ofinvestmentcostsinnewafforestation.TheinvestmentcostsisestimatedatR15000perhafor10000haperannum.ThisamountstoR22.5millionperannum.Thisexcludescapacitybuildingandbusinesssupport foremerginggrowers thatwillbenefit fromthe transferofstateforest landwhich isalreadycovered in thecost calculationpresented inpar. (a)above. It isrecognisedthatsupportforemergingentrepreneursgoesbeyondnewafforestation.Atthesametimeaccounthastobetakenofthefactthatthatforestenterpriseswillalsocontributetocapacitybuildingandbusinesssupportthroughenterprisedevelopmentspend.

iv)Thecostofexpeditingtheafforestationauthorisationprocess[overandaboveexpensesnormallyassociatedwithSFRA(forestry)wateruselicensing]isestimatedatR10.7millionover5years.Thisbasedonthefollowing:

a. AdditionalSEAandareamappingstudies:KwaZulu-Natal,EasternCapeandMpumalanga=R�.0million

b. Streamliningsupport:R500000perannumover5years=R2.5m

c. RegionalSFRAunits’additionaloperatingcosts(forfourforestryregions):R200000/annumperregionfor5years=R4.0m

d. NationalSD:SFRA’sadditionaloperatingcosts:R200000p.a.for(5years)=R1.0m

e. DevelopingthevariousMOUsonafforestationauthorization=R200000.

41

v) ThecostofsecuringlandrightsandlandholdingstructuresfornewafforestationoncommunallandandthetransferofownershipandleaserentalsonStateForestlandstillneedstobecalculatedbyDLA.

Note: the cost of settling restitution claims on forestland has not been included as this is an existing statutory obligation of State.

vi)ThecostofWorkingforWater(WfW)ProgrammestosupportaccesstorawmaterialsupplythroughtheremovalofalieninvasiveplantsandtocreateassociatedblackenterprisedevelopmentopportunitiesisR48.75millionover10years.Thisisbasedonthefollowing:

a. Extensionprogrammetodisseminateinformationontheavailabilityofrawmaterialsources:R�50000establishmentcostperregionandR100000operatingcostperregionfor9yearsthereafterx5regions=R6.25million

b. Programmetopromoteandprovideincentivesforthedevelopmentnoninvasivetimberresources:R2millionperannumfor10years=R20million

c. ProgrammetopromotethedevelopmentofB-BBEEenterpriseslinkedtotheutilisationofwoodproductsfromtheclearingofinvasivealientrees:R450000perannumperregionfor10yearsx5regions=R22.5million

(d) CostcalculationforGovernmentcontributiontoIndustrySpecificInitiatives

Thisincludesthefollowing:

i) ThecostofR&Dtosupportthedevelopmentofasawloggrowingstrategyandprogramme.TheestimatedcostisR5millionperannum.

ii) Thecostsofinitiativestomanage,control,reduceandwherepossibleeradicatethethreatsandinfestationlevelsofpestsanddiseasesintimberplantations.TheestimatedcostisR5millionperannum.

iii)Thecostofinitiativestomanage,controlandreducetheriskofforestfires.TheestimatedcostisR7millionperannumandisbasedonthefollowing:

a. FireawarenesscampaignsatR�millionperannum

b. FinancialassistancetoFireProtectionAssociationschannelledthroughmunicipalfireservicesatR5millionperannum.

8 KeyOutcomesoftheForestSectorTransformationProcess

BasedontheSectorcommitmentsintheCharter,keyoutcomesoftheForestSectortransformationprocesscanbesummarisedasfollows:

(a)Aweightedblackownershipprofileof30%fortheSectorasawholewithin10-years.

(b)Aweightedblackwomenownershipprofileof12.6%fortheSectorasawholewithin10-years.

(c)Afforestationofaminimumof100000hanetincreaseinplantedareaoverthenexttenyears,mostlyintheEasternCapeandKwaZulu-Natalthroughblackownedforestryenterprises.Thiswillunderpinfurthergrowthinthetimberprocessing,value-addingandmarketingsector.

42

(d)Increasedparticipationofblackpeopleinforestryvalueaddingindustries,suchassawmilling,paperproductionandcharcoalproduction.

(e)Appropriatefundingmechanismsidentifiedtosupportforestenterprisedevelopmentinvolvingbothindustryandstatefunding.

(f)AnnualexpenditurebytheindustryofatleastR67.2millioninenterprisedevelopment.Thiswillresultinmorethan�90newjobsand�0to50newsmallbusinessesannually1.

(g)Rehabilitationandtransferof46000hastateplantationstoblackcommunities.

(h)Annualspendingonskillsdevelopmentsufficienttoaddabout1750newlearners2intothetertiaryeducationsystem,andmorethandoublethisnumberofothertraineesandlearnersatlowereducationallevels.

(i)ConcertedstrategytodevelopblackskillsintheForestSectortounderpingreateremploymentequityinandblackmanagementcontroloftheForestSector.

(j)Effectiveandrepresentativestructuresfortheforestindustry.ThisincludestheestablishmentofrepresentativeorganisationsforsawmillersandcharcoalproducersaswellasimprovedlevelsoforganisationandrepresentationofworkersthroughouttheSector.

(k)IndustryCodesofConductthatwillensuregoodpracticesincontractingandemploymentthroughouttheForestSector

(l)Asawloggrowingstrategyandprogrammethatwilladdresstheloomingshortageofsawlogsupplyinthecountryandensuresustainabilityofthelocalsawlogplantationindustry.

SincetheForestSectorhasaruralbase,theseoutcomeswouldmakeasubstantialcontributiontopovertyreductionandruraldevelopmentinthecountry.Furthermore,thetransformationprocessislikelytoinjectconsiderableenergyandinnovationintotheForestSectorandsecureitspotentialforhighgrowth.

1 Figures are based on new job creation costs of R100 000 in the growing sector and R200 000 in the downstream value-adding sectors, and 10 employees per SME. 2 Based on an annual of R100 000 per student; education in all disciplines, e.g. forestry, marketing, commerce, technical, legal, etc.

9 CharterImplementationPlanTheImplementationPlanoutlinedbelowdealswiththeimplementationoftheinstrumentstosupporttheB-BBEEtargetsandnottotheimplementationoftheScorecarditself.ThelatteristheresponsibilityofeachindividualenterpriseintheForestSector.

EachundertakinglistedintheImplementationPlanneedstobrokendownfurtherintostepslinkedtomilestonesandtimeframes.ThismustbedonebythepartieslistedasbeingresponsiblefortheundertakingsandmustbereportedontotheCharterCouncil.

Appendix:ForestryFundingModels

4�

PLAN FOR THE IMPLEMENTATION OF INSTRUMENTS TO SUPPORT B-BBEE TARGETS FOR THE FOREST SECTOR

Requirement Undertakings ResponsibilitiesTarget date1

1. Forest Sector Charter Council

EstablishmentoftheCouncil

1.1AppointmentofSectorrepresentativestoserve

ontheCouncil

Government(DWAF,DLAandDTI),Industryandlabour

2weeks2

1.2AppointmentofaChiefExecutiveOfficerforthe

Council

Government(DWAF)inconsultationwithstakeholders

1month

1.3Appointmentofstaff&procurementofoffices

andequipment

CEOfortheCouncil �months

Establishmentofsystems/pro-ceduresfortheCouncil

1.�FinalisefundingarrangementsforCharterCouncilfromGovernmentandIndustry

Government(DWAF)andIndustry

2weeks

1.4AdoptionofaConstitutionfortheCouncilCharterCouncil 4months

1.5PreparationofannualbusinessplanandbudgetfortheCouncil

CEOfortheCouncil 4months

2. Instruments to support Ownership TargetsAccesstofundsforpurchaseofequityownership&saleofbusinessassets

2.1Refertoundertakings5.�to5.5hereunder

RestructuringofStateforestassetsinsupportofB-BBEEtargets

2.2RoleofSAFCOL,includinganypossiblerolein

forestrydevelopment,reviewed

Government(DWAF&DPE)

�1March2007

2.�Planfortherestructuringofremaining(CategoryBandC)stateplantations,inaccordancewithpro-poordevelopmentagendaandbroad-basedblackeconomicempowerment,operational

Government(DWAFwithDLA)

1year

2.4Confirmland-holdingrightsandestablishland-holdingstructuresforstateforestlandtransfers–refertoundertakings5.11&5.12hereunder

Government(DLAwithDWAF)

5years

3. Instruments to support Skills Development Targets

Skillsdevelopmentstrategy/planfortheForestSector

�.1Skillsdevelopmentstrategy/planfortheForestSectoroperational.Toincludetargetsandtimelinesto:

• Strengthenthenationalframeworkforskillsdevelopment.

• Strengthensectorcapacityforskillsdevelop-mentdelivery.

• PromoteskillsdevelopmentopportunitiesforyouthandnewentrantsintheForestSector.

Government(DWAF&DoL),SAQA,industryandlabour,throughFIETA

1year

�.2EnsurethattheSkillsdevelopmentstrategy/planisbasedonaclearlydefinedtransformationandgrowthstrategyfortheForestSector

Government(DWAF&DTI)andindustry

1year

�.�EnsurethattheSkillsdevelopmentstrategy/planlinkswiththevariousPGDS’andNSFfundedprojectstosupportthePGDS’

Government(DWAF)andindustry

1year

3.4IdentifyspecificskillsdevelopmentprojectsforwhichbusinessplanswillbedevelopedandsubmittedthroughFIETAtotheNSFforfunding

Government(DWAF),industryandlabour,throughFIETA

1year

�.5DWAFfullyparticipatesasacontributingstakehold-erinallFIETAactivities

DWAF 6months

3.6Ensurethatwhenthe2005-2010NationalSkillsDevelopmentStrategy(NSDS)isupdated,specialat-tentionisgiventoskillsdevelopmentrequirementstosupportB-BEEsectortargets

DoL Unknown

44

Requirement Undertakings ResponsibilitiesTarget date1

4. Instruments to support Preferential Procurement Targets

Ensureequitableandsustainablecontractingandem-ploymentpracticesthroughIndustryCodesofConductfortheForestSec-tor

4.1CodesofConductforForestryContractingdeveloped

GrowerandContractingIndustry&Labour

1year

4.2CodeofConductforEmergingForestGrowerSchemesdeveloped

GrowerandFibreIndustry

1year

4.�CodeofConductforCharcoalContractingdeveloped

Charcoalindustry&Labour

1year

4.4CodeofConductforEmploymentPracticesdeveloped

Forestindustry&Labour

1year

5. Instruments to support Enterprise Development Targets

Accesstofundsandfinancialservicesforemergingblackentrepreneurs

5.1Diversityofenterpriseownershipandfinancingmodelsdevelopedandavailableforimplementation

Industry 1year

5.2Thedevelopmentofaccessibleandcost-effectivefireinsuranceschemesforemerginggrowerspromoted(linkedto5.6below)

Industry 1year

5.�FrameworkAgreementsnegotiatedwithbanksandotherfundinginstitutions.(FrameworkagreementsnegotiatedundertheFinancialServicesCharter)

Industry 1year

5.4FrameworkAgreementsnegotiatedwithdonorandpublicfundinginstitutionstoaccessfundinginstrumentsavailablewithintheseinstitutions

Government(DWAFinconsultationwithDLA,DoA,LandBank,DTI,IDCandothers)

1year

5.5Publicfundingmechanismtofundand/orsubsidisetheinterestburdenindevelopingemergingForestSec-torenterprisesinvestigated

Government(DWAFwithTreasury)

1year

5.6Publicfundingmechanismtoprovideseedfund-ingforthedevelopmentoffireinsuranceschemesforemerginggrowersinvestigated

Government(DWAFwithTreasury)

1year

Capacitybuildingandbusinesssupportforemergingblackentrepreneurs

5.7ContinuedcapacitybuildingandbusinesssupportforemergingblackentrepreneursbyIndustry

Industry(cooperativesandcompanies)

Ongoing

5.8Servicedeliveryagreementforforestenterprisedevelopmentsupportnegotiatedwithexistingenterprisesanddevelopmentagenciesoperationalforkeyforestryareasinthecountry

Government(DWAFwithDLAandDTI),inconsultationwithIndustry

18months

Expeditethewateruseauthorisationprocessforafforestationandpaper&sawmillingfacilities

5.9Streamlineandexpediteafforestationlicensingprocedurestofacilitatetheestablishmentofaminimumof100000hanetincreaseinplantedareaovertenyears,basedonaminimumtargetaverageof10000haperannum(specificmeasureshereunderlistedintheCharterCompanion)

Government(DWAFinconsultationwithDEAT,DLA,DoAandProvin-cialGovernment)

1year

5.10Publishedsetofproceduresandtimeframesformilllicenseapplications

Government(DWAFinconsultationwithDEATandProvincialGovernment)

6months

5.11 Licensing system under the National Water Act,1998 and the National Forests Act, 1998 applied topromotetheobjectivesoftheCharter

Government(DWAF) OneffectivedateoftheCharter

45

Requirement Undertakings ResponsibilitiesTarget date1

Securelandrightsandlandholdingstructuresoncommunallandfornewafforestationandrestructuringofstateforestassets

5.12MemorandumofUnderstanding(MOU)establishedbetweenDWAF,DLAandprovincial&localgovernmenttoensurethecontinuedandsustainableuseofexistingstate plantations areas for timber production and toprovide forpostsettlementsupport to thenewownersofsuchland

Government(DWAFwithDLA,ProvincialGovernmentandMunicipalGovernment)

1year

5.1� Necessary legislative framework, budget andprogrammeestablishedtoenablecommunitiestoconfirmtheirtenurerightsandestablishlandholdingstructuresfor the transfer of existing state plantation areas� andafforestationoncommunalland

Government(DLAwithDWAF,ProvincialGovernmentandMunicipalGovernment)

1year

5.14Programmeimplementedthatsecuretenurerightsandestablishland-holdingstructuresfor50%ofallnewafforestationprojectsintheEasternCapeand90%ofallstateplantationareastransferred

Government(DLAwithDWAF,ProvincialGovernmentandMunicipalGovernment)

5years

Emerginggrowersabletoparticipateinforestrycertification

5.15Appropriateforestrycertificationmethodologiesforemerginggrowersdeveloped

IndustryandGovernment(DWAF)

18months

Accesstorawmaterialsupplyforsmallscalecharcoalproducersanddomesticfuewood

5.16PolicyandservicesinplacetofacilitaterawmaterialsupplyandassociatedblackenterprisedevelopmentopportunitiesthroughtheWfWprogramme(specificmeasureshereunderlistedintheCharter)

Government(DWAF) 1year

6. Instruments to support Industry Specific Initiatives

EnsurethatForestSectordevelopmentformspartofintegratedprovincialandmunicipalplanning

6.1Forestdevelopmentneedsandopportunitiesareadequatelyincorporatedinprovincialandmunicipalplanningprocesses(PGDS’&IDP’s)

Government(DWAF) 1year

6.2IndustryparticipationinprovincialandmunicipalplanningprocessthroughtheDepartmentofTradeandIndustrysupportedRegionalIndustryStrategiesandWoodClustersinitiative:

o EasternCape,KZNandLimpopo

o Otherforestryregions

Industry

2years

�years

Secureandadequatesuppliesofrawmaterialforprocessingenterprises

6.�AgreementonaSawloggrowingstrategyandprogrammeforthecountry(specificissuestobeaddressedlistedintheCharter)

Gov(DWAF)&Industry 1year

6.4Initiativestomanage,control,reduceandwherepossibleeradicatethethreatsandinfestationlevelsofpestsanddiseasesintimberplantations(specificmeasureshereunderlistedintheCharterCompanion)

Industry&Government(DWAFandDoA)

1year

6.5Initiativestomanage,controlandreducetheriskofforestfires(specificmeasureshereunderlistedintheCharterCompanion)

Industry&Government(DWAF)

1year

46

Requirement Undertakings ResponsibilitiesTarget date1

Transportinfrastructuredevelopmentinsupportofforestrydevelopment

6.6IncorporateinfrastructurerequirementsintoProvincialGrowthandDevelopmentStrategiesandMunicipalIntegratedDevelopmentPlans

Government(DWAFwithDoT,ProvincialGovernmentandMunicipalGovernment)

1year

6.7Definethetransportinfrastructureneedsforforestdevelopment,forinclusionintherelevantProvincialFreightTransportPlansandLocalIntegratedTransportPlansformunicipalities:

o EasternCape,KZNandLimpopo

o Otherforestryregions

Government(DWAFwithDTI)andIndustry

2years

�years

6.8IndustryparticipationinprovincialFreightTaskGroupsandCorridorFreightCommittees:

o EasternCape,KZNandLimpopo

o Otherforestryregions

Industry

2years

�years

6.9IndustryparticipationinRegionalIndustryStrategiesandWoodClusterinitiatives

o EasternCape,KZNandLimpopo

o Otherforestryregions

Industry

2years

�years

Removeconstrainttoblackenterprisedevelopmentinthefibresub-sector

6.10RequestInternationalTradeAdministrationCom-mission(ITAC)tocommittodomore,withinitslegalconstraints,toprovidegreaterprotectionforSouthAfricanproducersfromforeigndumpers

Government(DTI) 1year

Accesstoinformation,appropriatetechnologyandinnovationtosupportB-BBEEandenterprisedevelopment

6.11ProcessestablishedtodevelopofaForestSectorresearchstrategywithclearlyoutlinedresponsibilities,fundingmechanismsandtimelines

Government(DWAF)withothersectorstakeholders

6months

ExpediteRestitutionclaimsonforestlandtoensurethecontinuedandsustainableuseofplantationareasfortimberproduction

6.12Acoordinatedstrategyforthesettlementoflandclaimsdevelopedthatwillensurethecontinuedandsustainableuseofexistingstateplantationareasfortimberproduction,andprovideforpost-settlementsupporttothenewownersofsuchland.

CRLR,DWAF,Industryandothersectorstakeholders 6months

6.1�Expeditethesettlementoflandclaims:settle90%ofalllandclaimsonforestland

CRLR 2008

Strengtheningrepresentativeindustrystructures

6.14Equitablerepresentationofemerginggrowersinindustrystructures,aswellasimprovedsmallgrowerorganisationatthelocalandprovinciallevels

Forestryindustry 2years

6.15Strengthenedandrepresentativetheforestrycontractors’organization

ForestryContractorsindustry

2years

6.16Anorganisationrepresentingallsawmillersinthecountryestablished

Sawmillingindustry 2years

6.17Anorganisationrepresentingallcharcoalproducersinthecountryestablished

CharcoalProductionindustry

2years

6.18ImprovedlevelsoforganisationandrepresentationofworkersthroughouttheSector

Labour(tradeunions) 2years

6.19Enhancedco-operationamongstsub-sectorsoftheForestIndustrythroughcoordinationandinteractionbetweentheirrepresentativeorganisations

Allsub-sectorsoftheForestIndustry

2years

47

Requirement Undertakings ResponsibilitiesTarget date1

Continuedviabilityofthetimbergrowingindustry

6.20Engagementwithlocalgovernmentstructuresinanattempttoproviderelieffrompropertyrateswherethisnegativelyimpactsonthesustainabilityoftimbergrowing

Government(DWAF)withSALGAandindividualmunicipalities

1year

48

Appendix:ForestryFundingModels

Model 1a: Small Scale emerging growers

Allocationof2.4Haoflandperpersonorfamily2.4Haundevelopedland@R800/Ha:landavailableunderrestitutionortenurereform,orpaidforbyLRADgrant

Livingwagecoveredbyplantingcostsinfirstthreeyears,thereafteradvancedtillrevenuestarts.

Interestisassumedtobesubsidised

PrimeOverdraftRate: 10.50% IDCRate: 5.50%IDCEffective

Rate: 5.64%Calculationsaredoneannually,ratesadjustedtoallowformonthlycompoundingofinterest

Year RevenueLivingWage Interest CumulativeCosts

InterestCostSubsidised

1 0 2,984

2 0 6,600 168

� 0 10,884 614

4 1,000 0 1�,484 761

5 1,000 0 15,812 892

6 1,000 0 17,869 1,008

7 1,000 0 19,97� 1,127

8 1,000 0 22,077 1,245

9 -20,000 1,000 0 4,181 2�6

10 -6,000 1,000 0 �,005 170

11 -6,000 1,000 0 245 14

12 -6,000 �,419 0 0

1� -6,000 �,888 0 0

14 -6,000 �,888 0 0

15 -6,000 �,888 0 0

16 -6,000 �,888 0 0

17 -6,000 �,888 0 0

18 -6,000 �,888 0 0

19 -6,000 �,888 0 0

20 -6,000 �,888 0 0

Totals -86,000 0 117,113 6,234

SUMMARY: 1)Landavailableatnocost 2)2.4Hectresperperson �)Interestcostsubsidised 4)Insuranceat15%value

RESULT: ParticipationshareofR1000perpersonperannumfor11years

ParticipationshareofR�900perpersonperannumthereafter

49

Model 1b: Small Scale emerging growers

Interest not subsidised

Allocationof2.4Haoflandperpersonorfamily2.4Haundevelopedland@R800/Ha:landavailableunderrestitutionortenurereform,orpaidforbyLRADgrantLivingwagecoveredbyplantingcostsinfirstthreeyears,InterestiscalculatedatIDCratesofprimeless5%PrimeOverdraftRate: 10.50% IDCRate: 5.50%

IDCEffectiveRate: 5.64%

Calculationsaredoneannually,ratesadjustedtoallowformonthlycompoundingofinterest

YearCosts

Incurred RevenueLivingWage Interest CumulativeCosts

1 2,984 0 2,984

2 �,616 168 6,768

� 4,284 �82 11,4�4

4 1,600 1,000 645 14,679

5 1,�28 1,000 828 17,8�5

6 1,057 1,000 1,006 20,898

7 1,104 1,000 1,179 24,181

8 1,104 1,000 1,�64 27,649

9 1,104 -20,000 1,000 1,560 11,�1�

10 �,824 -6,000 1,000 6�8 10,775

11 2,240 -6,000 1,000 608 8,62�

12 2,��6 -6,000 1,000 486 6,445

1� 2,112 -6,000 1,000 �64 �,921

14 2,112 -6,000 1,000 221 1,254

15 2,112 -6,000 2,56� 71 0

16 2,112 -6,000 �,888 0 0

17 2,112 -6,000 �,888 0 0

18 2,112 -6,000 �,888 0 0

19 2,112 -6,000 �,888 0 0

20 2,112 -6,000 �,888 0 0

Totals 43,476 -86,000 9,520 168,758

SUMMARY:

1)Landavailableatnocost

2)2.4Hectaresperperson

�)Interestcostincluded

4)Insuranceat1%ofvalue

RESULT: ParticipationshareofR1000perpersonperannumfor14years

ParticipationshareofR�900perpersonperannumthereafter

50

Model 2a: Small Scale emerging growers (Sawlogs) Interest subsidised Calculationisbasedon2.4Haplantedinfullinyear0Assumelandavailableunderrestitutionortenurereform,orpaidforbyLRADgrantFundingiscalculatedatIDCratesofprimeless5%PrimeOverdraftRate: 10.50% IDCRate: 5.50%

IDCEffectiveRate: 5.64%Calculationsaredoneannually,ratesadjustedtoallowformonthlycompoundingofinterest

YearCosts

Incurred Drawings Revenue InterestCumulative

CostsInsuranceValue/Ha

InsuranceValue

CostvsInsur.Value

1 10,478 0 0 10,478 4,�97 10,55� 75

2 �,�62 0 0 1�,840 6,718 16,12� 2,28�

� �,4�7 0 0 17,277 8,806 21,1�4 �,857

4 2,558 2,000 0 21,8�5 11,090 26,616 4,781

5 2,650 2,000 0 26,485 1�,621 �2,690 6,205

6 2,74� 4,000 0 ��,228 16,168 �8,80� 5,575

7 2,854 4,000 0 40,082 19,250 46,200 6,118

8 2,966 6,000 0 49,048 22,�71 5�,690 4,642

9 �,089 8,000 0 60,1�7 25,811 61,946 1,809

10 �,226 8,000 -9,648 0 61,715 29,60� 71,047 9,��2

11 �,242 8,000 0 72,957 �0,055 72,1�2 -825

12 �,40� 8,000 0 84,�60 �4,5�7 82,889 -1,471

1� �,571 8,000 0 95,9�1 �9,220 94,128 -1,803

14 �,758 8,000 -19,536 0 88,15� 44,�82 106,517 18,�64

15 �,799 8,000 0 99,952 45,566 109,�58 9,406

16 4,010 8,000 0 111,962 51,�76 12�,�02 11,�40

17 4,241 8,000 0 124,20� 57,780 1�8,672 14,469

18 4,495 8,000 -34,848 0 101,850 64,8�9 155,614 5�,764

19 4,490 8,000 0 114,�40 64,7�2 155,�57 41,017

20 4,771 8,000 0 127,111 72,500 174,000 46,889

21 5,078 8,000 0 140,189 81,06� 194,551 54,�62

22 5,419 8,000 0 15�,608 90,500 217,200 6�,592

2� 5,791 8,000 0 167,�99 100,882 242,117 74,718

24 6,202 8,000 0 181,601 112,285 269,484 87,88�

Totals 106,29� 154,000 -358,032 0

SUMMARY: 1)Landavailableatnocost 2)2.4Hectaresperperson �)Interestcostsubsidised 4)Insuranceat1.5%ofvalue

NoParticipationshareinfirstthreeyears PhasedparticipationsharefromR2000toR6000p.a.inyear8 ParticipationshareofR8000p.a.thereaftertillharvestinginyear25

FinalsurpluspaymentofR977�9inyear25

51

Model 2b: Small Scale emerging growers (Sawlogs) Interest not subsidised Calculationisbasedon2.4Haplantedinfullinyear0Assumelandavailableunderrestitutionortenurereform,orpaidforbyLRADgrantFundingiscalculatedatIDCratesofprimeless5%PrimeOverdraftRate: 10.50% IDCRate: 5.50%

IDCEffectiveRate: 5.64%Calculationsaredoneannually,ratesadjustedtoallowformonthlycompoundingofinterest

YearCosts

Incurred Drawings Revenue InterestCumulative

CostsInsuranceValue/Ha

InsuranceValue

CostvsInsur.Value

1 10,478 0 10,478 4,�97 10,55� 75

2 �,�62 591 14,4�1 6,718 16,12� 1,692

� �,4�7 814 18,682 8,806 21,1�4 2,452

4 2,558 1,000 1,054 2�,294 11,090 26,616 �,�22

5 2,650 1,000 1,�14 28,258 1�,621 �2,690 4,4�2

6 2,74� 2,000 1,594 �4,595 16,168 �8,80� 4,208

7 2,854 �,500 1,951 42,900 19,250 46,200 �,�00

8 2,966 �,500 2,420 51,786 22,�71 5�,690 1,904

9 �,089 �,500 2,921 61,296 25,811 61,946 650

10 �,226 �,500 -9,648 �,458 61,8�2 29,60� 71,047 9,215

11 �,242 �,500 �,488 72,062 �0,055 72,1�2 70

12 �,40� �,500 4,065 8�,0�0 �4,5�7 82,889 -141

1� �,571 �,500 4,684 94,785 �9,220 94,128 -657

14 �,758 �,500 -19,536 5,�47 87,854 44,�82 106,517 18,66�

15 �,799 �,500 4,956 100,109 45,566 109,�58 9,249

16 4,010 �,500 5,647 11�,266 51,�76 12�,�02 10,0�6

17 4,241 �,500 6,�89 127,�96 57,780 1�8,672 11,276

18 4,495 �,500 -34,848 7,186 107,729 64,8�9 155,614 47,885

19 4,490 �,500 6,077 121,796 64,7�2 155,�57 ��,561

20 4,771 �,500 6,870 1�6,9�7 72,500 174,000 �7,06�

21 5,078 �,500 7,724 15�,2�9 81,06� 194,551 41,�12

22 5,419 �,500 8,644 170,802 90,500 217,200 46,�98

2� 5,791 �,500 9,6�5 189,728 100,882 242,117 52,�89

24 6,202 �,500 10,702 210,1�2 112,285 269,484 59,�52

25 6,660 �,500 -294,000 11,85� -61,855 125,000 �00,000 �61,855

Totals 106,293 70,500 -358,032 119,384

SUMMARY: 1)Landavailableatnocost 2)2.4Hectaresperperson�)Interestcostincluded 4)Insuranceat1.5%ofvalue

RESULT: NoParticipationshareinfirstthreeyears PhasedparticipationsharefromR1000toR2000p.a.inyear6

ParticipationshareofR�500p.a.thereaftertillharvestinginyear25

FinalsurpluspaymentofR61855inyear25

52

Model 3a: New Commercial growers

Interests subsidised

SingleFamilyAllocation:LRADGrantfunding2xR�000050Haundevelopedland@R800/HaAssume 40Ha suitable for forestryFundingiscalculatedatIDCratesofprimeless5%PrimeOverdraftRate: 10.50% IDCRate: 5.50%

IDCEffectiveRate: 5.64%

Calculationsaredoneannually,ratesadjustedtoallowformonthlycompoundingofinterest

YearCosts

Incurred RevenueLivingWage Interest

CumulativeCosts

InterestCostSubsidised

1 51,465 0 51,465

2 62,9�1 0 114,�96 2,90�

� 74,402 0 188,798 6,45�

4 29,067 �,000 0 220,865 10,650

5 2�,7�4 �,000 0 247,599 12,459

6 18,400 �,000 0 268,999 1�,967

7 18,400 �,000 0 290,�99 15,174

8 18,400 �,000 0 �11,799 16,�81

9 18,400 -333,325 �,126 0 0 17,588

10 6�,7�2 -100,000 �6,268 0 0

11 �7,��� -100,000 62,667 0 0

12 �8,9�� -100,000 61,067 0 0

1� �5,200 -100,000 64,800 0 0

14 �5,200 -100,000 64,800 0 0

15 �5,200 -100,000 64,800 0 0

16 �5,200 -100,000 64,800 0 0

17 �5,200 -100,000 64,800 0 0

18 �5,200 -100,000 64,800 0 0

19 �5,200 -100,000 64,800 0 0

20 �5,200 -100,000 64,800 0 0

Totals 736,797 -1,433,325 0 95,573

SUMMARY: 1) LandavailableforpovertyalleviationorpaidforbyLRADgrant2) 40Hectarespertwo-personfamily �) Interestcostsubsidised 4) Insuranceat1%ofvalue

RESULT: Wagescoveredbyplantingcostsinfirstthreeyears

ParticipationshareofR3000perannumuptobreak-eveninyear9 ParticipationshareofR64800perannumthereafter

5�

Model 3b: New Commercial growers

Interests not subsidised

SingleFamilyAllocation:LRADGrantfunding2xR�000050Haundevelopedland@R800/HaAssume 40Ha suitable for forestryFundingiscalculatedatIDCratesofprimeless5%PrimeOverdraftRate: 10.50% IDCRate: 5.50%

IDCEffectiveRate:

5.64%

Calculationsaredoneannually,ratesadjustedtoallowformonthlycompoundingofinterest

Year CostsIncurred RevenueLivingWage Interest

CumulativeCosts

1 51,465 0 51,465

2 62,9�1 2,90� 117,299

� 74,402 6,617 198,�18

4 29,067 �,000 11,187 241,572

5 2�,7�4 �,000 1�,627 281,9��

6 18,400 �,000 15,90� �19,2�6

7 18,400 �,000 18,007 �58,64�

8 18,400 �,000 20,2�0 400,27�

9 18,400 -333,325 �,000 22,579 110,927

10 6�,7�2 -100,000 �,000 6,257 8�,916

11 �7,��� -100,000 �,000 4,7�4 28,98�

12 �8,9�� -100,000 �0,449 1,6�5 0

1� �5,200 -100,000 64,800 0 0

14 �5,200 -100,000 64,800 0 0

15 �5,200 -100,000 64,800 0 0

16 �5,200 -100,000 64,800 0 0

17 �5,200 -100,000 64,800 0 0

18 �5,200 -100,000 64,800 0 0

19 �5,200 -100,000 64,800 0 0

20 �5,200 -100,000 64,800 0 0

Totals 736,797 -1,433,325 123,679

SUMMARY:

1) LandavailableforpovertyalleviationorpaidforbyLRADgrant2) 40Hectarespertwo-personfamily�) Interestcostincluded4) Insuranceat1%ofvalue

RESULT:

Wagescoveredbyplantingcostsinfirstthreeyears

ParticipationshareofR3000perannumuptobreak-eveninyear12

54

ParticipationshareofR64800perannumthereafter

Model 4a: 25% BEE equity transfer of exist. plantations Interests subsidised & no land acquisition grant AverageMediumGrowerFarm:240Haundertimberinrotation25FarmWorkersAllocation:AssumenoLRADGrantfundingPurchase of 25% share (60Ha) at R12 500/HaFundingiscalculatedatIDCratesofprimeless5%PrimeOverdraftRate: 10.50% IDCRate: 5.50%

IDCEffectiveRate: 5.64%

Calculationsaredoneannually,ratesadjustedtoallowformonthlycompoundingofinterest

YearCosts

Incurred RevenueParticipation

Share Interest CumulativeCostsInterestCostSubsidised

0 750,000 0 750,000

1 48,000 -150,000 25,000 0 67�,000 42,�06

2 50,400 -150,000 25,000 0 598,400 �7,962

� 52,800 -150,000 25,000 0 526,200 ��,754

4 52,800 -150,000 25,000 0 454,000 29,682

5 52,800 -150,000 25,000 0 �81,800 25,609

6 52,800 -150,000 25,000 0 �09,600 21,5�7

7 52,800 -150,000 25,000 0 2�7,400 17,464

8 52,800 -150,000 25,000 0 165,200 1�,�91

9 52,800 -150,000 25,000 0 9�,000 9,�19

10 52,800 -150,000 25,000 0 20,800 5,246

11 52,800 -150,000 76,400 0 0 1,17�

12 52,800 -150,000 97,200 0 0 0

1� 52,800 -150,000 97,200 0 0 0

14 52,800 -150,000 97,200 0 0 0

15 52,800 -150,000 97,200 0 0 0

16 52,800 -150,000 97,200 0 0 0

17 52,800 -150,000 97,200 0 0 0

18 52,800 -150,000 97,200 0 0 0

19 52,800 -150,000 97,200 0 0 0

20 52,800 -150,000 97,200 0 0 0Totals 1,048,800 -3,000,000 0 237,443

SUMMARY:

1) BorrowR750000

2) ParticipationShare:R1000perpersonp.a.untilbreak-even

�) Interestcostsubsidised

4) Insuranceat1%ofvalue

RESULT:

Break-evenafter11years

55

SurplusR97200p.a.thereafter(R�888perpersonp.a.)

Model 4b: 25% BEE equity transfer of exist. plantations Interests not subsidised & no land acquisition grant AverageMediumGrowerFarm:240Haundertimberinrotation25FarmWorkersAllocation:AssumenoLRADGrantfundingPurchase of 25% share (60Ha) at R12 500/HaFundingiscalculatedatIDCratesofprimeless5%PrimeOverdraftRate: 10.50% IDCRate: 5.50%

IDCEffectiveRate: 5.64%

Calculationsaredoneannually,ratesadjustedtoallowformonthlycompoundingofinterest

YearCosts

Incurred RevenueParticipation

Share InterestCumulative

Costs

0 750,000 0 750,000

1 48,000 -150,000 25,000 42,�06 715,�06

2 50,400 -150,000 25,000 40,�49 681,055

� 52,800 -150,000 25,000 �8,417 647,272

4 52,800 -150,000 25,000 �6,511 611,58�

5 52,800 -150,000 25,000 �4,498 57�,881

6 52,800 -150,000 25,000 �2,�71 5�4,052

7 52,800 -150,000 25,000 �0,125 491,977

8 52,800 -150,000 25,000 27,751 447,528

9 52,800 -150,000 25,000 25,244 400,572

10 52,800 -150,000 25,000 22,595 �50,967

11 52,800 -150,000 25,000 19,797 298,564

12 52,800 -150,000 25,000 16,841 24�,205

1� 52,800 -150,000 25,000 1�,719 184,724

14 52,800 -150,000 25,000 10,420 122,944

15 52,800 -150,000 25,000 6,9�5 57,679

16 52,800 -150,000 �6,000 �,254 -267

17 52,800 -150,000 97,200 0 -267

18 52,800 -150,000 97,200 0 -267

19 52,800 -150,000 97,200 0 -267

20 52,800 -150,000 97,200 0 -267

Totals 1,048,800 -3,000,000 401,133

SUMMARY: 1)BorrowR750000 2)ParticipationShare:R1000perpersonp.a.untilbreak-even�)Interestcostincluded 4)Insuranceat1%ofvalue

RESULT:

56

Break-evenafter16years SurplusR97200p.a.thereafter(R�888perpersonp.a.)

Model 4c: 25% BEE equity transfer of exist. plantationsInterests at higher IDC rate & no land acquisition grant AverageMediumGrowerFarm:240Haundertimberinrotation25FarmWorkersAllocation:AssumenoLRADGrantfundingPurchase of 25% share (60Ha) at R12 500/HaFundingiscalculatedatIDCratesof2.5%realreturnCurrentInflationRate 4.00% IDCRate: 6.50%

IDCEffectiveRate: 6.70%

Calculationsaredoneannually,ratesadjustedtoallowformonthlycompoundingofinterest

YearCosts

Incurred RevenueParticipation

Share InterestCumulative

Costs

0 750,000 0 750,000

1 48,000 -150,000 25,000 50,229 72�,229

2 50,400 -150,000 25,000 48,4�6 697,065

� 52,800 -150,000 25,000 46,684 671,549

4 52,800 -150,000 25,000 44,975 644,�24

5 52,800 -150,000 25,000 4�,152 615,276

6 52,800 -150,000 25,000 41,206 584,282

7 52,800 -150,000 25,000 �9,1�0 551,212

8 52,800 -150,000 25,000 �6,916 515,928

9 52,800 -150,000 25,000 �4,55� 478,281

10 52,800 -150,000 25,000 �2,0�1 4�8,112

11 52,800 -150,000 25,000 29,�41 �95,25�

12 52,800 -150,000 25,000 26,471 �49,524

1� 52,800 -150,000 25,000 2�,408 �00,7�2

14 52,800 -150,000 25,000 20,141 248,67�

15 52,800 -150,000 25,000 16,654 19�,127

16 52,800 -150,000 25,000 12,9�4 1��,861

17 52,800 -150,000 25,000 8,965 70,626

18 52,800 -150,000 25,000 4,7�0 �,156

19 52,800 -150,000 9�,8�� 211 0

20 52,800 -150,000 97,200 0 0

Totals 1,048,800 -3,000,000 560,167

SUMMARY: 1)BorrowR750000 2)ParticipationShare:R1000perpersonp.a.untilbreak-even�)InterestcostatIDC2.5%real,included 4)Insuranceat1%ofvalue

RESULT:

57

Break-evenafter19years SurplusR97200p.a.thereafter(R�888perpersonp.a.)

Model 4d: 25% BEE equity transfer of existing plantationsInterests at commercial rate & no land acquisition grant AverageMediumGrowerFarm:240Haundertimberinrotation25FarmWorkersAllocation:AssumenoLRADGrantfundingPurchase of 25% share (60Ha) at R12 500/HaFundingiscalculatedatbestcommercialinterestrateavailable

PrimeOverdraftRate: 10.50%BestComm

Rate: 7.75%EffectiveRate: 8.0�%

Calculationsaredoneannually,ratesadjustedtoallowformonthlycompoundingofinterest

YearCosts

Incurred RevenueParticipation

Share InterestCumulative

Costs0 750,000 0 750,0001 48,000 -150,000 25,000 60,2�5 7��,2�52 50,400 -150,000 25,000 58,888 717,52�� 52,800 -150,000 25,000 57,626 702,9494 52,800 -150,000 25,000 56,456 687,2055 52,800 -150,000 25,000 55,191 670,1966 52,800 -150,000 25,000 5�,825 651,8217 52,800 -150,000 25,000 52,�50 6�1,9718 52,800 -150,000 25,000 50,755 610,5269 52,800 -150,000 25,000 49,0�� 587,�59

10 52,800 -150,000 25,000 47,17� 562,��211 52,800 -150,000 25,000 45,16� 5�5,29512 52,800 -150,000 25,000 42,991 506,0861� 52,800 -150,000 25,000 40,645 474,5�114 52,800 -150,000 25,000 �8,111 440,44215 52,800 -150,000 25,000 �5,�7� 40�,61516 52,800 -150,000 25,000 �2,416 �6�,8�117 52,800 -150,000 25,000 29,220 �20,85118 52,800 -150,000 25,000 25,769 274,42019 52,800 -150,000 25,000 22,0�9 224,25920 52,800 -150,000 25,000 18,011 170,07021 52,800 -150,000 25,000 1�,659 111,52922 52,800 -150,000 25,000 8,957 48,2862� 52,800 -150,000 45,0�6 �,878 024 52,800 -150,000 97,200 0 025 52,800 -150,000 97,200 0 026 52,800 -150,000 97,200 0 027 52,800 -150,000 97,200 0 028 52,800 -150,000 97,200 0 029 52,800 -150,000 97,200 0 0

Totals 1,524,000 -4,350,000 897,764

SUMMARY: 1)BorrowR750000 4)Insuranceat1%ofvalue

2)ParticipationShare:R1000perpersonp.a.untilbreak-even

�)InterestcostatbestcommercialratesincludedRESULT:Break-evenafter23years

58

SurplusR97200p.a.thereafter(R�888perpersonp.a.)

(Footnotes)1 Target time period for completion after the signing of the Charter2 DWAF should start process 6 weeks beforehand3 Reference made to “state plantation areas” to distinguish this from “indigenous forests”