Is all well in the teak forests of South Sudan? – By Aly Verjee

Teak forest, South Sudan.

Think of tropical hard wood – ebony, mahogany, teak – and you probably don’t think of South Sudan.  One of the country’s lesser-known natural resource superlatives is its relative abundance of forests.  Government figures suggest that there are almost 200,000km2 of forested lands in South Sudan, covering 29 per cent of the country’s total land area.  Most of this is less valuable soft wood – hard woods are a relatively small part of the forests.  But they are a valuable component.  A 2007 assessment by the United Nations Environment Programme (UNEP) concluded “existing teak plantations alone could potentially generate up to USD 50 million per year in export revenue.”  The same government website exclaims “the teak plantation [in South Sudan] is the largest of its kind in the world.”

Natural teak forests occur in only four countries: India, Laos, Myanmar and Thailand.  Logging is heavily restricted in all but Myanmar, the leading supplier of teak worldwide.  Indonesia is also a major producer, from plantation stock.  But a planned export ban on unfinished teak logs from Myanmar from April 2014 will likely push up world prices, and intensify the search for alternative suppliers.

Enter South Sudan, and renewed interest in its teak resources.  Teak is not indigenous to Africa.  Seedlings were planted in the colonial era across the continent, from Benin and Nigeria to Tanzania and South Sudan.   Forestry expert Abdalla Gafaar dates the first plantation in South Sudan to 1919, at Kagelu, Central Equatoria.  Planting activity intensified in the 1940s, across the Equatorias and Bahr el Ghazal.  In 2004, thirteen teak plantations were found and mapped by satellite, and in 2007, a further five plantations, covering a total of 7,680 hectares (76.8 km2), were found with different satellite technology.  Most of the mature trees standing today are between 35 and 50 years old.

Timber in the wars: ‘blood’ teak

Teak has played a role in South Sudan’s various conflicts.  In a 2007 Small Arms Survey report, Mareike Schomerus documented “the [Uganda People’s Defence Force] cuts down teak trees to take them into Uganda,” during its operations to fight the Lord’s Resistance Army in Southern Sudan.  Writing in the Norwegian People’s Aid (NPA) 2011 report on land deals in South Sudan, David Deng quotes a Southern Sudanese parliamentarian who asserts the Sudan Peoples’ Liberation Movement/Army (SPLM/A) used timber to finance its military activities against Khartoum: “For the North, there was blood petroleum—GoS [Government of Sudan] was drilling in the South to purchase weapons from Korea, China, Iraq and the Soviet Union.  For us [in the SPLM/A], there was blood teak.”

Regardless of who was responsible for the damage to the forests, Abdalla Gafaar, writing for the African Forest Forum, concludes “the plantations in Central Equatoria are currently in a degraded state with most of the best quality teak logs removed by concessionaires. Most of the plantations in Bahr el Ghazal are in a similar condition.  The best option for those degraded plantations is to clearfell and regenerate. The plantations in Western Equatoria are generally fully stocked but due to lack of thinning they are slow growing and relatively small in size, but they are of good quality due to the slow growth rate.”

Initial investors: CDC/Actis and Maris Capital

Like most sectors of the South Sudanese economy, the forestry industry is not well developed.  In 2006, the Equatoria Teak Company Limited (ETC) obtained a 32-year, renewable concession for five land blocks near Nzara, Western Equatoria, on a total area of 18,640 hectares (186.4 km2), of which 1,319 hectares are teak, and 170 hectares are cassia.  The concession was granted by the Ministry of Agriculture and Forestry of the Government of Southern Sudan and approved by the Council of Ministers, but appears to have been non-competitively awarded.

In 2010, majority ownership of ETC passed from CDC/Actis Capital (itself formerly owned by the British government and controlled by the Department for International Development) and the Finnish Fund for Industrial Cooperation (Finnfund) to private investment firm Maris Capital.  As the Oakland Institute documents in its 2011 report on land deals in South Sudan, CDC/Actis found its investment commercially unviable, and looked to sell.  Maris, by contrast, argues that its hub of investments in South Sudan, and improved security conditions in Western Equatoria, makes ETC a much better business proposition.

From CDC/Actis, Maris also bought the separate Central Equatoria Teak Company (CETC), with concessions in Lainya and Yei River counties of Central Equatoria.   Maris has a number of other business interests in South Sudan, including the high-end Acacia Village residential compound on the outskirts of Juba.  Acacia’s residents are more discerning than most: the establishment has historically been home to several foreign ambassadors without suitable residence elsewhere in town.

I interviewed Coco Ferguson, a director of Maris Capital, for this article.   (Ferguson subsequently invited me to visit ETC in Nzara to see the operations first hand.)  By Ferguson’s own admission, ETC had limited activity in recent years, due to political uncertainties in South Sudan before and after the referendum.  But in January 2013, via Bloomberg News, ETC announced that it was ready to start teak exports, beginning with a container load destined for the United States.  ETC estimated that the processed timber would sell for $750-$1500/m3.   A 2011 NPA report provides figures for the royalties due to South Sudan on exports: $110/m3 for ETC and $155/m3 for CETC, plus lump-sum cash payments termed “social contributions.”

Ferguson stated that ETC paid no royalties to the government in 2012, as there were no exports in that year.  Of the $100,000 lump sum social contribution outlined in ETC’s concession agreement, $71,000 was allocated to Nzara Secondary School.   Ferguson said the remainder is under the control of the Nzara Social Fund Committee, chaired by Nzara’s parliamentary representative in the National Assembly, Bernardo Kpasira, and should be allocated soon.  $5/m3 will be contributed to the local social fund on any exports made in 2013.  ETC employs about 150 workers in the Nzara area, and projects that will rise to 200 by the second quarter of this year.  (In 2009, ETC employed 246 staff.)

ETC’s Forest Stewardship Council (FSC) certification: environmental ethics or premium prices?

One particular statement in the January 2013 Bloomberg article drew my attention.  ETC claimed to be the first teak company in Africa to obtain certification from the Forest Stewardship Council (FSC), the industry leading certification body for ethically and sustainably harvested timber and related products.  FSC certification is highly valued by forestry companies, and generates higher prices for compliant products.  The claim to be FSC certified was repeated on ETC’s website:

All of ETC’s teak products are certified by the Forest Stewardship Council (FSC). The FSC is an international NGO dedicated to promoting responsible management of the world’s forests. A final audit for FSC certification of the ETC plantation was carried out by SGS Qualifor in August 2009 and full FSC certification was received in December 2009.” ETC website, January 2013.

The FSC, founded in 1994, maintains a database of all registered certificate holders.  ETC obtained certification in 2009, following an evaluation by accreditation company SGS Qualifor.  But, as of 2013, neither ETC nor Maris was in the database.  (CETC has not submitted an application for FSC certification.)  The FSC secretariat confirmed in February 2013 that “certificate SGS-FM/COC-007104 for Equatoria Teak Company Limited has been terminated… We are investigating the claim the company is still making on the website, as well as the recent article on Bloomberg; and we will be in touch with SGS, Equatoria and/or Maris Capital regarding this.”

In fact, ETC lost its certification in January 2011, years before the interview with Bloomberg.  The FSC was able to supply a letter (extract below) from SGS Qualifor, the company that originally performed the certifying audit, informing ETC of the withdrawal of its certification, and consequently a restriction on the use of the FSC trademark and name.

Speaking for ETC, Ferguson stated that the company only became aware of the loss of FSC certification in November 2012, and hadn’t seen the letter from SGS.  ETC believed its certification would continue until 2014, as originally stated in the SGS issued certificate.  SGS did not reply to written enquiries asking whether its January 2011 letter was signed by ETC and returned, as the letter requests.

Extract from letter sent from SGS Qualifor to ETC, January 2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inquiries to Maris and ETC in February 2013 resulted in a swift modification of the text on the ETC website.  On February 7, ETC updated its website to read, in part: “ETC’s teak products have previously been certified by the Forest Stewardship Council (FSC)...ETC is currently re-seeking FSC certification and aim to conclude the process in 2013…The FSC certification recently lapsed due to inactivity but ETC plans to reapply for certification.”  Later in the month, the FSC tab on the website was removed, and the text was nuanced further.

 

ETC website, February 2013.

Maris argues that retaining the FSC claim in ETC publicity was merely an oversight, and the loss of certification occurred not because of a change to the fundamental dynamics of company operation, but only because an annual compliance audit had not been conducted by SGS.  Ferguson told me “given that the management, environmental and forestry procedures remain in place, I hope it is a simple certification process – we are sticking to the same Forest Management Plan.”

Ferguson further explained that the logs due to be exported in the first container had not been cut recently, and had in fact been harvested when FSC certification was still in force.  Though the company has been certified for less time (December 2009 – January 2011) than it has been uncertified (prior to December 2009, and January 2011 – present), the Bloomberg article makes clear that holding FSC certification was a major selling point for the company.

Ferguson confirmed that Maris shareholders expected ETC to maintain FSC certification, and benefit from the resulting product price premium.  She was unable to put a monetary value on the FSC premium ETC hoped to obtain, and the subsequent loss, given that current exports cannot be marketed as FSC-compliant.

But losing FSC certification would not necessarily stop exports, Ferguson said.  The loss of the FSC premium was an annoyance, but business would continue.

Re-certification and the EU Timber Regulation

Was ETC’s loss of FSC certification only a procedural technicality?  While Christian Potgieter, forestry operations manager of SGS’s South African subsidiary, did confirm that ETC’s certification was withdrawn due to an interruption of operations, with the consequence that no annual audit was conducted, Maris/ETC statements to Bloomberg do appear to be misleading.

And speedy re-certification is not guaranteed.  Potgieter of SGS wrote in mid-February: “There are no shortcuts with certification and as we are concerned about certain aspects of certification in Southern Sudan such as legality, we cannot accept the information on the previous report on face value and have scheduled a Pre-assessment to determine GAPS [sic] in their management system, High Conservation Values and legality before commencing with a Main Assessment.”

Ferguson appears to accept this possibility: “FSC was achieved before under Sudan law – post independence it will be under South Sudan law and they [SGS] are scrutinising the new Forestry Law to this end.”

The FSC is not the only regulatory regime forestry companies must now consider.  Indeed, there are strong critics of the FSC, and those that suggest that voluntary mechanisms led by the industry itself are insufficiently robust.  New EU timber import regulations (the EUTR, Regulation 995/2010), came into force on March 3.

David Young, team leader for forestry sector transparency at Global Witness, an NGO specializing in natural resource and accountability issues, observes that “[some] timber that might previously have passed the FSC test as ‘legal’ will not pass the Timber Regulation (EUTR) test.”

Young further explains: “The EUTR provides a stronger control in that it requires a level of risk assessment (by importers) that is appropriate to the risk that timber may be from an illegal source. Almost all timber from tropical forests where broad governance indicators (such as the Corruption Perception Index) are low would fall into a ‘high risk’ category and therefore the importers would be expected to look at the way by which the exporter obtained the original logging permit.  Second, the EUTR has legal sanctions. Certifications schemes do not; if someone breaks the rules of certification, not much happens…”

Young took pains to indicate that he was speaking generally, and not in relation to ETC or the industry in South Sudan, where Global Witness has not investigated or researched the timber industry.  Ferguson of Maris Capital didn’t seem particularly concerned by the introduction of the EUTR, stating that “any exports to the EU will need FLEGT [Forest Law Enforcement, Governance and Trade Action Plan of the European Union, the overall system in which the EUTR is a part] and CITES [Convention on International Trade in Endangered Species of Wild Fauna and Flora] certification – the main onus is on buyers to know exactly where the timber is from – which means there’s considerable overlap with FSC.  Limited uncertified imports is good for the likes of us…”

Who benefits, and is this the best value for South Sudan?

Outside of the sustainability regulations, questions remain about the process that led to the land deals originally secured by ETC and CETC, the make-up of the ownership group, and the generosity of the terms of the concession arrangements.  Maris was unwilling to divulge details of minority owners, citing shareholder confidentiality.  The Oakland Institute’s 2011 report provides an ownership chart dating from the CDC/Actis period – Actis and Finnfund together controlled holding company Afriforest Investments, which in turn held a 63 per cent stake in ETC, which then passed to Maris; “Ugandan and Sudanese equity” held the remaining 37 per cent.

In his report for NPA, David Deng cites “officials in the state level ministries of agriculture and forestry have expressed dissatisfaction with these terms, complaining that the amount being paid for the [ETC] concession is insufficient compared to the price that Sudanese teak earns on international markets.”  Over a concession that will last for several decades, the lump sum offered by the company’s social contribution seems modest at best.

Still, outside of the activities of ETC, CETC, and a number of other small companies, most production of timber in South Sudan has been haphazard, small-scale and unauthorised.  Ferguson rightly observes “the scandal of naturally grown chainsaw cut timber with a 10 per cent recovery rate being used for most construction in Juba.”  The imminent threat to the forests of Equatoria comes from two directions: Juba’s ongoing construction boom, and South Sudan’s continuing revenue crisis, as wrangling with Sudan over resuming oil production drags on.  Akim Mugisa wrote in 2011 that “the teak forests of South Sudan take centre stage in the fledgling nation’s efforts to build up revenues other than oil,” but the figures to date suggest this assessment is still too optimistic.

When I first visited Yei and Lainya in 2006, I do remember local discussion (and pride) in the enormous trees that could be found nearby: I’m not sure most South Sudanese then had an accurate sense of the forest’s commercial value.

More recently, the CETC concession, has in particular suffered from illegal logging, which has contributed nothing to government revenues and has provided at best uncertain employment for the local population.  Having responsible and transparent forestry companies would appear to be the best option for the development of the sector: the challenge will be for companies like ETC and CETC, and their owners, to prove that they are.

Aly Verjee is senior researcher at the Rift Valley Institute.

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