Developing the downstream timber industry is a central element of Gabon’s strategy to achieve economic diversification and long-term growth through domestic processing of its natural resources. With 85% of the country under tropical forest cover, the timber sector benefits from an extensive raw materials supply. It is also a major employer, and absorbs more of the workforce than any other sector. The industry has traditionally focused heavily on raw exports with minimal local processing. According to the African Development Bank (AfDB), studies have indicated that in 2010 only about 40% of Gabon’s felled timber was processed locally despite provisions in the 2001 forestry code requiring companies to achieve a 75% target by 2011. To spur the development of the local processing industry and add value to Gabon’s wood exports, in 2010 the government implemented a ban on raw timber exports.
The Ministry of Forestry, Environment and Protection of Natural Resources (Ministère de la Forêt, de l’Environnement, et de la Protection des Ressources Naturelles, MFEPRN) reports that in 2013, turnover in the timber sector reached CFA350bn (€525m) and accounted for 2.3% of GDP. While Gabon increased the amount of its forestland under development by around 30% from 2009 to 2010, bringing it from roughly 10.5m ha to 13.4m ha, the 2010 ban on exports of raw timber initially had a destabilising impact. In 2013 timber exports were valued at €296.3m, well below pre-ban levels, but nonetheless reflecting a three-year gradual increase. The IMF projects that the value of timber exports will grow steadily for at least the next four years, reaching €485.1m by 2017. KPMG forecasts that exports of processed timber will claim a growing share of the country’s total exports, climbing from 3.49% in 2012 to 4.1% in 2014. In November 2013 Société Nationale des Bois du Gabon opened its third factory, which involved a total investment of CFA34bn (€51m) and is equipped to handle all stages of plywood processing, bringing the firm’s production capacity up to 250,000 cu metres of wood annually.
Raw Export Ban
The AfDB reports that at least 33 new timber firms were established following the introduction of the ban, and the MFEPRN’s records show that a total of 129 firms were registered as of July 2014. Lumber sales shot up to more than twice their pre-ban volume, from €123.9m in 2009 to €253.7m in 2012. The AfDB estimates that 3173 new direct jobs were created, bringing the total number of jobs in the sector up from 4000 in 2009 to almost 7000 by the end of 2012. The ban was nonetheless something of a shock to the system, as many forestry companies were not initially prepared for it. “The timing of the raw timber export ban was difficult for the industry, especially for small producers, in part because it coincided with the economic crisis in the West and the resulting reduced market demand for timber products,” said Alice Leroy, project officer at the French Development Agency. “Not all producers decided to incorporate processing into their business; some continued to operate just with raw logs, but suddenly they now had to develop an in-country network of clients to sell their raw product to or to adapt their business considering the new export rules.”
Although the introduction of the ban resulted in losses for many firms, in the long run it is expected to boost sector performance by diversifying operators’ revenue streams to include all stages of the value chain.
While the ban prompted some operators to relocate to less-regulated neighbouring countries, others, notably Sunry Gabon and Hua Jia, opted for vertical integration, restructuring their businesses to incorporate downstream activities. Sunry Gabon, part of China’s COFCO group, holds 950,000 ha of forest concessions and performs in-house processing while harvesting logs for sale to local processors. Europe accounts for 70% of its exports. Another Chinese company, Hua Jia Timber, holds 350,000 ha of harvestable forestland, which it logs and processes primarily for export to the Chinese furniture market via its parent company, Yi Hua Timber. Singapore-based Olam International recently announced plans to divest €13.4m of its Gabonese timber assets via a sale to a consortium of Chinese investors. Expected to be finalised in the fourth quarter of financial year 2014, the deal includes the transfer of two sawmills in the Makokou region, 2.5 ha of land in the Nkok special economic zone (SEZ) as well as related forestry concessions. Other major players in the timber industry include Rougier, Precious Wood and Corà Wood.
To attract foreign direct investment (FDI) in downstream timber processing and facilitate local participation in the nascent industry, the government has offered a variety of fiscal incentives. Chief among these are value-added tax (VAT) reimbursements, sector-specific tax reductions and the establishment of a SEZ in Nkok, where 40% of plots are dedicated to timber processing activities.
Located on the outskirts of Libreville, the Nkok SEZ was established in partnership with Singapore’s Olam International and offers single-window business services, a 10-year tax holiday on operations, exemptions on Customs duties for equipment imports and flexible labour policies. As of mid-2013 the Nkok SEZ counted 62 investors and a total of €1.3bn in FDI.
Many smaller operators, long active in logging, have struggled to achieve vertical integration of their businesses to incorporate processing. “Harvesting the wood is a separate profession from processing it; it’s not easy for the harvester to naturally transform into a processor as well,” Gérard Moussa, delegate-general of the Industrial Forestry and Management Union of Gabon, said.
Obtaining financing is a challenge as well, exacerbated by high interest rates on borrowing, government delays on VAT reimbursements and the difficulty of securing credit. Few Gabonese workers have expertise in processing, and this shortage of skills has also constrained efforts to industrialise. The Graduate School of Forestry Professions was launched in 2012 to train engineers in all stages of timber processing and is expected to open its doors to students in 2014.
Relatively higher costs of production make Gabonese wood less competitive within the sub-region than that of its Congo Basin neighbours, with whom Gabon shares access to largely the same tropical forest. According to Moussa, “In Cameroon and Congo, production costs are lower due to the much lower costs of labour and port services, and better developed road, rail and port infrastructure. Additionally, the timber processing industries in these countries are buoyed in part by receipts from raw exports, which have not been banned outright.” Europe is the biggest market for Gabonese wood exports, with 42% of sales in 2012, according to the AfDB, with Asia a close second at 36%, and Africa and the Americas combined accounting for just 22%.
The government has implemented the Forest Stewardship Council label, an international standard that guarantees sustainable forest management practices. The move is well timed considering a new EU law, effective March 2013, which requires traceability and point-of-origin-legality standards for all tropical timber imports. Gabon is also negotiating a voluntary partnership agreement with the EU to ensure that its timber trade complies with the EU’s Forest Law Enforcement, Governance and Trade standards.
In a further boon to Gabonese timber producers, the EU announced that as of July 2014, it would no longer charge Customs duties on imports of Okoumé plywood originating in Gabon. Previously, Gabon had been ineligible for Customs exemptions commonly extended to many developing countries, due to its categorisation by the World Bank as an upper-middle-income country. The move will boost revenues and spur investment in the downstream timber sector, of which Okoumé plywood is a major export. Gabon’s timber industry has a significant market advantage in terms of its sustainability certification, due to the fact that its forest land has been relatively well-managed and ecological sustainability has been prioritised much more than in other Congo Basin countries. The ongoing re-orientation towards sustainably sourced, value-added exports affords the possibility for Gabon to become a leading regional player in downstream timber processing.