- Category: Business Review
Suteny Mwafongo is a single mother of four living in Mzuzu. She lives off timber business and has no any other hope in life apart from Viphya Plantations.
Rachel Kaira also gets her bread and butter and money to send her six children to school from the proceeds of timber sales.
Commonly known as Chikangawa Forest and established around 1940s, the plantations were meant for pulp and rubber production, but this dream fell by the way side and timber production took over.
Since then, Chikangawa is now a cash cow for thousands of people surviving on timber, translating into millions of households benefiting, but Malawi as a country, still argues that it has not benefited much from one of the largest manmade forests globally.
Kaira hopes Chikangawa should be protected so that she continues earning money from the forest.
â€œI send my children to school using timber money and I have no any other source,â€ she says.
Deal gone soar
While 20 000 hectares of the 53 000 of this forestry is now under the concessionary arrangement with Raiply, a company that replaced State-run Viphya Plywood and Allied Industries (Viply), through privatisation, 33 000 hectares is still in the hands of government to avail to Malawians who can harvest it.
It is this 33 000 hectares that has long suffered uncoordinated harvesting, leading to the depletion of timber trees. Most of it is exported by foreigners who neither remit taxes to the Malawi Government nor bring foreign exchange into its coffers.
â€œWhat has been happening is that Somalis, Kenyans and Tanzanians would come by the road side to buy timber and take truck loads outside Malawi without following normal channels that would have helped government to benefit from the forest,â€ says Tionge Mtegha of Viphya Cooperative.
â€œThese people have been stealing from us. They come here and buy timber at K600 [$2] a piece for resale in their countries at K4 000 [over $9] a piece,â€ narrates Mwafongo of Chibwaka Cooperative.
Both Mwafongo and Mtegha agree on one thing: Time has come to protect Chikangawa and help Malawi benefit from the forest.
Mtegha is now one of the three directors of a new company, Starling Timbers, which has eight cooperatives in its membership and Mwafongo is one of over 300 saw millers, members of the Timber Millers Cooperative Union.
Eyeing timber exports
These new kids on the timber market are one and have a mission â€“ to lead timber to a third position on Malawi exports.
â€œThe difference is that the union buys our timber at K1 000 [$3] unlike the K600  we have been getting from foreign traders,â€ argues Mwafongo.
Listening to Mteghaâ€”one of Malawian traders who have been selling timber to Samalis in the pastâ€”you get a story as winding as the road through the Chikangawa Forest itself.
It has been a long journey for Mtegha, now Sterling director of marketing and sales and his two colleagues are operations director Paul Makolosi and Wilfred Tsaka, finance director.
The project was born out of negotiations with the Timber Millers Union and several government ministriesâ€”Finance, Trade and Industry, Energy and Natural Resources.
The negotiations were about the reduction of the 100 percent export duty and theK10 000 [about $33] /cubic metre tariff government imposed on the timber industry.
â€œThis situation was unsustainable [using] the current business model of selling raw unprocessed timber,â€ says Mtegha.
From there, the journey commenced, taking them to the Export Development Fund (EDF), Malawi Savings Bank, among other financial institutions.
The idea was to sell a plan that would make Chikangawa timber a sustainable business for the mutual benefit of both the Malawi Government and traders milling in the forest.
â€œThe union prepared an export driven business plan that was vetted and approved by the EDF and the EDF lobbied and presented the business to the commercial banks for funding. The funding was approved and certain formalities took place prior to the launch of project launch,â€ reads a brief history about the formation of Sterling.
Adding value to timber
The project seems to have excited the financial world such that EDF chief executive officer Rodrick Wiyo sees it as the only way out â€œif Malawi really wants to diversify its exports.â€
â€œThere is export potential which was just lying idle somewhere. This has been exploited by foreigners, yet Malawi talks of diversifying its export base,â€ he said in an interview on Tuesday.
What impressed EDF more in the Sterling Timber project plan was the potential to add value to the Malawi timberâ€”a long time dream of the Malawi Government.
â€œWhatâ€™s more important is that these people have the potential to add value to the timber before exporting it. In the past, logs were being cut for sell to Samalis, which did not bring any forex to Malawi,â€ notes Wiyo.
That is why EDF is by guaranteeing a business that has just taken off the ground and convinced Malawi Savings Bank (MSB) to pump in K445 million in working capital.
MSB has all hope that Sterling Timbers and its business model, will bring Malawi some forex.
MSB chief executive officer Ian Bonongwe did not hide this in an email interview on Tuesday.
â€œWe found the business model articulated by Sterling Timbers to be appealing and would work if management can be given a chance to drive to the project,â€ he said.
Added Bonongwe: â€œInformation has reached us to the effect that some interest groups have the perception that government put money upfront from which Sterling Timbers have accessed. This is incorrect.â€
The EDF is also guaranteeing 70 percent of up to K2 billion in letters of credit that would enable Sterling to secure financing not only from MSB, but also from the Africa Finance Cooperation and the Africa Export and Import Bank.
â€œThis will help us to secure new machines. We hope to bring at least K77 million by the end of October,â€ said Mtegha.
While most Malawians who exported timber ended up selling it to vendors in the streets of Mozambique, Botswana and South Africa, Sterling wants to change all this.
â€œWe have the potential to at least bring $100 million (about K30 billion) by 2014 which will bring us to third position after tobacco and [uranium],â€ Mtegha added.
Already, a recent trip to Mozambique and Botswana has brought a contract to export 18 trucks by the end of October.
Each truck will bring in about K4 million.
Five companies â€“ PG Timbers and Construa of Mozambique; and Jama Trading, Nata Timber and Easy Bold of Botswanaâ€“have asked for test orders.
â€œWe envisage about $4.8 million dollars (K1.4 billion) in annual profits when we go full scale,â€ he says.
Currently, Sterling is using old machines rented from Forestry Services of South Africa, but they want to buy new plant not only for timber, but also for making briquettes.
â€œThis will curb environmental degradation because people will no longer go for charcoal. [Briquettes] are environmentally friendly,â€ says Mtegha.
The briquettes also have a market internationally, and Sterling hopes to exploit that opportunity.
Gotani wa Gotani, a Mzuzu-based businessperson, has been in timber business for long.
â€œI have just heard about Sterling, I may join later, but for now I think we need to wait and see. The problem is that timber business is not easy to find real markets out there. Most people just sell to vendors out there,â€ he said in an interview.
But he accepts Chikangawa has the potential.
Sterling buys timber from cooperative members, processes and exports it and other wood products.
But the going is not just as smooth. As Business Review interviewed Mtegha at his office deep in the forest at their factory in Lusangazi, Mzuzu, he was being continuously interrupted, answering calls from the forest.
The 10 000 hectares land concessioned to Sterling has been heavily encroached.
On Monday, one of the Sterling security persons was almost manhandled by a group of small-scale saw millers who see Sterling business as stumbling block.
A study funded by Osisa in February this year found that most women staying around Chikangawa have not benefited much from the forest.
Only three out of 450 women interviewed said timber sawing industry as their source of income.
â€œThis shows lack of active participation of women around Chikangawa in the timber sawing industry,â€ reads a research report by the Women Forum of Northern Region.
As part of their social responsibility, Sterling wants to connect this group so that they derive more benefits from the forest.
They will, among other things, help the villagers to embark on bee-keeping and create more job opportunities for women, youth and men.
Sterling will also bring clean water to the surrounding villages, build school blocks, clinics and improve road networks when business picks up.
They will also replant the forest to avoid cutting the timber business story short.
Sterling also hopes to maximise production of kiln dried timber, pellets, briquettes, plywood and boards.
â€œThese products have potential on the international market,â€ says EDFâ€™s Wiyo.
Currently, Sterling produces kiln dried timber for markets in Botswana and Mozambique.