BERF Mozambique Forestry Sector Business Environment Diagnostic February 2017

Mozambique’s forestry sector is not meeting its potential to contribute to economic growth and rural incomes. Harvesting is not being sustainably managed and value addition to forest products is low. BERF  examined the business environment constraints facing Mozambique’s forestry sector, including forest sector governance and the legal, regulatory and institutional conditions that govern business activities in log harvesting and downstream wood processing. The work sought to identify sector-specific Business Environment constraints faced by enterprises in the forestry sector in Mozambique, and make recommendations to the Government of Mozambique, DFID and the World Bank for possible forestry sector-specific Business Environment Reform interventions to mitigate binding constraints, promote inclusive growth and sustainable management of forest resources.

Constraints on natural timber harvesting, transport and export:

1) Forest inventory and allowable annual cut

Mozambique does not have an accurate, nation-wide inventory of its commercial timber stock. There is an overestimate of available stock and an excessively high allowable annual cut. As high as 60%, of the annual harvest is unlicensed. Accurate data is essential for the planning, monitoring and supervision of the natural forestry sector and affect the potential for downstream value added activities.

2) Licensing and concession of natural forests

Timber logging regimes under the forest regulation include the simple licence or forest concession regime. Imprecise delimitation of the exploitation area, short duration and limited incentives to sustainably manage the resources make the simple licence regime hard to control.  There are also many shortcomings facing the forest concession regime in Mozambique, the process to apply for a forest concession or licence is highly bureaucratic, and approval of which is dependent upon approval of a management plan that is costly to obtain.

3) Tracking, export and law enforcement

A new enforcement agency under Ministry of Land, Environment and Rural Development, the National Agency for the control of Environment Quality, was recently established to monitor the utilisation of land, the implementation of procedures for territorial planning, the exploitation of forest resources and control of environmental quality. As a new institution, the Agency lacks capacity. Further, the lack of presence, or capacity, of government at local district levels leads to delays in procedures and ineffective enforcement. The prevailing lack of institutional coordination and limited capacity contribute to the illegal timber trade.

4) Illegal logging and export of hardwood timber from Mozambique to China

This is a significant constraint on Mozambique’s forestry sector. One study found that the amount of timber officially exported to China was 5.7 times greater than the volume declared by Mozambique’s forest department as having been exported to China. Even without exact figures on illegal logging and the associated petty and grand corruption, most observers agree that the challenge for Mozambique’s forestry governance and law enforcement institutions is enormous.

Recommendations:

Recommendations relate to overall forestry sector governance, policy-making and enforcement. These include supporting the national forestry inventory process, establishing a more accurate Annual Allowable Cut, spatial planning, and enforcement at the national, provincial and district levels. Given challenges relating to transparency and illegal logging, careful political economy analysis and public-private dialogue will be critical to the design of donor partner interventions.

Constraints on Wood processing industries:

1) Key constraints to the growth of value added wood processing industry

While the unhealthy dependence on log exports has resulted in underinvestment and low capacity in the downstream wood industries, firms also face additional constraints, including high operational costs, limited infrastructure, high costs of capital, costly and lengthy administrative procedures and limited access to technology and qualified labour.

2) Log export ban from 1 January 2017

A complete ban on export of logs from January 2017 is now in place for all native species to combat illegal log exports. However, similar efforts to promote the domestic processing industry through log export bans have failed in the past. The processing industry has limited capacity to absorb and process virtually all types of harvested timber species in the country. Therefore, until the domestic wood industry is revitalised and a proper package of incentives are put in place, the effectiveness of the export ban measure would be limited.

3) Access to markets

The state is the largest procurer in Mozambique. However, the state procurement system is arcane, lacks transparency and does not take into account the needs of local producers. Construction materials and joinery products (doors, windows) are a potential source of import substitution, but demand for sustainably produced joinery is low. Joinery products must be shaped and dried according to standard specifications, but there is no construction measurement standard and limited capacity for kiln drying.

4)  Constraints relating to customs policy and implementation

The multiple, duplicate inspections and documents do not provide security for the government or guarantee revenue; instead they simply hamper legitimate firms. Systems are not interlinked and some require entire lists of export items to be retyped by functionaries. The government also gives certain imports duty exemption, so there is disincentive for local production. Further, the law requires concession-holders to establish sawmills in concessions but the conditions necessary to export directly from the districts do not exist.

5)  International certification and access to international markets

International certification has been seen by some as a necessary step for market access, but there is no market incentive for companies to assume the cost of any form of certification. However, overseas markets outside Asia do demand certification.

Recommendations:

Key recommendations include strengthening policies to promote the development of a value added wood processing, including most urgently the implementation of the 1 January 2017 log export ban, and the development of construction materials standards. Lower priority reforms include improving access to markets and addressing regulatory constraints on trade. 

Plantation forestry sub-sector:

Mozambique has around 7 million ha available for establishment of forest plantation. However, if accessibility criteria, other land uses (for example, small farmer or commercial agriculture), rights and needs of local communities or fulfilling the criteria for forest certification are considered, land availability for forest plantations drops to around 3.5 million ha.

Currently most plantations are located in the central and north regions of the country particularly in Manica, Niassa, and Zambézia provinces. These are mainly Eucalyptus and Pinus species plantations established in the central and north regions.

There is interest from foreign investors in large-scale agriculture and forest projects in Mozambique  since 2005, and there is potential for forest plantations to supply the growing domestic and global demand for wood and wood products. 

Critical support to policy-making for this subsector is recommended, including strengthening key institutions and developing appropriate laws and regulations.

Several cross-sectoral areas of regulation, including land access and administration, tax policy and access to information, are also discussed along with more specific reform recommendations in the BERF Mozambique Forestry Sector Business Environment Diagnostic.