By Daniel Karibwije
Every country desires value addition with import substitution on top of the agenda to save foreign exchange and other policy intentions.
However, achieving this requires different ingredients and support to go through the process.
This involves mindset change, retooling and re-engineering the production processes, in addition to providing an enabling environment.
The ecosystem in which value addition takes place determines outcome. An executive order alone is not sufficient to enable the functionality of a value addition process.
In Uganda, we interact with timber daily. Deforestation of natural forests has taken a toll on green cover and there must be a deliberate effort to replant lost trees and plant new forests.
We must remember that birds are humankind’s allies in establishing forests. The cutting down of biodiverse forests kills the habitat for indigenous and migratory birds, which are natural forest planters.
Value addition of wood comes at a variety of stages. At the early phase, it is majorly used for fuel, fencing and construction.
At a secondary stage, we have plywood, treated electric poles, pallets, blackboards and veneer. The majority of timber dealers for export in Uganda are producing veneer because this is the most demanded globally.
Veneer is both a finished and semi-finished product depending on the end use, hence its high demand globally. Unfortunately, investors who were targeting this market have been stopped in their tracks, with government imposing export bans on veneer.
An interview with one of the investors indicated that they are operating at a high cost of capital, which is very prohibitive. The industrial machinery processing timber is expensive, let alone electricity tariffs.
The cost of doing business is so steeped against them. The preferred investment model is to start with producing veneer and graduate to higher value-added products after recouping their initial investments.
Uganda has over 314,354 hectares of forest cover with potential production of 125,741,600 cubic metres of wood over the next seven to 10 years.
The rotational age distributed as follows; small and medium scale growers account for 56% of plantation ownership, Green Resources 7% (Busoga Forest Company) 12%, Nile Fiber Board 8%, Nile Ply 6% and National Forest Authority (Government) 11%.
The majority are private commercial forests grown on a sustainable basis, with clear management plans, certificates and permits.
The current production and export of veneer does not affect the raw material for processing plywood. As a country, we do not have the capacity to process all the veneer that we are producing.
Therefore, blocking the export of veneer does not only kill the companies that have heavily invested in the sector, but also exposes them to potential legal proceedings with offtakers with whom they had signed contracts.
The production of veneer is a high technologically advanced process. It involves computerised equipment that does the sizing, peeling, slicing and drying to an internationally accepted moisture standard of not more than 12%.
It is later compressed and packed for the export market. Timber export bans affect trade and investment. As a result of the executive order of June 21, 2023, companies are holding back on investing in the sector.
This cuts down job creation and direct jobs for youth and women. Banks are swiftly recalling loans of especially local investors who had borrowed to plant commercial forests.
Before the order, the value of round logs was averaging sh120,000 per tonne. Today it is down to sh70,000, a 41% decrease. Sustainability is the password for a vibrant timber industry.
There should be a phased approach to enable companies upgrade to manufacture high-end wood products required for import substitution like furniture and paper.
The trickle-down effect of local manufacturing helps eradicate poverty. Export bans might bring more problems than anticipated solutions, driving away investors.
The writer is an export trade specialist.
