Mining forests of gold

Gabon's forests are a rich find for one Chinese firm

Lu Gaochao is proud to claim that he works with the soul of Gabon: its forests. He logs a section of forest his company bought, and now and again he comes across tribes who have lived there for hundreds of years and who have never had contact with the outside world.

He has befriended chiefs and sends rice and sugar to villagers every year to atone for the disturbance that logging brings to their habitat, he says.

Lu is general manager of Gabon Sunry, the overseas investment arm of China Tuhsu, which deals mainly in timber, tea and animal byproducts. He has been in the timber business in Africa for six years.

Gabon's nickname, "the country of green gold", is a reflection of how important forests are to its people and its future. They cover more than 85 percent of the country and account for more than 10 percent of its exports. The country's flag is green, gold and blue, representing forests, the equator and the sea.

There are about 30 big Chinese timber companies in Gabon, and Sunry is one of the biggest. Sunry says that since it was set up in 2006 it has invested about 600 million yuan ($100 million) in the former French colony and now employs more than 300 people, 70 percent of them locals.

Sunry is closely connected with log trading and processing, and since 2006 has bought more than 950,000 hectares of forest in Gabon and has a license to fell trees.

Every section of forest that companies buy is divided into 25 parts, and tree felling is limited to a designated area every year. The law also requires that trees felled be a minimum 60 cm in diameter to guarantee sustainable development.

Gabon's forests are so untouched that roads need to be built before logging can take place. Trucks to carry timber are usually more than 10 meters long.

"China is growing quickly, and it needs a lot of timber, so Chinese companies have been very active here over the years," Lu says. Until a few years ago Sunry was exporting logs worth 1 billion yuan a year.

That all changed in May 2010 when the government banned the export of logs, allowing the export of processed wood products only. By doing this, it wanted to support the local processing industry and create more jobs.

To avoid companies doing superficial processing to get around this, the regulations stipulate that regardless of the height, every piece of processed timber product has to be no longer than 80cm and no wider than 25 cm.

The rules were announced and enacted with very little warning, and more than one-third of timber companies closed or moved to neighboring countries with no such restrictions, such as the Democratic Republic of Congo.

The regulation hits Chinese companies particularly hard because Chinese customers prefer the original texture of wood to processed wood board, Lu says.

"In Chinese culture, wood is considered beautiful only when it is natural and unprocessed, especially when it is turned into classic Chinese furniture; but once it is cut into uniform-looking boards, its value drops significantly."

As a result, Sunry Gabon's exports dived in 2010, from 400,000 cubic meters a year valued at about 1 billion yuan to 100 million yuan.

There was another problem, too. As most companies did not process logs, they do not have factories or equipment to process the trees they fell. So piles and plies of huge logs mounted up and were left to rot.

Sunry saw a silver lining, having set up two small processing factories as early as 2007, three years before the new regulation took effect. Nevertheless, with that capacity it was only able to mitigate its losses.

Over the following three years, Sunry expanded its factories, which were designed to make plywood and veneer. The annual value of its exports is expected to climb to 200 million yuan this year.

That has involved Lu changing the company's strategy since 2012 by transforming Sunry from a 100 percent log exporter, to a plywood and veneer processor, as well as a log provider to local processing companies.

"So stock is limited and cash flow is healthier," Lu says, adding that the company's sales of logs to local processors can earn the company at least 50 million yuan a year.

But Lu says doing that is just a temporary expedient, "because if we don't cut down trees and keep things going, we still need to pay millions in forest tax every year". On top of that, the cost of depreciation on equipment is at least 20 million yuan every year.

In the long run Lu still bets on processing.

"That is really a waste of our resources. By having our own processing, we can gain revenue from three areas: selling logs, processing and trading. "

And there is at least one obvious drawback with the current factories: they were bought from French businesses so the product lines were designed more for Europeans than for Chinese. Since 2012 the company has brought in extra equipment to make timber for the Chinese market.

Seventy percent of its products, in total about 14,000 cubic meters, are exported to Europe, and the rest goes to China. The biggest customers are French railways and companies in the Netherlands and Italy. Sunry says it exports about 20,000 cubic meters of sawn timber to Europe and the United States a year.

It owns five major areas of forest, and Lu says the company plans to build a processing plant for each.

"The original plan was to build factories in the city, preferably in Libreville port, making exports easy, but I'm now thinking of putting them near the forests."

The reason is that only about half of the timber produced ends up in the final product, which means half of the trees felled will end up as scrap.

The forests Sunry owns are between 300 km and 700 km from the city, which means half the transport costs would be wasted if processing was not done on site.

"By moving factories close to forests, we cut this cost," Lu says.

Contact the writers at wangchao@chinadaily.com.cn and andrewmoody@chinadaily.com.cn

(China Daily Africa Weekly 05/02/2014 page26)