DRAFT
GUIDELINES ON CHARTER SCORECARD
This document was prepared by the Secretariat as a guide for developing the scorecard. Current submissions of the three working groups (Grower, Sawmilling and Contractor Working Groups) that have met and deliberated on the first deliverable and outcomes of the stakeholder consultation workshops were used as source material for the document.
The document has drawn on a number of studies that have recently been undertaken, notably the Genesis Report that was commissioned by the DTI and PAMSA, the Forest Enterprise Development key issues paper and strategy framework which in turn draw from a number of studies that have been undertaken by DWAF. The Secretariat acknowledges that the document is by no means comprehensive and is meant for discussion and comment by the Steering Committee and Working Groups.
The document identifies strategic performance areas for broad based black economic empowerment in view of the challenges identified that need to be addressed in the scorecard. In addition, the document proposes technical guidelines for the preparation of the scorecard by the working groups.
1 Points of departure
The Department of Trade and Industry (DTI) has developed Generic Scorecard Targets that all enterprises in South Africa need to comply with over the next ten years. These Targets as set for each element and the relative weighting of these elements reflect the Transformation
Goals that the Government has set for the country as a whole. Any deviation from these targets (up or down), or changes in their weightings, needs to be justified based on sector specific circumstances and needs:
Another structural issue could be the fact that the current levels of BBBEE achievement with regard to a particular element in the scorecard makes a higher target possible or the achievement of the generic target impossible. In the first instance sector stakeholders could agree to set a higher target than set out in the generic scorecard, either because it is the right thing to do or to create space for reducing targets for some of the other elements that may not be achievable. Similarly, a sector might have particular BBBEE opportunities that will enable higher targets to be set. If the argument is that a generic scorecard target is not achievable within 10 years (for example, inadequate training capacity as a bottleneck for delivery on management transformation) the target could be lower to what is attainable. Again, this would require an upward adjustment to other scorecard elements to secure the same overall BBBEE contribution level.
With regard to sector specific circumstances, the generic scorecard targets should be considered a minimum to be achieved. If the current level of BBBEE performance on a particular element enables a higher target this should be set as a sector commitment. It will be necessary to await the results of the Working Group reports on the current status of BBBEE in each sub-sector to know what the impact of these considerations will be.
The section below deals with the second set of considerations namely the sector specific needs, while the last section of this report outlines some technical guidelines for doing the score carding.
2 Industry specific challenges
The development challenges facing the industry are outlined in the Key Issues Paper on Forestry Enterprise Development (DWAF, 2005), and the various strategies required to deal with these challenges are outlined in the Draft Strategy Framework for Enterprise Development (DWAF, 2005). This together with the inputs received from the various Charter Steering Committee Working Groups to date, forms the basis of the analysis below.
It is suggested that the following six sector challenges, which relate to issues of growth sustainability and equity in the forest sector, should inform sector-specific targets and weightings in the scorecard.
2.1 Increased roundwood supply
The Charter can make a substantial contribution to growth in the sector, and therefore further BBBEE opportunities though an expanding sector, if the BBBEE targets and weightings are shaped to support an increase in roundwood supply. The reason for this is that the most important trigger for growth throughout the forest value chain lies in the expanded timber production. A substantial increase in the national demand for pulp, paper, saw timber, timber board and charcoal products is anticipated over the next 25 years, but the growth prospects are limited by the long-term availability of roundwood supply.
About R9 billion has been committed by the pulp and paper industry to the expansion and upgrading of production facilities over the past three years and the plantation resource base has not kept pace with the expansion of these processing capacities. Urgent steps are necessary to avoid a crisis in the forest products sector that could result in unutilised production capacities, more expensive imports and job losses. It is in the interest of all sector stakeholders to attend to this.
The increase in roundwood supply is dependant on
(1) opening up opportunities for new afforestation and
(2) improving the utilisation rate of existing plantation resources. The Transformation scorecard could be used as a tool to meet both these objectives:
2.1.1 Supporting new afforestation opportunities
The bulk of the opportunities are in the Eastern Cape (+60 000ha) and KZN (+40 000ha) on land to which black communities already have ownership rights. The following actions are required to ensure the realisation of these opportunities:
(1) Expedite the afforestation authorisation process. This would require collaborative effort between authorising authorities (DWAF, DEAT, Agriculture and municipalities) and the private sector in undertaking the necessary environmental impact assessment studies that will demarcate areas suitable for afforestation.
(This has already been done in KZN) To be effective, the studies are required at the level of detail that would enable general authorisation or permit exemption for afforestation, so as to enable applicants to register their forestry use, subject to the conditions identified and agreed to in the study. This initiative could be implemented by government and the private sector under the enterprise development component of the scorecard.
(2) Securing land rights and land holding structures for new afforestation. Forestry on communal land requires the confirmation of tenure rights and the institutional structures to undertake and manage projects. This needs to be implemented within the framework of the Communal Land Rights Act (Act 11 of 2004). This initiative could be implemented by government to support the enterprise development component of the scorecard.
(3) Community facilitation, extension support and training. Communities need to be empowered to decide on, plan and implement afforestation projects. This requires access to facilitation, support and training services. A facility (or facilities) to provide these services could be established as a collaborative effort between government and the private sector under the preferential procurement or enterprise development components of the scorecard.
(4) Access to funds and business services. New afforestation requires considerable capital investment, as well as funds to meet operational requirements. To be effective, access to finance needs to go hand-in-hand with financial advice and business support services. The establishment of a facility (or facilities) to provide funding and business services could be done as a sector wide initiative on conditions of support that would effectively empower new entrants to the forestry industry. This initiative could be implemented under the preferential procurement or enterprise development components of the scorecard.
(5) Infrastructure development. Areas for new afforestation require the provision of infrastructure such as roads, telecommunication, electricity and social amenities. Government has a key role to play in this regard. This initiative could be implemented to support the enterprise development component of the scorecard.
2.1.2 Improving the utilisation rate of existing plantation resources The following actions are required to improved the utilisation rates of existing plantation resources:
(1) The restoration of existing state forest resources. Much of the remaining state forest plantations (64 000ha) is poorly managed with an estimated 24% of the total plantable areas temporarily unplanted ("TUP"), large areas with severe weed infestation, poor infrastructure and large backlogs in silvicultural work.
These plantations need to be restored, linked to the transfer thereof in support of BBBEE. The actions required for this are contained in DWAF's Policy and Strategy for the Transfer of Forestry Plantations (April 2005) and can be implemented to support the ownership and enterprise development components of the scorecard.
(2) The application of yield enhancement guidelines. Wetland and riparian zone conversion could lead to the removal of 50 000 to 60 000ha of plantation from riparian zones. This is necessary to meet environmental requirements and will contribute to water yield enhancement. Consistent with the yield enhancement guideline, all landowners who remove planted areas as part of the wetland and riparian zone delineation should be allowed to replant the equivalent area elsewhere on their estate subject to the necessary environmental controls. In the Eastern Cape there is an additional potential of converting some 10 000ha of wattle jungle to managed plantations under the yield enhancement programme.
The application of yield enhancement guidelines with regard to wattle conversion and wetland and riparian zone delineation could make a meaningful contribution to securing roundwood supply. This initiative could be implemented to support the residual component of the scorecard.
(3) Combating plantation losses caused by forest fires pests and diseases. During the last 2 to 3 years plantation fires destroyed large plantation areas (-40 000ha). There have also been large losses in plantation areas caused by pests and diseases, especially the Sirex wood wasp, which affects mainly pine sawlog plantations. A collective effort through sector investment in measures to combat forest fires, pests and diseases is necessary to effectively combat such losses.
This initiative could be implemented under the residual component of the scorecard.
2.2 Sustainable supply and better utilisation of saw timber
The saw timber industry is an important component in the forest products value chain and provides an important resource for the domestic building, construction and furniture industry. Only about 6% of lumber supply is exported compared to 30% export of pulp and paper and 100% export of woodchip production.
Because of the long rotation period for saw timber, state forest plantations have traditionally provided most of the country's saw timber supplies. However, as a result of the state's diminishing role in plantation forestry, the production of sawlogs has decreased markedly over the past two decades.
The country is now facing severe shortages in saw timber with the planting of softwood plantation not having kept pace with the projected domestic demand for saw timber. The shortages in saw timber have already negatively impacted on the stability and profitability of the small-scale sawmilling industry (refer to par. 2.5.2 below). If this matter is not addressed it will also have a negative impact on the building, construction and furniture sector with increases in prices for domestic consumers of these products.
Moreover, the current utilisation rate in the sawmilling sector is low by international standards (1 m of saw logs used to produce 0.4 m saw timber) and greater efficiency in the processing of saw timber needs to be promoted, particularly in a country such as South Africa where there is a shortage of saw timber.
The Transformation scorecard could be used as a tool to encourage both the long-term sustainable supply of saw logs and improved utilisation rates in the sawmilling sector in a manner that links the sustainable supply and the improved utilisation to BBBEE.
2.2.1 Sustainable sawlog supply
The forest sector needs to take a long-term strategic view on how to deal with the looming shortage of sawlog supply. If not addressed this will have an impact on the future growth and prospects for BBBEE not only in the sawmilling sector, but also in other sectors of the domestic economy. It is proposed that within the Charter, industry agreement is reached on a sawlog growing strategy and programme for the forest sector. This initiative could be implemented under the residual component of the scorecard that provides for sector specific initiatives to directly or indirectly facilitate access to the economy for black people.
2.2.2 Improved utilisation rates in the sawmilling sector
The underlying problem appears to be outdated technology in the medium to small-scale sawmilling operations and inadequate productivity management skills. These matters could be addressed in the transformation charter by:
(1) Emphasising skills development and training for black medium/small sawmillers.
(2) Supporting capital investment in new technology by black medium/small sawmillers.
The implementation of these measures is further discussed in par. 2.5.2 below.
2.3 Value adding in the pulp and paper sector
A substantial and increasing portion of the country's timber resource is exported as pulp and woodchip. Although world commodity prices and markets dictate this issue, opportunities need to be explored to promote local value adding in this sector in a manner that supports transformation in the sector. Engagement with the pulp and paper sector is needed to find out what can be done to promote value adding in the sector through the application of the indirect empowerment component of the scorecard, namely enterprise development and the residual element.
It is also necessary to consider the restructuring of ownership and management of existing enterprises in the pulp and paper sector to enhance BBBEE. This can be dealt with under the ownership element.
2.4 Equity in the forestry value chain
To support sustainable BBBEE it is necessary to promote a greater share of ownership and participation in the total value chain of forestry. Current black ownership in the sector is largely limited to the supply of raw materials (roundwood) and contracted services to the sector, with little benefit being derived from forest value adding activities in the pulp paper and board product sub-sectors. This structure places a barrier on previously disadvantaged people to move from the "second economy" into the "first economy", from small-scale entrepreneurs to large-scale entrepreneurs. This barrier needs to be broken if previously disadvantaged people are to share equitably in the growth potential of the forest sector as a whole.
The transformation scorecard could be used as a tool to meet this objective by:
(1) Targeting enterprise development support in value adding enterprises', and
(2) Targeting ownership participation of new black entrants, including from the sector's second economy in the established value adding enterprises.
The first measure could be implemented under the enterprise development component of the scorecard and the second measure under the ownership component.
It is also necessary to consider the ownership and management of existing enterprises across the forestry industry, and the opportunities for a range of options including worker participation in ownership, community ownership etc. This can be dealt with under the management and ownership elements.
2.5 Empowerment and sustainability in the forest small-scale enterprise sector
To ensure long-term sustainability, growth and equity in the commercial timber products sector, attention needs to be given to greater empowerment and profitability of existing small-scale grower, forestry contractors, sawmillers and charcoal production enterprises.
The forestry contracting industry, although relatively small (R600million) in terms of the total value chain, has a high PDI component (-40%) and a direct employment impact on approximately 35,000 people. This industry is characterised by low levels of skills, poor quality and low profit margins, which undermines true empowerment in the forest sector. The small-scale sawmilling industry is much smaller, employing some 3000 people, but suffers from the same structural deficiencies.
Small growers and charcoal producers are in a better position, as a result of the support they received from corporate forestry companies and large charcoal producers that buy timber and charcoal from small-scale producers. For these small-scale producers it is important that they are empowered to "stand on their own feet" and are able to bargain for better delivery contracts and prices.
The Transformation scorecard could be used as a tool to meet these objectives:
2.5.1 Forestry contractors
The following actions are required to promote empowerment, profitability and sustainability in the forestry-contracting sector:
(1) Establishing a Code of Good Conduct for contracting work. This code should regulate the relationship between contracting companies and contractors; between contractors and sub-contractors; and between contractors and workers. The code needs to provide for larger and longer-term contracts enabling contractors to improve margins and invest in their staff. It should also provide for transparent and accessible tendering system, fair prices and fair labour practices.
This measure can be implemented under the preferential procurement component of the scorecard for contracting companies, and under the employment equity component of the scorecard for contractors.
(2) Strengthening the contractor organisation (SAFCA) so as to be empowered to bargain on behalf of their members; to represent contractors in forestry industry structures; and to provide improved support services to all forestry contractors in the country. This measure can be implemented under the residual component of the scorecard.
(3) Increasing skills development and training for small scale and emerging contractors. This would entail the expansion of existing skills development, training and bursary programmes for contractors. This would also entail the establishment of partnerships schemes between contractors and contracting companies and between small and large contractors for the transfer of skills and mentorship support. This initiative could be implemented under the preferential procurement or enterprise development components of the scorecard for contracting companies, and under the skills development component for contractor companies.
2.5.2 Sawmillers
The following actions are required to promote empowerment, profitability and sustainability in the small and medium scale sawmilling sector:
(1) Establishing a body that represents millers in the industry that would promote cooperation between millers and improve their bargaining position for sawlog supplies. This measure can be implemented under the residual component of the scorecard.
(2) Address the problem of inadequate and irregular sawlog supply. For this it is necessary to:
a. Secure industry agreement on a sawlog growing strategy and programme for South Africa (refer to par. 2.2.1 above).
b. Improve coordination between large and small sawmillers through the body referred to in par. (1) above.
c. Support concerted efforts to prevent forest fires, insects and diseases (refer to par. 2.1.2(3)).
(3) Supporting capital investment in new technology by black medium/small sawmillers. Inadequate capital investment in new technology is as a result of inadequate finance to invest in new technology because sawmillers are unable to secure long term contracts to access the finances required. This, in turn, is the result of inadequate and irregular sawlog supply. If the sawlog supply problem can be resolved (par. (2) above), then capital investment will follow. The charter could make arrangements for improved access to sawlog supply by forestry companies linked to support for investment in technology that improves sawlog utilisation rates in black companies. This initiative could be implemented under the residual component of the scorecard.
(4) Supporting access to skills, technology and research for small black millers. To address this problem would require:
d. Skills development training and bursary programmes for sawmillers.
e. Skills and technology transfer through mentorship schemes linking large and small millers.
These initiatives could be implemented under the enterprise development or residual components of the scorecard for large millers, and under the skills development component for small millers.
(5) Developing the skills base for the sector. There is a shortage of technical and professional skills within the industry. To address this problem it is necessary to secure government and industry support for tertiary institutions in developing the skills base for the sector and particularly in developing skills amongst black women and men. This initiative could be implemented under the residual component of the scorecard.
(6) Promote greater participation by small black sawmillers in timber value chain by focussing on the enterprise development component of the scorecard for small millers.
2.5.3 Small growers
The following actions are required to promote empowerment and profitability in the small grower sector:
(1) Strengthening small grower participation in the forestry organisation (FSA) so as to be empowered to bargain on behalf of their members. This measure can be implemented under the residual component of the scorecard.
(2) Supporting access to skills, technology and research for small black growers. To address this problem would require:
f. Skills development training and bursary programmes for small black growers.
g. Skills and technology transfer through mentorship schemes linking large and small growers.
These initiatives could be implemented under the enterprise development or residual component of the scorecard for large companies, and under the skills development component for small growers.
(3) Developing the skills base for the sector. There is a shortage of technical and professional skills within the industry. To address this problem it is necessary to secure government and industry support for tertiary institutions in developing the skills base for the sector, particularly amongst black women and men. This initiative could be implemented under the residual component of the scorecard.
(4) Implementation of the measures listed in par. 2.1.1(4) and (5).
2.5.4 Small charcoal producers
The following actions are required to promote empowerment and profitability in the small-scale charcoal production sector:
(1) Establishing a body that represents charcoal producers in the industry that would promote cooperation between producers and improve their bargaining position for small charcoal producers. This measure can be implemented under the residual component of the scorecard.
(4) Increasing skills development and training for small charcoal producers. This would entail the expansion of existing skills development and training programmes and the establishment of partnerships schemes between large and small-scale producers for the transfer of skills and mentorship support. This initiative could be, implemented under the preferential procurement or enterprise development components of the scorecard for large producers, and under the skills development component for small producers.
2.6 Linking forestry with rural development
Economic reality dictates that forestry enterprises are located in rural areas. The future of the forest sector can only be secured if it goes hand in hand with broad-based socio-economic upliftment and development in rural areas. It is the forestry sector's interest to use the scorecard in manner that will support rural development. Opportunities exist for both the private and public sector to strengthen the sectors role in support of rural development.
2.6.1 Private sector support
A key opportunity for the private sector is through the support it offers to the Non-timber forest products (NTFP's) sector. NTFP's such as firewood, building poles, medicinal plants and edible fruits are all critical to the livelihood of the rural poor. The country's forests areas are an important resource for non-wood forest products (NWFP's) a range of eco-tourism ventures and initiatives such as sightseeing, picnicking, hiking, biking, bird watching and game viewing. Both the state and private plantation owners control large tracks of plantations and indigenous forests that provide this source for livelihoods and enterprise development. Although the NTFP and NWFP enterprises are excluded from the Forest Charter, the control over these resources are in the hands of those that are party to the Forest Charter. Special attention must be given to indirect empowerment of NTFP and NWFP enterprises, as well as the subsistence use of NTFP's through the issuing of licenses, permits and contracts in plantations and indigenous forests. These measures can be implemented under the enterprise development and residual components of the scorecard.
2.6.2 Public sector support
A key opportunity for the public sector is to ensure that communities that have rights to state forestland or state land with forestry opportunities actually benefit from these rights. The following initiatives are important in this regard:
(1) Confirmation of land rights on state forestland to create opportunities for new afforestation in the hands of BBBEE owners - refer to par. 2.1.1 (2).
(2) Confirmation of land rights with regard to Category A plantations to enable the release of the accumulated rentals intended for the right holding communities.
(3) The transfer of the 25% state-held shareholding in Category A companies that is earmarked for labour and communities.
All these measures can be implemented to support the ownership component of the scorecard.
2.7 General
The issues raised above must be dealt with in a way that allows the issues of gender and disability to be dealt with and disaggregated in the reporting and scoring mechanisms.
3 Technical guidelines for preparing scorecards
Guidelines for preparing scorecards are presented in the attached "Draft amended Codes of Good Practice on Broad-based Black Economic Empowerment" 24th September. Although there is a Model Transformation Scorecard covering all elements (Statement 000, Annexure A) the detailed statements for the preparation of the employment equity, skills development, preferential procurement, enterprise development and residual elements of the scorecard still need to be published by DTI. This is expected within a month and these documents will then be distributed to the Steering Committee and its Working Groups.
DTI also intends to publish Codes of Good Practice for public entities, small and micro enterprises, as well as further guidelines for dealing with multinationals. These should also be available within the next few of weeks and will be distributed.
In the absence of some of the Codes of Good Practice, it is suggested that Working Groups start preparing those scorecard elements for which there are guidelines (equity ownership and management) and use the Employment equity Act and the Skills Development Act to guide them on the employment equity and skills development elements of the scorecard. These Acts still apply and will be taken into account in the Codes of Good Practice for these elements.
It is suggested that the work continues with corporate and medium size entities in mind and that adjustments be made later for small and micro enterprises, once these guidelines are available.
It is proposed that each Working Group develop a scorecard that addresses the particularities of their sub-sector and that the Steering Committee takes responsibility to assess the overall outcome and decides on the extent to which separate scorecards are necessary for the Charter document.
The Generic scorecard targets are set for a ten year period from the time of gazetting the Codes of Good Practice. Only in some instances does the generic scorecard provide for intermediate targets. It is suggested that an attempt be made to set intermediate targets for as many of the elements as possible , using the same periods of year 1-2,3-5 and 6-8 as used in the generic scorecard.
Finally it is proposed that the Working Group also identify the instruments required to implement scorecard targets at the same time as developing the scorecard. The reason for this is the close link that needs to be maintained between what is to be achieved and the means of achievements to ensure a well –considered and plausible result.
Charter Secretariat