Zambia - Industrial Forestry Project

RETURN To RESTRICTED R PORTS DES K Rpr o O65 WITHIN FILE CO[Y Report No. ONE WEEK This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION INDUSTRIAL FORESTRY PROJECT ZAMBIA September 11, 1968 Projects Department  CURRENCY EQUIVALENTS Currency Unit - Kwacha (K) US$1 = K 0.714 KI = Ngwee (N) 100 KI = US$1. 40 K1,000,000 = US$1,400,000 WEIGHTS AND MEASURES 1 cu ft = 0. 0283m3 1 ton = 1, 016.05 kg 1 mile = 1.6093 km 1 acre = 0. 4047 ha 1 sq mi 2. 59 km2  ZAMBIA Industrial Forestry Project Table of Contents Page No. SUMMARY I. INTRODUCTION 1 II. BACKGROUND 1 A. General . . 1 B. Significance of the Forestry Sector . . 2 C. Forestry Organization . . 3 III. FORESTRY PROGRAM 4 A. General Description . 4 B. Technical Aspects of the Program . . . 5 C. Yields . . 5 D. Marketing... 6 E. Cost Estimates of the Program . . . 6 IV. THE PROJECT 7 A. General. .... 7 B. Cost Estimates ..... 7 C. Proposed Financing ......... . 8 D. Disbursements ..... 9 E. Operating Results ..... 10 V. ORGANIZATION AND MANAGEMENT 10 A. The Managing Entity .. . 10 B. Marketing Organization ....11 C. Fire Risk .*...11 D. Procurement. . .... 11 VI. BENEFITS AND JUSTIFICATIONS 12 A. Economic Rate of Return . .12 B. Other Benefits . ...12 VII. CONCLUSIONS AND RECOMMENDATIONS 13 This report is based on the findings of a Bank appraisal mission to Zambia in July 1967, composed of Messrs L.H. Helmers, M. Palein and C.S. Hubbard (Consultant) and a mission to Zambia in May 1968 by Mr. M. J. Walden of the Bank.   ANNEXES 1. Imports and Exports of Wood and Wood Products 2. Consumption of Timber and Roundwood by the Mining Industry 3. Organization Chart of Forest Department 4. Utilizable Yields per Acre 5. Area Planted 6. Utilizable Yields from Project Plantations 7. Projected Demand for Pine and Eucalypt Products 8. Marketing of the Produce 9. Assumptions for Financial Forecasts 10. Cash Flow - Full Planting Program 11. Investment Schedule MAP   ZAMBIA INDUSTRIAL FORESTRY PROJECT SUMMARY i. The Government of Zambia has applied for a Bank loan to help finance the investment costs of a long-term afforestation program intended to meet Zambia's demand for industrial wood. This is the first forestry project appraised by the Bank. ii. The program provides for new plantings over the 25 years 1969 to 1993, by which time 75,000 acres of Pine and 30,000 acres of Eucalypt plantations would have been established. At full development the program would produce about 25 million cubic feet of roundwood annually. The program is well conceived and technically sound. The fir.ancial rate of return, based on conservative estimates, would be about 10% and the rate of return to the economy is estimated at 13%. Revenues from operations would exceed the cost of planting, excluding debt service, from about 1979 onwards. iii. The project consists of eight years (1969-1976) of the planting program. During the eight years, 20,000 acres each of Pine and Eucalypt would be established. The proposed Bank loan of US$ 5.3 million would cover the foreign exchange component estimated at 48% of the total invest- ment cost of this phase of US$ 11.1 million equivalent. iv. The project would be managed by the Industrial Plantations Division of the Forest Department. With the arrangements described in paragraph 7.02, the project provides a suitable basis for a Bank loan of US$ 5.3 million to be repaid in 25 years including a 10-year grace period.   ZAMBIA INDUSTRIAL FORESTRY PROJECT I. INTRODUCTION 1.01 The Government of Zambia has applied for a Bank loan to help finance its industrial forestry program. The project was prepared by the Forest Department of Zambia's Ministry of Natural Resources and Tourism with the help of the FAO/IBRD Cooperative Program, and consists of an eight-year planting program which forms part of Zambia's long-term affor- estation program. This appraisal is based on the findings of a Bank mission to Zambia in July 1967, composed of Messrs. L. H. Helmers, M. Palein and C. S. Hubbard (Consultant) and a mission to Zambia in May 1968 by Mr. M. J. Walden of the Bank. The project is the first forestry project for which a Bank loan is proposed. II. BACKGROUND A. General 2.01 Zambia (formerly Northern Rhodesia) emerged as an independent republic within the Commonwealth on October 24, 1964. The country, an enclave in the southern part of the African continent, has an area of some 290,000 square miles and supports a population estimated at 3.6 million in 1964 (98 percent Africans) growing at an estimated annual rate of 2.9 percent. 2.02 Most of the area consists of savannah shrub land having a general elevation of between 3,000 and 4,500 feet. The country is drained by the Zambesi River and its tributaries, and the Luapula River. The climate is sub-tropical with a wsrm, wet season from November to April, a cool dry sea- son from May to September (15-270C), and a hot dry season approximately from September to November (27-320C). The average rainfall is about 50 inches in the northwest decreasing to about 30 inches in the central regions, around Lusaka the Capital. 2.03 The copper industry is the mainstay of Zambia's economy. In 1966, it contributed 50 percent to GNP and 90 percent to total exports. The industry employs some 55,000 people and has given rise to a highly developed complex of towns, railroads, power lines and secondary industries including light engineering. The mining industry absorbs a significant portion of the total market for forest products. 2.04 Farming by Europeans and Africans who have settled north and southwest of Lusaka along the "line of rail", i.e. the access from the south to the Copperbelt, forms the other basis of the economy. Less than two percent of the 450,000 farming families produce cash crops representing about 36 percent of the total value of agricultural output. About 12 per- cent of GNP originates in agriculture.  -2- 2.05 Because of its dependence on the mining industry the economy is vulnerable to fluctuations in the world price of copper. The average rate of growth of GNP in 1955 through 1965 was 2.3 percent per annum. The aver- age per capita GNP of less than $200 a year (1965) covers wide disparities in distribution. 2.06 Imports of about K 246 million ($344 million) in 1966 consisted mainly of manufactured goods, fuels, chemicals, machinery, transport equipment, wood and wood products, and agricultural commodities. Exports were valued at approximately K 492 million ($689 million) of which copper and other minerals accounted for approximately 95 percent. The only sig- nificant agricultural export is tobacco. The country's present trade balance is positive and large. 2.07 The Zambian Government is anxious to broaden the base of the economy and to reduce its dependence on imports of primary products and manufactured goods. Progress and diversification of agriculture and forestry are prerequisites to development in other fields, particularly if domestic markets for industry are to be expanded. B. Significance of the Forestry Sector 2.08 The forestry sector accounts for a relatively low proportion of GNP (probably less than 2 percent). Enployment in the forests and in forest industries in 1965 was estimated at about 8,000 persons. Of Zambia's total land area of approximately 290,000 square miles, some 22,000 square miles are reserved forests directly administrated by the Forest Department of the Ministry of Natural Resources and Tourism (mainly for the purpose of providing mining timber and firewood to the local population). 2.09 Zambia has always been a net importer of forest products. In 1966 such imports amounted to about K 9.6 million, while exports were valued-at approximately K 728,000 (see Annex 1). 2.10 Apart from a limited area of Baikiaea (Zambian Teak) forests in the southwest, the main forest resources of Zambia consist of low-yielding, slow-growing Brachystegia (miombo) woodlands, the more accessible of which have been, or are being, exploited mainly for mining timber and firewood for the local population. The mining industry's annual demand is currently about 4 million cubic feet (roundwood equivalent V ) (see-Annex 2). Recent estimates indicate that economically accessible supplies of Brachy- stegia timber, suitable for the mining industry will have been largely exhausted by the late 1970's. Apart from the mining industry this timber is of limited use. 1/ Unsawn wood under bark.  -3- 2.1 The proposed Industrial Forest Plantation Program in the Copper- belt area would replace this slow-growing, low-yielding exploited miombo wood lands of Brachystegia, with fast-groving, high-yielding plantations of exotic species, mainly Pinus khasya and Eucalyptus grandis. C. Forestry Organization 2.12 The Forest Department of the Ministry of Natural Resources and Tourism is responsible for the management, protection and regeneration of the forest areas in Zambia necessary to supply forest products required by industry, housing, farming and other wood consumers. In addition to these functions, the Department's responsibilities include a research pro- gram connected with the growing, exploitation and utilization of indigenous and plantation wood, the operation of a Forestry Training School (2-year course with about 60 students) and flood and erosion control. About threee years ago a special Industrial Plantations Division was created within the Department, charged with the implementation of the afforestation program for which Bank financing has been requested. 2.13 The organization chart of the Department is presented in Annex 3. The present staff is competent. With the exception of two Zambians, all professional posts are held by expatriate civil servants (under Government contracts). The total professional staff is 32 of which 5 are employed in the Industrial Plantations Division. 2.14 Forestry budget funds are allocated from general government funds, and supplemented by transfers from the "Forest Regeneration Fund". The latter resources consist of Forest Department revenues (about K 360,000 in 1966) related to timber royalties (5 ngwee per cubic foot) from indigenous forest exploitation. Forestry expenditures more than doubled from K 766,600 in 1961 to K 1,558,000 in 1966, mainly because of the industrial plantations establishment for which up to the end of 1966 about K 1.2 million has been spent out of the Forest Regeneration Fund. 2.15 The Department has been subject to normal Government regulations resulting in extremely slow procedures hampering the Industrial Plantations Program. Because of such procedures the Department has been ill-equipped to operate along commercial lines. The Government has modified these pro- cedures relating to accounting, audit, procurement, professional staff terms of service, piecework rates for labor and produce sales. Consequently, in future, the operations of the Industrial Plantations Division will be more suited to a commercial operation.  -4- III. FORESTRY PROGRAM A. General Description 3.01 The Forest Development Program, prepared by the Forest Department of Zambia's Ministry of Natural Resources and Tourism envisages the estab- lishment of 30,000 acres of Eucalypt and 75,000 acres of Pine plantations. The output of the program would suipply the bulk of Zambia's future needs in industrial wood, including those of the mining industry. It would result in substantial savings in foreign exchange, reaching K 7 million per annum by the year 2000. 3.02 The program areas are located within the Copperbelt area at an altitude of about 4,000 feet. The region has an annual rainfall of about 45 inches over the period November to April, and has a seven-month dry season from May to November. 3.03 The plantations are to be established in three main blocks, located at Chati, Lamba and Ndola (see map), all of which are situated between 5 and 40 milea by road haul from the mines of the Copperbelt, which comprise a large timber market. Communications are excellent and the plantations are relatively close to sources of power, factors which will enhance the prospects of subsequent industrialization. Labor is plentiful, both for industrial and plantation projects. There is no immediate popu- lation pressure on land in the region. The land on which plantations are to be established is Government owned. 3.04 The land in the program areas is generally flat and covered with indigenous Brachystegia forest of very limited commercial value. In select- ing sites, the main soil criteria are depth and texture. The soil should not be less than 5 feet without impediment and preferably over 8 feet deep, and sand to sandy clays are preferred to heavier soils. Some 160,000 acres of land (of which about 50,000 acres for Eucalypts) so far have been found suitable for the program. 3.05 The main species to be planted are Pinus khasya and fast-growing Eucalyptus grandis. Both species are suitable for commercial planting under conditions in the Copperbelt and the yield from them would meet respectively future soft wood and hard wood needs of the country from the early seventies onwards. They would be managed respectively on rotations (age of tree at time of final felling) of 30 and 12 years. 3.06 The planting program consists of 2,500 acres of Pine and 2,500 acres of Eucalypt annually until 1978, when the 30,000 acres Eucalypt forest would have been established. From then onwards, Eucalypt fellings would be replanted. The program of 2,500 acres of new Pine plantings would continue after 1978 until the 75,000 acre Pine forest would have been es- tablished (after 30 years).  -5- 3.07 The cost of establishing the 75,000 acre Pine forest over a 30-year period would be about K 19.6 million (US$27.4 million) and for the 30,000 acre Eucalypt forest over a 12-year period about K 6.2 million (US$8.7 million) at present-day prices. The sustained annual yield (yield at full development 1/) from these plantations would be about 18 million cubic feet of Pinus khasya and about 7.5 million cubic feet of Eucalyptus grandis wood. B. Technical Aspects of the Program 3.08 The earlier plantings (prior to 1955) of exotics were not successful because of the combined effect of insufficiently deep soils, the seven-month dry season and the intense competition from aggressive local grass and wood vegetation. 3.09 Intensive silvicultural research in Zambia by the Forest Depart- ment has shown that success can be achieved provided that: (a) the plantation soils are sandy in nature up to a depth of 8 feet; (b) the indigenous vegetation must be completely cleared and the ground brought to a fine state of cultivation before the exotics are planted; (c) that only transplants, carefully raised in the nursery in polyethylene tubes, are used; and, (d) after planting, the ground is intensively cultivated to ensure complete weed control and conservation of moisture. 3.10 The annual planting program envisaged of 5,000 acres (2,500 acres Pine, 2,500 acres Eucalypt) is regarded, from a marketing and managerial point of view, as the limit which in present circumstances should be under- taken. C. Yields 3.11 Annex 4 gives the details of the yields per acre for Pine and Eucalypt respectively.- The yield per acre from Pinus khasya over its rotation period (30 years), from total thinnings over this period and 1/ Full development is reached when the 75,000 acres of Pine and the 30,000 acres of Eucalypt are established. Thereafter areas which are felled are immediately replanted with the same species, thus main- taining a permanent stream of production.  -6- final felling, is about 7,100 cubic feet, and the yield per acre from Eucalyptus grandis over its 12 year rotation period from total thinnings and final felling is about 3,000 cubic feet. These figures are conservative and are based on actual yield measurements in Zambia. They are used in pre- ference to more recently calculated yield estimates based on other sample plots which indicate the possibility of substantially higher yields. 3.12 The planting program is shown in detail in Annex 5, and the total annual yield obtained from the program is set out in Annex 6. Total output of Pine stabilizes in 1998 at about 17.8 million cubic feet of timber per annum and in 1980 for Euealypt at about 7.5 million cubic feet per annum. D. Marketing 3.13 Demand projections have been made for the various outputs of the program, and are presented in Annex 7A. The assumptions made (see Annex TB) are conservative, e.g. the demand for mining timber and poles has been treated as a stable demand, and increases for building timber and trans- mission poles, etc. are based on relatively moderate growth rates. 3.14 A comparison of the utilizable output from the plantations (Annex 6) with projections of assured demand (Annex 7) is set out in Annex 8 and shows that the proportion of Pine versus Eucalypt is compatible with market prospects. Some surpluses of small wood occur. Such Burpluses have not been taken into account in the calculation of revenues, though a UNDP study to investigate the feasibility of secondary small wood-using industries (block-board factory, hardboard factory) has just been started, and it is expected that such industries might be established from 1973 onwards. Already an existing secondary industry (a local small match-making factory) is using all available supplies of small pine wood. 3.15 Prices for forest produce have been assumed to be significantly lower than the present landed cost of imported wood or locally produced Brachystegia wood. The prices used (per cubic foot roundwood equivalent under bark at ride (dirt road) side) are N 15 for small wood and refinery poles, N 25 for sawn timber and N 60 for transmission poles, and are about 30-40 percent lower than current levels. E. Cost Estimates of the Program 3.16 Total cost of the program (see para. 3.07) is about K 25.8 million (US$36.1 million). The basis for the various cost estimates is given in Annex 9. The cost estimates are conservative and are based on the present method of operation. It is expected, however, that economies of scale and the adoption of further improved development techniques will lead to cost reductions of at least 10 percent. Such cost savings provide an adequate contingency to cover possible price and wage increases.  -7- 3.17 The cash flow statement of total revenues and expenditures of the program is presented in Annex 10. 3.18 Until 1978 the Division would require funds from Government, in- cluding Bank disbursements, to finance its program costs. From 1979 through 1990 the Division would finance its program from its self-generated funds and would be able to pay some, but not all, of its interest liability. From 1991 through 1998 the Division would pay interest and make repayments of its funds drawn from Government. After 1998 the Division would be cap- italized entirely from its own resources and substantial sums would be available annually either for the benefit of Government or further forestry development beyond the full program now planned. IV. THE PROJECT A. General 4.01 The project for which Bank financing is proposed would consist of an 8-year planting program (1969-1976) which forms part of Zambia's long-term industrial afforestation program, intended to meet Zambia's demand for industrial wood. The project would be managed by the Industrial Plantations Division of the Forest Department. 4.02 At the end of this period about 33,000 acres of Pine and 27,000 acres of Eucalypt would have been established. This includes 13,300 acres of Pine and 7,000 acres of Eucalypt established prior to 1969 (see Annex 5), but these acreages would not form part of the project. During negotiations, assurances were obtained that any modification to the 8-year planting pro- gram would be acceptable to the Bank. Prolect and Full Program Plantings Period Eucalypt Pine Total - - - - - - - - '000 acres - - - - - - Before 1969 7.0 13.3 20.3 PROJECT 1969-1976 20.0 20.0 4o.o Remainder of Full Program 1977-1993 3.0 41.7 44.7 FULL PROGRAM 30.0 75.0 105.0 B. Cost Estimates 4.03 The total investment costs during the period 1969-1976 would be about K 8 million (US$11.1 million), as presented in the following table:  -8- Estimated Investment Costs 1969 - 1976 Buildings Other Roads and Afforestation Total Equipment Costs