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Transforming the informal sector – 4 : Contribution of the informal forestry sector

2nd March 2013

Forests are important assets in Tanzania which contribute significantly to livelihoods and the national economy in general in various ways. Tanzania has about 33.5 million hectares of forests and woodlands which is about 38 percent of the country’s land area. Forests in Tanzania are categorized as reserved forests and unreserved forests. The former are forests reserves that have been gazette by the central government while the latter are general lands not formally classified as reserves. Reserved forests make up 37 percent of forests in the country while unreserved forests make up 57 percent of forests.

A major contribution of forestry is employment creation via forest based industries. Forest-based industries are relatively labour intensive compared to other industrial sectors and more jobs are attributable to recreation, non-timber forest products (NTFPs) and small-scale informal sector employment.  Forest-based industries generate revenue in rural locations, especially valuable as the number of agricultural jobs diminish as a result of increased mechanization and land-use intensification (Laarman and Sedjo, 1992). Additionally, some forestry activities are complementary to on-farm activities, as they occur during agricultural slow periods. 
While not as well documented as the timber industry, activities in small-scale forest-based enterprises, particularly those engaged in non-timber forestry activities, make significant economic contributions, provide rural employment opportunities and diversify local economies. Some NTFPs comprise industrial-scale businesses, such as resin, but most are small-scale in terms of investment, revenue generated, business size and employment provision. In developing countries, the small businesses in the informal sector collectively provide a large proportion of employment opportunities. 
The most common end use of wood determines the types of forest-based jobs available in a country. In developing countries, an average of 90 percent of all round wood production is consumed domestically and a great proportion of that, almost 80 percent, is used for fuel wood (Kiimu and Mloge, 2011). This has important employment implications because much of the employment resulting from the fuel wood collection and marketing occurs in dispersed, rural markets which operate in the informal sector. Thus, many people employed in these activities are not reflected in official statistics. 
The informal sector or informal economy is that part of an economy that is not taxed, monitored by any form of government or included in any gross national product (GNP), unlike the formal economy. Examples are barter, gift economy, also the term black market refers to a specific subset of the informal economy.  Workers in the informal economy generally have no contracts, no fixed hours, and no employment benefits such as sick pay or maternity leave. The informal economy can be a source of cheaper labour as such that no tax is paid. In less developed countries like Tanzania much of the work done by women is in the informal sector; this includes such activities as petty trading, charcoal retailers and crafts. 
Informal economic activity is a dynamic process which includes many aspects of economic and social theory including exchange, regulation, and enforcement. By its nature, it is necessarily difficult to observe study, define, and measure. 
Informal economic activity is temporal in nature. Regulations (and degrees of enforcement) change frequently, sometimes daily, and any instance of economic activity can shift between categories of formal and informal with even minor changes in policy. In the second half of the 1990s many scholars have started to consciously use the term "informal economy" instead of "informal sector" to refer to a broader concept that includes enterprises as well as employment in developing, transition, and advanced industrialized economies.
The informal economic activity rejects the inclusion of certain activities including crime and domestic labor. Crime cannot be included because such acts have no regulated counterpart against which they may be compared. (Of course, by their nature, informal economic activities escape regulation and may then become criminal.) Domestic labor, such as childcare and cooking, cannot be included when performed in the natural course of daily living and to one's own benefit. Such activities can easily be performed for others and exchanged for goods and services with economic value and depending on broader conditions; these can be either formal or informal economic activities. However, when performed for personal benefit they have no external economic value (they cannot be exchanged).
In this study, the term Informal Sector is referred to as very small-scale private units employing less than 10 persons and involved in the production and/or distribution of goods and services for sale in both rural and urban areas. They are informal in the sense that most of them are; unregistered and thus not covered in official statistics; have little or no access to organized markets, to credit institutions, to formal education and training or to many public services. In many cases they are not recognized or supported by the government, they are often compelled by circumstances to operate outside the framework of the law.
There are barriers which prevent transformation of informal sector in forestry products industry to the formal sector. These include very little or minimal benefit to induce the informal sector to transform to the formal sector with the view that the costs for formalization will be greater than the benefits; weak law enforcement;  poor willingness to formalize and the balance of costs and benefits and the view that there is already too much government interference and bureaucracy.
Trade in wood and non-wood forest products offer considerable potential for increased economic development through income and employment generation as well as export earnings. However, contribution of forest sector to the national economy is underestimated due to the fact that a bigger percentage of trade in forest products is conducted in informal sector and not easy to track and monitor and therefore low contribution to national economy. The overall objective of this paper is to analyze the informal forest products industrial sector and the opportunity for formalization. The paper has three specific objectives; to analyze the current production methods and market chain in informal sector, to review various barriers and benefits, both actual and perceived to the formalization of the informal sector for each specific informal grouping. 
The forestry sector can be divided into sub-sectors which are characterized by the end product that is produced for the market. The major sub-sectors are timber and charcoal, where the former can be further divided into natural forest or hardwood timber on the one hand and plantation, mainly softwood timber on the other hand. Whereas charcoal is almost completely consumed locally, the timber market is both domestic and for export. The bulk of locally consumed timber enters either the construction sector or the furniture and joinery industry. The export of charcoal is prohibited by law; however, there are indications that Tanzanian charcoal is being exported to neighbouring countries as well as the Middle East. Despite the possibility of illegally exported charcoal, the bulk of the charcoal produced in Tanzania is consumed by urban Tanzanians themselves (TNRF, 2009).
Various reports provide varying estimates of the total number of people involved in various forest activities in Tanzania. Selected studies quote figures between 700,000 and 3 million as the person years of employment in the forestry sector. Employment is recognized to be that provided through forest industries, forest plantations, government forest administration and self-employment in forest related activities. The overwhelming majority of forest sector employment being self-employment on a part time basis in the informal economy. Kiimu and Mloge state that 60% of those employed are in the informal sector (MNRT, 2001; TRAFFIC, 2007; MNRT, 2007a; Kiimu and Mloge, 2011). It should be noted that harvesting, which provides the most self-employment opportunities, tends to experience ‘boom and bust’ cycles of timber trade activity in many villages. The number of young men involved in harvesting may rise up to 60% during peak logging activity and then drop back below 20% once timber and logs have been harvested in forest areas adjacent to villages the forest (TRAFFIC, 2007)..
Kiimu and Mloge (2011) further claim that the real contribution of forestry to employment is underestimated due to the under recorded labour in the collection of woodfuel and other forest-based products consumed by households (Kiimu and Mloge, 2011). World Bank (2009) estimated that 2,840,000 man years of employment were created in the production, transportation and retail and marketing of charcoal annually. In summary, several estimates in the literature indicate the level of employment in the forestry sector to be between 1 and 3 million persons of which a large proportion, at least 60%, is part time, unregistered and informal. However, the different parts of the forestry value chains have different employment characteristics which are further described herein below.
Employment in hardwood timber harvesting
Almost two-thirds (61%) of Tanzania’s 34 million ha of woodlands and forests are unreserved. Of the remainder, approximately 15 million hectares is included within 815 forest reserves, the majority of which are managed by the central government (TRAFFIC, 2007). Unreserved forests are those which have no legally identified manager responsible for their conservation or sustainable utilization. Harvesting of forest produce has been taking place on these so called open areas for several decades now. The harvesting has been largely unregulated and unlicensed with few loggers adhering to sustainable forest management principles.
It follows then that harvesting of natural forest is largely unregulated, unlicensed and can be characterized as existing within the informal sector. The majority of loggers in Tanzania’s natural forests are pitsawyers, originating from nearby rural areas, operating a large manual saw in pairs to fell up to ten trees per day. There has to date not been a comprehensive assessment of either the absolute numbers of rural people involved in logging activities, or the proportion of village communities involved. 
A survey conducted in 2005 of 13 randomly selected villages in three Districts in southern Tanzania found that men constituted 80% or more of log and plank traders. It was also revealed that almost all timber traders were aged between 19 and 45 years old, with 84% in the range of 26 and 40 years of age (Milledge and Kaale, 2005). 
Whilst comparable data was not available for other parts of the country, these figures were believed to be fairly representative for the areas bordering natural forests throughout rural Tanzania. The percentage of men aged between 19 and 45 years old in the 13 surveyed villages ranged between 6 and 41% (TRAFFIC, 2007). The average of these 13 villages and in the absence of more accurate data, around 16% of households from villages located near forests in southern Tanzania benefited from logging and timber trade. 
The information provided by the 2005 study of 13 villages was reinforced by a cursory assessment of beneficiaries from the timber trade in Migeregere Village, Kilwa District, during a 2006 study by the Mpingo Conservation Project (MCP). Out of 52 respondents, eight (15.4%) reported their households having received money from logging, falling within the same range calculated in the above mentioned villages (TRAFFIC, 2007). If representative of rural Tanzania as a whole, this data indicates that around 15% of households in villages adjacent to forests are benefiting from young men being employed in forest harvesting.
Natural forests are not evenly distributed in Tanzania. Most remaining natural forests are located in western and southern parts of Tanzania. In fact 13 Regions are responsible for more than 90% of harvesting from natural forests in Tanzania (MNRT, 2011). The estimated population of these 13 Regions is 17,090,000 people, of which half are men and therefore 15%, or the number of young men between the ages of 19 and 45 years is equal to 1,281,000 persons.
Employment in hardwood timber processing
According to a 2005 MNRT review, a total of 87 primary hardwood industries occurred nationwide, with most found in the east and south of the country (MNRT, 2005). The total installed capacity of these hardwood mills was estimated at 458 482 m3 of logs annually.
Hardwood sawmills employ an average of just under 40 employees each, equivalent to about 3,500 employed nationwide. However, sawmill operators were characterized by low openness and limited compliance to existing regulations. Regulations under the Forestry Act stipulate a minimum level of qualifications for industrial sawmill employees. 
The regulations include a requirement on the part of sawmill owners to register their businesses with the appropriate authority and employs to pay statutory taxes and contributions. A major issue facing the timber processing industry has been the low levels of investment into the training and welfare of employees (TRAFFIC, 2007). For these reasons the hardwood timber processing industry can be characterized as employing and keeping sawmill workers in the informal sector.
Analysis of official records showed that a total of 28 companies exported hardwood timber products sourced from natural forests. Research into the 28 companies indicated that 57% were owned by Tanzanians and the remaining 43% owned mostly by Chinese interests. An assessment of the number of exporters is complicated by two main factors. First, some companies are ‘branches’ of the same ‘mother’ company, or at least highly inter-related. Second, company names may be changed after one or two years, whilst owners and senior employees regularly move in and out of the country and change positions.
Table 12 shows that there are major discrepancies in the amounts of timber reported to be exported to China from Tanzania as compared to the amount of timber imported into China from Tanzania.
Despite the apparent weak adherence to regulations in the export of hardwood timber, the timber export sub-sector is the least informal, most regularized element of the forestry sector and will therefore not be assessed any further with regards to this report. 
Employment in the charcoal sub-sector
A 5 year study from 1996 – 2001 found that a limited number of people consider charcoal production to be their main economic activity, while a majority engage only occasionally as a means to generate income, particularly in times of financial stress, such as when making large payments for things such as medical costs, funeral expenses, food supplies in the event of poor harvests, marriage ceremonies, or school fees. 
The majority of charcoal is sold to large- or small-scale transporters. Some large-scale transporters are also wholesalers. These wholesalers then pass the charcoal on to smaller-scale retailers and consumers. Trade in charcoal is conducted by formal as well as informal actors. The major feature of the charcoal trade is that harvesting and production, bicycle and boat transporters as well as urban retailers are the most informal, unregistered and unregulated parts of the chain. Large scale transporters of charcoal are the least informal participants of the trade.
The economy of people in villages surveyed from 1996 to 2001 largely depended on subsistence agriculture. However, charcoal making was an important economic activity in sites neighbouring the city of Dar-es-Salaam, In all surveyed villages, about 23% of residents were involved in charcoal production exclusively. In all study villages, households derived more than 50% of their cash income from the sale of forest products including charcoal and firewood. Peri-urban households were found to derive almost 70% of their cash income from woodlands. 
Due to proximity to urban centers, peri-urban households benefit more from trade in charcoal than households in the intermediate and remote sites. This is because charcoal is more widely used in urban than in rural areas (EU, 2001). Table 13 below lists the number of actors that were estimated to be involved with the charcoal trade in Dar-es-Salaam a decade ago. More recent studies have shown that charcoal use has increased in Dar-es-Salaam from 47% in 2001 to 71% in 2007 (World Bank, 2009). Dar-es-Salaam is now thought to consume half of the 1 million tons of the charcoal used in Tanzania annually. It can only be assumed that informal and formal employment in the charcoal sector has increased since 2001, in line with the increase in charcoal use.
Household labour is usually used for charcoal making. The process involves wood Cutting, kiln preparation, carbonization and finally unloading charcoal from the kiln. While 13, 10 and 14 days are spent for wood cutting, kiln preparation and carbonization respectively. Unloading the charcoal kiln takes only about 4 days. The average working days per month are 20 while the average working hours per day are 7. On average, each household produces about 35 bags a year, mostly for sale (EU, 2009). 
During a transect drive in 2008 a count of charcoal sellers at road side was made from Chalinze to Mkata, some 100 km to 200 km west of Dar-es-Salaam. The large scale selling points consisted of several charcoal sellers each with their own load of charcoal.  
From Chalinze to the Wami River Bridge a total of 15 selling points were observed of which 13 were small and 2 were large. From the Wami River Bridge to Mkata a total of 22 selling points were found of which 3 were small and 19 were large. 
Selling points were divided into small points that had less than 10 bags of charcoal and large points that had more than 10 bags of charcoal. However, the Forestry and Beekeeping Division (FBD) did not collect any revenue from these sellers in spite of their significant numbers and operating transparently. Observations showed that most of the charcoal transported in small quantities by various vehicles is obtained from the charcoal sellers at road sides (MNRT, 2009b).
Bicycles were used for transporting charcoal to Dar es Salaam city but the transporters are not paying any FBD royalty. The average numbers of bicycles transporting charcoal observed per day for each route along the main entry points into Dar-es-Salaam are summarized in Table 14.   Weight of charcoal bags transported by the bicycles ranged from 80 to 105 kg with a mean of 95 kg per bag.
Unlike the CHAPOSA study, which investigated charcoal trade dynamics in and around the city of Dar-es-Salaam, a report by the World Bank estimated the size of the charcoal trade of the entire country by analyzing the existing literature and the data of various authorities held at different locations. 
The majority of informal employment in the charcoal sector appears to be created in the transportation and retail of the product. Table 15 does not include the millions of Tanzanians harvesting natural forest to secure the raw material for charcoal as part of the value chain. All the same, this World Bank study estimates that as many as 2,840,000 man years of, largely unlicensed, unregulated, informal employment are created by the charcoal trade.
Plantation forest supply and harvesting
(i)Employment in Plantation Forests
Forest plantations are for the most part professionally managed. Of the total estimated area under forest plantations of 225,000 ha, nearly 90,000 ha are contained in government softwood plantations. Another 35,000 ha of forest plantations are managed by private companies as industrial enterprises. The remaining 100,000 ha of plantations are non-industrial, privately owned woodlots of typically less than 50 ha each (MNRT, 2011). These private woodlots are mostly located in the southern highlands of Tanzania but they have been increasing in numbers and area covered over the last 15 years.
Out of nearly 2,000 employees of the Ministry of Natural Resources and Tourism, more than 50% are working in the forest plantations, mainly as technical cadre staff. The forestry sector is estimated to employ 3% of all paid labour in Tanzania. Much of this paid labour is employed in forest plantations not including day labourers (Kiimu and Mloge, 2011).
Harvesting at Sao Hill Forest Plantation is now at the level of 1 million m3, representing 80% of all harvesting in plantations in the country (MNRT, 2011). Users of wood are mostly Mufindi Paper Mills (MPM), which consumes some 250,000 m3, Sao Hill Industries about 100,000 m3 and small and medium size saw millers consume an estimated 650,000 m3. Small and medium size saw millers are part of the informal sector. 
Forest based industries in Tanzania are dominated by sawmilling, furniture manufacturers and other value added wood product manufacturers. The number of softwood mills has increased from about 140 in 1998 to 367 registered in 2005. 
Most of these mills are small scale sawmills with log input not exceeding 5,000m3 and employing about 5 – 8 persons each, resulting in approximately 3,000 persons employed at Sao Hill in sawmilling. In addition, there are installed over 400 pieces of small scale wood processing machinery (locally fabricated circular saw or roller bench with rails, most of them found at Sao Hill Forest Plantation, also processing saw logs. There has been a significant increase in the installed sawmilling capacity compared to annual supply of Sao Hill forest produce (MNRT, 2011).
Sawmills in Tanzania can be divided into three categories: (i) Micro-mills (Ding Dong type according to the manufacturer);

(ii) Circular sawmills (Kara type according to the manufacturer); and Industrial sawmills. Micro-mills are characterized by simple mobile technology powered by a diesel engine, and an all manual operation. Inadequate financing, very small investments to equipment and low level of maintenance lead to mainly poor quality timber products. 
Most sawmills in Tanzania today are micro-mills that are operated informally with minimal regulation. The mills are using good quality saw logs to produce low quality sawn wood at fairly low recovery rate of 33%, resulting in a large volume of sawdust. 
Most of the small scale sawmills do not have the technical staff required as per current forest regulations. Other small scale type of sawmills are Kara type (e.g Laimet, CVY, Forester) number about 50 at Sao Hill. There are also a few larger, industrial scale sawmills like those found at Sao Hill Industries, Tanwat and KVTC, which produce over 20,000 m3 of sawn wood annually.
(ii)Traders of Softwood Timber
Because of the growing number of producers, middlemen and traders, most timber traders at various levels have formed associations to work together on common issues. The number of members in the Southern Highlands Forest Industries Association (SAFIA) has increased rapidly as new sawmillers and harvesting allocations are given (see Table 16). According to SAFIA due to dwindling raw material in other areas, especially in the Northern Highlands, many sawmillers have moved to the Southern Highlands. 
The government wood allocations have increased but the number of allocation permits and sawmillers has increased much faster. Currently, the sawmillers are allocated very small amounts of wood compared to their processing capacity. Forest regulations require all traders of forest produce to be registered with the Ministry of Natural Resources and Tourism and to possess a Tax Identification Number (TIN). 
This regulation has not prevented unregulated trade in softwood timber however as many traders instead of using their allocation to process or trade timber, sell their allotment. The scarcity of raw material has meant that demand is unmatched by supply. In the absence of meaningful measures to limit the amount of applicants a black market has developed in timber allocations from Sao Hill.
Survey of Informal Sector under Forest Products Industry Sector 
The objective of the survey was to determine the level and characteristics of the informal sector under the forest products industry sector in order to identify opportunities for formalizing the informal actors in the sector.
Sample and sample design
The informal sector under forest products industry included the following wood based businesses; wood works including carpentry and furniture marts, timber yards, charcoal stores, firewood, artisans including wood carvings and curio shops and small scale saw mills.  A total of 300 samples (100 samples from each region) were collected representing each of the above wood based businesses. Samples were selected randomly from each district in each region with the exception of Arusha Region where only two Districts were sampled, including Arusha Municipality.  At least 10 samples were selected from each type of business.
Survey findings and discussion
The survey focused on seven issues; education and tax payment status, business investments, ownership, business hampering factors, business barriers, information and communication, and  on the challenges. The performances of the businesses were recorded to be moderately good with a score of 55%. 
The performance of the businesses whereas recorded to be moderately good with a score of 55%.
To continue on Saturday