INVESTMENT AND EMPLOYMENT OPPORTUNITIES ...

31st Annual Conference

INVESTMENT AND EMPLOYMENT OPPORTUNITIES IN SMALL SCALE FOREST BASED ENTERPRISES. Aiyeloja A.A* and Larinde S.L Department of Forestry and Wildlife Mgt., University of Port Harcourt, Nigeria. *Corresponding author Abstract Small-scale forest-based enterprises have been neglected in Nigeria because of the presence of oil. However, recent development has shown that it will not be in the interest of the country to put all the eggs in one basket, so the need to diversify. Small scale forest based enterprises have been succour in many countries with larger population than Nigeria. Hence is why this paper advocates for th~ development of small scale forest based enterprises as sources of investment and employment in Nigeria, citing instances from other countries around the world. A trial study on techno-economic analysis of wood waste utilization for some wooden souvenirs-a forest based enterprise, shows a very comfortable rate of returns on investment and a positive benefit-cost ratio. There is no doubt that small scale forest based enterprises will provide vast opportunities for investment and employment if adequate financial and managerial attention is given to them as it is being done in other places.

Introduction According to Aribisala (1993), all industrial activities are classified into four groups for operational purposes, namely; cottage industry, small scale, medium scale and large scale enterprises. Within this context, a cottage industry was defined as one in which goods are produced primarily in the home of the producers using primitive equipment with value of assets usually less than N25J 000.00 A small scale industry was defined as an enterprise whose value of assets vary between N25, 000.00 and NlOO, 000.00 while medium scale stretches to N5million and large scale above N5million. In another perspective, LISTRA (1997) categorised all industrial activities into four groups based on labour requirement as follows; micro enterprise 1-9 workers; small scale enterprise 10-49 workers; medium scale enterprise 50-99 workers; and large scale enterprise 100 and above. However, d"', to the effect of the Structural Adjustment Programme (SAP) and the consequent devaluation of the Naira, a small scale industry was redefined as a micro enterprise whose assets vary between Nlmillion and N2million. The Bankers' Committee, for the purpose of small and medium industries equity investment scheme defined a small and medium industry as any


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enterprise with a maximum asset base of N200million excluding land and working capital. For the purpose of this write-up, small scale enterprises are taken as those whose assets are not more than N2million and labour requirement of below 50 workers. This includes well established cottage industries. Small scale enterprises are usually characterized by small size, simple technological operations and technical know how and low capital input. Small scale forest based enterprises include such productive activities as: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Furniture making from sawn wood, cane, bamboo and rattan. Charcoal production Collection and processing of non-timber forest produce such as medicinal plants, fruits and ropes. Fuel wood marketing Honey production Silk worm production Mushroom cultivation Domestication of wildlife for bushmeat production. Manufacturing of agricultural tools. Art and craft such as wood carving, mats, hats, baskets and sponge making, mortal and pestle.

Investment Opportunities. Gone are the days when forestry was seen as a business with a long gestation period between the time of investment and the time of dividend. This is because, forestry was perceived only as a timber bu.siness with the limiting problems of slow growing indigenous species and very low rate of regeneration. Little or no attention was given to non-timber forest products (NTFPs) in all their diversities as well as the various uses one can place on the erstwhile wastes from lumber production. Recent development has shown that forestry business transcends timber business though it is part of it. For instance, in Brazil, the Aracruz pulp and paper company created investment opportunities fur 2,500 farmers from 113 municipalities by organising a partnership program with them for the supply of pulping stocks. This number could only meet about 15-20 percent of the company's need, so there is every likelihood for expansion. In India, another pulp manufa~turer (BILT Corporation) started a farm forest program with 9,000 farming families with the plan to increase it to 60,000 farmers. In Russia, IKEA, the world's largest furniture retaining company has developed contacts with numerous small scale furniture manufacturing companies in Russia and in 50 other countries. These other companies supply raw material to IKEA. In South Africa, Mondi Corporation, through a Kulanathi woodlot scheme in Kwa Zulu Natal, engaged about 4,000 forest farmers to supply 120,000 tons of round wood to the market. This brought

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a whopping sum ofUS$3 million to the local communities (World Bank, 2003). In Nigeria, there are over 2000 industrial establishments in the country presently. Among these are a giant oil industry, iron and steel complexes, steel rolling mills, pharmaceutical industries, food processing, car assembling and the up-coming Export Processing Zone (EPZ). However, government economic policy favours and places priority on greater investment in four Industrial Sectors which are considered priority areas of development because of their linkage effects on the other sectors and potential catalytic role in the overall growth of the industrial sectors. These priority areas which are most favoured in the-administration of government industrial incentives are: Metallurgical/Engineering Industries, Agriculture (Forest-based and agro-allied activities), Chemical/Petrochemical Sector, and Construction Sector. (Nigerian Embassy-Chile, 2000). It is of note that, forest-based enterprises are specifically mentioned outside of Agriculture and other agro-allied activities. Also, with the establishment of the Small and Medium Enterprises Development Agency of Nigeria, (SMEDAN) there are sundry opportunities for investors. These include granting access to simple small scale equipment, flexible equipment and contact manufacturing opportunities, business assistance services which include business plans assistance and market assistance. Other opportunities include business incubation services such as quality assurance and linkage to banks, college graduate recruitment and training programmes. Encouraging the formation of Cooperatives, offering advisory services, linkage to special credit schemes and foreign financing and fund.

Apart from all these, small scale forest based enterprises are highly profitable business ventures. For instance, in a recent trial study on the techno-economic analysis of wood waste utilization for some wooden souvenirs (Ogunsanwo et al; under review) the rate of returns on investment ranged between 66% and 150% The cost-benefit ratio was 1:1.64 at 14% discount rate with Net Present Value (NPV) ofN9335.95. (Table 1). This makes the enterprise viable and profitable even when it involves loan taking .The loan will be paid with interest and the entrepreneur with still make profit.

Table 1: Rate of Returns on Investment on Production and Sale of Wood Souvenirs. Products Number Unit Total Cost! Total RORI % Cups and Saucer Cover bowl Flower Vase Snack bowl Tray Total

Product 10 5 2 7 7 31

pnce 500 2000 1000. 500 1500 5500

Revenue 5000 10000 2000 3500 10500 31000

Products 300 1000 600 200 850 2950

Cost 3000 5000 1200 1400 5950 16550

66.7 100 66.7 150 76.5

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t-n

R

BlC= t-O (1 +rY

t-n

£

C

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t-c (1 +rY

= = =

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t = time one year NPV = Discounted Value of Benefit - Discounted Value of Cost Emerging Investment Opportunities In a recent development, John Spears, the Chairman of the World Bank Forests Team, chaired a concluding panel on emerging investment opportunities aimed at creating an enabling environment for private sector investment, with special reference to some of the emerging investment opportunities identified by forum participants. It was suggested among other things that follow-up activities should focus on the forests, open woodlands, farm forest resources, and small-scale forest product enterprises of low-income, forest-poor countries such as India and other countries of Sub-Saharan Africa which have the potential of poverty alleviation with the aim of improving household income, food security, and agricultural productivity (World Bank, 2003). Employment Opportunities Many people who live in forested regions, which cover 30 percent of the world's land mass, eke out $1 a day or more. Globally, there are over 1.6 billion people--nearly one third of the world's population-who depend on forests for their survival, this includes some 350 million indigenous and tribal people who are gainfully employed in forest enterprises. (Pethiya, 2003) Small to medium-size forest products processing and trade was one of the three largest categories of nonfarm rural activity)n several studies undertaken by the FAO in the late 1990s. Worldwide, small-scale sawmilling, joinery, furniture manufacture, and other small


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wood-based enterprises employ some 33 million people. Community forest ownership additionally has more than doubled in the last decade. (World Ba~k, 2003). In all countries for which information has become available so far, forest products processing has been shown to be one of the largest of the small-scale rural industries. For instance, it accounted for more than 16 percent of total estimated employment in rural manufacturing in Honduras and 35 percent in Jamaica (Arnold et al, 1987). For Mrica as a whole, it has been estimated to be the second largest rural industry (Page and Steel, 1984), and everywhere in the deve1op'ing world, it generally appears among the first three together with garment-making and food processing (FAD, 1985). Even in Egypt, a country almost devoid of wood resources of its own, the manufacture~ of wooden furniture is the third largest industry outside large towns and cities (Mead, 1982). In India, it is estimated that over 3 million people are employed in the tendu-Ieaf collection and beedi-rolling industry (www.uohyd.ernet.inlsss/ dhistory/beedi/beedi.html) and nearly half-a-million people are employed in safety-match making, sawmilling and woodcarving.(Sharmistha and Sushil 2004). When employment in the processing offorest products through transient and itinerant enterprises such as charcoal production is added, it is clear that total employment generated by small forest-based activities is a large part of total off-farm rural employment and suggests that small scale forest based enterprises are extremely important generators of employment. Conclusion Without mincing words, it is clear from the afore-mentioned points that small scale forest based enterprises are ~nvestment and employment generating ventures which should be given more attention in Nigeria. Scale Industries. This will assist in stepping down or reducing poverty as well as engaging many more people who hitherto have been eng·aged in hazardous ventures like the popular "okada" .- motorcycle riding business and other nefarious businesses.

31sf Annual Conference

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Ref~rences Aribisala O.A. (1993): Raw Material Revolution and Impact on Industrialization in Nigeria, Mednet Publication. Lagos 52 pp Arnold J.E.M , M.E. Chipeta and Y. Fisseha (1987) : The importance of small forestbased processing enterprises in developing countries. Prepared for FAG of the United Nations. Pp 18. FAO. (1985): The contribution of small-scale forest-based processing enterprises to rural non-farm employment and income in selected developing countries. Rome. In . Arnold et al 1987 Greg Clough (2006): CIFOR Media Center News Release, International Coalition Launches Unprecedented Effort to Strengthen Local Rights to Own and Use Forests and Fight Rural Poverty. Center for International Forest Resenrch, Situ Gede, Sindang Bogor Barat. www.cgiar.org. Pp 12. LISTRA, (1997) Small scale Enterprise for Forest Protection? Livelihood Systems and Tropical Forest Areas. G.T.Z Eschborn, Germany. 29 pp Mead, D. (1982): Small industries in Egypt: an exploration of the economics of small furniture producers. Int. 1. Middle East Studies, 14: 159-171. Nigerian Embassy-Chile, (2000): The Nigerian Embassy Investment Opportunity; Vision 2010, Economic Folicy, Investment Climate and Opportunities. Home Embassy Consular. Nigeria Government Business Contact. NigcrianEmbassy-Chile.org. Pp 23 Ogunsanwo O.Y, Aiyeloja A.A and Akerele T.O (Under review): Techno-economic Analysis of Wood Waste Utilization for Some Wooden Souvenirs. Agricultural Journal, Medwell Online, SarghQd,lHlRQad, Faisalad-38090, Pakistan . Page, J. and Steel W. (19~4): Small enterprise developmrnt: economic issues from African experience. Technical Paper No. 26. Washinf'ton, D.C., USA, World Bank. In Arnold et al 1987Pethiya B.P. (2003): Options for livelihood enhnncf'lnent by combining small-scale forest based enterprises with microfinance practices: The Indian experience. Indian Institute of Forest Management, Nehru Nagar, Bhopal 462 016, India. www.iifm.ac.in. Pp 12.

Sharmistha Band Sushil S (2004): Thinking Big about Small Scale Enterprises, in ITTO Tropical Forest Update. 16-17 World Bank (2003): Report of the Forest Investment ;~(,l"Um.Publication prepared by: PROFOR at the World Bank 1818 H Street N\V, Washington DC, United States. Published July 2004. Pp56.