On Friday, 28 February 2020, the World Health Organisation (WHO) declared the COVID-19 outbreak as a global pandemic, resulting in Governments around the world strengthening their containment measures. Apart from the obvious health implications, the unexpected and alarming spread of COVID-19 sparked fears of a global economic slowdown.
President Cyril Ramaphosa announced on 23 March that South Africa will enforce a three-week lockdown to contain the spread of COVID-19, starting at midnight on 26 March. This initial lockdown and the subsequent extension of the lockdown under various levels had a significant effect on the citizens of the country and our economy. Government, through the implementation of various relief measures as well as the reprioritisation of the national budget aimed to mitigate the effect of the pandemic, both on the health of its citizens, but more importantly the clear economic fallout.
The Forestry Sector was very privileged to be declared as essential goods and services, but we were nonetheless still severely affected. It was also recognised from the onset of the lockdown the extent to which the COVID-19 crisis experienced by the Forestry Sector, which would be considerable, would spill over to other, up and downstream, associated industries, as well as the informal sector. This is due to large producers also being the primary market for upwards of 21 000 SME timber suppliers and hundreds of upstream and downstream suppliers of other products and services. Furthermore, reduced consumer demand and mobility would have a significant impact on retailers, distributors, manufacture of forestry goods, as well as forestry operations.
With most of the Forestry Sector being recognised as an essential service from the onset of the lockdown, it was positive to note that between 61-70% of the Industry remained operational even under Level 5 lockdown. While some producers of essential goods, such as tissue manufacturers, pulp, plywood and packaging producers were managing to continue most production, producers of products that are ancillary to the production of essential goods, for example, timber growers providing the feedstock for products such as medicines, cleaning and hygiene products, energy and food, were battling to get recognition as an essential service/product. This caused particular issues with enforcement agencies who could not see the clear link between their product and an essential service.
The Sector experienced a 21-30% decrease in demand of Forestry Products. In particular, domestic demand for almost all other products, except pulp, declined as a result of producers further down the value chain struggling to maintain production and the decrease in retail sales, consumer mobility and the inability of enforcement agencies to recognise these sub-sectors as essential. Despite the constraints resulting from the implementation of the lockdown, the Sector was able to honour between 91 – 99% of Industry payroll at the height of the lockdown under Level 5. Although the figure for temporary, short-term and part-time workers that remained employed and were paid during this time was lower, it was still high at 71-80%.
It is still challenging to truly quantify the impact of the lockdown on the Sector. It is also important to note that even before the initiation of lockdown, the Sector already experienced a year on year decrease in volumes (Jan – Mar) of 14.4% that followed on a slowdown in economic growth. The most recent data has shown the biggest decline in tonnages ever recorded by FSA with a decrease year on year (Jan to May 2020) of 25.5%. Even though a recovery in volumes was observed during May (Figure 1), the year on year decrease in volumes is even higher than observed for the period January to April (21.2%). This decline represents a drop of R406 million in raw products, which translates to a drop of R1.04 billion in processed products. The impact on the various subsectors in the Forestry Industry varied as expected because not all sub-sectors in Forestry were recognised as essential services during Level 5. The cumulative year on year decrease in production for each subsector was 13.5% for pulp, 36.5% for saw timber, 49.5% for poles, 16.3% for mining timber and 68.2% for other timber products. To truly understand the impact of the lockdown on the Sector, it is important to rather look at the year on year comparison of volumes for April 2020. The decrease in total volumes for April 2019 vs April 2020 was 44%. The impact for each subsector varied significantly with the mining timber industry most affected with a decrease of 94.6% followed by saw timber (90.7%), poles (86%), other products (23.5%) and lastly pulp (23.4%). This was expected as the mining industry and construction industries which saw timber, poles and mining timber rely on only reopened under Level 3. Even though the impact on the Sector has been significant, it is important to emphasise that due to a large part of the Sector remaining operational during lockdown, thanks to FSA’s efforts through the Public Private Growth Initiative (PPGI) and Essential Sectors Group, the Industry (and thus the country) was able to save over R10bn and countless thousands of jobs that could have been lost as in other sectors.
Even though the Sector is under significant pressure, history has proven we can endure worse. A good example of this is the Sector’s resilience during the 2008 global economic crisis. International trends during the crisis included regional level employment decrease of 21%, Wood fibre price decreased between 20% and 34% in countries like Brazil and Chile respectively and investment in the forest industry decreasing by 26%. During this period, the South African Forestry Sector did not see any job shedding, fibre prices remained stable and investment did not decrease. Similarly, when various sectors experienced disinvestment and significant job losses during lockdown, the Forestry Sector maintained high operational levels, prices remained stable, no job shedding and the sector supported the opening of several related sectors which enabled the Forestry Sector to continue its increased investment committed in the presidential Public Private Growth Initiative (PPGI).
The questions remain. What will the way forward be? What does the recovery horizon look like and will we see positive trends or continued negative trends?
With all sectors of the value chain designated as essential services from the onset of Level 3, we do expect the sector to recover, but to reduced levels. We expect sawtimber and pulpwood sales to remain under pressure for the remainder of the year. The reduced price of dissolving pulp in 2019 which was anticipated to last till mid-2020, will probably be extended to mid-2021. This is due to the depressed markets and subsequent reduced exports during lockdown that would have absorbed the current oversupply. As the sale of sawn timber is closely linked with the growth in GDP, and with the slump in GDP, we expect some recovery in the sale of sawtimber, but not to the same volumes as before the lockdown.
This crisis does offer an opportunity for the Forestry Sector to support the country in mitigating the fallout of the pandemic. Nationally the economy will take a few years to recover, employment will decrease significantly with a predicted 7 million jobs lost. For Forestry to contribute to the countries recovery, it will require a collective approach between government and the private sector. This process has in a true sense already been put in motion through the PPGI and the Forestry Master Plan being developed. Some of the low hanging fruit is the expansion of forestry areas. This will contribute to job creation, transformation, development of new enterprises and the protection of natural resources (that will receive increasing pressure due to increasing unemployment). This could also result in socio-economic development initiatives that benefit local communities.
Although the way forward remains uncertain, there is a need to acknowledge that the Sector’s collective approach we have been building has to be strengthened even more during these challenging times. We will need to be creative and compromising to assist each other in working through the challenges to come. FSA will continue to support our members and contribute to the resilience of the Forestry Sector.