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Allied Timbers - Contract Millers in Zimbabwe

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Oct 10, 2012

 

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Allied Timbers - Contract Millers in Zimbabwe

Allied Timbers is involved in the production of saligna and gum trees in the Eastern Highlands of Zimbabwe. They are also involved in the processing, value adding into furniture, distribution, wholesale and retail of the products in Zimbabwe. Allied Timbers employs 2,700 people full time and approximately 1,0000 contractors (including contract millers). The company has outlets in one form or another in all major cities and towns in Zimbabwe. There are 12 in Harare. Gweru, Bulawayo and Mutare have some of the larger outlets outside of the capital city. In some cases, ‘partner’ companies are used in sales and distribution. For example, Halsteads and PG stock Allied Timbers products. Turnover for the last year was approximately US$24 million.
The first tier operations which are inclusive but don’t include rural communities in equity terms are .
Allied Timbers has a two tiered Inclusive Business component. The first tier involves the outsourcing of milling activities to 34 milling contractors. The contract millers’ payment to Allied Timbers is 50% of the sawn timber with the contract millers keeping the other 50%. Contracts are renegotiated annually with Allied Timbers. The second tier is an advancement of these milling contracts to include a community equity component. This includes an increase in the amount of timber milled (target of 2,000 cubic metres per month each), as well as a 15% equity share for the local community within which the contract miller is operating (with the option to purchase a further 15%). A further 36% is typically allocated to a businessperson who has capital to invest into the operation with the balance of 49% belonging to the milling operator who owns some of the equipment. The second tier millers retain 60% of sawn timber as opposed to the 50% that the first tier operators retain. This is an added incentive for milling operators to aspire to and is also an added incentive to include rural communities. The second tier model has been in operation from early 2011. To date, 3 of the 34 outsourced milling operations have been upgraded to the second tier model. Allied Timbers facilitates the move to a second tier business, however it is purely a voluntary upgrade on behalf of the contract millers.
The Inclusive Business model was initiated by the CEO, Joseph Kanykanye as he recognised that the local ex-commercial farmers were in a position to offer skills, equipment and in some cases, capital for Allied Timbers milling operations. At the time, Allied Timbers was short of operating capital and was struggling under prevailing conditions to raise affordable capital. The advancement from the first to second tier models was in recognition of the need to include rural communities in the project. In addition, the company places high value on the environment and felt that a progressive way to add to its preservation and management was to include a broad spectrum of the community within which the company operates.
To date the results are as follows:
• 30% of Allied Timbers production is processed by the contract millers.
• US$20 million per annum worth of timber is milled by the contract millers. US$10 million of this is remitted to Allied Timbers. Of this, Allied Timbers estimates US$3 million is taken up by costs and US$7 million is the profit component. Of the US$10 million that the contract millers retain, Allied Timbers estimates US$6 million is attributed to costs and they make a collective (the 34 millers) profit of US$6 million.
• The contract millers only take the first (year 5-7) and second (year 11-13) thinning. This leaves all of the larger, older timber for Allied Timbers to mill themselves. This results in a win/win situation for all involved and creates what Allied Timbers refers to as a ‘commonwealth’ effect.
For further information please contact: SNV Zimbabwe Country Office, 6 Caithness Road, Eastlea, Harare, Zimbabwe. T +263 4 776136/7, +263 772 127119, F +263 4 746875, E zimbabwe@snvworld.org

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