ITP: Industrialisation, economic value chain

Published on: Sunday, March 14, 2021

By: Leonard Alaza

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Innovative wood based products (structural and chemical) will require consistent supply of homogenous timber. Picture shows a bird’s eye view of homogenous timber in an ITP area.

WITH its capability in producing eight million cubic metres of sustainable output of homogenous wood supply in perpetuity, the Industrial Timber Plantation (ITP) is Sabah’s stroke of economic genius.

Sustainably produced from a fully planted net area of 400,000ha within a 10-year rotation, this would equate 10 per cent to 15 per cent of the Gross Domestic Product (GDP).

Its production value in Sabah, both from full upstream and downstream activities, is estimated to be RM11.5 billion.

Having such a critical mass would enable Sabah to develop a fully performing wood-based industry, one that would create an economic value chain that is fully captured in Sabah through various activities from upstream, primary and secondary processing down to the finished products.

It would also create high skill jobs, high tech processes, product and market innovation, diversity and market resilience.

All these answer the question that is likely to be at the back of everyone’s mind: what does the ITP has for me?

Basically, the numbers tell the story how the ITP can give birth to such an industry and set into motion a process that allows all the socio-economic and environmental values to keep adding up, which at the end of the day contributes to the state’s coffers and people’s wallets. It will be a story of Sabah’s new economic direction toward becoming a developed and prosperous state in Malaysia.

Industrialisation and economic

value chain

So the story goes like this: the critical mass of planted trees from the 400,000ha would produce raw resources in the total of eight million cubic metres annually.

They come from different parts of every single tree planted in the ITP area. Nothing goes to waste as every part of the tree is utilised and monetised.

Logs from smaller branches would produce chip logs valued at RM617 million per annum. The rest of the tree parts would be turned into saw and veneer logs both valued at RM414 million and RM752 million per year, respectively.

The numbers keep going up when these resources go into primary processing. The chip logs would be turned into wood chips with a market value of RM1.26 billion.

Saw logs would be processed into sawn timber with a value of RM844 million per year while the primary processing of veneer logs to veneer would generate a value of RM1.94 billion annually.

The values continue to increase when they are turned into final products such as biochemical, cross laminated timber (CLT) or glued laminated timber (glulam), laminated veneer lumber (LVL) and furniture.

Further they would create a new economic value chain in industrial chemicals and building construction industries.

All these values, from the critical mass in the form of the millions of trees planted in ITP area down to when they are turned into the various primal products would have generated the total of RM11.5 billion for Sabah’s GDP.

“When we have critical mass, we can scale up through processing, production and marketing activities. All this give us a competitive value chain,” Timber Association of Sabah (TAS) President Norman Wong explains.

Socio-economic impact

It was recently reported by the Department of Statistics Malaysia that the country’s unemployment rate last year had increased at the highest rate since 1993.

The department attributed the slower labour demand that year due to adverse impact of the Covid-19 pandemic and the health crisis. This had given a huge impact on the labour force which led the unemployment rate to reach above four per cent against an average of three per cent recorded in the pre-crisis period.

The Edge Markets, in the meantime, reported that the rate in Sabah had always been high, with or without the pandemic. It quoted Datuk Prof Dr Kasim Md Mansur, a Sabah Economic Advisory Council (SEAC) member and dean of Universiti Malaysia Sabah’s (UMS) Faculty of Business, Economics and Accountancy:

“The unemployment rate in Sabah has been among the highest in the country all this time,rising to 5.8 per cent in 2020. Even before the Covid-19 pandemic, it was challenging for workers to secure jobs and vice versa for employers.

“There are no large-scale industries here and most investors are only small and medium sized.”

As the ITP is market resilient, it could cushion any economic impact on employment. It is estimated that some 80,000 jobs will be created over time in the ITP sector, both upstream and downstream.

The general breakdown is that some 40,000 jobs can be created in the upstream sector, 30,000 in primary processing and 10,000 in final production. Out of these, the total skilled jobs would be 50,000.

More significantly, the ITP’s contribution toward job creation in the state directly makes a difference in rural development with weak labour markets.

A fully performing wood-based industry fuelled by the ITP in Sabah can also stimulate the creation of new professions previously never associated with the timber business.

Advance in technology has seriously improved the forestry and timber industry. Computers, GPS systems and data analytics to name a few have made planting, monitoring and mapping more efficient.

Sabahans can look forward to many different types of careers in the ITP sector, from managerial positions, hardware and software engineering to technical, all requiring specific set of skills.

New jobs can potentially find a place and thrive in the industry such as drone piloting and as it grows and adapts to the ever-changing world over time, who knows what other job skills would be created.

All this can only mean a high income potential for the people in the State.

“Machines that cost millions of ringgit require highly-skilled individuals to operate. It’s a high income job,” says Wong.

Issues facing the ITP

It has been established that there is currently a decline of natural forest timbers in forest reserves to meet market demand. When empowered, the ITP has all it takes to fill the gap and provide a sustainable supply to feed a market hungry for wood-based products.

Again, it has to have a critical mass to play this important economic role.

“This is attributed to the lack of enabling factors for ITP investments and development,” Wong laments.

He also attributes it to the lack of an ITP policy which resulted in low return on investments and inconsistencies in plantation development.

So far, the ITP has been punching below its weight due to the lack of an ITP policy as well as the enabling factors. It is only by having a high performing ITP sector can it generate the 8 million cubic metres of resources, attract RM3.6 billion of new investment in planting plus RM520 million of re-investment in replanting annually.

In addition, a high performing ITP is a must in order to see such a massive amount of jobs and new jobs created, innovations and values fully captured in Sabah and above all, the RM11.5 ‘green’ GDP every year.

Innovation with respect to ITP Policy

Having an ITP policy to regulate its nature of business is fundamental to the awakening of this green economic giant.

The Sabah Forest Enactment 1968 is focused on monitoring and protection of natural forests, and regulating the output from those forests. Logs from the natural forests are low in volume, high in value. Logs from the ITP, other the other hand, are high in volume but low in value.

When existing procedures are used to regulate the smaller ITP logs, it results in lower throughput, higher expenses and more time wasted.

“When plantation logs are not fresh, it results in lower recovery and higher inventory expenses. Such wastes must be stripped out from the supply chain for us to be competitive,” Wong suggests.

It is like having an electric car that one cannot use to its fullest capacity simply because the laws governing cars in the country are still those of fossil-fuel powered.

TAS has been promoting for the development and implementation of an ITP policy, says Wong.

Fortunately, the Ministry of Industrial Development, Sabah Forestry Department and the newly formed SEAC understand the significance of the ITP for Sabah’s overall timber strategic plan and economic future. Thanks to MID and Forestry Department, they have taken an active part on the lead to pursue this matter.

“The ITP Transformation Plan needs fullest support from the government so it can contribute to more than 15 per cent of Sabah’s GDP by 2035, creates many jobs and help socio-economic growth in rural areas,” says Wong.

The ITP Transformation Plan happens to align with the new economic direction the SEAC has for Sabah.

The new direction is one that is inclusive for tree planters and downstream stakeholders, promotes rural development and poverty alleviation, provides high skilled employment, green and regenerative, and has exponential growth potential for Sabah’s economic future. ITP ticks all the right boxes.

“All these are within our reach and we can make them happen now,” he adds.

The government needs to invest in developing the enabling factors which not only benefit the ITP but all business sectors.

Enabling factors are extremely important in order to scale up the ITP and attract the required investment.

TAS has listed them under seven headings which are political and macro-economic stability, land tenure, research and development, fiscal conditions, infrastructure, skills training and certification and market development.

It is quite a wish list yet so crucial if Sabah is ever to see a strong economy fuelled by a solid wood-based industry that is the direct outcome of a high performing ITP sector.

A need for local solution

There is however another constraint faced by the ITP, that is the Forest Stewardship Council (FSC) certification.

The FSC is an international non-profit, multi-stakeholder organisation established in 1993 that promotes responsible management of the world’s forests. It is a market-based certification program used as a transnational environmental policy.

Since 1994, FSC does not tolerate conversion of natural forests, meaning plantations from converted areas after that date cannot receive FSC certification. This poses a challenge for ITP development in Sabah as about 240,000 ha under the SMFLA/FR remains unconverted.

At the end of 2020, 15 Asean countries and five regional partners historically signed the Regional Comprehensive Economic Partnership (RCEP), basically a free trade agreement among the countries involved.

They account for about 30 per cent or 2.2 billion of the world’s population and 30 per cent or USD26.2 trillion of global GDP as of 2020, making it the biggest trade bloc in history. TAS sees the RCEP as a massive market for wood-based products but its entry into it has to come under certain regulations and subject to certain standards of certifications.

According to Wong, it looks forward to working with various parties especially the academia in areas of research and development of standards.

He singles out Sabah’s own Universiti Malaysia Sabah (UMS) which has an established programme in forestry.

“TAS is glad that our Sabah Conservator of Forests is fully behind the move in engaging the higher learning institution on the development of Sabah’s forestry and timber sector,” he says.

Strong support all the way

He adds that support also has come from the State government under the leadership of the Chief Minister Datuk Hajiji Noor.

“We have met and briefed him about the ITP recently. As a visionary leader, our Chief Minister sees what it means for the state’s economic future.

“We’ve also received solid support from the Conservator of Forests, Director of Hasil Bumi and the State Secretary. I believe we all share a common vision for Sabah and for Sabahans,” he reveals.

One of SEAC’s members Datuk John Lo, in his recent article for the Daily Express, wrote:

“Within these few years, Sabah can encourage the establishment of an ITP and related downstream industry. With proper policies in place, ITP can become Sabah’s perpetual green gold mine like NZ, Brazil and many northern European countries.”

In December last year, the State government rolled out its “Sabah Maju Jaya” plan, which is a five-year commitment from 2021 to 2025 to aggressively develop the State which, like everywhere else in the world, has been hurt by the Covid-19 pandemic.

In fact, according to Wong, the journey toward the goal has already begun with the ITP as a major contributor, with a regenerative economic value chain, resilient and inclusive.