4 Solomon Islands

4.1 Background

Plantation forestry in the Solomon Islands has until recently been carried out by the government. Over 20,000 hectares of hardwood plantation have been established since 1967, some of which have been subsequently privatised (e.g. Viru plantation). Other forest area has been incorporated into a commercial independent joint venture between the Solomon Islands Government and an outside funder, Kolombangara Forest Products Limited (KFPL).

Nine major and several minor species were tried, with 24,120 ha successfully established by 1989. The later planting concentrated on Cedrela odorata, Gmelina arborea, Tectona grandis and Swietenia macrophylla.

Future expansion of plantation forest development will be dependent on outside investment. There is interest from those already involved in plantation forestry in the Solomon Islands to carry out some of this expansion, but the future depends on the Solomon Islands being able to attract international investors to take a greater part in plantation forestry expansion.

For this report, the Solomon Islands case study was based on the Saenaua plantation on Malaita Island. This was established on customary land under the New Zealand Government’s Official Development Assistance Programme. This plantation is typical of what can be achieved, and experience of this and others at different stages of development provides the information basis for the case study. At present Saenaua is 100% owned by the landowners, but will need continued outside investment to enable ongoing management, in particular harvesting and marketing expertise.

The Saenaua plantation has the following structure (hectares):

4.2 Technical matters

4.2.1 Land qualities

The Saenaua plantation is located on rolling to steep land behind the township of Auki. The terrain is typical of much of the Solomon Islands land that could be suitable for development into hardwood plantations. The soil is of predominantly volcanic origin, and is moderately fertile. As with most such locations, access for harvesting is likely to be a significant consideration. A steep ridge-top road provides current access and a mid-slope road line exists. Access to some areas is difficult, and is certainly under-developed. Roading infrastructure from initial logging is derelict and is often poorly located and poorly formed.

4.2.2 Climate

The climate for the Saenaua area is warm and moist. Significant periods without rain are unusual. This means that not only do the trees grow well, but so does competing vegetation. Weeding of the trees after planting is an essential operation, and must be maintained for a considerable length of time to prevent creepers from overtopping the trees. High rainfall also means that even where roads are formed, access can be difficult because of mud or wash-out. For these reasons, it is imperative that care is exercised in road construction and maintenance.

Erosion of exposed soil is also a potential problem, and leaching of nutrients from the soil where it does not have a high organic matter content and good vegetation cover is a real danger. Saenaua has had regular stand maintenance carried out by the landowners. Consequently, survivals are high and growth rates have been excellent. One benefit of the warm, high rainfall climate is that the risk of fire is low. No fire prevention or control activities are undertaken and no insurance is necessary. However, this can lead to a lack of a fire awareness culture.

4.2.3 Nurseries

Seedlings are grown in a Forestry Division nursery at Auki. These are provided free of charge to village reforestation projects. Where large areas of planting are required, commercial nurseries would have to be established. KFPL operates one such nursery in Western Province. The skills for simple, small scale nurseries exists already, but there is little appreciation of the requirements of large scale nurseries beyond the one or two sites where commercial plantation forestry companies such as KFPL are operating.

Saenaua is a small, but commercial scale plantation and could be replicated in many places, using existing small scale nursery technology. Practical and achievable improvements to the nursery techniques are possible with minimal training input.

4.2.4 Experience and labour

Local staff is trained, predominantly through the Poitete forestry school and receives a very good grounding in indigenous forestry. The concept of forestry as a commercial investment is foreign to them, and plantation forests have been viewed as things that the government establishes. Where other plantations have been developed (e.g. North New Georgia Timber Company), there has generally been no economic analysis of the venture or its components.

Saenaua has some technical input from the Forestry Division staff but most of the development technical skills were provided by New Zealand foresters with commercial plantation forestry experience, through the New Zealand Official Development Assistance programme.

The local landowners have shown themselves to be ready to learn new techniques and concepts, and have carried out the operational forest management very well, supervised by the Forestry Division staff, who themselves have readily learned new techniques.

4.2.5 Diseases

In tropical situations disease risk must be considered, particularly with the warm moist climate. At Saenaua, there has so far been no serious problem with insect pests or disease. It is an ongoing consideration and local forestry staff is aware of the risk.

The conscious use of exotic trees has the effect of isolating the species from its natural pests and diseases, but also exposes it to the risk of attack from local indigenous pests and diseases for which it may have no defenses. Initial species trial work is always essential to sort out those that thrive from those that do not. Shoot borer in mahogany is a significant potential risk, but any effect of this at Saenaua has so far been negligible.

4.3 Economical issues

4.3.1 Rates of return

To attract international investors, the rate of return on investment (ROI) in commercial plantation forestry has to match the ROI for alternative investments of similar risk. Perceptions of investment in countries like the Solomon Islands are that the risk is higher than in some developed countries, so the ROI needs to be higher.

No economic analysis of the Saenaua plantation was done prior to planting, as it was intended as a demonstration of establishment and management. Current economic analysis suggests that the ROI will be in the order of 15%/year. This compares very favourably with many other investments, but the perceived risk means that it is still hard to attract commercially motivated investors.

4.3.2 Demand and supply

Future demand for tropical hardwoods will exceed supply because the main production of these species is still from natural forest. This inelastic (and shrinking) supply cannot be compensated for by plantation timber of the same species in the foreseeable future. At the same time, the demand tends to be increasing as population rises, average standard of living increases, and new uses are found for tropical hardwoods.

The Saenaua plantation can look forward to assured markets in the future, providing the crop is able to be economically harvested. Location of the plantation on a site with difficult access means that net returns at harvest may be lower than hoped for.

4.3.3 Market prices

International prices for the species grown at Saenaua are quite good, with all in the higher quality bracket. However, actual prices that will be realised for the Saenaua plantation will depend on buyer confidence with the quality of the product. Trial loads will be the best way to overcome this, but with the small size of the resource, the cost of doing this may be quite high.

Investors will always be aware that standardised international prices are not necessarily the prices that will be realised by a particular project when its produce is marketed.

4.3.4 Operational costs

Operational costs for Saenaua have almost certainly been somewhat higher than would be normal for a commercial plantation forest investment. This is mainly because of the fact that the funds were provided by the New Zealand Government through the extension section of the Solomon Islands Forestry Division, with the aim of ensuring that all work was done on time and to a very high standard. As a result, there was some degree of overkill.

Commercial operational costs are available from KFPL, and these have been used in the economic analysis. Total cost for all establishment, maintenance and silviculture operations is in the order of US$750 per hectare. This does not include administration and management costs. With low labour rates, project managers still have to be careful to ensure that costs are not allowed to escalate simply to employ people.

4.4 Political and social situation

4.4.1 Government encouragement

The Solomon Islands Government has, over recent years, taken steps to encourage economic activity through private investment. Soft policies such as lack of price control or import quotas are aligned with more direct investment encouragement, such as accelerated depreciation allowances and possible exemption of some profits from taxes. This government support is aimed at large scale investment and tends to offer little to smaller scale business. The support is useful but the main consideration of investors is whether the investment law and governance is consistent and able to be relied on.

Foreign investment in the Solomon Islands Government is monitored and approved by the Foreign Investment Board. The Saenaua plantation was developed as a result of government support through the New Zealand Bilateral Aid Programme. Solomon Islands Government support for further developments of this type will depend very much on the Solomon Islands Government’s financial position in the future. At present, finances dictate that there is no opportunity for such support, no matter what the political will.

4.4.2 Export duties and taxation

Taxation in the Solomon Islands is 15% for companies, while export duties apply almost solely to timber exports. The Solomon Islands Government wants to encourage investment but will have to distinguish plantation production from natural forest products, within the rules relating to timber exports.

4.4.3 Local processing requirements

There are no local processing requirements in the Solomon Islands at present, although this can be affected to some extent by export duties. Specific rules relating to plantation timber products are not yet in existence, and need developing to distinguish the industry from the resource exploitation of the natural forest logging industry. The Saenaua produce will need to be processed locally in order to increase the value sufficiently to make such a small resource attractive. Any future investment in this plantation will need to plan with that in mind.

4.4.4 Land issues

Land ownership in the Solomon Islands is very complex. It differs in different provinces and can involve several layers of customary ownership or customary use rights. Landowners have to be dealt with in any forestry investment in the Solomon Islands, because the land will not be sold. In the case of Saenaua, the landowners also have managed and own the forest in its existing state and have been involved since its inception. Investors must be prepared to spend time to develop a relationship with the landowners so that confidence can be built on both sides. Investors need to realise that initially, the landowners are as suspicious of the investor as the investor is of the landowners.

4.5 Legal issues

4.5.1 The legal system

The legal system is based on the British system. It is seen to be essentially free of corruption or significant political influence. Contracts set up in the Solomon Islands can be expected to be enforced to the extent that the law covers the contract conditions. This does not always remove doubt for investors as to how or whether their rights will be protected. Often the perception remains that all developing countries have doubtful legal systems which are possibly subject to political interference. This in turn leads potential investors to question the security of their investments.

4.5.2 Land title

On customary land areas, land title as such does not exist. Boundaries and ownership are known by the local land guardian who can mark boundaries where necessary. This is a concept foreign to western investors, and does not encourage confidence in the minds of financiers. Intensive work with the local land guardian and local chiefs is necessary before a project can start. This was done with the Saenaua plantation and there is little likelihood that the mapped forest area will ever have any land disputes.