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BLACK GOLD- A CASE STUDY
By Rosalind Wilson
Integrated forestry and paper manufacturer Mondi needed to look no further than the company's waste products to create an innovative and commercially sustainable social enterprise in Kwa-Zulu Natal.
In 2002, Mondi, an integrated forestry and paper manufacturer, received a grant for £114,000 from the DFID funded Business Linkages Challenge Fund (BLCF) 1 , administered by Emerging Markets Group, to implement a 3 year project to establish the charcoal producing company, Black Gold. Mondi also invested £115,880 of its own funds in the initiative, resulting in a successful partnership between the private sector and a donor funded programme.
Black Gold transforms Mondi's waste timber into charcoal which can be sold on as a value added product to larger charcoal distributors for a profit. Not only has this been a successful business venture, achieving commercial sustainability by 2004, but the company's activities have had positive social and environmental impacts. Black Gold's charcoal production units give rise to entrepreneurial and employment possibilities for the local community by creating new business opportunities and providing access to domestic and international markets. In addition, by removing waste timber for charcoal production, the business has contributed to a reduction in the risk of forest fires in the area, which have previously been a serious and common problem affecting both the environment and the community. The venture has directly contributed to poverty reduction in the area (MDG1), and has also addressed environmental sustainability (MDG7), and has contributed to empowering women (MDG3).
The Model
Mondi started with a 30% stake in the company, the remaining 70% being split 10% with a community trust and 60% with a consortium of local entrepreneurs called Firing Trading. An investment was made by Mondi and together with funds from the BLCF. Black Gold was able to finance the construction of kiln sites which could be used for the production of charcoal and the training of the local entrepreneurs and their employees. The extensive training program for entrepreneurs included topics such as
forestry entrepreneurial skills, supervisory skills, chainsaw operating, health and safety skills, first aid, and getting drivers licenses.
For each kiln site that is active, Black Gold has employed a local entrepreneur to lead the business. There are currently 10 active kiln sites, 1 bagging site and another bagging site in the pipeline.
The kiln sites employ their own timber collectors who are given access to Mondi's timber sites. They collect any timber that has been deemed as ‘waste material' due to the size (diameter) of the wood being too small for the paper making process. The local entrepreneurs manage staff engaged in the collection and processing of this timber into charcoal and are consequently building their managerial and HR skills. The entrepreneurs are also engaged in quality control of the final product, ensuring that smaller pieces of charcoal and ash are sifted out.
The bagging site is run by Black Gold's first female entrepreneur and its workforce is currently comprised of over 80% women. Black Gold charcoal which has been bagged at this site is sold on to an intermediary company which in turn supplies an international market that includes the supermarket chain Tesco, illustrating the high quality of the Black Gold product.
Now that Black Gold is a self sufficient business, Mondi has reduced its stake to 10%, transferring the remaining 20% over to the community trust. All of the entrepreneurs are entitled to join Firing Trading, the consortium with the largest equity stake in the business. The model is in line with the Black Economic Empowerment (BEE) initiative in South Africa as the local entrepreneurs represent people from a previously disadvantaged background.
Commercial success
In 2003, the first year of operation, Black Gold issued dividends to the entrepreneurs who are part of Firing Trading. In the second year it doubled its turnover to 6.5 million ZAR and an un-audited profit of ZAR850,000 By 2005 at the end of the project, turnover was at ZAR2.2million with each site earning between ZAR70,000 to ZAR100,000 monthly. With the entrepreneurial ethos behind the project, opportunities for scaling up have been identified in an additional refinement stage to produce charcoal for water filters and some medicinal purposes. Capturing the diverse market for charcoal will be a good way to keep the company in high production levels and with an assured market. Black Gold can also market its product to environmentally conscious buyers, as the firm has a Forest Stewardship Council certification which guarantees high environmental standards in its forestry practice. In addition to this it obtained an environmental award at the 8 th World Health and Environmental Congress in Durban, South Africa.
In spite of its commercial sustainability, there is still much that Black Gold can do to grow and increase its market share both domestically and internationally. Selling to intermediaries denies Black Gold potential profit margins due to the large difference between the buying price of charcoal from producers and the final selling price to large scale buyers such as supermarkets. One way that Black Gold can break through the barrier provided by intermediaries is to expand their packaging lines and supply their own branded bagged charcoal ready for direct distribution to supermarkets. The demand for charcoal briquets has provided Black Gold with an additional market for any wasted small charcoal and ash from the production process. There is even a possibility that they will be able to charge a premium for their product, as Black Gold represents a BEE company that pays fair wages and has certification to support its high environmental standards. Consumers are increasingly wiling to pay more for a product that makes efforts to provide a positive environmental or social impact, as demonstrated by the increased demand for FairTrade products.
Further information:
Rosalind Wilson
Emerging Markets Group (EMG) Ltd.
rwilson@emergingmarketsgroup.com
Notes: 1. The Business Linkages Challenge Fund (BLCF) supports private sector partnerships that bring commercial benefits to the businesses that participate and help to reduce poverty in target developing countries. Companies have access to grants between £50,000 and £1,000,000 to increase access to markets, transfer technology, improve competitiveness, or address the policy and regulatory environment for business. The BLCF is financed by the UK Government's Department for International Development and managed by Emerging Markets Group (EMG) Ltd. More information on the BLCF can be found at http://www.businesslinkageschallengefund.org/