A few months back, we shared our first impressions of new research on the Zambian trade of Pterocarpus tinctorius – a beautiful tree commonly known as mukula, or rosewood, in commercial timber circles. That assessment is now completed, and we have a proposition for you.
What would you say if someone offered you USD 1,000 to invest in an incredibly profitable business operation, in which you would get your 1,000 back, plus 30,000 profit within 50 days? All you would need to do is return the USD 1,000 and spread the word around among your friends, so that they also give this person some money to run the same operation over and over again.
Too good to be true?
This classic Ponzi scheme is doomed by definition. As the fraudster convinces new victims in order to skim a profit to pay the original ones, there comes a point when there are more people demanding to be reimbursed than ones willing to invest fresh money – at which point, the fraudster disappears with the cash, or goes to jail.
In the 1920s, Charles Ponzi’s scheme lasted for about a year, promising 50–100% returns annually. Bernie Madoff stretched it over three decades, delivering about 12% every year to his ‘friends’ – until he was sentenced in 2009 to 150 years in prison, leaving thousands penniless.
But today, in the delicate ecosystem of Zambia’s miombo woodlands, there is a Ponzi scheme that shows no sign of slowing. Why? Because in the rosewood trade, Nature is providing the seed capital, and it’s unclear who the Ponzi even is.
Still, is someone losing out? We believe so.
FIRST, THE PEOPLE
The mukula trade in Zambia boomed around 2010–2012, and it has been forging ahead ever since. Initially, buyers (largely of Chinese origin) would roam rural Zambia asking people to cut and collect as many logs as they could find. In the midst of this part of the world’s harsh living conditions, the temptation of payment soon saw Zambian communities replace farming with logging as their most important source of income (see Figure 1).
Farming activities were not completely abandoned. Women, children and friends were called upon to replace absentee farmers, who would spend months in the forests looking for mukula trees.
The result? Suddenly families had money to pay for school fees, medicine, food, livestock and household items. Bicycles, cell phones and solar panels started popping up in the villages.
Seems like progress. Then things moved along a well-worn path. While demand soared, trees became scarcer, smaller and farther apart – but the price that buyers were paying remained unchanged. If you factor in the cost of labor, farmers started selling mukula at a loss in recent years.
The former farmers had become willing to discount the value of their labor to deliver more logs. In the short-term, they benefit a great deal, but as the resources deplete over time, their incomes will decline. And there farmers are not only Zambians, but also from the Democratic Republic of the Congo, Malawi, Mozambique, Tanzania – any other country where the same scheme could be reproduced.
SECOND, THE GOVERNMENT
As with every respectable Ponzi scheme, there must be some numerical magic happening for it to work. Here is one rabbit out of the hat: In 2016, approximately 3,000 cubic meters worth of timber left Zambia – and then a miracle occurred, and more than 60,000 cubic meters reached the shores of China (see Figure 2).
Available data is not as good as we’d like it to be, so we can’t tell you (yet) exactly how much mukula – among other species – there is in those blue and red bars above, but we are ready to bet that mukula plays a huge role. The recent increase in Chinese declared imports simply overlaps too well with the activities we (and indeed many others, including the government of Zambia) documented. And no other new or increased forestry-related activity – e.g., a multitude of newly delivered official logging concessions – can account for the big jump in numbers.
If you believed Mr. Ponzi and gave your USD 1,000 to him, you might also believe that trees grow at sea. One log leaves Zambia and 1,000 reach China – this surely overshadows Mr. Madoff’s feat.
Ultimately, it’s the Zambian government that accrues the biggest loss, because such volumes are nowhere to be found and thus cannot be taxed. According to our back-of-the-envelope estimates, average annual losses in recent years ring in at about USD 3.2 million.
(We’re not suggesting that current harvesting trends are sustainable, even if taxed, though we do advocate for more research on this in the report.)
This may seem an insignificant sum to professional Ponzi gamblers, but we believe it is not when compared to the total annual funds released to the Zambia Forestry Department (USD 1.4 million in 2015), which is permanently underfunded and understaffed to carry out its mandates.
The twist to the trick is kind of perverse. To multiply trees at sea and to close people’s eyes while the trick is being played, traders are prepared to disburse about USD 1.7 million annually along the road from Zambia to China as ‘facilitation’ payments to state officials who might otherwise delay this miraculous multiplication.
THIRD, US ALL?
The end of the mukula scheme hasn’t yet been written. The Zambian government has looked closely into the matter, and our report examines many governmental decisions – mostly in the form of log-export bans – taken over the years to redress a situation that is clearly considered unsustainable, both socially and environmentally.
One short-term option is to better define which species fall under the general term ‘mukula’ and list them in the Convention on International Trade in Endangered Species (CITES).
Yet for other potential solutions, such as awareness-raising efforts in consumer markets and better engagement of international customs and national and regional bodies in Africa, there doesn’t seem to be smoke enough to call the fire brigade.
In the short-term, everybody gains. The farmers of Zambia gain (about USD 23 per cubic meter cut), the traders and buyers gain (as they sell the logs to Chinese importers at between USD 800 and 1,100 per cubic meter), and those supervising the scheme gain (with estimated ‘facilitation’ payments between USD 90 and 150 per cubic meter).
The irony of the mukula story in Zambia, as with similar schemes in West and Central Africa recently, is that there is no culprit – it’s a Ponzi scheme without a Ponzi. Indeed, the scheme looks so perfect that we cannot even suggest who’s running with the money or ending up behind bars. Nature is simply too generous, traders are only applying Economics 101 and state officials complain about their too-low salaries. This must be the invisible hand at work!
Sure, one may complain about the unfairness of profit redistribution for a product that is simply cut and shipped with zero value added. Or about the possibly irreversible damages that are being done to the miombo ecosystem. Or about the number of farmers who will soon enough have to return to their fields when the forests are emptied of the valuable resource bringing them income now.
As the invisible hand so dictates, we seem to be ready to live with these problems.
Or are we?
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