Tropical deforestation threatens both the livelihoods of people that inhabit forests and the environment. The Mezimbite sustainable indigenous forestry project in Mozambique aims to develop livelihoods and use community forest resources in a sustainable manner by harvesting timber and non-timber resources at an environmentally sustainable rate. The project brings together a private company, two communities that own forest resources, workers from other communities, and funding from external sources. Livelihoods are developed by transforming forest resources into a wide range of products such as furniture, doorframes, bracelets and household goods. A value chain analysis of two of the projects most important product categories in terms of revenues, designer bracelets and furniture, reveals that the project captures important economic rents that give it the potential to become economically sustainable. The design and training skills of the project leader and the skills of turners and carpenters (human resource rents), combined with access to high quality hardwoods (natural resource rents) result in quality products of unique design that can be sold in high-end markets in Europe, the US and South Africa. These products can realise high margins because they are competitive with similar products that are less environmentally or socially friendly. The project also has access to marketing agents at reduced cost (marketing rents), while the personal network of the project leader (relational rents) brings in private customers to buy furniture, interior decorators who resell furniture, bracelet retailers, and a marketing agent. The environmental and social character of the project helps to secure the cooperation of the agents, gives the project access to grants from foundations and NGOs (financial rents), and it ensures access to niche markets of environmentally conscious consumers in Europe and the US. Unfortunately, there are no infrastructural rents as the project site is not connected to the electricity grid, and no fixed telephone, fax or email is on site. It is also far away from markets, which leads to long delivery times and high transport cost, especially for furniture. A number of recommendations are made in order to increase sales and strengthen the project's economic sustainability. These recommendation relate to functional, product and process upgrades of the value chain. Firstly, the project should consider bringing its furniture into retail stores to reduce dependency on relational rents, which requires development of a standard furniture collection with a catalogue. This also requires stocking furniture closer to the markets in the US, Europe and South Africa to reduce transportation cost en delivery times. Secondly, the bracelet collection should be reduced to small limited editions that change every twice a year. Thirdly contact with customers, agents and retailers should be improved, for instance by establishing a small office in the nearby city of Beira with email, fax and telephone and of a dedicated sales person. The amount of wood that can be harvested under the sustainable management plan is large enough to deal with an increase of furniture and bracelet production. However, it remains unclear whether the economic benefits are large enough for the community to keep their support for the project. Only a small percentage of the sales revenues of the bracelets and furniture flow towards members of the forest communities and most jobs are created outside the community. I recommend that the project consider employing more people in the Mezimbite Forest Centre from the participating communities. In spite of low employment rates, community members receive fruit trees from the nursery, degraded woodlands are reforested and income is derived from the sales of the other products manufactured in the project. An increase in sales and production would lead to higher benefits and more employment. A recommendation is that further monitoring and evaluation of the project take place to ensure dual goals of economic development and sustainable use of forest resources is achieved. / Thesis (M.A.)-University of KwaZulu-Natal, 2006.