By Margules Groome
Africa, especially East Africa, has a high potential for forestry investment due to: increasing demand from stable economic and infrastructure development and population growth; a growing supply and demand gap – currently filled by imports; growing political stability – making it easier to operate; good bio-physical conditions for tree growth; geographic location of East African countries for exports to the East.
However, it is not always easy to do business in Africa. Bureaucracy, undefined land ownership, poverty, lack of infrastructure and dysfunctional supply chains hamper development and culminate in high discount rates and short-term cash flow problems in forestry projects.
Timber Processing in Tanzania and South Africa. Source: Margules Groome
Furthermore, models based on small growers and community-based forestry could be more effective than projects based on large blocks of contiguous forests. This brings added complexity in managing small areas, training growers and in developing supply chains but could help to increase the human capital in projects and potentially attract more impact investment.
These views were contributed by participants of the second DANA Africa Forest Industry Investment Conference held in South Africa from September 12 – 13. Nearly 100 people from 20 different countries attended.
Presenters from York Timber Holdings summarized the drive for community involvement based on the concept of “the revolution of connectivity” which stems from developing authentic results-oriented partnership with local communities.
Many of the current forestry projects in East Africa started as greenfield operations with large areas planted with pine, eucalypt and teak. A common problem is that these projects are coming into production without well-defined supply chains and markets. Is it time to stop investing and start harvesting? Yet, this can only be done once markets and supply chains are secured. Future investments will have to look at linking forests to markets and products to ensure the long-term sustainability of current forestry projects. There is thus rather a need for operational and market improvement than more uncoordinated planting. This idea was mirrored in discussions around species choices and genetic improvement where the focus moves away from volume at all costs to the right volume matched to a specific product.
The Africa forestry investment environment is becoming more mature and will require more focused interventions in future. Participants at the conference were all in agreement that there is still much potential for growth and investment in African forests.