Forestry: Not for those seeking a quick buck
Africa’s untapped agribusiness potential is currently a big topic. However, one area within the sector that doesn’t receive as much attention is commercial forestry.
“It is probably true to say that all the talk around Africa and agribusiness is more focused around food, and I think it has to do with the fact that obviously food security is such a high priority item globally for governments and the like … The emphasis seems to be mostly on food, so forestry is not always that prominent,” says Avril Stassen, senior partner at Agri-Vie, a private equity fund focused on food and agribusiness investments in sub-Saharan Africa.
A few years ago, Agri-Vie invested in The New Forests Company, a UK-based business with pine and eucalyptus tree plantations in Mozambique, Tanzania, Uganda and Rwanda.
Although global demand for timber is growing rapidly, New Forests caters primarily for the local East African market. The company’s timber is used for electricity transmission poles, giving it exposure to the growth in electrification in the region. New Forests also converts some of its waste into charcoal. In Rwanda, the company supplies a cement manufacturer that uses the charcoal to power its operations. Down the line, sawmilling activities will also be added, allowing the company to benefit from the growing construction industry.
Forestry is not an easy business
Forestry in Africa is however not for the faint of heart, and Stassen highlights numerous challenges. Securing land is not easy and can be a drawn-out process. He says because of the scale of deforestation in Africa, and the fact that many people depend on illegal logging for their energy needs, the forestry industry has become “a political hot potato”.
The recently published Africa Progress Panel report notes that in many parts of the continent, illegal logging activities are flourishing, often with the covert, and sometimes overt, support of political elites.
The industry as a whole is underdeveloped in Africa. Stassen says seedlings and machinery have to be imported. There is a gap in local skills, which means companies need to bring in experienced foreigners. It also takes a long time to bring workers up to speed with forestry practices.
Long-term mindset is required
Investors in the forestry industry need a long-term outlook. Stassen says New Forests’ eucalyptus trees need to grow about eight years from planting before they can be harvested; for pine trees, it can be anything from 12-17 years.
“It is not a quick cash conversion type industry … It is a very long time that you have to wait to generate any revenues and any cash returns. It requires a very large capital investment to make it viable in the long run … That is one reason why the group of potential investors … is much smaller than in other agribusiness sectors.”