Opportunities for Forest Plantation Investments in Africa

Transcription

1 Opportunities for Forest Plantation Investments in Africa Presentation in the Conference on Boosting Investments in Sustainable Forestry, Forest Carbon and Renewable Energy Accra, Ghana, 5 September 2012 Petri Lehtonen, Senior Partner, Indufor Oy 5 September 2012

2 Indufor and Timberland Investments Indufor was founded in 1980 Independent staff owned Advisory services in forest and forest industry development Private and public sector clients Located in Helsinki, Finland and Auckland New Zealand Indufor project map Q

3 Indufor Projects in Africa Forest industry assistance Strategic plans Plantation assessments Company valuations High level reviews of government strategies Development of Private Forestry and Carbon Trading Recent projects in: Cameroon Congo, Democratic Republic of Ethiopia Ghana Kenya Liberia Mozambique South Africa Tanzania Uganda Zambia

4 Contents 1. Why to Invest in Forest Plantations in Africa? 2. Lessons Learned from the Past 3. Foreseen Development of Commercial Forest Plantations 4. Sharing Benefits and Responsibilities 5. Case Studies 6. Conclusions 4

5 Rationale to Establish Plantations in Africa Demand of forest products fuel wood, construction materials, pulp wood, other fibre products and ecosystem services is inevitably growing due to local, regional and global drivers. There are potential and suitable areas for forest plantations that do not threaten food security, biodiversity or availability of water. When forest plantations are developed according to the best social and environmental practises with financial discipline Investments are profitable allowing value added development of downstream processing Local stakeholders benefit significantly Possibilities to provide ecosystem services are enhanced 5

6 Africa has significant area and huge population working age population will be the highest in the world in few decades 6

7 Ghana Economic growth is already significant in many regions in Africa and will likely continue to be so Annual GDP Growth Average GDP Growth (%/a) China 9.5 India 8.2 Ethiopia 8.1 Nigeria Ethiopia Mozambique 7.7 Congo Tanzania Tanzania 7.2 Vietnam 7.2 Zambia Congo 7.0 Ghana 7.0 Zambia 6.9 Nigeria 6.8 % 7

8 There are realistic opportunities to develop plantations and plantation wood based industries in several African countries South Africa (I) has already a well established plantation wood based forest industry (II) countries with tropical hardwoods (III) developing plantation countries (IV) potential plantation countries (II) (IV) (III) (I) 8

9 The main challenge is to manage social and environmental risks Risk level Description 0-1 Low 2-3 Medium-low 4-5 Low 6-7 Medium-high 8-9 High 10 Very high Source: Indufor Q

10 One key factor of financial profitability is wood production cost 10

11 Contents 1. Why to Invest in Forest Plantations in Africa? 2. Lessons Learned from the Past 3. Foreseen Development of Commercial Forest Plantations 4. Sharing Benefits and Responsibilities 5. Case Studies 6. Conclusions 11

12 Ghana Africa has a long history of forest plantations with failures and successes Total area 5 million ha 1000 ha South Africa Ethiopia Madagascar Ghana Malawi Kenya Tanzania Angola Zimbabwe Swaziland Zambia Congo Mozambique Uganda South Africa Ethiopia Malawi Madagaskar 12

13 Forest plantation in Africa in

14 Failures Management Governments have failed to manage their own plantations many old plantations have deteriorated Logistics and markets Location selection has not taken into account cost effective infrastructure and access to markets Environmental considerations Plantations have been established without consideration of biodiversity conservation and impacts to hydrology Sometimes selected species and regimes have failed Community forestry Extremes: in the past communities stake was not taken into account and then at one point of time community forestry was considered the only right thing, however, with poor technology, without logistic or market considerations, without thinking required scale to promote downstream processing 14

15 Successes Outsourcing management Governments have recently outsourced management of forest plantation to third parties under lease arrangements and productivity has increased Company community partnerships Out grower's / tree farming schemes with varying experiences have involved local communities and private tree growers into forest value chains Apparently some models that can integrate small-scale tree growers with industries, apply appropriate technologies and improve access to markets have been successful Tree Growers Associations Organize small- and medium scale tree growers to have negotiation power with improved technologies, access to markets and scale that enables value adding. Environmental planning/ certification Serious plantation developers apply state-of-the-art planning of the new plantations aiming at high international standards that comply with social & environmental criteria 15

16 Contents 1. Why to Invest in Forest Plantations in Africa? 2. Lessons Learned from the Past 3. Foreseen Development of Commercial Forest Plantations 4. Sharing Benefits and Responsibilities 5. Case Studies 6. Conclusions 16

17 Plantation area development in Africa, Forecast The figures are highly speculative based on Indufor s estimates (2012) 17

18 Plantation wood supply in Africa, under different scenarios Baseline assumes that plantation development will continue at modest pace as before Optimistic scenario assumes accelerated development with new investments The figures are highly speculative based on Indufor s estimates (2012) 18

19 Industrial round wood demand in Africa, under different Indufor scenarios Scenario I is baseline assuming that plantation development will continue at modest pace Scenario II is moderately optimistic scenario assuming accelerated development with new investments in Indufor s view this is the most likely scenario Scenario III is very optimistic scenario The figures are highly speculative based on Indufor s estimates (2012) 19

20 Plantation wood will not satisfy the additional demand of African wood even in the optimistic scenario Plantation investments and over all development will be fundamental or deforestation will inevitably continue 20

21 Contents 1. Why to Invest in Forest Plantations in Africa? 2. Lessons Learned from the Past 3. Foreseen Development of Commercial Forest Plantations 4. Sharing Benefits and Responsibilities 5. Case Studies 6. Conclusions 21

22 Timberland investors and wood processing companies Are looking for Wood supply More recently also stand alone businesses Competitive wood cost Compliance with corporate responsibility policies Long term profitability Low risk / moderate return Sustainable forest management with international criteria Professional management skills On-going projects that can demonstrate their capacity Are avoiding Reputational risk Social conflicts Write-offs due to failed projects Totally new greenfield investments due to their risk profile Procedures that do not comply with international criteria and forest certification 22

23 There are several models of company community partnerships probably the best ways to mitigate and manage social risks The company and stakeholders view the benefits and disadvantages from different perspectives: Company: Local stakeholders: optimization of the production chain skilled and motivated workers good market value of products minimization of risks: social or environmental conflicts, production bans impacts on existing life style and living sources opportunities for employment benefit sharing within communities maintenance of cultural identity protection and enhancement of natural resources A successful co-operation is based on the fact that both parties have to benefit from the partnership (win-win). 23

24 Risks and benefits of different partnership arrangements High risk/ Benefits Outgrower schemes Fish CBNRM Enterprises Forest Wildlife Concessions JFM CBNRM PES Forest owner s coop s Low risk/ Benefits State lands Private property JFM: Joint Forest Management CBNRM: Community Based Natural Resource Management PES: Payments for Environmental Services 24

25 Contents 1. Why to Invest in Forest Plantations in Africa? 2. Lessons Learned from the Past 3. Foreseen Development of Commercial Forest Plantations 4. Sharing Benefits and Responsibilities 5. Case Studies 6. Conclusions 25

26 Out Grower s Schemes in South Africa Case Sappi, South Africa Mondi, South Africa NCT Forestry Co-operative, South Africa Characterization Project Grow: company social responsibility programme. Tree farming scheme aimed at subsistence farmers; financial return has to be higher than in sheep, cattle and maize production on the same piece of land growers (mostly subsistence farmers, 80% women) with ha of plantations. Khulanathi Grow with us. Company business venture. Supply of eucalyptus fibre for the Richards Bay pulp mill growers with ha of plantations. Mostly subsistence farmers; 50% women. Co-operative of growers who pool resources to achieve a scale to appoint professional staff to manage procurement and marketing of members timber. Management of timber farms on behalf of the owner. 700 growers. 26

27 Tree Growers Associations in Tanzania 27

28 Contents 1. Why to Invest in Forest Plantations in Africa? 2. Lessons Learned from the Past 3. Foreseen Development of Commercial Forest Plantations 4. Sharing Benefits and Responsibilities 5. Case Studies 6. Conclusions 28

29 Conclusions (1) Growing African economies as well as global fibre shortage megatrend supports investments in forest plantations and development of wood processing industries Forest plantations are seen as an important vehicle to improve living standards and reduce poverty when established together with different partners: communities, smallholders and other local entities 29

30 Conclusions (2) The key question is to manage and mitigate the unique risks Building up right partnerships in gaining land leases or free-hold land/ or existing assets To acquire business and forest management skills at local level has proven to be fundamental for success Appropriate technology, scale and logistics Without realistic and diverse market channels access to market nothing works Management of social dimension involvement and commitment of the local stakeholders to the forest value chain is a prerequisite to get even started 30

31 Contact us Indufor Oy, Töölönkatu 11 A FI Helsinki, Finland Tel petri.lehtonen@indufor.fi Web 31