The state of forestry plantation investments in Africa Petri Lehtonen Accra 2016 … ·...
Transcript of The state of forestry plantation investments in Africa Petri Lehtonen Accra 2016 … ·...
The State of Forestry Plantation Investments in Africa - Overview of Volumes and Investment Patterns
Working Conference Forests for the Future – New Forests for Africa Accra Ghana 16 to 17 March 2016Petri Lehtonen, Deputy Managing Director, Indufor Oy
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16 March 2016
Indufor and Timberland Investments
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Indufor was founded in 1980 Independent staff ownedAdvisory services in forest and forest industry developmentPrivate and public sector clientsLocated in:
Helsinki, Finland Auckland, New Zealand Melbourne, Australia Washington DC, USA
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Indufor in Africa
Due diligence and valuationsFeasibility studiesSustainability assessmentsStrategic advice in forest and wood processing investmentsHigh level reviews of government strategiesDevelopment of private forestry
Recent projects in:• Cameroon• Congo, DRC• Ethiopia
Ghana• Kenya• Liberia• Mozambique• Sierra Leone• South Africa• Tanzania• Uganda• Zambia• Mauritius• Cape Verde
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Contents
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1. Investments in African Forestry 2. Role of Different Investors3. Barriers in Investing4. Solutions5. Take-home Messages
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Demand of forest products
Potential and suitable areas for forest plantations
Economic and social situation improving
Rationale to invest in forestry in Africa
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Africa has a huge population The working age population will be the largest in the world in a few decades
Economic growth continues to be significant in Africa
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2011-2016GDP
Growth(%/a)
Mature markets
USA 2.2
Germany, France 2.1
France 2.1
Australia 3.2
2011-2016GDP
Growth(%/a)
Selected African countries
Ethiopia 8.1
Mozambique 7.7
Tanzania 7.2
Ghana 7.0
Nigeria 6.8
Several Sub-Saharan countries are growing faster than mature markets
In some countries the economies have grown for more than a decade. The growth is expected to continue at 6-9% per year.
GDP growth is not all that matters The social wellbeing is improving in many countries over the past 15 years measured by UNDP Human Development Index
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The greener the colour the more the index has improved over the past 15 years; vice versa with red colour
Industrial forest plantation expansion in Sub-Saharan Africa (excl. South Africa)
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World
Sub‐Saharan Africa
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10
20
30
40
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60
70
2000 2005 2010 2015 2020 2025 2030
Million hectares
The current wood supply is insufficientPlantation investments and overall development will be fundamental otherwise deforestation will inevitably continue
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100
150
200
250
300
Wood supply and demand in Africa
Deficit
Natural forest/imports
Supply of plantationwood
Demand of industrialroundwood
Million m³
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Investing in Forestry
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Greenfield investment intoprocessing
Plantation establishment Forestry ODA
Investing in forestry, 2010‐15 average per year
Latin America Asia‐pacific Africa
Billion USD
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Africa in the Universe of Timberland Investment
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African share of the value of timberland investments, %
Rest Africa0 2 4 6 8 10 12
Asia
Africa
Latin America
Oceania
Europe
North America
Million hectares
Global forest ownership by financial investors, 2015
REIT/Other
TIMO
Timberland Investment Universe: - area 25 million ha- value USD 80-100 billion
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1. Investments in African Forestry 2. Role of Different Investors3. Barriers in Investing4. Solutions5. Take-home Messages
Investor Typologies
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Type of Operator
Entrepreneurs, communities, smallholders Strategic investors: Financial investors:
Other philantrophy
ENGOs:social and
environmental objectives
Micro operators
SMEs, organized communities and large farmers
Forest industry companies Energy/mining/
agro-industries
International/Regional timberland funds and TIMOs
Special cases: family offices, other direct investments e.g. by banks
Nature of operators
Informal, not capable to comply with legislation and business reporting nor accessing finance.
Often family entrepreneurs, difficulties to expand operations and comply with legislation and even less international standards to obtain financing.
Raw material sourcing for industrial production. Mainly large-scale but also medium-scale operators -international and local.
SMEs might provide a range of services. And partner in wood supply
Raw material sourcing for industrial production.
Many new operators, energy companies looking at feedstock.
For financial profit, portfolio diversification.
Many cases keen on direct involvement in the business e.g. in teak.
Long term conservation driven interest, however, want to have positive bottom line.
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Vision for forest financing in Africa
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Today 5-10 years 10-15 years > 15 yearsPoor industrial infrastructureLimited existing planted forest assetsUnsecure land tenureLimited information
Private investments are more important than aidDevelopment driven by agricultural soft commodities and mineralsEmerging infrastructureUnsecure land tenureLimited information
Driven by private investmentsIndustrial infrastructure in placeExport of low value added wood productsDeveloped land tenure – still unbalanced landownership with social pressureDecent level of information
Developed infrastructure and logisticsBalance land ownershipNearly perfect information
Required development inputs in forestry / forest industry
Grants / subsidiesTechnical assistanceTechnologyPolicy changesInfra developmentAttract investments
Local loan instrumentsLocal service providersMarket accessGov. subsidies
Government subsidiesFace international competitiveness
Level of development HighLow
Risks and returns
Low
High
Role of Local Entrepreneurs, Governments and Donors
Frontier Market Emerging Market Developed Growing Market
Mature Market
Role of government, donors and development financingImproving the infrastructure and governance
Catalyse development with incentivesReduce need for development financing
Turning from developer to regulatorKey driver of sustainability
Regulator
Role of local entrepreneursTap local investment opportunitiesEstablish associations to promote sectoral interests
Establish partnerships with strategic investors in technologies and market access (including in small-scale plantations)
Growing position in supply chains
Important players in solid wood product industries
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Role of Strategic and Financial Investors as well as Impact Investors
Frontier Market Emerging Market Developed Growing Market
Mature Market
Role of Strategic investorsLimited access due to high risksPossibility to create long term unique position
Creating industrial infrastructure, providing technology and market access, HRD and R&D
Need to outsource assetsPartnerships with other forest ownersOrganic growth
Entering less mature marketsGrowth by acquisitions and structural rationalisation
Role of financial investorsFew possibilities without strategic investors and industrial infrastructure
Opportunities for high risk/returns assuming that strategic investors are entering
Increasing opportunities and transactions
Established presence/exits
Role of impact investorsFill the gap between development financingand private investments
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Investor’s perception – integrating Africa to global scene
Return/ Risk
Market Efficiency (Information)
Emerging markets: Opportunities for higher returns are present but coupled with limited market information as well as country risksMature markets: Various transactions have allowed for nearly perfect information, and opportunities for exceptional returns have diminished. Return is largely determined by the highest risk/return rates in the target market
Mozambique, Tanzania, Ghana, Liberia, Angola
N/NE Brazil, Colombia, Paraguay
S/SE Brazil, Uruguay, Chile, South Africa
US, Australia, NZ, Nordic countries, UK
Malaysia, Indonesia, (China)
Baltic countries
15 %
3 %
10%
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1. Investments in African Forestry 2. Role of Different Investors3. Barriers in Investing4. Solutions5. Take-home Messages
Why investors are not investing and financiers not financing plantation development?
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LOCAL INVESTORS AND FINANCIERS are opportunistic
STRATEGIC INVESTORS are facing barriers to entry
FINANCIAL INVESTORS have demanding investment criteria
DEVELOPMENT FINANCING required to create enabling conditions
Major Obstacles
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Land Tenure and Land Use
Technology and Productivity
Industrial Infrastructure – Integration to Value Chain and Markets
Financing Gaps
Land Tenure – Underlying Issues
• Established formal land ownership is a major driver of economic development
• Lack of tenure security drives unsustainable and destructive use of land
• Land issues are sensitive and debates are characterized by– political myopia, – corporate interest, – international civil societies’ agenda, – critics on land grabbing, – and failed interventions to contribute to clarify issues by development
agents’
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Land Tenure – Who owns the land in Africa?
• Land ownership is a mixture of – customary rights, – traditional communal ownership (often with conflicts), – colonial and corporate estates, – government land, – and nobody’s land
• The land use is commonly with low productivity and often destructive• Unclear visions on how land tenure and related land uses can be developed• Local and national political interests reduce improvements• Formal property rights appear often less secure than customary rights
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Year
World
Agriculture Natural forest
Planted forest Other land
Billion hectares
Forest plantations’ share of land use is marginal
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Year
Africa
Agriculture Natural forest
Planted forest Other land
Billion hectares
State owns most of the land in Africa
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89.8 % 89.7 % 89.5 %
10.2 % 10.3 % 10.5 %
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2000 2005 2010
Forest ownership in Sub‐Saharan Africa
Publicly owned Privately owned
Million hectares
82 % 80 % 79 %
18 % 20 % 21 %
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1 000
2 000
3 000
4 000
2000 2005 2010
Forest ownership in the World
Publicly owned Privately owned
Million hectares
Industrial Infrastructure – Integration to Value Chain and Markets
• Industrial infrastructure is mostly poor, however, developing in Sub-Saharan Africa
– Primary and secondary road infrastructure– Railways– Ports– Land border crossings
• Forest industry value chains are still largely disintegrated– Industrial scale plantations few and still limited access to markets– Value chains combining smallholders, small-scale industrial operators
and local urban markets are fragmented
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CompanyPlantations
Govt.plantations
Large companies
SME´sPrivate tree growers
Bottlenecks:
Suboptimal mix of assortments
Lumber, poles
Lumber: poor quality
Veneer, plywood, furniture
None
Imports, scale of production
Paper, MDF (none currently)
Capital predictability of log markets
None
Capital, no free log markets/swaps
Premium for quality lumber
Traders play important role
Customers not sophisticated
End markets far, traders collect and
transport
Companies
High residues, poor technology
Lack of capital to buy logs
SME´s
Assets/Processing/End Markets are not integrated
Typical Forest Value Chains
Large-scale plantations – relatively new assets with initial downstream processing
Small-scale plantations – disintegrated value chain
Technology and Productivity
• Obsolete technology – opportunities to develop appropriate technologies• Productivity gap – opportunities for significant improvement
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Comparing Productivity Development over the Past 50 Years in Agriculture and Forestry: Brazil and Tanzania
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Brazil
TanzaniaTanzania
Brazil
Sources: FAOSTAT, FAO Forest Plantation Thematic Papers & Indufor Databank.
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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Tonnes/ha
Average Corn Yield
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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
m3/ha
Average MAI of Eucalyptus
Financing Gaps
• Financing is available for business operations that can create positive cash flows in 3 to 5 years and have acceptable risk levels
• Companies have to be well established
• Financing gaps– New plantation establishment to develop assets (green field)– Small-scale industrial operations– Privatisation of state-owned plantations
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What kind of actions are expected to accelerate responsible investments?
• DFIs: WB or IFC, AfDB, EIB, Finnfund, FMO, Norfund, etc.– Financing to compensate the long exit periods and social risks
• Donors – Incentive schemes for local tree growers
• Governments – Innovative policies in leasing land for responsible investors
• Governments and donors together– Policy support, risk sharing, developing infrastructure that facilitate forest
investments, or provide complementary financing or guarantees• Strategic and financial investors
– Take seriously the opportunities in Africa and look for local partners
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Contents
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1. Investments in African Forestry 2. Role of Different Investors3. Barriers in Investing4. Solutions5. Take-home Messages
Some cases of interesting forest investments with local development impact
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Form Ghana
MiroAPSD Green Resources
New Forest Company
GEF
Africa Renewables
Komaza
Private Forestry Project
Rift valley
Portucel
Moringa
Strategic investor green field
Financial investor brown field
Company / fund green field
Public / cooperative / green field
Moz tree growers
GEF
Border Timbers
Firestone
GMG HevecamSocfin
Largest private plantation owners in Africa (2015)
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Pine Eucalyptus Wattle Teak Rubber
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1 000 hectares
Source: GEF, 2015
Largest sources of plantation wood in Africa (2014)
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0.0
0.5
1.0
1.5
Privately Owned State Owned
Million m³
Source: GEF, 2015
Contents
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1. Investments in African Forestry 2. Role of Different Investors3. Barriers in Investing4. Solutions5. Take-home Messages
Take-home Messages (1)
Global megatrends, regional demand and diminishing natural forests call for investments in forest plantations and wood processing industries in Africa
Forest plantations are an important vehicle to improve living standards create employment and reduce poverty
Operating environments are rapidly improving in many African countries
Stakeholders in forest investments have many reasons to follow Africa closely and take actions
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Take-home Messages (2)
The key question is to manage and mitigate the unique risks
Commitment required on national and local level
Appropriate technology, scale and logistics in place
Develop secure market channels
Proof of good performance in Africa
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Contact us
Indufor Oy, Töölönkatu 11 AFI-00100 Helsinki, FinlandTel. +358 9 684 0110 Email [email protected] www.indufor.fi
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