Blue Oceans – Investment in lesser-known Forestry Countries

17th April 2023

Forestry investments tend to gravitate towards countries with well-established log markets and forest industries. Countries such as New Zealand, Australia, Brazil, Chile, USA, Canada, Sweden and Finland, to name a few, are popular investment destinations due to perceived lower risks. But investments in these countries also come at higher prices brought about by the supply and demand for forestry assets.

Some countries are obvious no-go investment destinations due to political instability or climate restrictions. But what about lesser-known countries with already established but underdeveloped forest industries? Margules Groome conducted a high level “Blue Oceans” [1] thought experiment to screen countries that might present future forestry investment opportunities.

As a starting point Margules Groome considered the area of planted forests per country based on the 2020 FAO Global Forest Resource Assessment[2]. From this assessment 23 lesser-known forestry countries with a planted forest area of more than 400 000 ha were selected (based on the assumption that 400 000 ha already points to a well-established industry with the necessary support structures). An additional 11 countries with planted forest areas of less than 400 000 ha were added based on Margules Groome’s experiences with these countries. Additional to the planted forest area, Margules Groome also considered the 2030 projected population density per square kilometre[3] as an indication of land availability (Table 1‑1). Margules Groome then created an index based on the projected population density growth and rural population density growth by 2030 as an indicator of land availability which was used to compare the selected countries in Figure 1‑3.

Table 1‑1: Countries Selected for Evaluation

Sources: FAO FRA 2020, Our World in Data

Margules Groome developed a business ranking for all countries in the world from which the respective ranks for the 34 countries were extracted. The business ranking represents a simple additive weighting of five indexes as listed here:

  • The World Bank’s 2020 Ease of Doing Business Index[4]
  • Transparency International’s 2022 Corruption Perceptions Index[5]
  • Economist Intelligence Unit’s 2022 Democracy Index[6]
  • The United Nations 2021 Human Development Index[7]
  • The 2021 Global Health Security Index[8].

Weightings were assigned based on perceived importance of indexes to a functional forestry business with ease of doing business ranked highest (5/15), corruption perception ranked second highest (4/15), democracy third (3/15), human development fourth (2/15) and global health security fifth (1/15).

These indexes were selected based on ease of access (must be freely available) and the fact that most consist of a combination of indicators, presenting a comprehensive evaluation of each country. Index values were transformed to country rankings with best performing countries having the lowest rankings.

A second global ranking based on future climate risks was developed from the European Commission’s INFORM Climate Change Tool[9]. The tool considers hazard elements such as flooding, coastal flooding, drought, spread of epidemics and conflict and offers an optimistic and pessimistic scenario rating for 2050 and 2080. Margules Groome averaged the optimistic and pessimistic scenarios for 2050 into a country climate ranking.

Figure 1‑1 presents the business and climate ranking for each lesser-known forestry country. The business and climate risk rankings are also presented along the x-axis and y-axis respectively in Figure 1‑2 and Figure 1‑3 with planted forest areas as bubble size in Figure 1‑2 and land availability index as bubble size in Figure 1‑3.

Figure 1‑1: Business and Climate Rankings for Selected Countries (0 Best and 100 Worst)

Sources: Ease of Doing Business, Corruption Perceptions Index, Human Development Index, Global Health Security Index, INFORM Climate Change Tool, and Margules Groome

Figure 1‑2: Climate and Business Ranking with Indication of 2020 Planted Forest Area

Sources: Ease of Doing Business, Corruption Perceptions Index, Human Development Index, Global Health Security Index, INFORM Climate Change Tool, FAO FRA 2020, and Margules Groome.

Figure 1‑3: Climate and Business Ranking with Indication of 2030 Land Availability (Larger Bubbles Present Better Ranking)

Sources: Ease of Doing Business, Corruption Perceptions Index, Human Development Index, Global Health Security Index, INFORM Climate Change Tool, Our World in Data and Margules Groome.

The top five countries with the best business and climate rankings are South Korea, Estonia, Lithuania, Latvia and Slovakia. These countries have small, planted forest areas but the potential for expansion exists in Estonia, Lithuania, Latvia and Slovakia when land availability is considered. These countries might be well known in the European forestry context but could qualify as lesser known from an international forestry investment perspective.

Based on an average of the business and climate rankings the worst performing countries are Myanmar, Ethiopia, Uganda, Angola, Venezuela and Cambodia. These countries, except for Ethiopia, have small, planted forest areas but a combination of climate risk, business risk and population pressure could prevent forestry expansion.

Countries such as Thailand, Colombia, Turkey, Peru, Mexico and the Philippines rank below 50 on the business ranking but have high climate risk rankings. Colombia, Turkey and Mexico have small, planted forest areas but seem to have potential for expansion due to lower population pressure in 2030. Paraguay and Uzbekistan score above 50 for business but have a below 50 ranking for climate risk. There seems to be a correlation between business rankings and climate ranking, which is possibly expected given the perceived ability of countries with better business environments to buffer against climate risks.

This high-level exercise gives some idea of potentially new frontier countries where investments could be directed in future. It is however important to consider that there are many ways of rating the current and future suitability of countries. Broad-level indexes do not consider the intricacies of plantation forestry in terms of land suitability and availability, processing and logistics and market environments. It can however help as a first level filter in decision making.

We would appreciate any feedback and opinions on this thought experiment. In undertaking this work we also developed data on other countries. Please contact Cori Ham or Janne Antikainen  if you would like to discuss the approach followed for this article.