Investment in African Forests – The Importance of Value Chain Information

9th September 2021

There is currently renewed interest amongst investors in forestry projects in Africa.  Several existing forestry enterprises such as KOMAZA in Kenya have succeeded in raising new capital investments in 2020, while development finance institutions and other investment funds are looking for new investment opportunities.  Carbon projects and timber processing seem particularly attractive.

Margules Groome Consulting is often asked to assist with due diligence investigations into possible forestry investments in Africa.  These investigations cover the full value chain from current and future raw material availability to markets and timber product prices.  We frequently find that reliable data required to build investment models and financial projections are not freely available at the scale and level of detail required for feasibility assessments.

While forestry areas might be reported at the national or regional scale, they lack detail related to ownership, species composition and age class distribution.  Quite often data is collected at ground level such as the case when planting or tree cutting permits are issued by government offices in Tanzania, but systems to collate information into easily accessible databases or reports are lacking.  Forestry companies in South Africa for instance, maintain detailed and up-to-date electronic planning records of their timber estates but the government’s forestry estate register has a nearly two-year reporting lag time, and many smaller growers are excluded from the data.  Data on private timber growers is lacking in countries such as Kenya, Rwanda, and Tanzania.  Kenya has an estimated 330 000 ha, Rwanda 260 000 ha, and Tanzania 175 000 ha, of trees planted by private timber growers.  There is little if any information available about the composition of these plantings.  Non-Government Organisations such as Gatsby Africa are trying to gather more information on these plantings through remote sensing and ground surveys.

Trade data might only be available at the import and export level as collected by customs authorities and reported by international data portals such as COMESA’s COMSTAT and the United Nation’s COMTRADE.  Often this data is outdated, aggregated, or contains errors.

In 2018 for example, FAOSTAT reported wood product exports from Uganda of 53 328m3 while UN COMTRADE reported 286 703 m3 of exports and the Ugandan Revenue Authority reported exports of 60 314 m3.  FAOSTAT also reported wood product import into Uganda in 2018 of 11 759 m3, UN COMTRADE reported 97 974 m3, and the Ugandan Revenue Authority reported imports of 55 427 m3.  Another example of conflicting data is Kenya’s imports of wood in the rough (HS code 4403) from South Africa.  In 2018, UN COMTRADE reported 595 764 m3 of wood in the rough imported into Kenya from South Africa (reported by Kenya) but also indicated that South Africa exported only 18 366 m3 of wood in the rough to Kenya (reported by South Africa).  South African customs data indicated that in May 2018, 5.5 million m3 of wood in the rough were exported to Kenya (equivalent to a third of South Africa’s total timber production in 2018!).

This lack of reliable supply chain data reduces the confidence that investors have in feasibility assessments in Africa.  The development of data collection and reporting systems for the full forestry value chain could be one of the most effective means of attracting investors to Africa.  In the age of big data where “Data is the new Oil”, the development of efficient forestry supply chain information systems should be a priority for countries that are serious about attracting forestry investments.

For more information contact Margules Groome Consulting.