Convention

Investing in Forestry in Uganda? Who said Money cannot grow on Trees?

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By D. E. Wasake

 

Wondering where your coffee table and furnitures timber came from?

How about while driving through Mabira forest, wondered what the cost of investing in a natural wood forest is?

For a typical Ugandan of course this might not be the first thing that comes to your mind when you think of forestry. You will most likely think of two things:

  • 900m shillings of suspected stolen funds being hidden in a house by the National Forestry Authority (NFA) director; and
  • Former Vice President Gilbert “Mahogany” Bukenya being “cut down” by a certain “pit sawyer” in the Chainsaw Masaka (sic). Apologies for all the puns.

 

In considering whether to invest in forestry, it is worth noting that:

In the U.S, over the past two decades, returns in US timber land have only been negative twice and returned an average 12.7% annually between 1990 and 2008.

This is significantly better than the return of 7.32 % over the same period that would have been achieved investing in the S & P’s 500 index. The S&P 500 index is basically a measure of the performance of 500 largest and most actively traded stocks of large companies in the U.S What this means is that generally it is more profitable to invest in forests than the 500 “best” companies in the U.S.

 

In the UK in 2006/2007, forestry was the best asset performing class with returns of 26% compared to 17% for shares.

 

In Uganda, on the basis of information from NFA and the Sawlog Production Grant Scheme(SPGS) a European Union(EU) funded program to promote commercial forestry in Uganda the returns are also in the range of 9-16%.

With that in mind, how do you then proceed to invest in forests considering not many investors are

by nature “forest people”.

 

There are 3 options to consider in Uganda.

  • Option 1: Direct investments in private forest. This involves the investor inncurring the costs directly including purchase/lease of land, planting, weeding, forest management et al.
  • Option 2: Lease from National Forestry Authority (NFA). In this case, the land leased is one of the various Government owned forest reserves. The investor is given a lease/permit to harvest the trees and in return pays a rent to NFA. I am personally not a fan of this option owing to the politics and back hand deals that can often come with this option, for example having to pay bribes to get the concession/licence. There is also the bureaucracy of the process. I will therefore not analyse this option further.
  •  Option 3: Forest fund. A forest fund is basically one where the investor contributes a fixed amount say £10,000 to a pool together with other investors. The forest fund will basically be a company or other legal structure that invests in different tree types and in different geographical locations from a basket of options.

 

You can read the rest of the article which contains start up capital estimates, profitability analysis as well as PROS and CONS of investing in this sector at the website:

http://investinginuganda.yolasite.com/the-sector-analysis.php

 

About me:

I am a Chartered Accountant(ACCA) currently working for a Top 10 accountancy practice in the U.K. I have over 8 years experience in providing audit, accounts, tax and advisory  to clients in Uganda, The Bahamas and The U.K.

 

The Investing in Uganda series is part of my relentless focus to changing the entrepreneur mindset in Uganda by providing FREE information and support to help the investor realise their dream.

http://investinginuganda.yolasite.com/

 

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