Unlocking capital flows for forest development in Africa

The African Development Bank (AfDB) and the Climate Investment Funds’ Forest Investment Program (CIF FIP) have released a report on how unlocking capital flows to foster forest sector development in Africa. The report builds on the results of the first African Forestry Investment Conference (AFIC) organized by AfDB in June this year in Accra, Ghana. Attended by over 70 participants, the conference highlighted the benefits of forestry investments in Ghana and in West Africa.

African countries have experienced the world’s most extreme land degradation through deforestation and this is seriously impacting Africa’s economic development, and compromising the continent’s resilience to climate change. Forestry is historically and currently a critical sector for Ghana, supporting the livelihood of a significant part of its population but Ghana’s forest resources have over the last decades been depleted at an alarming rate. Sustainable forest management is therefore important to curb this trend and keep Ghana on the path to green growth. The sector requires long term funding but currently attracts very limited private sector financing due mainly to perceived high risk and the nature of the financial market. “This conference couldn’t have come at a more appropriate time” stated John Allotey, Deputy Chief of Ghana’s Forestry Commission in his welcoming remarks, noting that the Commission was celebrating “Forestry Week and greening Ghana Day 2017” with a focus on the importance of tree planting to livelihoods.

Led by the technical director, Darius Sarshar, independent consultant well known for his extensive international experience in sustainable forestry and agriculture investment, the conference brought together a wide range of speakers with real expertise in forestry investment in Africa including timber investment companies, forestry consultants with global experience, and representatives of civil society organizations and academia.

During the conference, the key features of the recently announced US $24 million AfDB and CIF FIP loan to  the forest plantation management company (Form Ghana) were showcased as a pioneer private-public partnership project in this sector.

 “FIP’s role has been critical for the bankability of the project” stated Richard Fusi, AfDB’s Senior Investment Officer. “We hope that this project becomes a replicable model for attracting private sector finance to this particular sector and that Ghana, through this project, will help lead the way for further investment in sustainable forest management in African countries.”

Paul Hol, Executive Director of Form International, said that ”this project and the collaboration between AfDB and Form Ghana Ltd can be a very important step to enable the expansion of large scale reforestation and landscape restoration projects in Africa.”

The discussion also focused on how new blended finance models can be developed to finance a world-class plantation-based industry in Africa. The session on operational perspective of Plantation Forestry industry and an overview of the demand and supply drivers for forest products in Africa included presentations from the private sector representatives and consulting firms. It equally highlighted the huge potential of the forestry market in Africa, the drivers for wood quality and the importance of accreditation to increase the value of products along the value chain. Forestry regulations, policy and governance issues of the sector were also discussed.

Juho Penttilä, Indufor Group Consultant, pointed out that “Forest plantations and associated processing industries are important vehicles to improve living standards, create employment and reduce poverty”, and that “Operating environments are rapidly evolving in many African countries with increasingly improved governance and private/public partnerships.”

The second day of the conference began with a financial perspective on how to mobilize capital. The discussion set out the financial constraints of these kind of investments, the importance of formalizing the sector, provide investors with secure land and create the necessary business-enabling environment. During his presentation, Gareth Phillips, AfDB’s Chief Climate Change and Green Growth Officer identified and highlighted the potential sources of international funding for forestry projects and the challenges for the forestry sector to be considered as an attractive investment area by the institutions.

The conference concluded with a plenary discussion on how to unlock purpose-built capital to finance plantation establishment in Africa. As exposed in the final report, three potential delivery mechanisms for such blended finance were identified: i) long term debt and direct equity financing to existing companies; ii) smallholder grant schemes; iii) new greenfield forestry private debt or equity financing facility.

Commenting on the workshop, Sansa Sarah Korang from the International Forestry Students Association (IFSA) said that “It was great to be a part of an incredible and educative conference. I have been exposed to a world of great investors, conservationists and professionals in the field of forestry. As a student and a forester, I have seen how important it is to participate in this conference and I hope there will be more of this.”

Within the program of the AFIC, interested participants went on an optional field visit to the plantation of Form Ghana Ltd. the day after the conference. The field trip offered participants a close look at Form Ghana’s fully operational forest plantations, including the harvesting of Ghana’s first FSCTM certified teak.

The International Union for Conservation of Nature (IUCN) also sponsored this successful event.

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