Africa Sustainable Forestry Fund (ASFF) I is a USD 160 million private equity fund focused on the Sub-Saharan Africa forestry sector. The Fund is fully invested as of early 2016 with a total of seven investments in South Africa, Uganda, Tanzania, Swaziland and Gabon. The Fund’s portfolio reaches across the whole forestry value chain: it manages approximately 680,000 hectares of productive timberland - including eucalyptus, pine, teak, and tropical timber - as well as sawmills and timber processing plants.
Leading operations according to best silviculture, environmental and social practices as well as fostering the inclusion of the surrounding communities is central to the strategy and value creation approach of the Fund. All of ASFF I’s assets are managed according to Forest Stewardship Council (FSC) principles as well as the International Finance Corporation (IFC) Performance Standards in order to ensure sustainable management in every respect.
The Fund has put in place tailored value creation programmes to provide the support needed for its companies to be at the forefront of innovation and quality in terms of silviculture and forestry, fostering social and environmental best practices for the workers and the communities they are active in. A strong focus on environmental, social, and governance (ESG) principles is particularly relevant in a sector such as forestry and a continent like Africa, where short-term commercial interests are often prioritised over sustainable long-term solutions, taking a toll on the community and the environment.
The Fund Manager has undertaken extensive revenue and profit-driving value add interventions, and extensive targeted and relevant ESG actions across the investee companies of ASFF I. Revenue and profit driving value add interventions include: management changes/efficiencies, sale of non-core assets, expansion acquisitions, shareholder restructuring, and strategy and management practice changes.
ESG actions have focused on: maintaining Forest Stewardship Council Certification, a strong Health and Safety Focus, and strong Stakeholder Engagement and Community Partnerships.
The Sponsor of the Fund, Global Environment Fund (GEF), has been carrying out environmental investments since 1990. GEF’s mission and core business focuses on identifying and building businesses which have a positive environmental impact, and which reduce the consumption of energy and natural resources. In each of its funds, GEF takes an active approach to both mitigating environmental and social risks and promoting the positive impacts associated with its investment activity.
GEF was co-founded in 1990 by John Earhart and Jeff Leonard. Passionate about forestry, environment and community they had been working together for the World Wildlife Fund (WWF) on sustainable forest management. While taking forward different initiatives with the WWF, they became convinced that grant-making was not powerful enough to influence behaviour in a lasting way and therefore brought GEF and subsequently GEF African Sustainable Forestry Partners, the Fund Manager, into existence.
The management team is comprised of nine investment and forestry professionals with deep experience both in Africa and the forestry sector and extensive networks which are vital for advancing sustainable forestry management across the African markets. The Fund Manager engages in strengthening value creation in its portfolio across the entire forestry value chain. The aim is to identify the bottlenecks which continue to hinder access to high-value markets and better tailor the production to manufacturer demand. The Fund Manager addresses this by implementing best practice forest management standards, improving sawmilling and processing facilities, and finding innovative solutions for the use of biomass by-products for energy generation. Inherent to the Fund Manager’s approach is compliance with highest ESG standards and active community engagement.
MTO Group (MTO Cape / MTO Lowveld) (2010)
MTO Group (MTO) manages plantation forests and owns sawmilling and woodworking facilities as well as a timber trading business in the Eastern, Southern and Western Cape of South Africa. On a land area of 90,000 hectares the Company grows predominantly pine and eucalyptus trees for final use as transmission, building, and fencing poles, mining timber, lumber, wood chips and pulp for paper production. Many innovation and pilot projects are led through MTO, which will ultimately be a roll-up platform for other companies of the Fund.
Kilombero Valley Teak Company (KVTC) (2011)
Kilombero Valley Teak Company (KVTC) is a teak plantation company located 425 km southwest of Dar es Salaam in Tanzania. KVTC cultivates teak on an area of 8,000 hectares, and manages and protects over 20,000 hectares of native forests and wetlands preserving a wide range of resident wildlife and flora. KVTC also owns a sawmill and a processing plant producing flooring and panels, bringing much-needed long-term employment and social development for one of the poorest areas of Tanzania. The Company directly employs approximately 310 workers, and an additional 350 jobs via local contractors.
Peak Timbers Limited (Peak) (2012)
Peak Timbers Limited (Peak Timbers) is a timber plantation and sawmilling company located in Swaziland with a total of approximately 31,500 hectares. Two-thirds of the property consists of pine and eucalyptus plantations while the remaining third is managed for conservation purposes. The Company is the largest employer in northern Swaziland with over 1,200 direct and indirect employees and it exports pulpwood, mining timbers and pine lumber primarily to South African markets. Peak Timbers will be rolled into the MTO Group.
Ramanas Farms (2013)
Ramanas Farms is a plantation forest company located in the Mpumalanga province in South Africa. The Company owns a total of approximately 8,300 hectares, comprising 4,600 hectares of eucalyptus, 1,400 hectares of pine, and 2,300 hectares marked for conservation. The plantation produces mainly transmission poles and mining timber. Ramanas will be rolled into the MTO Group.
Imvelo Forests (2013)
Imvelo Forests (Imvelo) is a newly- formed forestry company located in Mpumalanga, South Africa, currently employing approximately 250 employees both directly and via contractors. It was established to bring several previously neglected timber farms together and collectively improve and professionalise their operations. Imvelo includes approximately 3,500 hectares of eucalyptus plantations and conservation areas, as well as a pole treatment plant, and a small macadamia farm. At maturation the plantations will supply building, fencing, and transmission poles, mining timber and pulp logs to various local companies and private buyers. Imvelo will be rolled into the MTO Group.
Global Woods AG (2015)
Global Woods AG (Global Woods) operates a forestry concession in the Kikonda Forest Reserve in Uganda. When planting is completed, 8,000 hectares of pine and eucalyptus plantations will supply the growing local and regional markets for building products such as utility poles and structural timber, but also biomass energy. An additional 4,000 hectares are managed for conservation purposes. Global Woods is currently one of the best managed plantations in Uganda, with quality nursery operations, planting, and silvicultural management, as well as best in class environmental, social and governance standards.
Compagnie des Bois du Gabon (CBG) (2016)
Compagnie des Bois du Gabon (CBG) is a natural forest management company which operates one of the largest forestry concessions in Gabon with 568,000 hectares under management, and owns a sawmill in Port Gentil and a rotary peeling plant used in the plywood production. The company currently employs around 635 people. CBG’s people, planning, logistics and “reduced impact logging” (RIL) approach all contribute to its very high standard for sustainable tropical forest management.
Forestry and Challenges in Africa
Forestry assets are an underserved asset class in Africa and suffer from inadequate provision of capital, despite favourable conditions including optimal soil and weather conditions, and a readily available labour force. The region has seen very limited foreign investments in forestry assets; emerging markets account currently for less than 4% of timberland investments worldwide.
There is a growing imbalance between the need and the provision of forestry products in Africa. Traditionally Africa has been supplying the world with raw materials including wood and wood products, most notably in the form of tropical hardwood logs and pulp. Africa is now beginning to experience a wood supply crisis, particularly near coastal population centres; the import of solid wood products into Sub-Saharan Africa has been growing at a compound annual growth rate of 14.4% since 2001 in order to cover its needs.
Approximately 80% of African households rely on wood and charcoal as their main sources of energy for basic needs such as heating and cooking. As the population grows and urbanization progresses, the demand for these wood fuels in particular grows at a fast pace. Charcoal is lighter to transport than fuelwood and therefore often used in urban areas. However the process of producing it is highly energy inefficient, often requiring 10 tons of wood to create one ton of charcoal. Wood fuel in African countries is consumed up to 200 times faster than the annual growth rates of the trees.
This rising demand for wood fuel leads to rapid deforestation and land degradation, as charcoal producers have to move farther and farther from cities and towns to find wood. Currently over 93% of Africa’s wood consumption is sourced from natural forests and harvested in an unsustainable manner which causes persistent deforestation and forest degradation, increasing desertification, loss of biodiversity, and ultimately impairing harvests and increasing poverty and malnutrition.
Inadequate unsustainable forest management practices are commonplace and have caused serious environmental and socio-economic degradation in many African countries. Indeed, a lack of best practice standards is still prevalent in this industry, both regarding productivity and the implementation of sustainable environmental and social standards. Careful silviculture intervention and sound harvesting practices is needed to ensure a forest is and remains a sustainable and renewable resource. Conservation areas need to be established to promote biodiversity and need proper maintenance and protection in order not to be overrun. On the social side, a robust approach to Health and Safety management is needed to ensure working conditions put the health and welfare of workers first, with adequate wages, proper equipment, and access to skills development and training.
Land adjoining forestry plantations is most often populated by small communities, the inhabitants of which are generally dependent on subsistence agriculture and are using the proximate land for growing crops and letting their cattle graze. This proximity often leads to security issues and conflicts around land use, in some cases even to theft and property destruction.
Poverty in Africa is predominantly rural with more than 70% of the continent’s poor living in rural areas with their livelihoods dependent on agriculture. Despite some of the highest economic growth rates in the past ten years, Africa is still facing a myriad of problems like poverty and high unemployment rates, particularly in rural areas.
Development Effects in a Nutshell
- The Fund’s investees collectively provide approximately 8000 jobs in regions with otherwise high unemployment, and where approximately 70% of the population is tied to subsistence farming. The employees benefit from good wages, training and skills development, nutritious meals, and high quality accommodation if they are working away from home.
- Environmental and social issues are of high relevance for the GEF ASFF portfolio. Best-practice and international standards are implemented across the portfolio’s plantations and facilities. These include conservation area preservation and maintenance, health and safety standards, employee benefits, community engagement, and forest management, among others. 99% of the plantations are Forest Stewardship Council (FSC) certified, which signifies the substantial collective engagement from the GEF ASFF portfolio.
- GEF ASFF is proactively contributing to restructuring and transforming African forestry assets, and assisting to halt the cycle of deforestation and land degradation in Africa through its leading sustainable management of timber and forest related assets.The implementation of state-of-the-art silviculture practices is increasing efficiency and value-add for the GEF ASFF portfolio. These practices allow a focus on the diverse endmarket demands and support investee companies in planning from an early stage, which is important for an industry with such a long-lead time for products.
In 2015, Africa’s total forest cover was estimated at 624 million hectares, representing around a fifth of the continent’s land area and 15% of the world’s forest cover. However, the forests are continuously threatened by agricultural expansions, increased wood fuel collection, unsustainable management regimes, livestock grazing, urbanization and industrialization, and climate change. The quickest solution to deforestation would be to simply stop cutting down trees, but this is unrealistic in light of the economic and financial realities. Parts of the landscape will need to be reshaped and altered as populations grow and change—but this can be balanced through sustainable forest management, reforestation efforts and maintaining the integrity of protected areas such as ASFF I’s companies are doing.
Climate change and CO2 emission reduction
The ASFF I companies provide a significant carbon sink, sequestering approximately 2.5 million tons of CO2 per year in new tree growth, before accounting for emissions associated with harvesting, transport, and manufacturing of wood products, which themselves store carbon on a long term basis. An estimated 15 million tonnes of CO2 are stored in standing trees across ASFF I’s plantations, in addition to an estimated 142 million tonnes of CO2 stored in Compagnie des bois du Gabon’s natural forests.
Preserving conservation areas and supporting biodiversity
Securing forest ecosystems in conservation areas can help to preserve valuable plant and animal biodiversity for future generations. All of ASFF I’s investees manage conservation areas, preventing illegal logging, rehabilitating damaged forest land and making sure that forest set aside for conservation is not destroyed or used in a detrimental way. All ASFF I investees also establish networks of wildlife corridors in order to link conserved habitat areas enabling animals to move according to their natural patterns.
While the forestry sector is labour-intensive and can provide a number of jobs, oftentimes working conditions in agricultural sectors are poor, with inadequate health and safety standards. The Fund Manager ensures workers in its companies are formally employed and earn fair wages, securing their livelihood with a combination of stable income and additional benefits.
Health and safety
The forestry industry is one of the most hazardous industries for workers. Employees need to manage moving equipment, heavy machinery and falling trees in difficult conditions. All of ASFF I’s portfolio companies make certain to provide a safe environment for their workers and minimise associated hazards; this involves extensive safety trainings, improved safety policies and equipment, and improved communication and emergency response systems. A strong focus is made on the safety of labour transport.
Forestry plantations are often in close proximity to populated villages, and consequently strong mutual relationships with the community are vital for the well-being of the forest and the success of the company. Local communities play a significant role in a forestry plantation’s production, development and conservation, and the forest plantation is simultaneously a source of livelihood and employment for the local communities. GEF ASFF has worked with its portfolio companies to strengthen their focus on building strong relationships with surrounding communities and other stakeholders through more regular dialogue around issues of shared concern.
Obviam has made reasonable efforts to ensure the accuracy of the data presented. A case study is made possible both through Obviam’s first-hand experience and/or the information provided by Obviam’s investment partners. Data is valid as per the date recorded.