Uganda ‘tree banks’ offer investors good returns

For Peter Nyeko, a Ugandan businessman always on the lookout for the next hot investment, nothing in the world beats the humble tree. Five years ago, he and two partners put their money into planting a stand of eucalyptus outside Kampala, which he calls his “tree bank.” Now, he said, he’s just waiting for the money to start rolling in.

“A tree bank’s pretty much the best kind of investment you can put out there,” Nyeko said. “You could invest $50,000 and in 10 years you’re harvesting trees worth five million dollars. As long as you’re willing to wait for about 10 years for a return on your capital employed, it’s pretty amazing. It’s just like a trust fund.”

Nyeko isn’t alone. More and more Ugandans are discovering the financial value of tree plantations, thanks to a government and international donors eager to promote planting in a country whose natural forests are disappearing fast. The phenomenon has attracted some controversy but that hasn’t stopped hundreds of private investors from jumping on board.

“They are very interested. We are doing what we can to make them more interested”, said Gonza Araali of Uganda’s National Forestry Authority. “We are telling them it’s an investment, it’s an insurance. It’s where they can get income and be able to sustain themselves, and also pay school fees for their children.”

What makes trees so profitable is Uganda’s growing demand for timber and timber products. Over 95 % of Uganda’s population of 33 million depend on firewood or charcoal made from wood for cooking, according to the German development agency GIZ. The country’s booming construction industry has also helped make timber an increasingly valuable commodity.

Supply isn't keeping up. The Kampala-based Sawlog Production Grant Scheme (SPGS) says Uganda has virtually no mature tree plantations left, and that the sector is in serious need of investment. Without enough cultivated tree plantations, most Ugandans turn to natural forests for their timber. Some 40 % of Uganda’s forests have vanished over the past 20 years, and the National Environment Management Authority has warned that if deforestation continues at the present pace, the country could have no natural forests left at all by 2050.

There are other environmental factors for potential investors to consider. Nyeko said that when he made his investment, he had one eye on the carbon trading markets. Right now it isn’t possible in Uganda for individual planters to claim carbon credits for trapping CO2, but Nyeko thinks that could soon change.

“That would open up another revenue stream as well,” he said.

According to Nelly Bedijo of SPGS, a nonprofit funded by the European Union, tree plantations have the potential to make a lasting impact on the Ugandan economy. Not only will plantations create thousands of jobs, she said, but “there are going to be numerous timber processing industries that will invest in Uganda — we’ll be seeing a lot of sawmills, and with time maybe we shall even have paper processing plants.”

“Maybe we shall even stop importing timber from other countries,” she added, noting that at the moment Uganda buys some of its wood from neighboring Congo. A local newspaper, The Independent, reported that the country imported around $5.5 million worth of timber in 2011.

SPGS promotes tree plantations by awarding grants that cover half the cost of planting. In order to qualify, candidates, who come from all walks of life, must own at least 25 hectares of land. It’s a requirement designed to discourage all but the most serious planters.

Bedijo estimated that at the moment, such planters can still only be counted in the hundreds. But she said SPGS, founded in 2004, will have helped to plant a total of 40,000 hectares of trees by next year, three quarters planted since 2009. Burgeoning interest in the program, she said, outstrips their capacity.

“It’s growing so much, and it’s getting a lot of attention. We are receiving a number of applications — it’s overwhelming,” she said.

Tree planting advocates are quick to point to ways in which plantations can benefit local communities as well as wealthy investors. SPGS, for instance, provides free planting advice and seedlings to poorer villagers who don’t have much land, as long as they can form an association of at least 20 people. So far, the organization has helped over 130 such groups plant trees. The wood produced is used by communities for fuel, fencing and construction, and SPGS says the skills people learn can later help them find work with large-scale growers.

Araali said even if they don’t grow trees themselves, the communities living around tree plantations benefit in a number of ways. “We employ them in slashing, in clearing, in protection of those forests from fires. We have bore holes, they access water freely. We allow them to put their bee hives in our forest reserves.”

But others say tree plantations actually come at a significant social cost. Last year stories circulated in Uganda of violent land grabbing, after international relief agency Oxfam released a report claiming that the UK-based New Forests Company had evicted tens of thousands of people from their land in order to make way for tree plantations.

“Today, the people evicted from the land are desperate, having been driven into poverty and landlessness. In some instances they say they were subjected to violence and their property, crops, and livestock destroyed,” the report stated.

The New Forests Company said those evicted were illegally encroaching upon the land, but it was nonetheless forced to suspend tree planting after its World Bank funding was withdrawn.

Nor is everyone convinced all tree plantations are good for the environment, especially since most of the trees are fast-growing imported varieties like eucalyptus, pine and teak.

“You need to really be careful about which tree you introduce”, said Abby Onencan of Nile Basin Discourse, an environmental organization based in Entebbe, Uganda.

“A lot has been said about the eucalyptus. There are some breeds which are really bad, they really cause a lot of destruction and should not be planted near the water. If we plant trees around the Nile that take up the water, then the water might never reach Egypt,” Onencan said.

But Araali argued that when planted responsibly, even the much-maligned eucalyptus can have a positive impact on the environment. “They grow very fast. People are able to get timber out of them, and the rate at which they would have gone to the natural forest to cut trees reduces”, he said. “They also help in conservation, which people are not seeing.”

For his part, Peter Nyeko is convinced that his trees and the wood they provide will benefit Uganda. “The more people that get involved now, the better, because the population is rising, demand is shooting up, and we just don’t have enough timber growing to sustain our demand,” he said.

But Nyeko’s primary motivation for planting is still very personal. “I thought, I can’t afford to put together a trust fund right now, so why not set up a tree bank?

“In 10 or 20 years you will have enough return on capital employed to sustain a family. It would be nice for our kids to have as good a childhood as we have had,” he said.