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Some markets which I would classify as “frontier” may be even too frontier to really invest in.  Uganda, for example, has only a dozen securities listed on its exchange, and typical volume is dominated largely by one of them—Stanbic Bank Uganda, whose market cap dwarfs that of any of the other country’s firms, and which made headlines earlier this year when it slashed its prime lending rate to a record low 15%, following the central bank’s own rate cut.  The firm is also intriguing, however, because it recently expanded into Kabale, a rapidly growing district (with a growing demand for financial services) in the southwest and very near the Rwandan border.  It also has an ongoing relationship with MTN Uganda, a telecom firm, to provide a Mobile Money Transfer service, which kicked off in March.

One way to get exposure to Uganda without being constrained by its exchange’s tepid liquidity, however, would be on a more macro level.  Timber plantations, for example, offer such an opportunity.  The country is in the midst of a sawn timber (two species dominate the plantation areas established to date in Uganda – namely, Pinus caribaea var. hondurensis and Eucalyptus grandis) shortage—due to a lack of planning or planting during Idi Amin’s tenure–that forestry experts opine is likely to persist for the next two decades as demand increases and the number of hectares of plantations meant for growing (as opposed to natural, or tropical high, forests, which are preserved) has only relatively recently begun to be replenished via EU support.  While there are currently around 20,000 hectares of tree plantations, it is estimated that Uganda will need at least 60-70,000 just to meet the country’s projected timber demand by 2025.  In the meantime, the shortage has had wide-ranging effects: most notably, and on a commercial level, it handicaps the country’s growing construction industry (second only to telecoms in terms of growth rate), whose response has thus far been to import from Congo and Tanzania.  But increasing transport costs and price for wood means that said reaction may not be viable in the long-run. 

Over 50% of Uganda’s timber is currently imported, and at this pace the country will be a net timber importer in the next five years.  But Uganda Tree Growers’ Association (UTGA) secretary Ms Sheila Katamara points out that Uganda is in a “strategic position” to be a regional supplier, given its vast land.  Commercial tree growing is just starting to gain a foothold, thanks to the Sawlog Production Grant Scheme (SPGS), an EU-funded initiative offering subsidies to help establish private growers.  “We already have an association of Uganda Timber Growers Association (UTGA) whose membership comprises of investors in trees and those intending to become forest lords,” said Allan Amumpe, the SPGS project manager.

Conditions for growth could hardly be more ideal.  The region is widely regarded as having better soils than most countries in Eastern and Southern Africa.  Additionally, it is a well-watered country that is richly endowed with renewable natural resources.  Finally, with a temperature range of 15-30 degrees Celsius, and an annual rainfall range of 750-2000mm, the country is highly suited for forest production. Finally, vis a vis yields (m³/ha/yr), Ugandan plantations can match, or often exceed, some of the best growth rates in the world, including those in Australia, South Africa and Tanzania.

That said, political complications arose last December that should cause investors to be cautious—namely President Yoweri Museveni’s brouhaha with the National Forest Authority (NFA), which manages 15% of Uganda’s remaining forest cover (70% is located on private land).  Museveni expressed dissatisfaction with deforestation projects that he said reeked environmental havoc.  The scuttled deals in question, however, involved an Asian sugar cane plantation company and palm oil developers, not plantation or timber production per se.

Last month Peter Bartlett’s Exotix Limited secured financing for UK-based New Forests Company’s sustainable forestry operation in Uganda.  The New Forests Company is a plantation timber firm with operations in Uganda and Mozambique.  It has become the largest tree planter in Uganda and expects to plant almost 4.5 million trees this year. The company combines sustainable commercial forestry and the protection and promotion of biodiversity with community participation.  Commenting on the deal, Exotix’s Sanjeev Chhugani said, “Early stage forestry businesses have low cash flows in the initial years, but once the trees reach a certain age, the picture changes dramatically. Not only do the assets literally grow, so does the holding value of these assets. With increasing global demand for timber, investing in sustainable forests is essential. New Forests’ impact on the surrounding communities will be phenomenal. While many of our alternative investment clients are focused on assets that can be marked to market on a short term basis, we had to find a strong investor with a long term outlook, a passion for Africa and a pragmatic approach to ‘green’ investments. Money can grow on trees.”

Julian Ozanne, CEO of New Forests, commented that “with our institutional round of funding concluded, we can focus on planting more trees and extending our biodiversity and community development initiatives. We have a solid team of very experienced and passionate people who are extremely knowledgeable about forestry and are committed to successfully and profitably expanding our operation within Uganda and across Africa.”

JGW

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