Why Invest in Forestry?
Why grow timber in Uganda?
Uganda is fast approaching a major shortage of sawn timber. To meet the increasing demand of the growing economy, the country will soon have to import timber as well as face increased pressure on its remaining Tropical High Forests. To counter both these scenarios, Uganda is now encouraging investment into timber plantations, through both the public National Forest Authority (NFA) and private sector. Indeed, the private sector interest in timber plantations has taken off exponentially, spurred on since 2004 by the SPGS grant.
Virtually no timber plantations have been established in Uganda for over 30 years and the 12,000 hectares of plantations planted in the late 1960's and early '70's have been 'mined' over the last 10 years and have only started to be replanted since 2003 through the support of the European Union. Less than a few hundred hectares of mature plantations remain, whilst it has been estimated that Uganda needs at least 75,000 ha of timber plantations just to meet the country's projected internal timber demand by 2025.
Given the poor state of the current plantations, it is a surprising fact that Uganda has excellent growing conditions to support commercial tree growth. With good management and the adoption of intensive silvicultural practices, growth rates can match the best in the world and timber plantations can offer a solid return on investment.
Uganda has substantial areas of land suitable for timber plantations as shown by the silvicultural map of Uganda. This land is either in CFRs or is privately owned land. Long-term leases for tree planting are available in many CFRs: the first licenses for tree planting were issued by the NFA in mid 2005. Potential investors must realise, however, that the areas are more suited to pines than Eucalypts, being in hotter, drier areas.
The main requirement in Uganda is for general purpose timber for construction, furniture making etc. Pine is very suitable for these markets and could eventually replace much of the hardwood timber currently being used. There is a good market for veneer logs (Nileply Ltd. in Jinja), which can be met from E. grandisAraucaria spp. There is also a good market for electricity poles ( Eucalyptus spp.), which are currently being imported into Uganda. Near urban centres there is a good market for E. grandis building poles. Current recovery rates for timber from E. grandis are poor but it is confidently expected that this will improve and that E. grandis will become a major timber source within 10 years. and
What does it cost to establish timber plantations?
We have estimated that on average in Uganda it will cost around Ushs1.5 M per hectare (US$ 730) to establish a plantation. This cost covers all expected costs up to canopy closure (i.e. when the trees canopies in adjacent rows touch and shade out the ground vegetation) - which is around 3 years with Pinus caribaea, 1-2 years with E. grandis. Costs will differ significantly on different sites and also depending on the supervision and level of skills of the labour. Other factors that can influence establishment costs are the scale of the planting, the level of mechanisation and the timing and frequency of key operations - especially weeding. Within less than two years under the SPGS, we are seeing private planters learning quickly from their mistakes and reducing their unit costs significantly.
A recent independent study carried out for the SPGS (by LTS International Ltd.) calculated real rates of return (RoR) of 9 to 15%. When adjusted for inflation at 5 to 6%, these RoR approximate to 15 to 18% financial RoR including inflation, which is very favourable compared to plantation investment in numerous other countries. The study also noted that the RoR depend on the costs of establishment, the productivity of the plantations, the conversion rate at sawmills and the import price of sawn timber.
This depends on the potential of the site (i.e. which species are suited to grow there) and also the objective(s) of the grower. Assuming the plantations have been properly managed using the intensive silvicultural techniques recommended by the SPGS, rotations for pine sawlogs of around 20 years are expected, compared to 8-15 years for E. grandis. For pines, the second and third (final) thinning will yield some sawlogs; for E. grandis, all thinnings will yield utilisable products. For both Pines and E. grandis, however, the major income only comes at final felling of the large sawlogs.
Are there any incentives to invest in timber plantations in Uganda?
The main incentive for private growers is the planting grant provided under the SPGS, which covers half of the estimated establishment costs. Following the aforementioned LTS study for the SPGS in August 2005, the SPGS is currently coordinating efforts to persuade the Government of Uganda to change the unfair fiscal treatment of forestry. Whilst it will undoubtedly take time to obtain agreement, the two most likely options being considered are:
- to allow the costs of replanting to be set against the proceeds from the harvest of the first crop;
- exempt plantation forestry from income tax.
Follow the progress through the SPGS Newsletters.
What other support incentive or support is available?
Private planters under the SPGS benefit from various ways - notably:
- Site visits from the SPGS Technical Advisory team.
- Plantation Training courses, which are very practical 2-5 day courses
- Quarterly meetings to share experiences.
- SPGS Tree Planting Guidelines for Uganda