Detailed analysis of various business sectors in Uganda

Investing in forestry in Uganda? who said money can’t grow on trees?

Outside Looking In
D E Wasake

About the writer:

For over 8 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My sector experience with clients in various sectors including agriculture enables me have good understanding of this sector. To see the full depth of my experience, Please see my profile

Article summary

Put simply, In developing countries like US and UK, investing in forestry has given better returns than investing on the S&P 500 (an index that measures the performance of the largest and "best" companies in the world (such as Apple and Google). The profitability estimate is Shs. 105m per year from an investment of Shs. 22m hence you get your initial capital back (return on Investment) in about 2 months! This estimate factors in the long period of investment for trees (at least 15 years).

In order to achieve this excellent return, in addition to patience, you need to consider "advanced thinking" tips such as considering applying for an environmental grant and selling the "carbon credits".


So the X-mas season is over and you are pondering your next move, making resolutions and the like. Wondering where that Xmas tree you had came from? When younger, that wasn't a worry, you just cut down your neighbours tree fence!

How about while driving through Mabira forest, wondered what the cost of investing in a natural wood forest is?

For a typical Ugandan of course this might not be the first thing that comes to your mind when you think of forestry. You will most likely think of two things:

  • 900m shillings of suspected stolen funds being hidden in a house by the National Forestry Authority (NFA) director; and
  • Former Vice President Gilbert “Mahogany” Bukenya being “cut down” by a certain “pit sawyer” in the Chainsaw Masaka (sic). Apologies for all the pun

In considering whether to invest in forestry, it is worth noting that:

In the U.S, over the past two decades, returns in US timber land have only been negative twice and returned an average 12.7% annually between 1990 and 2008.

This is significantly better than the return of 7.32 % over the same period that would have been achieved investing in the S & P’s 500 index. The S&P 500 index is basically a measure of the performance of 500 largest and most actively traded stocks of large companies in the U.S What this means is that generally it is more profitable to invest in forests than the 500 “best” companies in the U.S.

In the UK in 2006/2007, forestry was the best asset performing class with returns of 26% compared to 17% for shares.

In Uganda, on the basis of information from NFA and the Sawlog Production Grant Scheme(SPGS) a European Union(EU) funded program to promote commercial forestry in Uganda the returns are also in the range of 9-16%.

With that in mind, how do you then proceed to invest in forests considering not many investors are by nature “forest people”. There are 3 options to consider in Uganda.

  • Option 1: Direct investments in private forest. This involves the investor inncurring the costs directly including purchase/lease of land, planting, weeding, forest management et al.
  • Option 2: Lease from National Forestry Authority (NFA). In this case, the land leased is one of the various Government owned forest reserves. The investor is given a lease/permit to harvest the trees and in return pays a rent to NFA. I am personally not a fan of this option owing to the politics and back hand deals that can often come with this option, for example having to pay bribes to get the concession/licence. There is also the bureaucracy of the process. I will therefore not analyse this option further.
  • Option 3: Forest fund. A forest fund is basically one where the investor contributes a fixed amount say £10,000 to a pool together with other investors. The forest fund will basically be a company or other legal structure that invests in different tree types and in different geographical locations from a basket of options.

The fund is professionally managed by suitable experienced forest manager and in return the investor gets returns on an annual basis, as the trees grow or on their maturity. The advantage of this model is that it is similar to investing in stocks, that is, the investor doesn't have to worry about the management of the fund on a day to day basis. They get regular reports (usually quarterly) on the performance of the investment and they can expect audited financial statements as part of the professional management of the fund.

I do not know of any forest funds in Uganda (thus another business opportunity) but for example UK based Quality Investment has Teak wood, Agarwood and Melina Investments (all forest tree type investments). Plantation capital another UK based fund has an Africasia fund, teak, bamboo and Agarwood investments. To invest in a UK forest fund, the Ugandan investor will most likely need to provide enhanced due diligence information (i.e proof of identity, proof of address, source of funds/wealth, references et al ) as Uganda is typically ranked as a high risk jurisdiction on account of a weak Know Your Client(KYC) regulatory framework. Hopefully for the calibre of investors these series are targeting(no bad black style source of funds) providing this information should not be too onerous.

FIRST THE CONS (of course)

1) Deadly bacteria wilt. Like many “agriculture products” diseases is a key issue. The predominant trees grown in Uganda are Pine trees and thus it is worth ensuring they are not wiped out by this deadly disease.

2) High cost of investment. Forestry in addition to being high cost is a generally long term strategy. Estimates by NFA and show that it costs about $730-$1000 per hectare(ha). This includes cost of seedlings, pruning, weeding, labour et al.

The EU funded SPGS grant scheme currently re-imburses part of the cost of this investment (to revert to this later) but in return they will only re-imburse for investments that are a minimum of 25 ha. Therefore assuming the minimum 25 ha for investment will cost the investor at least $25,000. At the average exchange rate of 2414 (December 2011) this works out at Shs. 60,350,000.

If considering the forest fund option, then the cost of investment varies but I have seen some of between £10,000 and £18,000. £18,000 at the current exchange rate (December 28: 3,776.2) is Shs 67,971,600.

3) Uganda's complicated land tenure system. Forestry requires a lot of land and while there is no scarcity of land in Uganda, the complex traditional land tenure system where land is usually community/village held and with no land titles, can be a challenge.

The investor can of course navigate through this challenge by leasing communally held land from the village representatives. A word of caution, land especially from National Forestry reserves has caused significant complexities for example for Busoga Tree Farm a private company that sought to plant forests and has had to deal with “encroachers” who are probably a combination of landless peasants and those who have owned the land through communal/generational ownership systems.

A complex land tenure system is not necessarily a problem for the forest fund as the forests are located worldwide and a good forest manager will ensure they navigate through the land tenure system of the country.

4) Illiquidity of investment. Forestry by nature is long term, investments can only be realised on maturity of the trees which for the dominant species in Uganda are as follows:

  • Pinus caribaea var. hondurensis (Pines) – 15-20 years.

  • Eucalyptus grandis (Kalitunsi) – 8-12 years.

  • Maesopsis eminii (Musizi) – 18-25 years.

  • Tectona grandis (Teak) – 25-30 years.

Illiquidity can however partially be mitigated through investment in a forestry fund rather than a direct investment as forest funds usually have a mechanism for the investor to sell their “share” in the forest fund to other investors. The investor should therefore ensure they ask the forest manager about this prior to investment.


1. High returns/Low risk of investment. Despite the long maturity period, forests have a double advantage over many other investments. The timber is an asset, the land (especially if privately leased) is an asset as well.

In addition, they offer excellent returns, In both the UK and the U.S, forests have been ranked as some of the best asset classes. In the UK, in addition to being the best performing class commercial forestry usually qualifies for various tax relief such as no capital gains (tax on sale of investment). I can expect this is the same case in the U.S. This should appeal to Ugandan born U.S and UK residents as well.

I now estimate the profitability of investment in this sector.

Option 1: Profitability and Return on Investment(ROI) for forest fund

Start up capital: £18,000 at the current exchange rate (December 28: 3,776.2) is Shs 67,971,600.

Running costs: Nil. These are nil as the return to the investor is after deducting all costs of running the plantation including costs such as forest manager fees, insurance, legal costs, planting, weeding wages/salary and other costs.

Return on Investment.

Using Melina investment's forest fund, on the basis of an investment of £18,000 yielding £104,189 over 12 years represents an annualized profit of £8,682.42 per year. The return on investment is therefore

  • Capital Investment(A): £18,000*
  • Profit per year (annualized**) (B): £ 8,682.42*
  • Return on Investment/Capital (years to get capital back) (A/B): 2.07 years

(*Pound sterling used to eliminate for the effects of foreign currency translation

**owing to the long maturity period of the forest, being 12 years, the profit has been annualised to represent what the profit would be over the 12 year period)

Option 2: NFA lease. Not evaluated

Option 3: Profitability and Return on Investment(ROI) for private forest investment

I will in this case assume the investor will plant the forest to the standards of the Sawlog Production Grant Scheme(SPGS) .Investing to SPGS standards will entitle the investor to a grant which is a re-imbursement of half of the investor's establishment costs. The current grant (expiring in 2013 so hurry!) is however dependent on meeting the SPGS standards as well as successfully passing an inspection/compliance visit (This is to ensure that only serious investors are entitled to this grant.)

On the basis of the above, I estimate the profitability at over Shs 100m per year and Return on Investment at about 2.5 months! As below:

Analysis of Profitability and Return on Investment

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be dowloaded after you register. 

Note on Land. Now you will notice I havent considered cost of land in this analysis. The reasons are multifold. When I considered this business venture and from my research, an investor can get the land for "free" in return for for example hiring local people, from relatives in rural areas and the like. I therefore didn't consider it to be a major issue.

2. Grants and related nature conservation income . Other than the SPGS grant highlighted in the previous paragraphs, there are several grants for sustainable farming, nature conservation, afforestation and the like. The forestry investor can benefit from this grant income during the period of the maturity of the trees hence providing other income. Other opportunities may for example be establishing income generation projects that would complement the forest.

Examples of grant schemes with activities in Uganda are listed below:

(Please review the grant guidelines carefully as some may not entirely be suitable(for example may prefer small forestry rather than large scale forestry projects et al)).

The Rufford Small Grants Foundation (upto £25,000)

The GEF Small Grants Programme (supported by GEF/UNDP)

3. Sale of Carbon credits . In case you missed it, there is global warming and it is real. In order to hopefully combat the effects of global warming, world governments(under the Kyoto protocol) have established a market to buy and sell “carbon credits”. Large multinationals in countries that have not ratified the protocol(such as the U.S) however often have voluntary schemes.

BUT What does this mean for a Ugandan forest investor? Trees by nature reduce Carbon dioxide(C02) emissions (the stuff causing global warming) there are however world wide companies(such as oil and gas) that produce more CO2 than they should (based on limits set by the Kyoto protocol for countries or voluntary limits). These companies are therefore willing to buy your carbon credits so as to “offset” their own excess of emissions and thus fall within their limit/quota.

Please note that this is a specialist area as the carbon credit market is considered a financial market (just like say the stock market) and so perhaps it is worth speaking to a professional who will help you estimate your carbon credits as well as advice you of the best means of selling your credits and thus avoid scams or raw deals.

A starting point is usually an appraisal of your project such as that offered by for whom the investor can join as part of their portfolio/projects.

You can find out more/get advice on carbon credits from the Uganda carbon bureau or you can read more about carbon credits here.


First the numbers:

On the basis of my analysis:

Option 1: Forest fund

  • Capital Investment(A): £18,000
  • Profit per year (annualized) (B): £ 8,682.42
  • Return on Investment/Capital (years to get capital back) (A/B): 2.07 years

Option 2: Direct investment

  • Capital Investment(A): Shs 22,027,750
  • Profit per year (annualized) (B): Shs 104,493,000
  • Return on Investment/Capital (years to get capital back) (A/B): 0.21 years

Now the basics you must get right before investing.

  • Specialist support/training. Before you commence, I would recommend you speak to specialists like SPGS to provide you with the necessary support if you are choosing to invest via the direct investment route.
  • Due diligence. If you are investing via a foresty fund or considering the carbon credits, you should speak to your business advisor to ensure that for example the forestry fund is well regulated and not a scam and likewise that your carbon credit offsets are being handled by a professional.
  • Patience/vision. Like I have highlighted, this is one of those investments that is probably for benefit for your retirement or for your children but then after the establishment of the forest, then there are little maintenance costs and so this is one of those “passive” yet high value investments. A little patience doesn't hurt if its for the good of your family, your village, your country, the world!
Final Word:

Whoever coined the phrase “money doesn't grow on trees” was right but should have instead said “money grows with trees”!

Otherwise, best of luck and of course if you need some help, do not hesitate to speak to us to get the ball rolling, Inachee after all represents Home Grown Energy in Motion.

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And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I shall therefore not be held responsible for any loss you may incur when acting on this information.

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