Investment case for Forestry

Policies to eradicate illegal logging are set out by Forest Law Enforcement, Governance and Trade Regulation (FLEGT) and have been adopted worldwide, resulting in a surge in demand for legally- and sustainably-sourced timber.

Mozambique has suffered a high degree of deforestation in recent years, with the annual rate estimated at 0.35 percent, something the government is now seeking to stamp out, with an ongoing moratorium on new forestry leases. In March 2017, the World Bank and International Development Association (IDA) approved an injection of $47.3 million to help the country stem deforestation through promoting and enforcing sustainable forestry management. With 312,465 hectares of 50-year forestry leases in Mozambique alone, operating sustainably and in close partnership with the government, Obtala is uniquely positioned to take advantage of the expected near-term price bubble while laying the foundations for the long-term.

Historically, there are few assets that are as reliable and outperform as consistently as timber. Statistics show that timberland has provided total real returns of between 6 and 10 percent, which equates to 9 – 15 percent adjusted for inflation. It is an invaluable addition to any investment portfolio.

They typically perform counter-cyclically with paper investments, such as stocks and bonds. But even in a cycle of downturn for forestry, trees can be stored on stump, where they will grow further - increasing asset value pending a return to a more buoyant market.

Very few assets enjoy the benefit of also being underwritten by the underlying land assets.

Of course, timber benefits from the potential additional uplift of land price rises, which can appreciate rapidly when asset-rich, especially in developing markets.

Within the 25-year period between 1987 and 2012 (source IWC), timberland outperformed all other assets classes, as a result of Biological Volume growth, contributing some 15 percent to return on capital. Global trade in hardwood (including logs, sawn, mouldings/decking, veneer, and plywood) was US$38.5 billion in 2014, a rise of 10 percent year-on-year. This was largely driven by a surge in hardwood log sales to China. Hardwood logs were valued at $11bn in 2014, rising further from the previous 2007 peak of $9.2bn. Elsewhere, global hardwood product trade appears to be rising above pre-crisis peaks as developed countries exhaust long-term inventories.

Going forward, a host of new opportunities for hardwood emerging across Europe: There is increased use of wood in green building, interest in hardwood in higher-value structural applications, innovations such as thermal modification which extend applications for less durable species.

“Now timber is back. After more than three centuries, a wooden architecture is once more taking shape in the City (London), which is leading the world in large-scale urban timber construction.” Financial Times, 15 May 2017

Rising awareness of carbon credentials, certification and legality verification as well as architects‘ and structural engineers‘ increased knowledge of timber are seen boosting applications and demand.

The 2015 COP21 climate change agreement in Paris has significantly increased interest in low-carbon solutions, and the transition towards an economy based on biological and renewable materials – the bioeconomy.

The forestry industry is at the heart of the bioeconomy: wood fibre-based products store carbon and can replace non-renewable materials such as plastic, glass, steel, concrete and fossil fuels.

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