Investment analysis of large-scale private forest plantation development in Ogun State, Nigeria

Abstract

Nigeria, like most African countries, has experienced a noticeable degradation and depletion of its natural forests over the past years. As natural forests decline, actions such as private forestry should be used as a strategy for restoring the ecosystem and increasing wood supply. This study, therefore, investigates the feasibility of large-scale forest plantation development in Ogun State, Nigeria, in order to inform forest stakeholders and policymakers about the benefits accruable to fast growing tree species establishment. Financial indicators such as Net Present Value (NPV), Benefit-Cost Ratio (BCR), Internal Rate of Return (IRR), Return on Investment (ROI) and Discounted Payback Period (DPBP) were used to analyse the cash flow of the investment. The study revealed that 75 hectares large scale Tectona grandis and Gmelina arborea plantation of 16-year rotation had NPV of ₦ 16,581,015.00 (US$ 45, 427.44), BCR of 2.04%, IRR of 29.71%, LEV of ₦23,046,895.46 ha-1 (US$ 63, 142.18) and DPBP of 15.2 years. The results revealed that the investment's payback period is lengthy due to the large capital outlay at the start of the investment as well as the lack of revenue until near the end of the rotation year. So, until the end of the rotation, when the investment yield returns, initial investment will never be fully repaid. Nonetheless, findings confirmed that large-scale forest plantation development is profitable. Therefore, all forest stakeholders and environmental conservation organizations should collaborate with the government to encourage private investment in forest plantation development so as to restore and maintain healthy ecosystems.