Peru attracts $1.4bn in forestry investment

LXG Asset Management analyst Rafael Romero, part of a timber fund management team in the country, says Peru is making great efforts to pull in forestry investment.

The Peruvian government is developing its forestry industry at lightning speed, and will continue to do so after an election this year, whoever wins, LXG Asset Management investment banking analyst Rafael Romero has told Agri Investor.

His firm set up the LXG Amazon Reforestry Fund as a private investment vehicle last year, although it have since made the fund public. It has raised $2.5 million, according to Romero, and will target $6 million by the end of the year as it sees opportunities to scale up in the country’s forestry sector. In particular, he says government support for the industry has been, and will be, key.

Peruvian minister of production and former Barclays managing director Piero Ghezzi said this week that Peru had attracted $1.4 billion in forestry investment commitments. Ghezzi made the announcement just two months after his ministry said it was earmarking 10 to 12 million hectares of forest for timberland investment in the Amazonian region.

Peru’s Amazonian Huanuco, San Martin and Madre de Dios regions are likely locations for concessions.

Romero told Agri Investor of the enthusiasm with which ministers like Ghezzi are working to catch the eye of timberland investors: “This idea [for our fund] came about because it was suggested to us on a trip by an associate in Argentina that we invest in forestry in Uruguay. On the return flight from Argentina, about a year and a half ago, we ended up on the same plane as Piero Ghezzi.”

“We told him that the following week, we were going to Uruguay to look at forest, but he said to us that in Peru the opportunities were the same, if not significantly better, than in Uruguay. He set up meetings for us with Refolasa [a Peruvian private reforestation investment manager], and in a month we had already organised a private fund, which we then decided to make public. The meeting with him, and then others, opened our minds.”

Romero said that there was so much land available for investment in Peru, that his reforestation fund alone would eventually target $1 billion in investments.

“We think to re-forest the Amazon in Peru, we would need at least $3 billion dollars. But that includes concessions that have some primary forest or areas where the government is working, which we would not invest in, and so we end up with $1 billion. Even after that it also has the investment to be scaled up quickly because we can move into Brazil.”

He said the fund, which went public partly to attract foreign capital, was in talks with the UK Althelia Climate Fund and a large Japanese company about investing.

Romero added land was much cheaper in Peru than Brazil or Uruguay, in some cases 10 percent of the price, and that the country had room to develop a strong, competitive timber industry.

Ghezzi has said Peru has neglected its forestry industry, pointing out that only two million hectares of land have been made available for legal forestry investment to date. Peruvian development bank COFIDE has made 200 million soles ($59.9 million; €52.9 million) in financing available to the forestry sector this year, according to the government.

Romero says that government support and publicity for forestry investment will not end with the upcoming election.

“The elections won’t change this because the two candidates for this year – Pablo Kuczynski and Keiko Fujimori – are both in favour of the forestry industry,” he told Agri Investor. “Keiko in particular has a government plan that includes promoting forestry, and one of the members of her party has around 1,000 hectares of forest. So on that side the government is totally pro.”