Africa loses three million hectares of forest annually, with 65% of its land affected by degradation. Kenya has lost over 80-90% of its tree cover in the last 40 years. The East African coastline, home to diverse ecosystems and endangered species, faces deforestation, increasing vulnerability to climate change.

Wood consumption is the leading driver of forest degradation, with demand for industrial wood growing 5-7% annually. Kenya’s wood deficit is expected to triple by 2030, requiring unsustainable harvesting of 700,000 hectares of dry woodlands each year.

Komaza, operating in coastal Kenya, proposes a Smallholder Forestry Vehicle to raise USD 35 million for 5,000 hectares of tree planting. Follow-on investments of USD 50-100 million every 3-5 years will scale operations.

How the blueprint contributes to conservation goals

The Smallholder Forestry Vehicle reduces deforestation by providing an alternative wood supply. Farmers engage in tree planting, generating long-term income while restoring degraded land. The proof-of-concept phase will support 16,000 households with USD 1,200 annual income each. At scale, it could restore 15,000 hectares, benefiting 50,000 households with an estimated 15-17% internal rate of return.

Fast-growing commercial tree species will replace native dry woodland and mangrove logging for construction, charcoal, and furniture. Indigenous species in limited mixes support biodiversity restoration.

Progress is measured by farmer participation, hectares cultivated, trees planted, farmer income, and reductions in deforestation.

The business model

Komaza’s model separates forestry investment into three stages: establishment, growth, and harvest. Farmers provide land and labour, while Komaza supplies seedlings, training, maintenance, and a guaranteed market for harvested trees.

A Special Purpose Vehicle (SPV) finances trees beyond the high-mortality establishment phase. The SPV, funded through debt and equity, secures predictable cash flows until harvest, reducing investor risk.

Farmers receive payments based on tree growth and market prices, creating a climate-resilient income stream.

Cash flows and commercial sustainability

The proof-of-concept SPV, valued at USD 35 million, is funded with 60% debt and 40% equity, targeting a gross internal rate of return (IRR) of 11.1% and an equity IRR of 11.4%. At scale, a USD 105 million SPV covering 15,000 hectares could achieve a gross IRR of 17% and an equity IRR of 18.5%.

Revenue comes from thinning in years 3-4 and final tree harvesting in years 11-12. Farmer income from tree harvests could reach USD 73 million, with each farmer earning USD 1,469 annually in the scaled model.

Risk management

The Vehicle mitigates forestry risks such as fire, disease, and land conflicts by diversifying across smallholder farms.

Risk reduction strategies include:

• Geographic diversification to lower environmental risks
• A first-loss equity tranche to protect investors from low tree growth
• Agricultural insurance against fire
• Compliance with Kenyan environmental regulations and pursuit of FSC Certification

The investment model

The proof-of-concept SPV seeks USD 35 million, including USD 21 million in debt and USD 14 million in equity. A principal guarantee lowers risks for debt investors.

Future SPVs, valued at USD 50-100 million, will target commercial debt and equity investors, reducing reliance on concessional funding.

The investment structure includes:

• A 6% interest rate in the proof-of-concept phase, increasing to 8% at scale
• A first-loss equity tranche for risk mitigation
• A buyback structure where Komaza repurchases tree assets before harvest

Replicability and scalability

The model is initially deployed in Kilifi and Kwale counties, regions with high climate vulnerability. Kenya’s 2030 land restoration target of 5.1 million hectares indicates high scalability potential.

Expansion is planned for Ethiopia, Mozambique, Rwanda, Tanzania, and Uganda. By 2030, Komaza aims to deploy multiple SPVs covering 40,000 hectares. The model could also be adapted for other smallholder forestry initiatives.

Innovative features of the investment model

The Smallholder Forestry Vehicle is among the first investment models focused on smallholder forestry in Africa. Innovations include:

• A cooperative model improving farmer productivity
• Risk diversification through smallholder aggregation
• Lower capital costs attracting institutional investors

This financing approach could mobilise large-scale private investment in Africa’s forestry sector while addressing deforestation and climate resilience.