Financial assessment tool launched to assist start-ups

January 12, 2017

MSc forestry students Dannyboy Seboa and Daniel Graham make use of the ForEntSim for a financial simulation in their MSc research projects.

An innovative decision-making support tool for small scale forestry entrepreneurs and larger, existing timber growers has been born out of the Forest Sector Innovation Fund (FSIF) administered by Forestry South Africa.

The FSIF – one of nine sector innovation funds awarded by the Department of Science and Technology – is aimed at increasing national competitiveness, employment opportunities and private sector contributions to research and development.

The South African Forestry Charter prioritised the entry of a large number of new black-owned enterprises, and identified the industry as a catalyst for empowering rural black communities by facilitating access to economic activities, land, infrastructure, ownership and skills. However high initial capital investment, extended investment periods owing to rotation lengths and the risks associated with forestry make it difficult for small scale growers to enter the industry.

New entrants are also restricted by a lack of information about forestry operations and the associated costs, thus preventing them from accurately estimating profitability and business sustainability.

The Forestry Enterprise Simulator (ForEntSim) was designed to assist small growers in evaluating the feasibility and profitability of forestry enterprises and activities throughout the rotation length. It is a joint initiative by the Department of Forest and Wood Science at Stellenbosch University, the Institute for Commercial Forestry Research and the Forest Economic Service.

The simulator is an open source web-based application for small growers and entrepreneurs interested in entering the industry and helps them to calculate the net present value, equivalent annual income, land expectation value and internal rate of return of one hectare of plantation based on income and costs. It provides an ex-ante simulation of enterprise ventures to test viability and capital requirements to identify potential improvements that will increase profitability.

The ForEntSim is an excellent example of how public-private partnership between the forestry industry, its research partners and the Department of Science and Technology have collectively contributed to strengthening the forest industry, nationally and abroad.

It can be accessed at Interested parties are encouraged to make use of the simulator and share their ideas regarding its functionality.

*First published in SA Forestry magazine, Dec 2016

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