Profile: Obtala

‘Ex Africa Semper Aliquid Novi’: Out of Africa always something new – Pliny the Elder

The words of Pliny the Elder (23-79 AD) have echoed down the ages, more often in sadness than in hope. Africa is the continent that has always promised and, all too often, failed to live up to that promise. Maybe things are changing however, thanks to companies such as Obtala, a member of the Social Stock Exchange and listed on AIM. Established in 2007, Obtala’s mission is to become one of East Africa’s largest sustainable food and timber producers. It’s also to provide training and employment in the regions it operates in, making local communities more self-sufficient and strengthening community resilience to changing climate conditions.

After a period of relative stagnation Obtala saw a new chairman, CEO and COO arrive in 2016, as well as an overall strengthening of its Board, notably by the appointment of Jessica Camus as non-executive with responsibility for engaging with civil society and multilateral organisations, boosting its social impact. Its work involves sustainable forestry in Mozambique, to the tune of more than 312,000 hectares, and sustainable agriculture – melons, butternut squashes, and onions, among others – in Tanzania, where it operates 1,735 hectares, with another 9,400 hectares acquired under a 50-year licence in Mozambique. Last December it raised $14.25 million to be invested in Argento Limited, Obtala’s 75% owned forestry subsidiary. In Mozambique it is building a new sawmill, which should be operational in the second half of 2017; the Nampula sawmill will produce 2,000 m3 of sawn planks per month, and the sawmill waste will be processed into fuel. 2017 is likely to see Obtala rising to greater prominence – not least because it’s harvesting scarce resources in a sustainable fashion.

I talked to Paul Dolan, Obtala’s CEO, to find out more about the company’s plans. “We’ve distilled Obtala down to two very distinct businesses and two geographical areas, for the time being at least. In my previous life [in investment banking] I’d been running teams for more than 20 years. As I got to run businesses it was always clear that I needed people with specialist skills that I didn’t have myself. It’s no different here. I’ve spent a lot of my time looking for best-in-class people to run the different strands of the business,” says Dolan.

Dolan says it’s “smart business to educate the people we’re working with” about making a social impact – and smart, too, to join the Social Stock Exchange. “It’s smart business in any business, whether that’s investment banking or farming in rural parts of Africa. Our sustainable wood business is managed by an FSC auditor [Forest Stewardship Council, the international body to promote responsible management of the world’s forests] to manage the forests we harvest. The 50-year concessions we manage in Mozambique operate according to very strict cutting rules. The idea behind these rules is that you give the forest back to the country when the lease runs out, in exactly the same condition as when you received it.”

That very demanding set of conditions means that “only a very small percentage of each species can be harvested each year,” says Dolan. “Effectively, you can’t cut trees below a certain diameter. And you can’t cut the biggest trees. But you can take the trees out that are in the middle and what that does is open up the canopy for the smaller trees to mature.”

More than 130 million hectares of forest cover – five times the size of the UK – have been lost to the world in the last 25 years. Hardwood timber is still in great demand, but the areas it can be grown in are shrinking. One third of the supply of arable land has been lost due to urbanisation, desertification and other factors, over the last four decades. Yet fresh food demand is growing at a rate of knots. Obtala has access to both these diminishing resources. “We believe,” says Dolan, “there’s a billion-dollar opportunity and we are one of the first companies to commercialise those diminishing resources in a sustainable way. I’m convinced that companies that follow sustainable practices will be well supported by a specific investor base in the future.”

Obtala certainly has first-mover advantage when it comes to its timber operations in Mozambique; the government there has halted new 50-year concessions until 2018 and no new license holders will be in operation before 2021 at the earliest. The company also has a firm commitment to assisting local communities. It promises that there will be no displacement or negative interference with communities and small-scale farmers on concessions; respect of indigenous population and land-use rights; the creation of jobs and supporting productive activities; the improvement of infrastructure such as roads and healthcare; fair wages; and improvements to the occupational safety and health of workers.

Having slimmed down and exited various ventures, Obtala has a refocused ethos – keep it simple, focusing on basic output from its assets. It has a simple model for its profits – 60%-75% reinvested for revenue expansion; 5%-20% retained for contingencies; and 5%-20% returned to shareholders. A good business, which is soundly managed and with strong prospects for growth, based on respect for the land, workers and local communities: what more could one ask for?

 

 

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