A positive African story in today's FT

A positive-news story from Ghana in the FT today:

Root and branch approach to profit

By Matthew Green

Wellington Baiden believes he is standing on the verge of Africa's next oil boom. Only his product is not much use in cars. It works better dabbed behind the ears.

Opening the door to his workshop, the Ghanaian entrepreneur reveals his secret: a mysterious contraption of stainless steel pipes and pressure gauges used to distil essential oils - the plant extracts beloved of perfume makers.

Turning a lever, he drizzles a clear liquid into a phial - filling the shed with an almost overpowering smell. "See how concentrated it is?" he says, savouring the vanilla-like fragrance. "It's almost straight perfume." Mr Baiden has found a way to refine some of the world's purest ylang ylang, one of the strongest notes in Chanel No. 5.

Ylang ylang and other essential oils, while potentially highly lucrative, form only one branch of Portal, a forestry business that Mr Baiden sees as a model to transform the fortunes of Africa's threatened woodlands and earn rewards for far-sighted investors.

Growing timber requires decades of patience, so Mr Baiden has developed a range of schemes aimed at harnessing a cornucopia of forest products to generate income before the trunks are felled. Apart from the oils extracted from ylang ylang, black pepper, patchouli and lemongrass growing in the shade, he plans to build up eco-tourism, sell carbon credits generated as his saplings absorb greenhouse gases and offer stakes to fund managers who believe growing Asian demand will drive timber prices ever higher.

By cutting trees on a sustainable basis - giving the forest a "haircut", as Mr Baiden puts it - he can sell doors and floorboards to exploit construction growth in many west African cities.

After seven years of activity, though, Portal has yet to break even. Net profits are projected to hit $10.9m by 2017, but first Mr Baiden will have to prove he can turn his leafy assets - not least 20,000 trees - into cash.

Driving his four-by-four through the orange mud of the track leading past his workshop to his 210-acre pilot plantation, Mr Baiden says that with $10m of capital he could expand his model 100-fold. "We are proving to people that Africa is not such a basket-case," he says. "You can make a viable investment here. It doesn't have to be oil, or gold, or copper."

Such sentiments chime with the enthusiasm of a new generation of private equity investors, fund managers and investment bankers for an Africa they believe is ripe to deliver the kind of returns that have long since evaporated in more mature markets. But as Mr Baiden's travails show, building a viable business can require a great deal of sweat to secure investments, win over locals, vault trade barriers and convince sceptical financiers.

The son of a successful Ghanaian businessman, Mr Baiden, 51, studied law in the UK where he lived for 14 years before returning to Ghana with a plan to harness the canoe-carving skills of fishermen to make hulls for luxury yachts.

Demand collapsed as Britain lurched into recession in 1991, but Mr Baiden's life in wood had only just begun. Working with an American partner, William Ohrt, he started the forestry project at the village of Bedum, about 100km west of Accra, not realising quite how many headaches lay in store.

Securing land posed the first problem. Titles are often contested in Africa, but in Ghana, overlapping claims by chiefs, investors and authorities create a fiendish maze. Mr Baiden had to sift through archives dating back to the 1920s, before discovering the tract had belonged to an earlier entrepreneur: a photographer who had bought it with gold dust earned by taking portraits.

Just like mining or oil, forestry needs friendly locals to prosper - a hope that seemed to recede when Mr Baiden was kidnapped for several hours while scouting out one potential project site (see below).

Portal has since made local workers an integral part of his pilot project at Bedum, employing about 40 people to climb bamboo ladders to trim branches or help repopulate patches of indigenous afina, akasa and dahoma trees. He also provides seedlings, technical assistance and machetes to a further 60 growers who farm ylang ylang and nutmeg on their own land to sell to the company.

Plans to make the kinds of candles or soaps sold by retailers in the UK such as Body Shop could provide further jobs, but Portal still has to prove that a large-scale plantation can provide enough income to convince farmers to silence their chainsaws.

Bringing investors on side has proved almost as delicate. Databank, a bank based in Accra, helped kick-start Portal by buying a 16 per cent stake for $200,000, leaving Mr Baiden and Mr Ohrt with 42 per cent each. But wringing loans for capital equipment from risk-averse African banks has proved tough.

Mr Baiden's next big challenge is to raise the $10m he needs to develop a 20,280-acre site he has leased near the border with Ivory Coast, perhaps by bringing in private equity investors, forwardselling trees to pension funds or tapping the carbon market.

"This is the kind of product that hedge funds just love," Mr Baiden says. "It's a sure thing that the supply of timber is going down, while the demand for timber is going up."

Assuming his expansion plans are realised, Mr Baiden projects total income of $25.5m by 2017, with sawn timber and panels making up $11.1m and forestry products, including oils, bringing in $11.6m. Carbon schemes could by then earn an average $2.9m of annual income. So far, the wood products part of the business is the furthest advanced.

Producing doors and windows from mahogany and other woods at a mill in the port of Takoradi, Mr Baiden has opened premises in Accra, Dakar and Lagos. Trucking cargo across borders manned by grasping officials proved tortuous, so he air-freights doors to the booming construction scene in Lagos, where he says a recent order will finally tip Portal into profit. Helveta, a UK company that provides forestry management systems, will help Portal certify its timber to meet stringent import rules governing European Union markets.

The essential oils business also holds promise. Mr Baiden says a European marketing company has agreed to buy all the extract he can make and advance money to help expand Portal's distillery capacity. Soon he wants to broaden his range to include cardamom, jasmine and grains of paradise.

Mr Baiden says he is working with Carbon Markets, a UK-based brokerage, to find a company prepared to pay Portal for the carbon dioxide his trees remove from the atmosphere. Some experts dispute the environmental value of such schemes but Mr Baiden's hopes are high: "Even though we had to go through this without taking a salary, it's got a pot of gold at the end of the rainbow."

When talk of money ceases, the sound of raindrops dripping from leaves and buzzing insects give a reminder of how majestic the forest must once have been. Starting the trek back, Mr Baiden asks: "What price can you put on nature?" His investors will be keen to know the answer.

How wary locals came to see that money can grow on trees

Wellington Baiden admits that he did not give much thought to relations with the local community when he first started his forestry business.

The question moved rapidly up his agenda when men armed with home-made guns briefly took him prisoner while he was scouting a potential site near the border with Ivory Coast, forcing him to trek 18km to safety in darkness.

The experience was both uncomfortable and invaluable, prompting him to find ways to bring as many farmers as possible into his pilot project at the village at Bedum.

Mr Baiden now employs about 40 people to tend the plantation, while another 60 work as outgrowers - cultivating ylang ylang and nutmeg on their own land which he then buys and distils into essential oils.

By situating his distillery in the village itself, Mr Baiden says locals have faith that he will honour his promises to buy their produce. Good relations with his hosts also reassures investors, who might otherwise fear for the security of trees vulnerable to fire or theft.

Nana Kweku Essoun II, the local chief, says illegal logging has fallen sharply since Mr Baiden set up his scheme. "People are planting," he says. "Everybody has realised that the future is in trees."

Copyright The Financial Times Limited 2008