Analysis of financial viability of small-scale forest plantation development- a case study of Sunyani Forest District

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The rate of desertification, bushfires, indiscriminate logging, and improper agricultural practices has culminated in the degradation of the nation’s forest. This has necessitated the enactment of the Government policy on forest plantation development as contained in the forest and wildlife policy of Ghana in 1994, to the consequence environmental impact in order to support the socio-economic development of the country. It is against this background that the Forest Services Division {FSD} of Forestry Commission {FC} has been mandated to declare several hectares of degraded forestlands throughout the regions of the nation for Afforestation Programme. These developments have resulted in a great number of people, organisations and communities going into small scale plantation development. Plantation development is a long-term investment with the trees having a long gestation period and also involves a lot of money. Financial institutions are unwilling to give out loans to these developers and those who are prepared to give do so by charging a high interest rate. This study is therefore basically looking at the financial viability of small-scale private plantation development with regards to the prevailing interest rate being charge by the banks. The study focuses on developers whose plantations ranges from one hectare to ten hectares. The result reveals that, with the current interest rate charge by Ghanaian banks [between 24% to 30%] it’s unprofitable to establish such plantations with loans from these banks. An interest rate of 17.7% was found to be the maximum interest rate to be charge before such projects can be viable.
A dissertation submitted to the department of Accounting and Finance, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirement for the degree of Master of Business Administration, 2008