Slovenian forests

An investment opportunity?

Photo: Domen Groegl/Mostphotos

For centuries, forests have propelled our development and figured prominently in the progress of Slovenian society. Slovenia takes great pride in its vast meadows, clean rivers and forests, which paint the country in every imaginable shade of green.

Slovenia is one of the countries in Europe with the largest area of forests, which account for a good half of its territory. They provide a diverse range of resources, but perhaps most importantly, they store carbon and purify water, thereby mitigating the effects of global warming. At the helm of forest management in Slovenia is the Ministry of Agriculture and the Environment, which seeks to ensure multi-purpose and sustainable management harmonious with nature.

Photo: Matic Štojs/Mostphotos

This is different from the approach taken by countries such as New Zealand and Indonesia, which prefer clear-cut belts. Forest management regulates hunting and protects wildlife, and plays an important role in protecting the forest ecosystem and biodiversity. The protection of the sixty-nine indigenous tree species in Slovenia is essential for sustainable development and environment preservation, and includes protection against insects, forest tree diseases, fires and herbivores.

Although the possibilities are numerous, ranging from the production of diverse commodities to the production of clean energy, much potential remains untapped, and although forests are central to all human life.

As an alternative asset investment, forest management can be a safe choice for the Slovenian government to secure conservative but stable returns and finance its budget for long-term infrastructure projects. By improving the efficiency and effectiveness of forestry asset management, Slovenia could not only become a strong regional player in the forestry industry, but also affect the vertical supply-chain.

Glaze ice

 

In the winter of 2014, however, Slovenian forests were badly hit by unusually extreme weather, and glaze ice either destroyed or substantially damaged large areas of forest throughout the country. Estimates indicate that 40% or some 500,000 hectares of all Slovenian forests were destroyed.

If we take into account how heavily fragmented private ownership of forests is – with plot sizes averaging less than 2 hectares – new business models for exploiting woodland will have to be considered through a more organized and collective market presence to achieve global competitiveness.


Since its onset in January 2007, the global financial crisis has claimed a number of high-profile causalities, including the economies of Iceland, Ireland and Greece, and uncertainty over the future of major Eurozone countries continues to loom. Slovenia is no exception. In current conditions, many investors are reducing their exposure to equities, and seeking alternative assets in order to boost returns without dramatically altering their overall risk profile. Consequently, investors are seeking alternative investment assets with tangible asset characteristics that retain capital value; simple, secure investments involving direct ownership; assets that generate tax-efficient income to replace lost risk-free income; low or zero correlation to financial markets; capital growth supported by solid fundamental trends.

Well-managed forestry investments have all of these characteristics, making this unique asset class a popular tool among institutional investors for diversifying and optimising investment portfolios, reducing overall risk, generating income and growth, and in many cases, improving tax efficiency. Billions of euros in investment are being allocated to forestry assets by a number of large institutional investors that have acquired commercial timber properties.

Text by Timotej Šooš