U.S. FUND SEEKS MADAGASCAR FOREST DEAL

UNCLAS SECTION 01 OF 02 ANTANANARIVO 000430 SIPDIS SENSITIVE SIPDIS DEPT FOR AF/E AND OES ADDIS ABABA FOR REO - LBRODEY PARIS FOR D'ELIA E.O. 12958: N/A TAGS: SENV EAGR EAID ECON PGOV PREL MA SUBJECT: U.S. FUND SEEKS MADAGASCAR FOREST DEAL ANTANANARI 00000430 001.2 OF 002 ¶1. (SBU) SUMMARY: Since a meeting in September, 2006, between President Ravalomanana and the president of the Global Environment Fund (GEF),a deal to create a 30,000 hectare sustainable forestry operation in Madagascar has progressed in fits and starts. Interrupted by the December 3 presidential election, a cabinet shuffle, and the April 4 referendum, the U.S.-based GEF has persistently sought negotiations with the GOM on their proposed USD 60 million investment. The deal would create Madagascar's first certified forestry company and represent a substantial success for the President's vision for sustainable development... if the GOM can overcome the bureaucratic obstacles to take advantage of the opportunity. END SUMMARY. First Meeting During UNGA -------------- ¶2. (SBU) In September 2006, Kevin Tidwell from GEF made an initial visit to Madagascar to explore investment opportunities in the forestry sector. In late September on the initiative of the U.S. Embassy there was a meeting on the margins of the UNGA between President Ravalomanana and GEF President and CEO Jeff Leonard. This seemed a perfect match, bringing the developing country leader famous for his "Durban Vision" for conservation together with a developed-country investment fund focused on sustainable development. Global Emerging Markets Forestry (GEMF) Investors LLC -- co-managed by International Forestry Investment Advisors and GEF - thus came to learn that tens of thousands of hectares of plantation forest in Madagascar were underutilized, while natural forests were under intense pressure of deforestation. The President invited GEF to come to Madagascar to find suitable land for a sustainable forestry operation. Proposed 30,000 Hectares Sustainable Forestry Operation -------------- -------------- ¶3. (SBU) In the subsequent months after the New York meeting, GEMF staff visited Madagascar to find suitable forests for investment. With support from the USAID Environment Program and implementing partners, GEMF concluded that at least 30,000 hectares of forest in eastern Madagascar owned and poorly-operated by a parastatal, Fanalamanga, was appropriate for their investment in a state-of-the-art certified sustainable forestry operation. Unfortunately, the governance and structure of Fanalamanga's Board were prone to inaction and the deal stalled on technical details the Malagasy side did not have the capacity to address. New Environment Minister Shows Up... -------------- ¶4. (SBU) In February, GEMF staff again visited Madagascar hoping to negotiate for a 50-year concession to operate the Fanalamanga forest plantation. Finding obstacles and incompetence among members of Fanalamanga's Board, GEMF sought a meeting with newly-named Minister of Environment, Water and Forests, Koto Bernard. The new Minister, well-known to the Mission, although perhaps not for proactive leadership, avoided the meeting for days. When news finally trickled up to the President, on a visit outside the country, he angrily instructed the Minister to see GEMF. ¶5. (SBU) The President's intervention led Minister Bernard to speed out to the airport for a one-hour last-minute conversation with the departing GEF officer to confirm GOM interest and "rescue the deal." Following that meeting, GEMF reiterated their interest in an April 12 letter stating the Fund had over USD 350 million to invest in sustainably managed forests in developing countries. GEMF stated their intention to acquire a long-term concession on 30-40,000 hectares of Fanalamanga's plantations, invest up to USD 60 million in management and milling operations, and create 2,500 jobs. ...Then Disappears Again -------------- ¶6. (SBU) The April 12 GEMF letter emphasized the urgency of meeting to conclude a Memorandum of Understanding and decide on next steps and feasibility studies. GEMF is actively exploring several forestry investments in other countries and does not want to waste its time if Fanalamanga is a dead end. With staff in South Africa on other business, GEMF requested a meeting before April 25 -- they received no reply. Without constant handholding and encouragement from USAID and partners, it is likely GEMF would already have abandoned Madagascar. Presidency Advisor "Coaching" Environment Minister -------------- -------------- ANTANANARI 00000430 002.2 OF 002 ¶7. (SBU) In a recent restructuring at the Presidency, longtime Mission contact Andry Ralijaona moved from the governance office to be a Madagascar Action Plan (MAP) Advisor, responsible for commitments in environment, mining, and public security. When contacted in late April, Ralijaona promptly replied to GEMF that the GOM remains interested in the investment, because it contributes to environmental protection and economic growth exactly in line with the MAP strategy. Ralijaona had already spoken to Minister Bernard and confirmed the Fanalamanga Board would be restructured ("cleaned" in his words) as soon as possible to establish an entity with whom GEMF could quickly conclude an agreement. The Mission remains in close contact with both sides to facilitate communication. ¶8. (SBU) COMMENT: The next three months are crucial if GEMF Investors are to complete a Memorandum of Understanding and begin feasibility studies. The outcome of this deal will be instructive on two counts vital to the MAP: whether the GOM can efficiently respond to investor interest and whether the reality can match the rhetoric on sustainable development in Madagascar. END COMMENT. MCGEE