A wildlife reserve earmarked for destruction to make way for biofuel crops has been saved after a study showed that it would earn more from eco-tourism.

More than 7,000 hectares of a Ugandan forest described as a “wildlife jewel” were to be torn down and replanted with sugar cane for the production of ethanol.

Three people were killed during protests organised by environmental groups this year when the issue inflamed racial tensions in the country because of the involvement of Asian businessmen in the biofuel scheme.

The proposal was backed initially by the Ugandan Government but the decision to give the Mehta Group, owned by an ethnicly Asian family, a third of the supposedly protected Mabira Forest Reserve near Lake Victoria has now been reversed. Conservationists were jubilant and relieved.

“This is a tragedy averted,” said Paul Buckley, of the Royal Society for the Protection of Birds (RSPB). “It was ludicrous even to think of sacrificing such a precious site to a crop that is already so heavily subsidised in Uganda.

“The forest would have been irreversibly damaged had this giveaway gone ahead. Now Uganda has a brilliant opportunity to really make the most of its wildlife jewels. The site is famous with eco-tourists and slicing it up made no economic sense whatsoever.”

Ato Mengistu Wondafrash, of BirdLife International, said: “We applaud the Ugandan Government for taking this bold decision to protect its forest resources despite the intentions of the sugar company. I cannot wait to go for another walk in Mabira now that the axe no longer hangs over so much rare and beautiful wildlife.”

A study by NatureUganda, a conservation group, showed that the financial benefits of protecting the forest, which covers 30,000 hectares (74,000 acres), and encouraging eco-tourism vastly outstripped the potential of biofuel crops.

Other parts of Uganda were much more suitable for sugar cane crops. The commercial value of tourism and carbon capture in Mabira was estimated at more than $316 million (£154 million) a year whereas sugar cane production would yield a maximum of 35,784 tonnes over three years and be worth less than $20 million.

Eco-tourism in Uganda is the country’s second-biggest magnet for foreign currency and the Mabira Forest Reserve brings in 62 per cent of income from trips to forest reserves.

Achilles Byaruhanga, executive director of NatureUganda, said: “The economy of Uganda depends on the country’s environmental health. Agriculture, tourism and fisheries are core to our wellbeing, making environmental protection an overriding factor in our development.”

The report identified the forest as an unspoilt haven for 300 species of birds and 200 types of trees and it highlighted the area’s importance for dozens of species, some of which are found nowhere else in the wild.

Grey-cheeked mangabeys, a type of monkey, are among the endangered creatures in the forest. Among the birds in the area are the rare Nahan’s francolin, Francolinus nahani, similar to the partridge, which has suffered serious declines because of deforestation and degradation of forest habitats, and small-scale hunting. Other bird species in Mabira include the great blue turaco, bluethroated roller, black-shouldered nightjar and blue-headed crested-flycatcher.

Destruction of the forest would have been regarded as a breach of an agreement between the Ugandan Government and the World Bank. In 2001 the World Bank agreed to help to finance the construction of a hydro-electric dam on the River Nile in return for a pledge to protect the forest.

Times Recommends

• Thousands of Tamils dying in 'welfare camp'
• Jackson 'rebuilt his nose before he died'
• Renewed Iran protests crushed by militia