Foreign investment in farmlands in Africa and other developing areas is on the rise.  Does this involve any threats for the recipient countries?  Is it a new form of colonialism?  Are there any risks for the investors?  How can we try to make this a win-win proposal?

What are the facts on the ground?  First, although good detailed data are not available, all the evidence points to a great increase over the past five years in investment in farmlands in Africa (particularly in Sudan, Ethiopia, Madagascar, Mozambique and Tanzania), Latin America and also Australia.  This is taking place mainly in the form of land purchases and long-term leases. 

The main investors are the Gulf States (like Saudi Arabia and Qatar), China and Korea.  And although it is mainly the private sector investment, in some cases governments are also involved.  Importantly, in the case of China, the distinction between the private sector and government is sometimes hard to make.  The Chinese Communist Party has its finger in all the big pies in that country.  Who is on the other side of the transaction?  It is mainly governments who are selling land or granting leases, rather than private citizens.

What is motivating this rush to buy agricultural land?  The main factor is food security in the light of recent food crises and volatility of food prices.  Wealthy countries with land and water constraints, and which are therefore subject to the vagaries of global food markets are leading the investment charge.  In addition, the use of agricultural products for biofuels is also a factor.  But while rising foreign investment in farmland is a clear new trend, the share of land owned by foreigners is still very small.

Can this be beneficial for the recipient developing countries?  Yes indeed.  In most developing countries, the agricultural sector is in urgent need of investment, as investment has been low for decades.  And even if the investment’s main motive is to help the investing country, the recipient country can benefit from the amount of money invested, if it is used sensibly and not frittered away in corruption.  The investment can also have positive spillover effects on the country’s own agricultural production thanks to infrastructure, technology and knowledge transfers, and business and employment creation.

What are the risks for developing countries?  It seems clear that the benefits of such investments have not trickled down to local populations.  There is a very real concern in many developing countries that such investment might be a new form of colonialism.  There are also cases in developing countries with weak land rights where land is actually expropriated from local populations who are evicted from their lands (“land grabs”).  According to the World Bank, only between 2 and 10% of the land in Africa is held under formal tenure.  There are also concerns that investors take advantage of weak social, labor and environmental regulatory policies to use land and resources unsustainably.

Foreign investors have to beware.  Public unrest in Madagascar stopped a deal when it became known that the government was trying to lease 1.3 million hectares of land to Daewoo, a Korean investor.  Similar events occurred in Indonesia regarding Saudi Arabian investors and the Philippines regarding Chinese investors.  Local populations are not always willing to see foreign investors coming in and taking their country’s land unless they perceive it to be a fair deal.  And unless there is support and participation of local populations, there will be a risk of nationalization or expropriation by local governments and communities at a later date.

According to one of the publication’s authors, “whether international land deals seize opportunities and mitigate risks depends on their terms and conditions - what business models are used, how costs and benefits are shared, and who decides on these issues and how.  This calls for proper regulation, skilful negotiation and public oversight”. 

These are nice words.  But the reality is that foreign investors are usually big powerful interest groups, while the local governments on the other side are weak, poor and easily corrupted and the local population incapable of defending its own interests.  Many countries do not have in place legal or procedural mechanisms to protect local rights and take account of local interests, and even where they do, enforcement capacity is rarely sufficient.

References:

LAND GRAB OR DEVELOPMENT OPPORTUNITY? Agricultural investment and

international land deals in Africa.  Food and Agriculture Organisation

http://www.fao.org/docrep/011/ak241e/ak241e00.htm