AfDB | May 2012
by Daniel Zerfu Gurara, Dawit Birhanu
Tunis: The growing international interest in investing in African farmland has attracted considerable attention recently. Media reports over the past few years spotlighted the scale of land acquisitions and laid the foundation for the analytical investigation that followed. The distinctive feature of these land deals that has attracted the attention of the media and the global research establishment is the speed of the acquisitions, the transparency (lack thereof) of the terms and the scale of the acquisitions and implied investment.
A study by Deninger et. al. (2011) notes that 29 million of the 56 million hectares of land (51.8%) sought after by foreign investors globally is located in sub-Saharan Africa. Though countries with abundant uncultivated land attracted the most interest, some of these countries were also with poor records of rural land tenure, lack of institutions protecting vulnerable groups, and the absence of a culture of disclosure.
by Daniel Zerfu Gurara, Dawit Birhanu
Tunis: The growing international interest in investing in African farmland has attracted considerable attention recently. Media reports over the past few years spotlighted the scale of land acquisitions and laid the foundation for the analytical investigation that followed. The distinctive feature of these land deals that has attracted the attention of the media and the global research establishment is the speed of the acquisitions, the transparency (lack thereof) of the terms and the scale of the acquisitions and implied investment.
A study by Deninger et. al. (2011) notes that 29 million of the 56 million hectares of land (51.8%) sought after by foreign investors globally is located in sub-Saharan Africa. Though countries with abundant uncultivated land attracted the most interest, some of these countries were also with poor records of rural land tenure, lack of institutions protecting vulnerable groups, and the absence of a culture of disclosure.
However, large-scale land acquisitions are not limited to investors from middle or high-income countries. Large-scale acquisitions by domestic investors are on the rise as well2. In addition, cross-country investments in Africa have been highlighted in some media reports. Libyan investments in Mali3, Mauritius’ investments in Mozambique, Egypt’s investment in Ethiopia are cases in point. Much of the information regarding these investments is still anecdotal. Media reports remain the primary tools for gathering data on the status of land deals, the size of the purchases or leases, and the amount of the investments.
Based on the available studies, the key features of these large scale investments are:
a) Most documented cases of land leases are granted by African governments. The most striking case is that of Democratic Republic of Congo where almost 50% of the arable land is either leased to foreign companies or under negotiation for leasing (see Figure 1).
b) The flow of land investments in Africa is mainly driven by land fees that are either minuscule or missing altogether. The land fees are in the range of USD 4.8- 7.1/ ha in Sudan, USD 6-12/ha in Mali, and USD 6.5-10 /ha in Ethiopia while the comparable figure in Peru is USD 300/ha.
c) In some instances, the boundaries between private and public investors are not clear-cut. Cases in Sudan and Mali are cited where the signatories are government ministries, but implementation is driven by private entities in Sudan and land rights are transferred to a third party (private) in Mali.
d) Although the pattern is becoming more diffuse, patterns of bilateral investment flows are observed.
e) These differ from the traditional pattern of foreign direct investment in that they are resource-seeking (land and water) rather than market seeking; emphasis is put on production of foods and crops for bio-fuel production for export back to the investing country rather than for domestic consumption or wider commercial export.
f) They involve acquisition of land and actual roduction rather than looser forms of joint venture (for instance contract farming).
g) The involvement of sovereign wealth funds, investment funds and institutional investors is limited but the magnitude of the funds at their disposal make them potentially important sources of investment funds in the future.
Key Messages
• 51.8% of land sought after by foreign investors globally is located in sub-Saharan Africa.
• The flow of land investments in Africa is mainly driven by land fees that are either minuscule or missing altogether. The land fees are in the range of USD 4.8-7.1/ ha in Sudan, USD 6-12/ha in Mali, and USD 6.5-10 /ha in Ethiopia while the comparable figure in Peru is USD 300/ha.
• Most of the land contracts available publicly appear to be short and lacking specificity, but allocate extensive areas of land and in some instances priority rights over water, for limited public revenue and loose binding clauses on the size of investments and job creation.
• Although large-scale land investments open opportunities in terms of job creation, technological transfer, and foreign exchange generation, these opportunities can only be realized under a set of institutional reforms that foster accountability, proper valuation of land, equitable compensation for the displaced, and guarantees to the social and environmental sustainability of the investments.
Readers can access the brief, 8 pages, from the AfDB website, here.
