A good investment?
A change of perspective on land acquisitions in developing countries can be healthy. I was exposed to the views of a potential investor recently, which made me adjust my way of thinking. Maybe the interests of investors may not be that different from the populations in developing countries? Investors – the serious ones – are also interested in strong, accountable institutions which can provide secure and stable access to land.
The one making me think about land acquisitions anew was the fiancé of a female friend of mine; a professional investor. A couple of weeks ago I had shared a newspaper article on my Facebook wall about an African continent on its way to becoming an economic super power with high economic growth rates.
The fiancé-cum-investor let me know, through his girlfriend, that I should not invest in Africa. The risk of loosing money there was too high. But I was also told that if I really wanted to pursue the idea of investing in Africa he knew of a company in Congo, a palm oil producer, with an option on 100,000 ha of arable land, which was worth considering. The company promised high average returns. High returns, if I understand investors correctly, can compensate for running big risks.
I was a bit baffled by his suggestion. First of all, I do not have the money to invest. And even if I had had the money, I would not invest in a palm oil producer in Congo. I am not really the gambling type of guy. Still, I got inspired by the suggestion. It made me wonder how investors think.
If I were an investor, I would find an investment in a company in Congo with an option on 100,000 ha of arable land extremely risky. Maybe the number of land acquisitions in Sub-Saharan Africa is on the increase. But so is the number of deals being cancelled. In Tanzania, a story about South Koreans investing in large-scale rice farming keeps circulating. But if there ever was a deal, it has also been cancelled several times (read about it here). In 2009, a sale of land in Madagascar fuelled a rebellion against the incumbent government. That deal was also cancelled (read about it here). Vast tracts of land in Sub-Saharan Africa are transferred to investors without ever being utilized, often because the projects stall after encountering local resistance.
Add to that the potential ethical aspect, which also plays a role for modern investors. What will happen to the ones living on those thousands of ha, once the palm oil producer decides to expand its production? A report by the World Bank from 2010 showed that investments in countries with weak laws and weak institutions – and I imagine civil war-torn Congo is such a country – are unlikely to benefit people at the local level.
A solution to the ethical problem could be to prohibit foreign land acquisitions completely. Some civil-society groups have suggested this recently (read about it here). I do not believe, however, that it will solve the problem for the local poor since it does not address the problem of large-scale domestic land acquisitions, which can be equally damaging. It could also make it more difficult to set up industries, businesses, etc. in these countries in general, which would be damaging to the economy.
I find the investor perspective intriguing. Because it makes it clear how difficult it is for businesses, foreign and domestic businesses alike, to operate in many African countries. Last week, Tanzania’s President Kikwete tried to address the problem by assuring investors that the country would maintain its investor-friendly policies (read the article in the Citizen here). But in the case of Tanzania, I believe that the president may be part of the problem. The large-scale land acquisitions in Tanzania have often been made possible by the government’s expropriations of land. An investor would wonder whether a future Tanzanian president could expropriate his land holdings as easily as land has been expropriated in the past. Stephen Johnston from the Canadian fund manager Agcapita, in an article in the Wealth Report 2011, produced by Knight Frank and Citi Bank, recently stated that 'I don’t think you can make a long-term case for investing in developing countries. Poor people vote and politicians listen. At some point, somebody will get elected who will nationalize farmland’. According to the same article, investors see most African countries as ‘a potential Zimbabwe’. The lack of stable institutions and checks and balances, in other words, reduces tenure security, not only for the poor, but for all.
A different way of addressing insecure land rights would be to strengthen the capacity of the local authorities and citizens and increase their role when land deals are made. Maybe the parliaments should also be given a larger role in controlling the deals. The power of the executive should be diminished correspondingly, and the huge, surreal, transfers of land should be stopped (maybe ceilings on land purchases would work?). Interestingly, the interests of serious investors, in strong institutions and in a system with more checks and balances, may not be very different from the interests of ordinary Africans.
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