African Land is a Profitable but Potentially Dangerous Investment
Wednesday 27 May, 2015 – 12:12
Photo courtesy Global Justice Now/Flickr: Slicing up Africa: Activists cut into an African-shaped cake outside of the British government’s Department for International Development (DFID) to protest DFID’s role in facilitating the acquisition of African land by large multinational conglomerates.
Private equity funds are aglow with prospects of profits to be reaped by clients who get in on the acquisition of African agricultural land. Why not, when vast areas can be purchased cheaply from chiefdoms and local and national governments who have failed to exploit the potential of the land to feed their own people. Sometimes land is available simply at the price of building local infrastructure and providing local populations with community halls and soccer uniforms. Foreign purchasers sweeten the deals by promising jobs, making available advanced technologies and improving the food security of local populations.
In their awareness of these land transfers, African populations, media and non-governmental organisations (NGOs) sense exploitation. Land transactions that elsewhere in the world would simply be sales are almost uniformly described as ‘land grabs’. Customarily, articles and studies on the subject cite enormous transfers of territory in various countries, including Ethiopia, Madagascar, Mozambique and Tanzania, into foreign ownership, comparing these sales with the carving up of Africa by colonial powers in the nineteenth century. Such hyperbole is indicative of the emotionally-charged nature of foreign land ownership among peoples who have been historically deprived of land ownership themselves. Today, a majority of Africa’s small shareholder farmers do not own the land they cultivate, which remains in the custody of governments or traditional authorities. A food-challenged continent dependant on foreign food aid, Africa has been in dire need of land policy reform since nations obtained their independence. Other than the confiscation of foreign-owned land with deleterious results to national economies, such as in Zimbabwe, land reform is politically unpalatable to African governments, which use land as a basis of power and the gift of land to supporters as a means of obtaining loyalty.
Therefore, any foreign investor seeking what appears to be a good deal in the acquisition of African land, be it for farming or developing a private game reserve or tourist resort, should pay attention to an important caveat emptor: the purchase of land is as much a political as it is a commercial proposition, and the ownership can easily lead to confrontations, confiscation and bloody violence.
Calling a halt to foreign land ownership is political point scoring
Zimbabwe’s aging autocrat, President Robert Mugabe, has for decades found popularity in banning foreign ownership of land. This year, he banned foreign majority ownership of private companies. Every white-owned farm, whether the owner was a native to Zimbabwe or a foreigner, has been confiscated, sometimes violently. In 1980, 4 500 white farmers controlled 70 percent of Zimbabwe’s prime agricultural land, which of course had been acquired sometimes violently in nineteenth century wars. When white farmers failed to sell at what was considered a pace necessary for land redistribution, government in the 1990s empowered itself to confiscate farms at a reasonable market price. In the 2000s, the War Veterans Association (WVA) became Mugabe’s muscle, and took up arms against hold-out white farmers. Human Rights Watch (HRW) documented the killings of seven farmers and several farm workers.
Supporters of government land reform redistribution note that between 1981 and 2011, 238 000 Zimbabwean families have been given access to land. However, the primary beneficiaries have been Mugabe’s political loyalists, who have been awarded the choicest properties. Under new inept management, these formerly productive farms were decimated. A former exporter of food, Zimbabwe now faces chronic food shortages, and 45 percent of Zimbabweans are malnourished.
That such a scenario could also play out in South Africa which, if not for Nigeria’s oil reserves would be Africa’s largest economy and is certainly Africa’s most diverse and industrialised economy, is the stuff of nightmares for economists and the global business community.
In February 2015, South Africa’s President, Jacob Zuma, proposed a Lands Holding Bill along with the declaration that no foreigners would be able to own land in South Africa. The announcement sent shockwaves through the real estate market, although the bill applies to agricultural land and not residential property. South Africa’s scenic beauty, ample oceanfront upscale housing developments and advanced infrastructure has made the country one of Africa’s most prized locations for rich foreigners seeking holiday homes, particularly in the lush Cape Town environment. However, all foreign-owned residential property accounts for only one percent of all the country’s residential holdings, and represents two percent of the value of the real estate market. Farming land is another matter, and is a contentious issue in a country where black South Africans were deprived of their lands, and during the apartheid era of racial segregation were legally permitted to own only 13 percent of all land. Zuma’s bill barring foreign ownership was seen by political analysts as a symbolic gesture intended to appease the radical left of his supporters. However, the issue of land ownership has the potential to be politically volatile.
South Africa was further shocked, and in turn shocked the world, by anti-foreigner violence in April 2015 that has left at least seven people dead at the time of this writing. Government blamed criminal elements for the looting and assaults on foreigners. However, the issue of joblessness is felt by a majority of South Africans. Even job holders have expressed resentment toward foreigners at work in both the informal and formal sectors, such as Indian and Pakistani small shop keepers who are accused of peddling inferior goods and immigrant workers from Ethiopia, Nigeria and other southern African countries who undercut South Africans’ job prospects by accepting meagre pay for whatever work is to be had. In 2015, the rioting is about jobs. In future, the rioting may be about foreign encroachment on land ownership. Zuma’s land bill will be seen as meaningless or prescient depending on how these issues unfold.
Enormous land transfers draw attention to finite land resources
African land is of good value to foreign investors. A 2009 World Bank report titled ‘Awakening Africa’s Sleeping Giant: Prospects for Commercial Agriculture in the Guinea Savannah Zone and Beyond’, describes as “one of the world’s largest underused land reserves” the region of the Guinea Savanna. It extends across West and Central Africa to the Horn of Africa and south to Mozambique. The Bank assessed this huge section of the continent as essential to meeting global food demand as the world’s population is set to reach nine billion by 2050.
However, local communities hotly contest the notion that their land, even if not under cultivation, is ‘unused’. Investors who venture into land sales with such a notion are viewed as similar to colonial settlers who described South Africa’s land as ‘vacant’ because its owners, cattle-herding tribes, were moving from one seasonal grazing area to another, and therefore temporarily vacating areas favour of other pastures. Some 500 million Sub-Saharan Africans reside on communally-owned land; the type of land that is most easily sold by governments.
Africa accounts for 47 percent of the total land area transferred to foreign owners worldwide, followed by Asia at 33 percent. The United States is the largest land purchaser, although large purchases are made by China, India, Israel, the United Arab Emirates (UAE) and the United Kingdom (UK). Africa is now estimated to account for about 560 000 km² of 830 000 km² of land transferred to foreign ownership globally since 2000.
Ethiopia is the site of several large-scale land sales to foreign investors from China, India and Saudi Arabia. Indian agricultural projects in Ethiopia are worth US$5 billion on 600 000 hectares of land. A 100 000 hectare farm is leased in Gambella to Bangalore-based Karuturi, the world’s largest rose grower, and a massive rice farm is leased to Saudi Star Agricultural Development. When land is sold without compensation to or consultation with local communities, residents have clashed with the new land owners’ agents.
In Cameroon, the New York-based agricultural group, Herakles Farms, does not enjoy full community support for a proposed 73 000 hectare palm-oil project. Growing crops of biofuel is a major inducement for African agricultural land purchase. The Iowa-based energy group, AgriSol Energy, has one such project in Tanzania with the Tanzanian cooperation of government, but its completion requires the potential displacement of 162 000 Burundian refugees who are working the land as subsistence farmers.
A coalition of civil society organisations, including Friends of the Earth, warned in February 2013 that palm oil companies, including Malaysian giant Sime Darby, were grabbing more than 1.5 million acres of land in Liberia through long-term land leases allocated by government with little warning or consultation with communities. In Mozambique, consultation by government with local communities is not undertaken in the cases of government allocation of large tracts of land to Chinese food production and forestry businesses.
Protests and clashes may hobble land investment
Up to now, displaced subsistence farmers have migrated to cities in search of jobs, and rather than contribute to food production they dwell in slums and depend on food aid. As food shortages spread, the attractiveness and importance of indigenous land will be more acutely appreciated by locals, who will become more resistant to land investors. A bevy of human rights NGOs stands ready to assist residents against incursions into their traditional homelands.
Against any such dire scenario are the virtues brought to Africa by investors, foremost of which includes a means and a will to utilise more productively what is, at present, under-utilised lands. The way to offset food shortages is to produce more food and ensure some of what is produced is available locally. Expect waterfront riots at seaports if vitally needed food is all being shipped abroad to China and other countries utilising African agricultural lands to feed their own populations.
Like any investment in Africa, land investment pays off if the local people participate in and profit by the business. This has been the template for industrial activity that has been introduced to a continent that once had none. African land will become more valuable with time and an asset to any portfolio if that asset is safeguarded by management that considers the needs of the original inhabitants.
Notes:
Mohammed Maoulidi contributes market and conflict analyses for ACM. Based in Dar es Salaam, Tanzania, he is sought as a consultant on African economic and political matters by corporations and NGOs. This research paper first appeared on the Consultancy Africa Intelligence website.
This article is extracted from the April 2015 edition of CAI’s Africa Conflict Monitor (ACM) – The essential 80+ page monthly report that dissects conflict developments and trends across the African continent to guide businesses, governments, academics and other stakeholders in Africa’s growth and stability.
Current ACM subscribers include AFGRI, AngloAmerican, BP, CNN International, eNCA, Halliburton, IBM, KPMG, MSF, various international government departments and major universities around the globe, ranging from UCT here in South Africa to MIT in Boston, USA.
Find out more about ACM here.
NGO Services
