A Land Rush in Africa

Foreign direct investment in African land has been a hot topic in the news and blogosphere lately.

It is only in recent years that agriculture has taken on a more prominent role in discussions about sub-Saharan Africa. For decades it took a backseat to other development initiatives and received less than a 5% share of public expenditure and official development assistance. It’s plain to see that investment in the agriculture sector must increase exponentially if we are to have any hope of feeding the 9 billion people that will share our planet in the next few decades.

Recently, food prices have spiked above the levels seen in 2007-08. At that time, the rising cost of staple food crops led to riots and unrest across the globe.  In part the price hikes stemmed from the rise in popularity and profitability of biofuels such as ethanol, which removed corn from the food supply. Indeed, one can point to rising food prices as one factor in the ongoing unrest across the Middle East and Africa.

I was living in rural Ghana working as a small business advisor for the Peace Corps throughout this period. Although, thankfully, there were no riots it did seriously and negatively impact all of us in the community as the price of our staple food source, rice, more than doubled. It was partly this experience that inspired me to get involved in agriculture. But why Africa?

The Scale of Africa’s Land

Sub-Saharan Africa has more than 200 million hectares (500 million acres) of uncultivated land – more than the rest of the world combined.  Given that a hectare of land in sub-Saharan Africa costs a fraction of what it does in other areas, it is easy to see why there has been a mad dash to purchase or lease large tracts of land across the region. Foreign corporations headquartered in Asia, the Middle East, Latin America, Europe, the U.S., and even Africa have made large land acquisitions across the region.

Recent research by Golden Mean Capital’s, Chris Chida, shows that in Ghana alone concessions of over 1 million hectares (roughly 2.5 million acres) of land have been granted to companies from Norway, Israel, Italy, Canada, India, the UK and US. Were all this land to be cultivated, foreign firms – whose primary aim is agricultural production for biofuel – would control 25% of Ghana’s total arable land. In Sudan, Mozambique and Ethiopia the land concessions have been exponentially higher.

This land rush has brought about diverging opinions as it touches upon a number of sensitive issues like land rights, neo-colonialism, and food security. Each of these issues came to bear with negative consequences on the island of Madagascar in March 2009.

The Scope of the Debate

Proponents of foreign direct investment in land claim that any investment in developing countries is positive. They’re correct that investment helps to create job opportunities for rural inhabitants either in the form of direct wage labor or through ancillary domestic businesses. Production capacity and efficiency are increased. Skills and technology are transferred to local farmers as they learn new sustainable farming techniques. And host governments (both national and local) benefit from the newly generated tax revenue. However, that’s not the whole story.

Detractors see these foreign investments as “land grabbing” or neo-colonialism. They too correctly point out that often generations of smallholder farmers and communities inhabit the tracts of land that are sold off. The locals – disenfranchised from any real discussion or negotiation between the government and foreign corporations – are unceremoniously displaced from their land with little to no compensation. The jobs created typically fall far short of the numbers proclaimed by the companies, which leaves the displaced (particularly women) with few opportunities for alternative livelihoods. And furthermore, many of the corporations investing in land do so with the intent to export all of the agricultural production rather than serve the domestic market. This then negates the potential positive effects on locals of increased production and greater efficiency. Not to mention the potential negative impacts on the environment that arise from plantation-style commercial farms.

So, as an American venture capitalist that’s consumed by social and economic development in sub-Saharan Africa and based his career around investing in agriculture, how am I supposed to deal with all these complex and inextricably linked variables? How can I negotiate the fine line between economic development and exploitation?

Harmonizing the Arguments

Ultimately, Africa is never going to feed itself let alone become a net food exporter if it continues to rely on subsistence farming – embracing commercial farming is the only way forward. The world’s most developed economies all became industrialized after first commercializing the agriculture sector. Now it is Africa’s turn. Given that the world’s total arable land is static while the population continues to expand, it is imperative and inevitable that sub-Saharan Africa’s agriculture sector will be modernized. The question is, can we help to modernize it while also remaining sensitive to the needs and desires of the local community? I believe we can.

Part of the answer lies in addressing the issues around “land grabbing” that host-government laws and regulations often ignore. In my opinion large plantations are the wrong way to go, but it’s naïve to think large land concessions on the continent will cease. African governments need capital and large corporations, investment funds, and foreign governments are willing to pay up.

However, we can start to minimize the negative impacts on local populations if all stakeholders agree to institutionalize best practices. These best practices should ensure that local actors are included in all negotiations; displaced persons are equitably compensated; purchasing companies adhere to environmentally sustainable farming techniques; skills and technology are transferred to local smallholder farmers; and a significant percentage of production is designated for domestic and regional markets.

Again, I’m not in favor of foreign firms continuing with business as usual, so regulating the investments in land deals such as those described above is a good start. So, what should investment in African agriculture look like?

The structure of the land deal itself is crucial. Investors cannot simply drop a 200,000-hectare mega-farm out of the sky and expect that civil society will have nothing to say about it. Historically, some of the most successful farms in sub-Saharan Africa have been those that employ a nucleus estate model. With this model a smaller plantation (say 5,000 hectares) serves as a central hub for the surrounding smallholder and contract farmers. server headers Through the hub the company can facilitate a transfer of skills, technologies, high-quality inputs, and other extension services to local farming communities. The smallholder farmers and communities are not displaced and benefit from extension services and the increased income that comes from improved production and efficiency. Companies benefit by decreasing capital expenditures, solidifying a positive image with locals, and positively impacting a greater number of people.

Personally, I have no desire to help bring another foreign agriculture firm into Africa. I’d much rather invest in African entrepreneurs and small businesses that have a more vested interest in building and growing local economies, serving domestic markets, creating social and economic capital, and empowering disenfranchised rural farmers. Maybe that’s just me, but I doubt it.

Photo credit: a_rabin

The Golden Mean Capital Blog is Live!

Welcome to Golden Mean Capital’s blog!

Our desire to effect change and bring a new perspective to venture capital investing in Africa has become so pronounced that we needed to make our voices heard.

Here at Golden Mean we are perpetually learning – through our actions on the ground in rural Africa, from our interactions with entrepreneurs, through collaboration with our technical assistance partners, from our investors, from everyone that challenges us to be better tomorrow than we are today.

We welcome the challenge, the dialogue, the reflection, the learning. We aren’t afraid to put ourselves out there, learn by doing and modify our actions in order to identify the best practices. It’s the most effective way we can have a positive impact.

We are going to use this forum as a vehicle to discuss any and all issues related to Golden Mean Capital, Africa, agriculture, impact investing, economic development and more.

Whether it’s detailing the finer points of our investment thesis and strategy,  synthesizing some of the complex issues faced by those involved in investment and development in Africa, recounting memorable interactions and experiences, or simply putting in our two-cents on the current events shaping our world – this is where you’ll find it.

We’re going to have a great time telling our story and stirring up discussion. We want you to join in and hope that you do.

Let’s get to it!