Agricultural Investment in Africa

Africa has remained a continent with abundant natural and human resources that has not been tapped. These resources are waiting for investors within and outside the continent to tap in and reap the dividends.
In the UK for example, over the last ten years, agricultural land has appreciated roughly 13 per cent per year according to Investment Property Databank (IPD). The US and other Western countries have seen similar farmland investment returns. Farmland prices have therefore skyrocketed, reaching as high as £17,300 (approximately $30,000) per hectare in the northwest of England to take just one example.

As a result, investors are increasingly turning their interest in agricultural land investing to areas of the world where farmland prices are starting from a much lower base, thereby providing much greater upside potential. One area where this has been particularly prevalent is Africa, where hedge funds and other large institutions have been making large agricultural farmland investments. Hedge funds and private equity funds alone have purchased 148 million acres of farmland in previous years.

It is argued that frequently large institutional investors make deals directly with the central governments of African countries. Given the amount of corruption and generally poor governance that still exists in Africa, the investment capital frequently disappears.

By the same token, it is far from true that all foreign investments in African farmland are predatory and exploitive. Global consultancy McKinsey recently produced a report on the future of Africa which noted that the continent had over 25 per cent of the globe’s arable land yet produced only ten per cent of agricultural output. McKinsey argued that up to $50bn/year of African agricultural farmland investment would be needed to bring the sector up to global standards and allow African agriculture to maximize its potential output.

One reason to consider outside investments in African farmland is that the amount arable land globally has been decreasing. As farmland continues to be lost to urbanization, transportation networks and real estate development, the world must try to feed more people on less farmland. Africa, however, holds approximately 60% of the world’s remaining uncultivated land that is suitable for farming, so looking at food security from a broader perspective, Africa has an opportunity to feed both itself and the world in the coming decades.

Given the need for investment in African agriculture, there is no reason that foreign farmland investments on the continent cannot be structured as a win-win for both private investors and the host country populations. With the right guidelines and intentions, foreign investment in African farmland can be both ethical and profitable. The major issue is whether a set of basic principles for “win-win” farmland investment in Africa can be developed. Just as an example, we believe that the following principles can be used to evaluate the fairness of foreign agriculture investment in Africa:

  • The investment was directed at completely unused land, and none of the local population has been removed from any of the land since it was not in use as a food source;
  • The farmland investment was negotiated directly with local villagers and tribal chiefs, so there was no chance for corruption at senior government levels;
  • Farmland investments in developing countries should not simply be premised on food security concerns by the foreign investors, who may want to simply ship the entire crop production back to their home countries;
  • The workforce should as much as possible be local hires who should be paid a fair wage well above the minimum for that country; and
  • Foreign investors in African farmland should also have at least some kind of community re- investment programme in the host country.

Whilst these principles will not solve every concern of local African NGOs, they are at least a starting point for considering examining whether an agricultural investment is structured as a win-win for both the investor and the local population, or if the investor is behaving in an inherently exploitative manner. One other interesting factor is that when farmland investment projects are structured such that retail investors can participate, we have seen that these types of individual investors demand that any project they are involved with be both ethical and profitable.
The advantages of farm land as an investment are substantial. Agricultural farmland investments are an excellent way to benefit from global commodity price increases which have trended steadily upwards in the last decade. In addition, agriculture is also an excellent hedge against inflation.

This sector remains untapped despite various attempts by many administrations to develop it. The continent has enough arable land to grow agricultural products. The land is so fertile with enough Sunshine and rainfall. And with a moderate investment, there is guarantee of profit and return on investment. Some of the areas to invest on agriculture are cropping and animal husbandry. The areas in cropping to invest on are but not limited to are…cash cropping (palm plantation, palm oil production, palm kernel, cocoa, rubber, groundnut, etc), food cropping (yam production, cassava production and processing, rice production, beans etc.), Animal husbandry (poultry, piggery, fishery, snail, honey production etc). To invest in cash cropping such as palm or cocoa production therefore, West African sub-regions countries should be considered such as Nigeria, Togo, Benin Republic, Cameroon. The region of these countries should be Southern parts. These areas have good weather conditions for these crops.

• UN News Cеntrе, ‘UN agency urgеѕ invеѕtmеnt in agriculture tо feed grоwing wоrld рорulаtiоn’, 23 September 2009
• Poverty Rеduсtiоn аnd the Millеnnium Dеvеlорmеnt Goals: Situation Anаlуѕiѕ, Africa, United Nations Dеvеlорmеnt Prоgrаmmе

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