Inadequate capital formation on the domestic front results in underinvestment in critical sectors of the economy, not the least of which is agriculture.
Low savings mobilisation, weak export performance, narrow fiscal space and the pitiable performance of the vote of credit make the imperative for foreign investment even more critical, particularly if we are serious about lifting agricultural performance to the next level.
In most parts of Africa, agriculture offers a compelling investment case for the intrepid, Afro-optimistic investor, yet Zimbabwe is still to realise the benefits of this groundswell of investor interest due to legacy issues associated with the land reform programme and other country risk issues.
Success, according to Wynand J Van Der Walt, a South Africa-based consultant to the agro-industry, depends upon the willingness of African leaders to forge partnerships with willing investors.
African member states are therefore being urged to ride this wave and reap the benefits, or risk being left behind if they dither.
This article examines the basis of this newfound interest which some have begun to characterise as “the second scramble for Africa” in apparent reference the process of invasion, occupation, colonisation and annexation of African territory by European powers during the New Imperialism period, between 1881 and World War I in 1914.
What could be the modern impact of this contemporary version on Africa? Apparently; the forces that channel investment into Africa are both of a push-and-pull nature.
Experts now widely acknowledge that rising food prices are the principal driver of interest in African agriculture.
In February 2011, the Food and Agriculture Organisation food price index reached an all-time high.
According to one Andreas Spath, this has made agricultural land in developing countries an attractive investment option for a variety of investors such as hedge funds, commodity traders and investment bankers to an extent described in a recent report by the Oakland Institute, a US think tank, as “creating insecurity in the global food system that could be a much bigger threat than terrorism”.
The authors of the report claim that “the same financial firms that drove us into a global recession by inflating the real estate bubble through risky financial manoeuvres are now doing the same with the world’s food supply.”
Africa is seen as having enormous potential to help find solutions to global food insecurity because of abundant land resources accounting for some 60% of the world’s uncultivated arable land.
Estimates put the size of African land that has either been bought or leased by foreign companies or governments in the last decade at as much as 60 million hectares. In order to put things in perspective, that would be the size of Spain and Portugal combined.
The search for African arable land and irrigation water is being spearheaded by countries whose long-term food and water security is under threat, such as Saudi Arabia, Bahrain, Kuwait, India, South Korea and even African countries such as Libya (we should know, do you remember the land-for-oil deals) and Egypt. I wonder if recent uprisings in both countries are purely coincidental.
Another driver of demand for African land is the growing global demand for biofuels which has seen at least 11 million hectares of land being acquired by foreign companies to grow jatropha and palm oil for biodiesel production as well as sugarcane and maize for bioethanol production.
The affordability of land in Africa compared to developed countries is another feature of African agriculture that makes it attractive as an investment proposition.
Foreign investment can facilitate growth in the agriculture sector through implementation of commercial farming practices and can increase yields through application of a variety of modern farming techniques ranging from conservation tillage to irrigation.
Despite the apparent benefits of foreign investment such as its capacity to revitalise ailing African agricultural economies through modernisation, improved productivity, job creation and technology transfers, there are concerns that the attendant land deals seldom deliver on their promises and frequently trigger social and environmental problems instead.
Locally some would be familiar with the case of the Chisumbanje ethanol project which has not been without its controversies and tensions after two of Agriculture and Rural Development Authority best performing estates were given away to a joint venture with a private investor and about one thousand villagers have had to be displaced from their land.
In Zimbabwe, there are always sensitivities round the return to agricultural land of the former elite that the land reform programme sought to dismantle.
Land deals under foreign investment transactions are often seen as secretive, open to corruption and favourable to investors in the form of major tax concessions, very long-term leases and tokenistic rentals, charges Spath.
Despite these concerns about foreign investment’s impact on agricultural economies, African countries must redouble efforts to attract investment because of its salutary effect on a sector that holds immense promise for poverty alleviation.
For Zimbabwe, a departure point would be dealing resolutely with the legacy issues of land reform in order for agriculture to move on, which could pave the way for capital to flow into the sector in a sustainably less timid manner.
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Omen N. Muza is a banker and Managing Director of TFC Capital (Zimbabwe) (Pvt) Ltd who writes in his personal capacity.