1. Overview of Trends and Developmental Impacts
Foreign Investments in Agriculture in Eastern Africa:
Overview of Trends and Developmental Impacts By
Victor Ogalo
Kenya Private Sector Alliance
Nairobi, Kenya
April, 2013

2. Agriculture in Africa’s Context
Africa has 12% of world’s arable land, but
80% uncultivated,
7% is irrigated (Cf 40% in Asia);
production yields lowest in the world,
Lack of investment in Africa’s agriculture over decades
has meant continuing low productivity and stagnant production
is the underlying cause of food insecurity and limited expansion and diversification of agricultural exports

3. Africa keen to develop and commercialize Agriculture Sector
In this regard, CAADP Estimates that:
US$251Bn to be invested in Agriculture and related downstream activities.
All governments to invest at least 10% of national budgets in agriculture sector.
Targeting at least 6% annual growth rate of agriculture.
But, none of EAC countries have met ALL these targets, two years in deadline lapse.

4. But limited investment capacity
Internal capacity to fill that investment gap is limited.
On average, share of public spending on agriculture has fallen to less than 7%;
Share of ODA going to agriculture has fallen to as little as 5 percent from about 30% in 1980’s.
Commercial bank lending going to agriculture is less than 10% -agriculture considered riskiest.
Microfinance loans in general too small and not suited to the targeted amount of investment in agriculture.
Private investment funds targeting African agriculture is a new development but actual investments are still small.

5. Can FDI help plug the investment Gap?
Yes!
Given the limitations of alternative sources of investment finance, FDI could contribute immensely to plugging the gap.
But, current wave of investments differ from the recent pattern of FDI in several respects:
they are resource-seeking (land and water) rather than market seeking;
they emphasise production of basic foods, including for animal feed, for repatriation rather than tropical crops for commercial export;
they involve acquisition of land and actual production rather than looser forms of joint venture

6. Multi-dimensional concerns
There are complex and controversial
economic,
political,
institutional,
legal and
ethical issues are being raised on the land deals.
Concerns mainly in relation to implications on
food security,
poverty reduction,
rural development,
technology transfer; and
access to land and water.

7. What is the right question and focus?
The question ought not to be whether FDI should contribute to meeting investment needs but how its impact can be optimised to maximise the benefits and to minimise the inherent risks for all involved.
The key issue is the extent to which benefits from FDIs spillover into the domestic sector in a synergistic and catalystic relationship including with existing smallholder production systems.
Benefits should arise from capital inflows, technology transfer leading to innovation and productivity increase, upgrading domestic production, improved product quality and SPS, employment creation, backward and forward linkages and multiplier effects through local sourcing of labour and other inputs and processing of outputs and possibly an increase in food supplies for the domestic market and for export.

8. Unfortunately,
there are no detailed data on the extent, nature and impacts of these investments;
international investment statistics too aggregated and little is divulged by those involved in specific cases;
lack of transparency surrounding these investments has been widely criticized
much information is anecdotal, perhaps exaggerated and difficult to verify
suggesting that PAP should invest more in country case studies to understand the extent and impact of these FDIs.

9. What is the evidence so far?
The historical evidence on the effects of FDI in agriculture suggests that the claimed benefits do not always materialize. There is a catalogue of concerns
over highly mechanised production technologies with limited employment creation effects;
dependence on imported inputs and hence limited domestic multiplier effects;
adverse environmental impacts of production practices such as chemical contamination, land degradation and depletion of water resources;
more pressure on farmland also means more forest cleared, valuable natural resources destroyed and more greenhouse gas emitted; and
limited labour rights and poor working conditions.
The necessary conditions for positive spillover benefits may often not be present in which case policy interventions are needed to create them.

10. We may want to recommend that
Considering the need for increased FDI in Africa but also the possible merits and demerits of FDI in agriculture it is important to take a dynamic perspective.
It is also important not to overlook questions of the sustainability and longevity of investments including the possibility of exit and reversal of capital flows.
Perhaps, it would be advisable to suspend further foreign farmland acquisition and investments and bring in the process sobriety and inclusiveness.
Need food security: convert resources we spend on food imports as investments to develop food sovereignty.
Need energy revolution: promote efficient vehicles and invest in efficient public transport system

11. Further recommend that
Subject these deals, before they take place, to full environmental and social impact assessments including impacts on biodiversity, natural resources, genetic erosion, food sovereignty, and gender. Involve local community in such assessments.
Subject these deals to full legal liability of companies and investors. Any land deals should include clear, legally-binding and enforceable obligations on the investor. Investors should pay into an obligatory liability fund to cover for cases of non-compliance.
Independent and participatory ex post impact assessments involving CSOs should be made at pre-defined intervals.

12. Thank you!