Africa News blog

African agricultural finance under the spotlight

Africa is turning into a fashionable post-crisis investment destination as investors regain their confidence and start to focus on the continent’s lack of direct involvement with the global market’s volatility drivers and trouble hotspots. Africa is benefiting not only from a resumption of international debt and equity flows; it is also a beneficiary of international efforts to maintain the flow of trade finance via multilateral guarantee programmes – 45 issuing banks from 27 countries in sub-Saharan Africa have joined the IFC’s trade finance programme, for example.

At the same time, bilateral and multilateral development agencies are actively investing via an assortment of public and private-sector channels; the international capital markets pipeline is building – sovereign debt offerings on the docket for Nigeria, Senegal, Tanzania, and Zambia with Libya believed to be looking – while the slew of private equity and hedge funds being raised this year for Africa are seeing healthy interest from public-sector and private LPs.

Investors are focusing broadly on Africa’s relative political stability, improving governance, more conducive policy and regulatory environment, as well as more transparent foreign investment regimes. At the macroeconomic level, above-average growth and low levels of government and corporate indebtedness add to the appeal. What’s key to much of the capital flowing into Africa is that it is supplemented by a support network of capacity building, advisory services, training, technology transfer, and infrastructure benefits.

From a sector diversification perspective, the emergence of new technologies such as mobile telephony and Internet broadband are creating interest beyond the traditional natural resource plays; the telecoms and services sector was the dominant Africa FDI recipient in 2009.

In its World Investment Report 2010, UNCTAD noted that Africa still trails at the bottom of future investment destinations relative to the rest of the world. But that could be about to change as foreign governments and private investors reset their investment horizons and start to look at Africa from a different perspective. Plus: Africa has an abundance of one commodity that is becoming ever more fiercely fought over: agricultural land.

Rising levels of international investment capital in African agriculture and agribusiness have taken the investment thesis directly into the intensely political arena of global food security and land rights. It will remain there as long as food security remains a top agenda item for the likes of China, India, Saudi Arabia, UAE, South Korea and many others.

The notion of foreign investment in agriculture as a key to Africa’s food security, particularly when it is aimed at supporting smallholder agriculture and sustainable farming, is a relatively straightforward one. The acquisition of huge tracts of African agricultural land by foreign governments (directly or through sovereign wealth funds), and by multinationals, investment banks, hedge funds, private equity firms and speculators creates a slightly more convoluted picture.

Is Kenya’s economy on the mend?

This past holiday season in Kenya was quite a contrast to the preceding year.

While in 2008 December was dry and dusty, last month was marked by heavy rains across the country, making for soggy barbecues and muddy cars for the many urban Kenyans who usually like to spend Christmas with their families in the rural areas.

The rains have killed 20 people and displaced many more through flooding. But they are vital, given the country’s reliance on agriculture, which accounts for nearly a quarter of the country’s GDP and employs about two thirds of the entire population.

A prolonged drought had cut agricultural output, forced the government to appeal for funds to feed about 10 million starving people and to liberalise imports of the staple maize crop. Together with the emerging recovery of the global economy, the rains are giving rise to optimism that the economy could grow by 3-4 percent in 2010 from an expected 2-2.5 percent in 2009.

The optimists also point to various government projects aimed at stimulating the economy, a resurgent tourism sector and sustained monetary easing by the central bank as proof of a possible rise in growth this year.

They also point to the feel-good factor surrounding the first ever football world cup final to be staged on the African continent in South Africa in June as further evidence.

But risks still abound.

Zimbabwe farmers turn to Nigeria

Selling Africa by the pound

The announcement by a U.S. investor that he has a deal to lease a swathe of South Sudan for farmland has again focused attention on foreigners trying to snap up African agricultural land.

A few months ago, South Korea’s Daweoo Logistics said it had secured rights to plant corn and palm oil in an even bigger patch of Madagascar – although local authorities said the deal was not done yet. Investors from Asia and the Gulf are looking elsewhere in Africa too.

Investor interest in farmland – not only in Africa – grew sharply after food prices shot to record highs last year. Although commodity prices have fallen since, there is still anticipation of long term demand growth once the world emerges from its current economic troubles.

Philippe Heilberg, chairman and CEO of New York-based investment firm Jarch Capital, told Reuters he saw ripe opportunity for decades in south Sudan’s Mayom county. The deal covers land nearly twice the size of the Indian Ocean island of Mauritius.

Land is being leased from General Paulino Matip Nhial, Deputy Commander-in-Chief of the Sudan People’s Liberation Army (SPLA) – the armed wing of the ruling Sudan People’s Liberation Movement (SPLM) in semi-autonomous South Sudan. Jarch Management is also buying an interest in a local company from Matip’s son.

But should Africa be handing out its land to foreign investors and will the local people and countries involved be the ones to benefit?

This commentary in the Financial Times made comparisons with the colonial grab for Africa’s resources and points out the damaging legacy that remains.

Saving Kenyan forest. Is it a turning point?

After a decade of rampant destruction of the Mau forest water catchment in western Kenya, the country’s coalition government seems firmly united in trying to save the complex before more serious damage is inflicted on the economy.

U.N. officials say this is no longer simply an environmental issue but something that has huge importance for the whole country. Already two of the top three foreign exchange earners — tourism and tea — are feeling the impact of falling water levels which have also forced the postponement of a major hydro-electric project. 

Prime Minister Raila Odinga describes the forest’s destruction as a national emergency. Both foreign and local officials say there is no gap between Odinga and President Mwai Kibaki on the issue.

Saving the forest will involve huge costs to resettle and compensate some of the thousands of people living illegally there and restore tree cover which produces vital supplies of water. Officials say they expect international donors to provide major financial help.

Until a few months ago, the destruction of the forest was a familiar story of land grabbing, illegal logging and the allocation of government land to try to win votes. It began in 1997 when the government of Daniel arap Moi gave large plots away in exchange for electoral support.

Then, this year, the United Nations flew Odinga and other officials over the forest to show them the extent of the destruction, shocking them into urgent action.

The government is pushing ahead despite the fact that many of the area’s MPs and voters belong to Odinga’s ODM party. Unlike the past, political considerations are being pushed to one side in the national interest. U.N. officials call this process unique for a country long blighted by the depradations of powerful and greedy politicians.