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Africa: Pushing Land Deals
AfricaFocus Bulletin
May 3, 2012 (120503)
(Reposted from sources cited below)
Editor's Note
"Whereas WBG's [the World Bank Group's] mandate is to
'reduce poverty and improve living standards through
sustainable development and investment in people,' its work
largely strays from this mission in that, by promoting
investor access to land, it actually tends to threaten
rather than improve food security and local livelihoods in
developing countries." - The Oakland Institute
There are undoubtedly many forces pushing increased foreign
investment in agricultural land in Africa, from the
investors themselves to government officials believing in
rapid progress for large-scale agriculture and foreign
technology to officials as well as private interests in the
countries themselves profiting legally or illegally from
such deals. Among those fueling the phenomenon, either by
direct loans or, more often, by advisory projects pushing
"investment-friendly" environments, is the World Bank Group,
notably the International Finance Corporation (IFC) and the
Multilateral Investment Guarantee Agency (MIGA).
While some critics say that all such large-scale deals
provide little or no benefit for small-scale farmers whose
land is appropriated or affected by such deals, even those
international agencies promoting "Responsible Agricultural
Investment" acknowledge that "weak governance" in many
countries allows significant damage to the rights of land
owners and other land users, as well as to the environment.
Thus there has been a proliferation of international effects
to formulate international standards to curb abuses, and, in
the hopes of some, to ensure that such investments not only
benefit investors and macroeconomic growth, but also avoid
damages to farmers' rights and the environment.
These include "Principles for Responsible Agricultural
Investment that Respects Rights, Livelihoods and Resources:
A discussion note prepared by FAO, IFAD, the UNCTAD
Secretariat and the World Bank Group to contribute to an
ongoing global dialogue (http://www.unctad.org/en/docs/ciicrp3_en.pdf), the
International Finance Corporation's "Performance Standard 5:
Land Acquisition and Involuntary Resettlement"
(http://www.ifc.org/sustainability), and most recently, in
March this year, the FAO's "Voluntary Guidelines on the
Responsible Governance of Tenure of Land, Fisheries and
Forests in the Context of National Food Security,"
(http://www.fao.org/nr/tenure/voluntary-guidelines/en/).
While there has been much debate about such guidelines,
including strong critique from civil society organizations,
what is most noticeable to a non-specialist is that none of
the official agencies seem as yet to have incorporated any
of these standards into evaluating their own project
financing or policy advice to countries. The evidence from
critical non-governmental organizations and scholars,
however, indicates that the agencies have most often
uncritically pushed investment and not insisted on
compliance even with their own performance standards. This
is surely an issue that incoming World Bank President Jim
Yong Kim should put on the agenda on the Bank's own
Independent Evaluation Group, which has often published
incisive critiques of Bank programs.
This AfricaFocus Bulletin contains excerpts from a briefing
from The Oakland Institute, examining how World Bank Group
advisory programs have helped fuel large-scale land deals in
Africa, while neglecting to apply their own performance
standards to prevent, monitor, or evaluate abuses.
Another AfricaFocus Bulletin sent out today by e-mail, and
available on the web at http://www.africafocus.org/docs12/sl1205.php, has several
documents on the case of land deals in Sierra Leone,
including the communique from a conference in April of
affected land owners and land users.
For links to additional sources, see that bulletin as well
three AfricaFocus Bulletins on the topic in 2010, at
http://www.africafocus.org/agexp.php
++++++++++++++++++++++end editor's note+++++++++++++++++
Understanding Land Investment Deals in Africa: The Role of
the World Bank Group
Land Deal Brief | December 2011
The Oakland Institute
http://www.oaklandinstitute.org
[Full formatted brief, including footnotes, available at
http://tinyurl.com/brzs9jm]
Overview
The World Bank Group (WBG) promotes large-scale land
investment in developing countries as a "win-win" situation
where investors profit and "host" nations benefit from
economic development, improved agricultural infrastructure,
and employment opportunities.
Since the 2008 food and financial crises, the number of land
investment deals in developing countries has skyrocketed,
particularly in Sub-Saharan Africa. Compared with an average
annual expansion of global agricultural land of less than 4
million hectares before 2008, nearly 60 million hectares
were acquired in 2009 alone. Many have called for
investigation into this trend, arguing that the ceding of
such substantial amounts of land to investors threatens
local food security, land rights, and poses a host of other
social and environmental problems. Despite this concern, the
trend continues as investment and pension funds now join
individual investors and sovereign wealth funds seeking to
acquire farmland.
It is arguable that the trend of large-scale land investment
in Sub-Saharan Africa could not take place without WBG
support. The Oakland Institute's (OI) recent field research
in 7 African countries uncovers WBG's orchestration of
business-friendly environments for investor access to land.
From helping attract investors, to shaping policy and law
that allows for streamlined and lucrative investor
contracts, WBG's agencies clearly enable and promote land
investment. OI found little evidence that WBG's strategy to
alleviate poverty and improve lives through large-scale land
deals in Sub-Saharan Africa was having success on the
ground. On the contrary, WBG policies and actions have
glossed over critical issues such as human rights, food
security, and human dignity for local populations. OI's
research findings call for the evaluation and accountability
of WBG in its role in promoting land deals that undermine
the livelihoods and basic rights of millions of Africans.
World Bank Group and Land Investments
IFC Financing for Agricultural Development
Perhaps the most apparent way in which WBG contributes to
the land investment trend is direct financing of
agribusiness firms. Its private sector arm, the
International Finance Corporation (IFC), in conjunction with
its partner organization, the Foreign Investment Advisory
Service (FIAS), for instance, is leading the effort to
promote private sector investment in developing countries.
IFC's agribusiness investment portfolio has grown
significantly in recent years, with investments spanning the
sector's value chain. At the end of FY10, the agribusiness
portfolio reached $3.9 billion, representing more than 125
projects in 51 countries. In Africa, IFC is the largest
multilateral source of loan and equity financing for private
sector projects. Through the Africa Agricultural Finance
Project (AAFP), an advisory and investment program, it is
spurring African banks and other financial institutions to
establish or expand lending to the agriculture sector in
countries including Central African Republic, the Democratic
Republic of Congo, Cote d'Ivoire, Malawi, Nigeria, and
Zambia.
IFC's plans are to double funding to agribusiness projects
in Sub-Saharan Africa over the next two years, increasing
its budget for agriculture to $250 million, from $100
million in 2010. IFC has also expressed that its particular
goals for African agribusiness include meeting the needs of
the entire value chain, supporting infrastructure creation,
and fomenting an enabling legal and regulatory environment.
WBG Non-Lending Activities
While IFC's primary work is private sector financing, in
recent years, its work in administering Technical Assistance
and Advisory Services (TAAS) has taken on an increasingly
important role. TAAS comprises specific projects and
initiatives designed to improve client governments'
investment climates. This involves creating the conditions
necessary to attract foreign investment and facilitating the
investment process for investors. Such activities include
investment legislation reforms, the reduction of
administrative and institutional barriers to investment, the
development of investment promotion agencies (IPAs) in these
countries, and provision of policy assistance to governments
regarding tax, customs, and land laws. Technical assistance
and advisory activities may be linked to a specific
investment project, or, increasingly, to broader goals such
as improving the "legislative environment" for a specific
industry.
Land-related "Products"
Within its non-lending activities, WBG administers a number
of "products" � specific advisory services tailored to
governments' needs to help improve their investment climate.
For instance, FIAS's "Access to Land" product provides
technical assistance in implementing achievable land-related
short-term reforms, such as simplifying and streamlining the
approvals for investors to secure land rights and reduce the
time and cost for investors to comply with zoning,
environmental, and building requirements.
In addition, the "Investing Across Borders (IAB)" project is
WBG's global benchmarking initiative that measures the ease
of establishing and operating a foreign-owned business.
Specifically within the topic of "Accessing Industrial
Land," IAB's main indicators include strength of investor
lease rights, strength of ownership rights, access to land
information, and number of days needed to lease land. In
order for countries to rank favorably, their "land markets"
must be accessible to investors. For example, procedures for
accessing land must be simple, involve short time frames,
and require the involvement of few agencies. Countries rank
higher if there is no land ceiling (a maximum hectarage for
land acquisitions) and if investor incentives are provided
(e.g. tax exemptions and duty waivers).
Shaping the Legislative Environment
IFC and FIAS are also providing Technical Assistance to
governments in the drafting and revision of laws and
policies. WBG officials are directly involved with client
government leaders in their policy-making processes with the
goal of making legislative environments more
investorfriendly. In 2007, for example, FIAS assisted the
South Sudan government by revising six business laws,
including the investment law, which effectively removed what
FIAS considered to be inequitable treatment of investors and
the requirement for the investment promotion agency to vet
potential new investors.
Similarly, in Mozambique, Susan Hume, the World Bank's
Country Program Manager expressed in a letter to the
government that the general approach of the 2007 Strategy
for Improving the Investment Climate in Mozambique should be
"to streamline and reduce existing regulatory burdens�so as
to be more customer-focused."
Creation and Enhancement of IPAS
IFC and FIAS also work with client governments to create or
improve existing Investment Promotion Agencies (IPAs). IFC
and FIAS encourage IPAs to streamline and consolidate all
investment-related activities to create investor "one-stop
shops." In recent years, FIAS has helped to create or
bolster IPAs in Sierra Leone, Cape Verde, Senegal, Zambia,
and Tanzania, among many others.
WBG directly influences IPAs by providing training sessions
and toolkits to host country officials for the creation of
these "one-stop shops." WBG's Investment Generation Toolkit,
for example, provides step-by-step guidelines for the IPA
creation process.
Additionally, WBG provides funding to support the creation
of IPAs where they do not exist. The Sierra Leone Investment
and Export Promotion Agency (SLIEPA) was established in 2007
and is funded by the UK Department for International
Development (DFID) through International Finance
Corporation/Foreign Investment Advisory Service. Similarly,
the establishment of the Zambia Investment Centre (ZIC),
which is part of an amalgamation of agencies that currently
form the Zambia Development Agency (ZDA), was a requirement
of the 1995 Investment Act, as mandated by the World Bank's
PIRC II loan.
The process through which investors must go to acquire land
is significantly streamlined, as IPAs assist in the issuing
of all necessary licenses, permits, and authorizations for
securing desired real estate. Tanzania's IPA, the Tanzania
Investment Centre (TIC), is even mandated with identifying
"available" land and providing it to investors, in addition
to helping investors obtain all necessary permits (article 6
of the Tanzanian Investment Act 1997). The TIC has set up a
"land bank," having identified some 2.5 million hectares of
land as suitable for investment.
Doing Business Rankings
Investors interested in land are further aided by the WBG's
Doing Business project, which provides measures of business
regulations for firms in 183 economies and selected cities
at the sub-national level. Economies are ranked on their
ease of doing business, from 1 to 183, with the index
averaging ratings on ten different topics, including
"registering property," "enforcing contract," "trading
across borders," and "protecting investors." A high ranking
on the overall index means the country's regulatory
environment is more conducive to the starting and operation
of a local firm. WBG often points to Sierra Leone as an
example of an impressive Doing Business reformer in Africa,
the country having recorded major improvements to its
"investment climate."24 Sierra Leone's overall Doing
Business ranking increased by 15 points between 2008 and
2010, with key steps taken in the areas of "protecting
investors" (up 22 points) and "getting credit" (up 14
points).
The Doing Business system provides a way for potential
investors to decide which countries are suitable
destinations for overseas farmland investments as the
rankings compare countries' regulatory environments, assess
the impact of laws and regulations on business activity, and
how they make decisions regarding private investments.
MIGA'S Guarantees of Non-Commercial Risk
WBG's Multilateral Investment Guarantee Agency (MIGA)
provides political risk insurance (or "guarantees") against
certain risks to investments in developing countries, as
well as dispute resolution services for guaranteed
investments. These guarantees insure foreign investments
against a number of risks, including transfer restrictions,
expropriation, war or civil disturbance, breach of contract,
and the nonhonoring of sovereign financial obligations.
In recent years, MIGA has been increasingly present in the
agribusiness sector. It recognizes that while demand for
land rises, agribusiness companies face particular
challenges related to the economic, political, and
environmental aspects of their investments. Countries
targeted by investors may have less-than-stable political
environments, unclear or incomplete laws on property
ownership or restrictions on revenue repatriation.
Therefore, MIGA is a key player in promoting land
investment, as its political risk guarantees often make the
difference for project sponsors and lenders concerned about
the safety of their investments � a common concern among
those investing in Sub-Saharan Africa (see Table 1 for
select MIGA agribusiness projects in Africa).
In addition to its traditional practice of underwriting
individual projects, MIGA offers "master contracts of
guarantee" specifically for private equity fund investments.
A master contract provides up-front pricing to the partners
of the fund for a specific period. The fund managers may use
this contract to raise funds from institutional investors
who are interested in taking the commercial risks associated
with these investments but are concerned about noncommercial
(political) risks. MIGA underwrites each underlying
investment and guarantees the political risks.
MIGA currently has master contracts with three private
equity funds that invest in Sub-Saharan Africa, including
the African Development Corporation and the Sierra Leone
Investment Fund LLC & ManoCap Soros Fund LLC, the latter of
which focuses on small agribusiness companies in Sierra
Leone. In mid-2010 MIGA also signed a deal providing up to
$70 million of political risk coverage and breach of
contract coverage for Chayton Atlas's eligible investments
in Zambia and Botswana. Chayton is a private equity fund,
focused on investing in agribusiness in countries in
Southern Africa. According to MIGA's underwriter of the
investment, Chayton Atlas was particularly attractive as
"agribusiness is a priority sector for MIGA and the World
Bank Group."
Case Study: Sierra Leone
Since IFC opened a program office in Sierra Leone in 2003,
IFC/FIAS advisory activities and recommended changes to
policy and legislation have completely transformed the
investment climate, and accordingly, huge investments in
Sierra Leone's land market have followed.
FIAS's initial diagnostic study of administrative barriers
to investment in the country further led to the
establishment of a public-private sector team. Under FIAS
guidance, this team formed working groups to formulate and
implement a reform program in order to create a "world-class
investment climate." Four areas were targeted for reform:
(1) business start-up procedures; (2) land and planning; (3)
operating procedures, tax, and customs; and (4)
institutional reform.
Sierra Leone's IPA, the Sierra Leone Investment and Export
Promotion Agency (SLIEPA) � founded with support from
IFC/FIAS in 2007 � highlights agriculture as one of its most
promising sectors for foreign investment. Its website
advertises that Sierra Leone boasts "5.4 million hectares of
arable land" and "opportunities for production of biofuels,
biolands, and organic foods," "opportunities in agricultural
goods and services," and "proven export potential," among
others. One MIGA news release seeks to lure investors,
stating, "[Sierra Leone] is enjoying a resurgence of
interest from investors looking for first-mover advantage.
Sierra Leone offers significant potential in agriculture
with high levels of rainfall and vast swaths of arable but
uncultivated land."
This marketing of Sierra Leone's natural resources has been
effective and prompted a rush of foreign investors to start
large-scale plantations in recent years. OI research shows
that land deals already covered over 500,000 hectares of
land in Sierra Leone as of the end of 2010.
WBG and Private Equity Investments in Farmland
WBG is further working in multiple capacities to foment the
influx of private equity capital into agricultural land. Its
president, Robert B. Zoellick, sees private equity as "a
cornerstone of [WBG's] push to encourage growth and
development led by the private sector. It is fundamental to
building businesses, creating jobs, widening opportunities
and establishing a virtuous upward spiral�. Innovative
financial instruments�enable the Bank Group's shareholders
and donors to get the most development bang for their buck.
And they generate very good returns for investors."
Approximately 60 percent of the private equity funds in
which the IFC has invested are based in the countries
assisted by the WBGs International Development Association
(IDA).
A major component of WBG's private equity efforts is
agriland investments. In the wake of the food and financial
crises, farmland has come to represent a relatively new and
untapped alternative asset class in emerging markets.
Investor interest in "green assets" can be attributed to
appreciating land values and the fact that food and
commodity prices are very likely to remain high over the
near term. Farmland investments present a way of gaining
exposure to soft commodities, such as wheat or corn, but
farmland returns are still less volatile than most commodity
futures. Annual returns for farmland investments are
expected to average 8 to 12 percent, with some riskier
countries and/or crops expected to deliver 20 percent.
Africa, in particular, has become a sought-after post-crisis
investment destination for investment managers. Investors
are regaining confidence in the continent, focusing on
Africa's lack of direct involvement with the global market's
volatility drivers and trouble hotspots. Despite its
traditionally risky, illiquid markets, fund managers are
poised to make high returns on the continent: African fund
raising could hit a record $8 billion to $10 billion in
2011.
WBG is increasingly active within the farmland asset class.
In addition to MIGA's negotiated master contracts of
guarantee with three ag-focused private equity funds, IFC
has stakes in a number of agriculture-investing private
equity funds, including Emerging Capital Partners' AIG
African Infrastructure Fund and Citadel Capital's MENA Joint
Investment Fund. IFC also committed $20 million to the
Global Environment Fund (GEF), a US-based private equity
firm focused on forestry in Sub-Saharan Africa � the first
of its kind. Zoellick has stated, "We are looking at
investments all across the [agribusiness] value chain:
property rights, seeds, irrigation, fertilizers, basic
technology advancements, financial services, harvesting,
storage, getting goods to markets, and processing."
In a key move to support private equity capital flows in
developing countries, in 2004, IFC sponsored the creation of
EMPEA (the Emerging Markets Private Equity Association), a
global membership association whose mission is to catalyze
private equity and venture capital investment in emerging
markets. EMPEA's 280 members include the leading
institutional investors and private equity and venture
capital fund managers across developing and developed
markets. IFC also holds an annual Global Private Equity
Conference, which is now the premier event for investors in
the sector.
It is important to note that WBG's interests are in many
ways directly aligned with those of private equity funds,
owing to the fact that EMPEA's Board of Advisors includes
several fund managers whose portfolios include major land
deals. For example, Hisham El-Khazindar, a current member of
EMPEA's Advisory Council, is the Managing Director and cofounder
of Citadel Capital, one of Africa's largest private
equity funds. With $8.7 billion in assets currently under
management, Citadel has acquired hundreds of thousands of
hectares for agribusiness ventures in Kenya, Uganda,
Tanzania, and South Sudan. Also on the Advisory Council is
Shemara Wikramanayake, head of Macquarie Funds Group, a
Sydney-based asset management business. In March 2010,
Macquarie Agricultural Funds Management started up the
Macquarie Crop Fund to "acquire or lease grain and oilseed
properties located in geographically diverse regions of
Australia, Brazil and Africa."
Causes for Concern
Whereas WBG's mandate is to "reduce poverty and improve
living standards through sustainable development and
investment in people," its work largely strays from this
mission in that, by promoting investor access to land, it
actually tends to threaten rather than improve food security
and local livelihoods in developing countries.
The Oakland Institute field investigations found repeated
evidence of lost livelihoods as a result of land deals,
including forced displacement and resettlement of local
people. The development of large-scale plantations are
forcing millions of small farmers off ancestral lands and
productive small, local food farms in order to make room for
export commodities, including agrofuels. In several
countries like Mali or Ethiopia, the construction of
irrigation infrastructures results in livelihood disruption
for farmers and pastoralists, cutting off cattle routes and
taking away essential grazing and farming land.
The clearing of forests and fallow land, considered
unoccupied, also takes away important sources of food and
non-food commodities as well as income for rural communities
in Africa, while also jeopardizing the environment and
natural resources. Because of their lack of titles and
formal ownership of the land, this often happens with little
or no compensation for local communities.
In most Sub-Saharan countries, over 96 percent of farmers
are small in scale, farming less than 5 hectares (two-thirds
of these farm less than one hectare), and small-scale
farmers account for over 90 percent of agricultural
production. Thus, where farmland is lost to large firms,
local food systems and livelihoods are disrupted or
destroyed.
In the face of these threats to local populations, WBG does
little to critically examine the ways in which the
investments may jeopardize local populations on the ground.
Despite its official mandate to contribute to the
alleviation of poverty,58 IFC's Monitoring and Evaluation
(M&E) system includes no information about the effects of
their work on poverty and hunger. FIAS measures its overall
performance on indicators such as its clients' overall
satisfaction, the number of its recommendations implemented,
and the number of "Business Enabling Environment" reforms
involving at least 10 percent improvement in time/cost and
number of procedures and/ or number of licenses required.
FIAS indicators for project-specific "impact" include
statistics on Gross Domestic Product, gross fixed capital
formation, export performance, private investment, and on
new business registrations.
"Nowhere within its M&E does FIAS consider, for example,
the number of jobs created, changes to hunger and poverty
indicators, or the incomes of local populations."
IFC investments are governed by Performance Standards for
Social and Environmental Sustainability, a set of policies
that define IFC's responsibility in supporting project
performance in partnership with clients. These include, for
example, standards regarding labor and working conditions,
community health and safety, land acquisition and
involuntary resettlement, etc. Yet, there is widespread
criticism from civil society groups and the Compliance
Advisor/Ombudsman (CAO), the compliance mechanism of the
IFC, that Performance Standards are unsatisfactory,
expressly in the areas of 1) community engagement and "broad
community support," 2) transparency, 3) project definition
and categorization, 4) demonstrating project-level
development impacts, 5) application of the Performance
Standards to financial intermediaries and 6) human rights.
With respect to human rights, the CAO has revealed that 62
percent of its investigation cases into IFC activities
launched since 2000 involve claims of human rights
violations or impacts. Civil society groups are indignant
that recent revisions to the Performance Standards "take a
step backwards" in terms of human rights. A key concern is
that the draft IFC principles undermine the UN Framework on
Business and Human Rights, the global standard for how
businesses should respect human rights. For example, the
draft uses a loose definition of "corporate responsibility
to respect human rights" and ignores important concrete
measures recommended by the UN Framework.
Failure to include adequate human rights protections in
IFC's Performance Standards is of serious concern for an
international institution using taxpayers' money. A number
of non-governmental groups, including Amnesty International,
Bank Information Center, International Accountability
Project and the Center for International Environmental Law,
consistently critique the standards' lack of inclusion of
rights.
The IFC must commit not to support activities that are
likely to cause, or contribute to, human rights abuses and,
it must, along with,its clients undertake human rights due
diligence.
AfricaFocus Bulletin is an independent electronic
publication providing reposted commentary and analysis on
African issues, with a particular focus on U.S. and
international policies. AfricaFocus Bulletin is edited by
William Minter.
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