Foreign Direct Investment in Agriculture in Sub-Saharan Africa. Implications for Sustainable Development and Rural Livelihoods

Content

Abbreviations

1 Introduction

2 Impacts of FDI in Sub-Saharan Africa
2.1 Economic Perspective
2.2 Socioeconomic Components
2.3 Ecological Effects

3 International Policy Approaches for FDI Regulation
3.1 Principles for Responsible Agricultural Investment
3.2 Voluntary Guidelines on the Responsible Governance ofTenure of Land, Fisheries and Forests (VGGT)

4 Best Practice in Mozambique

5 Conclusion

Bibliography

Abbreviations

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Introduction

A changed political and economic environment has accelerated that land becomes a scarce resource in competition between various land use interests, especially in Sub- Saharan Africa.

Large-scale land acquisitions have raised questions about benefits and long-term impacts of FDI on host countries. Against this background the paper investigates how local economies, environment and finally the livelihoods of current rural land users are affected. For this purpose FDI are analyzed using different project examples of various countries that account for 50 % of the total area under FDI in Africa like Ethiopia, Ghana, Mali, Mozambique, Tanzania and Zambia, but also Kenia and Uganda.

International as well as national policy-making needs to meet reciprocal effects and thus complex goals. This requires an inclusion of development goals in the investment policy-making^[1]. As foreign investors have shown a keen interest in Mozambique for biofuel production the paper aims to use positive findings in order to derive strategies that lead to sustainable development without compromising rural livelihoods^[2].

What basic requirements for responsible investment should be given, will be illustrated based on the most relevant principles and guidelines^[3].

2 Impacts of FDI in Sub-Saharan Africa

2.1 Economic Perspective

Often it is argued that the inflow of capital through FDI in agriculture would improve the economic development and lead to further multiplying effects. Increased exports improve the foreign trade balance and thus foreign exchange reserves. Also technology transfer, infrastructure development and an increased Gross Domestic Product (GDP) with higher income levels are named^[4].

The Ministry of Agriculture and Energy of Mozambique and the World Bank assumed various potentials of the bioethanol production based on sugar cane in Mozambique. They predicted a future reduction of mineral oil-based fuel. Besides, reduced taxes could be expected. In the long term, an improved trade balance could be achieved through the export of bioethanol. A higher traffic at major ports could bring additional revenues through port fees. Moreover, a growing demand for logistics companies is expected to create more employment opportunities additionally to those in agriculture^[5].

According to FAO, there are several positive examples where the introduction of new technology could be implemented on a broader basis. However, for the transfer and adaptation of new technology the choice of the specific contracts and the business model is crucial. Contract farming and the provision of application know-how through training tended to be successful^[6].

Interviews with communities, farmers and civil society organizations in Zambia revealed in contrast, that the transfer of technology for large-scale projects is very rare, except the transfer of technology for the construction of irrigation infrastructure. The management and provision of the infrastructure at the same time is evaluated critically, because the privatization of infrastructure may imply the exclusion of the local population due to profit orientation^[7].

Human Rights Watch and FIAN reported that in the examined cases of resettlement of Ethiopia, Kenya and Mozambique, no or insuffiecient basic services or infrastructure such as food, agricultural assistance, health care and educational opportunities were provided, although there were compulsory commitments before^[8].

According to FAO projects with large-scale land transfer usually do not necessarily render net positive effects. Especially if the land was previously in informal, temporary or marginal use. The risk of resettlement or disposession is enhanced particularly in countries with unclear land rights and weak state governance structures. Negative impacts are caused because compensation lacks or is often inadequate. People are then faced with the loss of income, living environment and access to natural resources. This leads to social fragmentation, inequality and conflict^[9].

Positive effects on the local economy were found especially if FDI had been organized by contract farming or joint ventures. In these cases farmers could increase the added value and generate a higher income level through additional work such as tillage or weed control among others. Earned income could be reinvested by farmers in their own agriculture^[10].

2.2 Socioeconomic Components

Many case studies reported the loss of land use opportunities of local people due to FDI^[11]. In the case of the Tomota Group Huicoma in Mali for example, that has invested in the cultivation and production of vegetable oil, people were affected by compensation loose expropriations^[12].

Human Rights Watch (HRW) elaborated in their study on the Ethiopian Villagization project (2010-2013), planned by an Ethiopian-Saudi billionaire and several Ethiopian companies^[13], the relocation of 1.5 million people in the Gambella Region. The government constituted its decision with the fact that the region is not used efficiently, wherefore large-scale agriculture should be introduced. The resettlement planned as voluntary should be supported by accompanying measures to ensure a safe transition with elemantary infrastructure for living. In fact, consultation and transparency was lacking and evictions prevailed. This concerned in particular indigenous people, who did not have formal land titles for the land they owned and used^[14]. The authors also report of various human rights violations such as arbitrary arrests, physical injury, forced labor, rape and sexual violence. Finally, the displaced population Gambellas were deprived the right to food, education and adequate housing^[15].

In Zambia, several thousand people were dispossessed due to a tabacco farm that covers land over 33,000 ha planned by a Zimbabwean-British joint venture company Madaco. Since these people were settled back in regions with marginal cropland their harvesting potential decreased to 50-75 % and therefore food diversity^[16]. Performed surveys also revealed that an expansion of wage labor models in the case of simultaneous loss of natural resources are considered to increase dependency and vulnerability of people^[17].

The Oakland Institute argues that the export orientation of many large-scale investment projects does not contribute to improved food security at the local level^[18]. Because of already existing social inequalities, price increases and low income opportunities scarce food availability would be deepened^[19]. The Rukwa Province in Tanzania, for example, contributes to a significant share in the food supply to local markets, associated with regular incomes, the urban equivalent. Smallholder production systems are highly effective, particularly in this region. Therefore, it is assumed that an export orientation may lead to food shortages at local markets^[20].

NAPE reported a decline in local food supply because of the palm oil production in Kalangala, Uganda. Reduced fishing, timber production and commercial food cultivation decreased incomes and hence the food security has worsened. Subsistence production omitted and the sale of surpluses were substituted by imports from the mainland and that is why the cost of living and poverty increased. Nevertheless, some small farmers could benefit from increased land prices and thus through land sales^[21].

FIAN reported a joint venture between the Mumia Sugar Company, Kenya's largest sugar producer, and the governmental Tana Athi River Development Authority (TARDA). In the context of the project sugarcane should be grown on 16,000 ha ofland in the Tana River Delta for biofuel production. An cost-benefit analysis showec in a comparison of alternatives, that the income from traditional agriculture, fishery and animal husbandry is three times higher than the potential revenue from sugar production^[22].

In the considered projects additional job opportunities are usually limited and only of short duration. In the longer term jobs were reduced again by mechanization of production and rationalization. Skilled jobs were mainly filled by external workers and project-related work usually replaced other employments^[23]. According to studies there is a trend towards lower wages with decreasing inclusiveness and participation. Self- employed farmers who have been involved in investments according to the outgrower scheme are often much better paid than low-skilled people who work in large-scale farms and plantations^[24].

2.3 Ecological Effects

Negative environmental impacts of large-scale investments occur due to intensified production and increased pressure on natural resources, according to studies by the FAO. Reasons for the negative effects the authors see in an often lacking Environmental Impact Assessment (EIA) and an effective Environmental Management System^[25].

NAPE reported on a state-approved provision of 6,500 ha of land in Uganda for the Kalangala Oil Palm Project to the Bidco Oil Refineries Ltd. (ВШСО). The proposed land has been traditionally used by smallholders. An intensive expansion of palm oil production led to deforestation^[26].

An EIA analysis revealed that the Kalangala palm oil project in Uganda did not led to significant impacts on air. Admittedly, due to forest degradation a loss of the windshield and native species may be probable^[27]. Moreover, increased soil erosion and reduced fish stocks, because of water pollution, were observed. Water sources have been contaminated, water levels have fallen, water insecurity and deteriorating access to water led to conflicts over the resource^[28].

The Kenyan land reform stipulated that foreign investors should be geared on ecological guidelines and the local population should benefit from those investments. The Kenyan government sees FDI as key element for agricultural development and that is the reason why it implemented the expansion of commercial cultivation for exports or for domestic supply in ist future strategy until 2030^[29]. This also includes the conversion of wetlands into irrigated farming land, what negatively influences the environment^[30].

In the case of the Yala Swamp Lands in Kenya, Dominion Farms and the District Council agreed on the use of 6,900 ha of land. According to Action Aid the company has privatized the lake and the roads and thus limited the access to the river Kanyaboli with a high fish stock. Besides, Farmers have reported damage to the fragile ecosystem

by artificial Tilapia aquaculture for export, although Kenya signed the Ramsar Convention on the Conservation and Protection ofWetlands in 1990^[31].

The investor Agrisol Energy Tanzania Limited planned in the Rukwa Province of Tanzania to produce genetically modified crops for biofuel production and export. The region with its large forests and wetlands belong to the most productive ecosystems in the world. A serious expansion of agricultural production would lead to land degradation, water pollution due to an increased use of fertilizers and to significant loss ofbiodiversity^[32].

3 International Policy Approaches for FDI Regulation

3.1 Principles for Responsible Agricultural Investment (PRAI)

The need for sustainable investments required the development of PRAI that respects rights, livelihoods and resources. These Principles were initiated in 2009 by the Inter­Agency Working Group (IAWG)^[33]. They build on the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security (VGGT) and the Voluntary Guidelines on the Progressive Realization of the Right to adequate Food in the Context ofNational Food Security^[34].

However, the Transnational Institute (TNI) assessed PRAI as a strategy to cover up power imbalances so that investors and state authorities who negotiate the deals will reach their goals^[35]. Because of the public criticism and due to the challenge of large- scale land acquisition, inclusive consultation processes were initiated in 2012 by the IAWG, engaging a wide range of different stakeholders.

As a response of this, the Committee of Food (CFS) Principles for Responsible Investment in Agriculture and Food Systems were approved in 2014. They consist of followed Principles: (1) Contribute to food security and nutrition; (2) Contribute to sustainable and inclusive economic development and the eradication of poverty; (3) Foster gender quality and women's empowerment; (4) Engage and empower youth; (5) Respect tenure of land, fisheries and forests, and access to water; (6) Conserve and sustainably manage natural resources, increase resilience and reduce disaster risks; (7)

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^[1] UNCTAD ET AL., 2011, p. 3ff

^[2] CGIAR, 2014

^[3] UNCTAD ET AL., 2011, p. 3ff

^[4] RAKOTOARISOA, 2011,p.

^[5] FIAN 2010, p. 29-30

^[6] FAO 2012

^[7] OAKLAND INSTITUTE, 2011a, p. 38

^[8] HRW, 2012, p. 39; FIAN 2010, p. 21

^[9] FAO, 2011

^[10] FAO, 2011

^[11] OXFAM, 2011

^[12] OAKLAND INSTITUTE, 2011, p. 28

^[13] HRW, 2012, p. 17

^[14] HRW, 2012, p. 2-4

^[15] HRW, 2012, p. 25-26

^[16] OAKLAND INSTITUTE, 2011a, p. 42ff

^[17] OAKLAND INSTITUTE, 2011a, p. 40ff

^[18] OAKLAND INSTITUTE, 2011a, p. 41

^[19] ANSEEUWETA1., 2012

^[20] OAKLAND INSTITUTE, 2012, p. 6

^[21] FOE-UGANDA, 2012, p. 20-21

^[22] FIAN, 2010, p. 20-21

^[23] FAO, 2011

^[24] FAO, 2011

^[25] FAO, 2011

^[26] FOE-UGANDA, 2012, p. 17

^[27] FOE-UGANDA, 2012, p. 15

^[28] FOE-UGANDA, 2012, p. 22

^[29] FIAN, 2010, p. 18

^[30] FIAN, 2010, p. 21

^[31] FIAN, 2010, p. 23-25

^[32] OAKLAND INSITUTE, 2012, p. 10-11

^[33] see FAO, 2015

^[34] CFS, 2014, p. 4

^[35] see TNI, 2011,p.4