by Assad Bhuglah
While there is increasing recognition that Africa remains an attractive investment destination, it must be cautiously measured against myriad of risks that dampen the initial exuberance of international business community. Compared with the massive flow of investment towards the emerging economies, such as Brazil, China and India, Africa appears to have got a marginal consideration. The realities on the ground are that African economies are small, compounded with limited private sector development, institutional weaknesses and looming instability underdeveloped infrastructure. The continent accounts for just 2% of global trade and less than 5% of FDI flows.
In a recent interview, Pascal Lamy, the director-general of the World Trade Organisation has commented that the colonial patterns of trade have prevented the African economies to benefit from their comparative advantage in low-cost labour. "Africa’s trade profile has not changed much over the last half century – it remains dominated by fuel and minerals, and mostly flows along North-South channels rather than regionally". At the World Economic Forum held in Addis Ababa in May 2012, it was highlighted that Africa has the potential to become a major food exporter.
Agriculture is the most important sector of the African economy and has the potential to be its driving engine in poverty alleviation. Investment in transport infrastructure, access to water and energy, information and communication technologies and management efficiency are vital for African agribusiness to thrive. The Western powers as well as the emerging economies like Brazil, China and India, being themselves endowed with fertile lands and agricultural resources, are less inclined to venture in African agriculture and more interested in the mining and energy sectors. The investment salvation for African countries is more likely to come from the net-food importing countries, notably the Middle East which is an arid region for agricultural development but rich in petro-dollars to engage in partnership abroad. Africa is the closest geographical area to Arab states wishing to invest in food production abroad. The Saudi Arabian government and the Gulf States are in search for large-scale arable lands in Africa and elsewhere in order to boost agricultural production and enhance food security. They are signing bilateral agreements with foreign governments, offering guarantees, loans and technical assistance in order to help their private sector as well at the government-owned companies invest in overseas food production.
As the costs of irrigation are spiraling and natural water supply dwindling in the Middle East, the sandy expanse of the Arabian lands does not have the comparative advantage in agriculture. A long term strategy for these agriculture-deficient countries is to invest in foreign lands for production of rice, wheat, barley, corn, sugar, green fodders and animal resources. The Abu-Dhabi-based Al Qudra Holding, the Qatari state-owned enterprise "Zad Holding Company" and Saudi companies under King Abdullah Initiative have invested massively in the African agricultural sector. Sudan, Ethiopia, Madagascar, Malawi, Angola, the Democratic Republic of Congo, Kenya, Tanzania, Uganda and Mozambique are their main investment destinations. They are involved in the production of food for the Arab markets as well as to feed the African population.
Land investment in Africa is not straight-forward. While land tenure security and investment protection are at high risks, infrastructure remains an enormous challenge for land investment in Africa. In many instances, there is little or no infrastructure around the plots of virgin farmland. The burden is upon the operators to provide roads, water-supply and electricity. The Arab operators are teaming up with Chinese or Indian contractors in form of triangular cooperation to implement their projects on the continent. Mauritius which has secured a large area of land in Mozambique definitely needs foreign partners to implement its plan to improve food security. Joint ventures in terms of African land, Mauritian expertise and Arab capital could be a logical combination.
There are also some political risks associated with foreign land acquisition. If local political elites start complicating the deals or stir public emotions over land issue, the Arab investments will run away from Africa and will elect new destination such as Kazakstan, Turkey, Cambodia and Philippines. "Africa will be more food insecure if these investments go to other parts of the world and Africa has to turn to these places to buy food", says Mr Ousmane Badiane, Director for Africa at the International Food Policy Research Institute. Growing Africa’s land with Arab partnership fits in the logic of good neighbourhood and represents a win-win formula for all.