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March 20, 2009

Daewoo finds African land is a risky business

by Ed Cropley

A move by Madagascar's army-backed leader to nix a huge South Korean farming deal has exposed the risks of such ventures in Africa, where land remains an emotive issue prone to populist or nationalist opposition.

Although the rich Middle Eastern and populous Asian countries that have turned to the continent in search of cheap, long-term food supplies are unlikely to scrap their plans, they may have to rethink them.

"The greatest political risk in investing in Africa comes from commercial agriculture because of the emotional attachment to the land," said Martyn Davies, head of Johannesburg-based consultancy Frontier Advisory. "With the trend of rising populism in many countries, foreign investors could quickly fall victim," he said.

Land use, particularly South Korean firm Daewoo Logistics' plans in Madagascar to lease a million hectares -- equivalent to an area the size of Qatar -- to grow food, played a big part in the turmoil that led to this moth's removal of President Marc Ravalomanana. The day after Ravalomanana's exit, his populist successor, 34-year-old former disc jockey Andry Rajoelina, said the Daewoo deal was off, telling reporters: "Madagascar's land is neither for sale nor for rent."

Daewoo planned to grow half of South Korea's corn requirements on the Indian Ocean island, reducing the dependence of the world's third-largest corn buyer on U.S. or South American imports. The firm, formerly part of the now-defunct Daewoo Group, had promised to spend $6 billion over 25 years building roads, railways, a port and schools in exchange for huge swathes of arable land.

But, as with similar deals elsewhere, critics such as Rajoelina piled in, saying Africans were being deprived of land needed for themselves in favour of crops being grown for export to wealthier people in Asia or the Middle East.

Daewoo bosses, quoted by Korea's Yonhap news agency, denied ordinary people would lose out. "The project is on deserted land and will create jobs for local residents and new housing, hospitals and schools will be built. That will be a big boost for the national economy," executive Roh Jong-ho said.

Africa is no stranger to outside investment in farming, but since last year's spikes in the price of staple foods, governments, rather than the private sector, have been driving the deals, making them much bigger, and much more sensitive. That is only compounded by the secrecy that can shroud projects financed either wholly or in part by investor governments not noted for their openness.

Early in March, state media in Angola reported that Beijing had granted Luanda a $1 billion agriculture loan, and in February Chinese President Hu Jintao went on a four-nation African tour to cement ties beyond merely the oil and mining sectors.

In the same month, a Saudi Arabian firm announced a $45 million land deal in Sudan in response to a push by Riyadh to lock in long-term food supplies.

"There are a number of transactions taking place but most, generally, not in a transparent manner," said Madiodio Niasse, director of the International Land Coalition, a Rome-based group pushing for a code of conduct regulating such investments. "The receiving country can perceive it as a loss of its own sovereignty for the benefit of another country," he added. "That is not in the interests of anybody."

Only by being open and transparent can both investor and host country avoid the sort of suspicion and upset that ultimately cost Madagascar's elected leader his job, and Daewoo millions of dollars in wasted planning, he said.

Only by being open and transparent can both investor and host country avoid the sort of suspicion and upset that ultimately cost Madagascar's elected leader his job, and Daewoo millions of dollars in wasted planning, he said.

Reuters

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