by Chido Makunike
Is Africa getting a good deal from
the rush of foreign investors to invest in the continent’s farmland? Are the
terms of the deals fair? Will the promised and hoped for benefits actually
materialize? Will the benefits outweigh the negatives?
It is questions like these that currently predominate in the
huge discussion. For better or for worse, the answers will only become clear
with time. There is unprecedented worldwide scrutiny of these deals, and a seeming
preponderance of doubt that they will be good for Africa.
This may be useful in letting investors know that the world is watching, and
may serve as an incentive for some to conduct themselves better than the
previous major scramble for African land, and better than they might have done
unwatched.
Can the deals be structured to avoid abuses of host
countries and local communities, or are the most welcoming countries so eager
for agricultural ‘development’ that they sidestep this question? How to do this
is another question that increasingly informs the debate.
While this discussion is raging, enough time has elapsed
since the current wave of agro investments/land grabs (insert your ideological
orientation here and choose your favored term accordingly) for a little
discussed self-correction of some of the deals to become apparent. That is that
many of these deals, as loudly touted and as impressive sounding as the figures
involved are, actually are many times not very well conceived from a strictly
business sense, let alone all the other aspects that are currently the main
focus of controversy and discussion.
By both proponents and opponents alike, it seemed to have
been assumed that once an agro-investment was given the go ahead, it would be
an easy, virtually automatic and guaranteed license to print money for the
entrepreneurs and their financiers. The underlying reasons for this assumption
are familiar to anyone who has been following the controversy.
Among them (spoken and unspoken): ‘’Land in Africa
is dirt cheap compared to anywhere else, you would have to be a fool not to
become a billionaire there in about two seconds. The main reason for the
continent’s agricultural difficulties is that Africans are sitting on their
brains; the hot sun might have fried part of their brains. Just bring in some
non-Africans to run your project and voila, all problems solved, money in the
bank. There is no need to secure markets before investing; the Africans don’t
have a clue how to farm so they will all flock to buy whatever the investor
decides to grow (‘no problem, we’ll work out the details when we get there.’)
The problems of climate change on the continent that we keep hearing about
(floods, drought, etc) only affect African farmers; they will bypass the
foreign investor, easy money in the bank.’’
And so on and so on. Dear reader, this is really not far
removed from what has been said or implied by many excited investors. You might
say that it is in the nature of being an entrepreneur to have a positive, sunny
disposition to a business they have invested a lot in. But what is surprising
is the number of what would normally be expected to be hard-headed financiers
to buy a lot of these incredible assumptions.
Business is risky every where, any where. The many risks of
tilling the soil are well to even the back yard garderner, le alone one of the
world’s foremost business risk takers: the small scale African farmer. S/he’s
livelihood depend on whether it rains enough or not, whether the timing of
those rains is right, having enough money or labor to adequately tend and
harvest the crop, etc, etc.
Because a key premise of today’s agro-deals is that they
involve an entirely different model of farming to that practiced by most
African smallholders, it has been assumed that the foreign investor would be
largely be immune to the business risks that plague the African farmer.
So the thinking of many investors seems to be, ‘just get the
chief/minister.prime minister/president to sign the lease, give him his
‘commission’ (wink, wink, heh heh heh) and then walk over to your new field and
start harvesting the money. What could be simpler?
Alas (shock, horror), many investors are finding out it may
actually not be that simple after all! Farming in Africa
is as risky an enterprise as any other business anywhere else, with some unique
twist thrown in as well. Up until recently all that would be released to the
public by the hopeful agro-investors and their backers were the tens/hundreds
(take your pick) of millions of dollars claimed to be involved, and the
manifold returns soon expected.
Without any of the fanfare of the announcement of the
biggest deals, reports are beginning to trickle in of some of them quietly
folding.
One of several recent examples is UK-domiciled Sun Biofuels’
apparent abandonment of its much-hyped jatropha project in Tanzania.
The reported reason is ‘the long, severe East African drought.’ Of course, it
is entirely possible that severe drought is the main reason for the apparent
failure of the project. But it must also be pointed out that other high-profile
jatropha (and other crops) projects have collapsed before the current East
African drought/famine really hit. Others elsewhere have quietly gone under
where there is no ’drought.’
The failure of any business is sad because of all the
preparation, investment and hope that goes into it. And yes of course, any
plant, including ‘hardy, drought-resistant, marginal soil-growing’ jatropha needs
a certain minimum of water to thrive. The investor can’t be blamed when that
doesn’t happen, although there are still some tough questions that could be
reasonably asked even in that scenario.
Examples: After sinking in tens of millions of dollars years
of effort, why give up completely after a two or three year dry spell that
scattered reports suggest is beginning to break? Why not now try to salvage the
project by investing a little more now, rather than losing everything by
abandoning it? If the financiers are not willing to do that, is it perhaps
because other inherent, non-drought aspects of the business model are becoming
apparent in a way they might not have been at the beginning?
If it is the latter case, this is a plain old business
failure somewhere in the chain that led up to the investment, with ‘drought’
perhaps only worsening and quickening those weaknesses. And yet somehow, few
people seemed to have contemplated that the failure/attrition rate of these
projects may be no different from that of business anywhere else. In other
words, even when based on what look like exploitative, give-away terms of
lease, it is far from assured that the new agro-deals are virtually cash
machines spewing out dollars and euros. Who would have guessed this? Apparently
not the investors and their backers!
India-listed flower grower Karuturi seems on a role in Ethiopia.
Everything seemsto be coming roses for the company, helped by the host
government reportedly almost shoving huge parcels of land into the company’s
lap for nothing. If things are good in Ethiopia
for Karuturi, it is far from clear yet if the deal is a good one for Ethiopia.
Proponents and opponents of these deals are so tightly in their ideological
boxes that their comments about what is going on in Ethiopia,
net good or net bad, must be taken with a large grain of salt.
But if the Ethiopian operation is or will soon/eventually be
a net good for the country, Karuturi seems to now be dangerously cocky and
super-confident in a way that may come back to haunt them. They seem hell bent
on snatching business failure from the jaws of their current success.
How so? With the huge amounts of land the Ethiopian
government put at their disposal, Karuturi now proposes to bring in tens of
thousands of Indians as outgrowers!!! You can figure out for yourself how many
Ethiopians are going to take this news, cockily delivered by Karuturi’s CEO,
not even the Ethiopian government. Read up on the colonial histories and
aftermaths of (to name a few) Algeria,
Kenya, Namibia,
Zimbabwe and South
Africa as a reference to why sooner or
later, this idea of Karuturi’s will likely blow up in its face.
Ethiopians are likely to welcome this news with about the
same level of enthusiasm as would Indians if they were told that 20,000
Ethiopians would be landing on their shores, for whatever purpose. Karuturi’s
project will all of a sudden by seen by
many Ethiopians as a scheme to settle Indians, rather than an ‘investment’ that
will bring jobs, skills and other benefits for them.
In Zambia,
in recent years Chinese investment has outpaced Western investment in the
country’s mining (mainly copper) sector. The country welcomed that as much as
many others are falling all over themselves to lure agro-investors. By all
accounts, it is widely agreed that Zambia
has benefited from this, at a time when for various reasons Western investors
were no longer interested in the country.
But there has also been simmering, sometimes exploding
resentment by many Zambians about the
influx of Chinese people. Somehow, foreigners running chicken
farms, small scale retail shops and so on were not quite
what they had in mind when they though of the ‘investors’ who would come from China.
Many such ‘investors’ in many African capital cities is a controversial,
explosive issue. Many attribute the September upset of new Zambia
president Michael Sata over the extremely China-friendly incumbent Rupiah Banda
to Sata’s promise to get tough with the Chines about this issue.
Perhaps Karuturi in Ethiopia
didn’t get the report of what happened/is happening in Zambia,
and how there might be parallels with its stunning plan to import tens of
thousands of Indian ‘experts.’ If so, epic business fail! They should keep on
top of these hot issues across Africa, and dissect them
appropriately in regards to their own operations.
So even if all the figures of Karuturi’s business plan seem
to add up, this non-numerical miscalculation may very quickly wilt what now
seem like the companys’
rosy prospects in Ethiopia.
If that happens, it can not be said to be a non-predictable factor like ‘drought.’ It would, quite
simply, be a huge business mistake to do this, even with the endorsement of an
allegedly, astonishingly compliant host government. Knowing the likely result of
such a politically, socially charged (even reckless) announcement as Karuturi
has made, that brings their overall business skills into question as much as
any other more traditional reason for business failure.
There are many other similar as well as different train
wrecks waiting to happen in the great African land rush. Some will succeed,
many will fail for a multiplicity of reasons, some of which are only beginning
to be apparent now, about three years after the rush began.
Amidst the many challenges of doing business in Africa,
there are indeed great opportunities for Africans as well as non-Africans to
make good money and carve out new business empires. But it might not be quite
as easy as picking roses or jatropha berries.
If so far we have mainly heard the public relations hype of
excited new foreign miners of African ‘green gold,’ watch this space as the
harsh business reality begins to set in for many operators.
Unfortunately, and beyond the scope of this already too long
post, the sudden departure of large foreign agro-investors who get burned (or who burn themselves) may leave behind an even bigger mess than if those projects had
been nurtured to eventual win-win success.
