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September 24, 2012

Why figures of purported agricultural investments into Africa can be so misleading

Chido Makunike 

Even if you're not particularly interested in farming news and developments, you cannot fail to be impressed by chancing across a headline like 'U.S. to Invest U.S.$6 Billion in Nigeria's Agric Sector.'

U.S.$6 billion is a huge chunk of money. Such an investment over a relatively short period is/would be a very significant development for all involved. One would expect to begin to see huge results from such a  massive injection of money into an economy in fairly short order, even if the pay-off time for the investment is much more long term.

But over the years of hearing about all kinds of billions purportedly spent from local and foreign sources on Africa's agriculture, it has become clear that such loosely touted figures can hide as much as they reveal, and can sometimes even be almost meaningless.

Excerpts from the article:

'Foreign investors from the United State of America (USA) would invest $6 billion into Nigeria's agricultural sector, the Minister of Agriculture and Water Resources Akinwunmi Adeshina has said. '

'The Minister said the funds would be invested on sugar-cane plantation in the north and cassava plantation in the southern part of the country. (He) said the funds would be invested on sugar-cane plantation in the north and cassava plantation in the southern part of the country.'

How was the valuation of the investments at $6billion arrived at? Who did the calculating - the investors or the government of the destination country? What is the break down of that valuation? Does the $6 billion refer to new capital/cash to be invested, or does it include many none-cash factors as well? Over what period of time is the  $6 billion to be injected into the Nigerian economy? How much of it will be new capital from outside Nigeria, and how much of it is in locally-sourced money or the contribution to the 'investment' of the host government (tax credits, free or subsidized land, etc, etc)?   

Does the phrase '$6 billion into Nigeria' mean the total value of the two investments cited, or just that part of them that will actually, directly be spent/invested in Nigeria? For instance, if $500 million of those $6 billion are to be spent on importing machinery from the U.S., it is misleading to account for that $500 million as going 'into Nigeria.'

In the case of this example, Nigeria would still certainly benefit from the $500 million portion of the $6 billion that actually 'goes into (or remains in) the U.S.' But how to value this benefit to Nigeria is far from straightfoward.

Is part of that $6 billion valuation composed of aid from the U.S. government, or is it strictly commercially sourced funds? If a big chunk of the $6 billion is in aid (not at all unusual in such big deals), is that portion of it going to be spent in Nigeria, or actually to pay suppliers, consultants and others mainly in the aid-originating country, in this case the U.S? Again, this would be far from unusual, but vastly changes the meaning of what a mere dollar figure represents in actual economic terms.

For example, suppose country A donates $100 million worth of tractors to poor country Z. Country A would stimulate its tractor manufacturing sector by paying them to supply the machines to be donated to country Z. But over the years country Z may have to try to fork out that much or more in spare parts, repairs, etc to keep the tractors running, particularly if the choice of machines (obviously dictated by donor country A) was inappropriate for the conditions of country Z.

Either a lot more than $100 million goes back out of poor country Z to rich donor country A for those spare parts (further stimulating the tractor industry of country A while having declining cost-benefits for country Z), or the tractors soon simply rot because the cost of maintaining them is beyond what country Z can afford. Both scenarios are part of the long, sorry annals of 'development cooperation.'   

Another example of why context, detail and explanation are so important in a story headlined this way: Job-creation is one of the most hoped for investment benefits in a high unemployment country like Nigeria, or any other.

$100 million spent on tractor imports and maintenance over X years would have a much smaller social and economic footprint than a similar $100 million in the same X years spent on wages and salaries. The money spent on wages would have a tremendously bigger multiplication effect than the money spent on equipment imports, so in terms of overall value/benefits to the Nigerian/target economy cannot be calculated the same way. So throwing out a phrase like '$100 million investment' without providing these details and nuances may be thinly, narrowly and arithmetically correct but yet still tell very little.

Shallow and misleading as the heading and article were, they were picked up and re-distributed without question by hundreds of news outlets around the world. And that's how so much of the figures about inward investment and aid to Africa that are thrown about often have very little connection to how much actual,  correct, while at the same time revealing very little about how much actual, real-world meaning and impact they will result in. Unfortunately, sometimes the more you read and hear, the less you know.

African Agriculture

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