Can foreign direct investment benefit smallholders and investors?

As global demands for food and biofuel escalate, foreign investors have shown a keen interest in African land. The furious pace at which large-scale land acquisition investments are occurring have raised questions about the underlying motives, benefits and long-term impacts of these investments on host countries.

“Foreign direct investors are coming in with new technology and capital while small-scale producers are using the same old techniques,” said Tim Williams, Director of IWMI in Africa during his presentation at the 5^th Africa Water Week in Dakar, Senegal.

Tim Williams presents research on foreign direct investment in African land at the 6th Africa Water Week. Photo: Abby Waldorf/WLE

“The search is on for winnable investment business models that will allow the capital infusion and new technologies by foreign direct investors to have positive spillover effects on small producers,” he said.

To better understand the pressures, drivers and impacts of foreign investors, the African Ministers’ Council on Water (AMCOW) has asked the International Water Management Institute (IWMI) in partnership with UNEP, GRID-ARENDAL and FAO to investigate how these investments will affect water resources, the livelihoods of current land users, and the environment.

AMCOW aims to use the findings of this study to inform and recommend policy options for decision makers that will ensure that foreign direct investments (FDI) in agriculture lead to equitable benefits for all parties (investors, governments and current land users and communities) without compromising the integrity of natural ecosystems.

Researchers will simulate the impacts of large-scale land use changes due to FDI in agricultural land on the local hydrology, livelihood options and ecosystem services using data and information obtained from a river basin in Blue Nile region of Ethiopia.  The intention is to provide a strong base of evidence that can inform and direct policy makers on how to better manage and regulate land deals for sustainable development.

In a preliminary study, the team assessed 148 cases of documented and authenticated foreign direct investments (FDI) in agriculture across 22 countries in sub-Saharan Africa between 2000 and 2012.  They took a closer look at 6 of these countries that account for 50% of the total area under FDI in Africa: Ethiopia, Mozambique, Tanzania, Ghana, Mali, and Zambia.

The water gap

Although land and water are interlinked resources, they found that water was largely ignored in the majority of the 148 cases.  Two crops – rice and sugar cane – that cannot be successfully cultivated without irrigation were intended to be grown on 24% of the total land area acquired.

This means that foreign investors aren’t just gaining land in Africa, they are also gaining unrivaled access to water resources, as only a handful of the cases studied included stipulations on the amount of  water that could be abstracted.  Not only does this have implications for existing water and land users, but it also has major implications on the ecosystems and landscapes due to changing demands on water and land resources.

An early recommendation made by researchers is that governments need to determine a value and price for water in FDI agreements that will ensure sustainable use and allocation.

“The pricing of water, especially in the agriculture sector, is a very sensitive subject in Africa but it is a challenge we need to face going forward,” said Yoro Sidibe from the IWMI research team.

Absence of local land users

Another major issue identified was that local land users were often absent from land deal discussions until after contracts were signed, if they were involved at all.  For a win-win business model to exist under foreign acquired land, not only should local land users be informed and consulted prior to land acquisition deals, but they should be compensated proportionately to the earnings they will lose from loss of land.

This unfortunately wasn’t the case in most of the schemes studied.  Overall, limited employment opportunities have been created and for the most part, displaced farmers have been inadequately compensated.  This has led to protests and conflict among displaced communities in Mali.  Farmers in Ghana complain of reduced incomes when they do gain employment from the companies that have taken over their land.

During the presentation of the initial findings of this study at the 5^th Africa Water Week, one senior official from an African country (not included in the six study countries) requested that his country be added to the study, as they face many of the same issues.  There seems to be a good amount of enthusiasm among policy advisers and decision makers for better data and information on existing land acquisition cases in order to guide policies in the future.

Implications for agricultural water management policy

At the same session, Andy Bullock, an independent consultant focusing on water in development, noted that the management of agricultural water for FDIs doesn’t sound distinctly different from agricultural water management in general. And there is an important truth to his statement, as this study has the potential to influence the policies and regulations far beyond FDI deals; there is hope that agricultural water management policies on a national level will be shaped and influenced.

For more information, see the initial findings here in English and French.

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How are foreign direct investments regulated in your country? Have you had success in regulating water management on foreign acquired agricultural land?