Whether for profit or social motives - and often both - an increasing number of investors are targeting opportunities in African agriculture. At the same time innovative approaches for deploying aid to support farming businesses linked to smallholders are emerging. This blog provides a snapshot of who is doing what, where and how.

25 August 2010

African agricultural finance under the spotlight

Africa is turning into a fashionable post-crisis investment destination as investors regain their confidence and start to focus on the continent’s lack of direct involvement with the global market’s volatility drivers and trouble hotspots.

At the same time, bilateral and multilateral development agencies are actively investing via an assortment of public and private-sector channels; the international capital markets pipeline is building – sovereign debt offerings on the docket for Nigeria, Senegal, Tanzania, and Zambia with Libya believed to be looking – while the slew of private equity and hedge funds being raised this year for Africa are seeing healthy interest from public-sector and private LPs.

Rising levels of international investment capital in African agriculture and agribusiness have taken the investment thesis directly into the intensely political arena of global food security and land rights. It will remain there as long as food security remains a top agenda item for the likes of China, India, Saudi Arabia, UAE, South Korea and many others.

The notion of foreign investment in agriculture as a key to Africa’s food security, particularly when it is aimed at supporting smallholder agriculture and sustainable farming, is a relatively straightforward one. The acquisition of huge tracts of African agricultural land by foreign governments (directly or through sovereign wealth funds), and by multinationals, investment banks, hedge funds, private equity firms and speculators creates a slightly more convoluted picture.

The debate about large-scale African land acquisition by purchasers from all over the developed and developing world is well documented, and the pros and cons continue to be the subject of fierce debate. It’s either a cynical land grab that amounts to a new wave of exploitational colonialism or it’s the best opportunity Africa has had in decades to generate investment inflows that will fund lasting economic benefits.

The facts might help: Africa has about 12% of the world’s arable land but 80% of it is uncultivated, only 7% is irrigated (compared to 40% in Asia) and production yields are low. For all of the protestations of exploitation, the opportunity to develop and commercialise Africa’s abundant agricultural land offers a range of hugely compelling economic opportunities for Africa as well as for international investors. The issue is ensuring deals are structured properly. At the same time as international buyers need to respect principles of responsible investing, governments need to be more accountable, transparent and strategic in how they structure deals.

Full Reuters article here