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.

1 March 2012

Why good project development matters in the land grabbing debate

It doesn’t make for exciting headlines, but good project development may be the best way of ensuring that private investment in African agriculture benefits local communities.

Project development is the set of activities required to take a project from the concept stage to the point at which investment has been secured and implementation can begin. Using the language of finance, project development is about making an investment opportunity “bankable”.

Project development is important because it reduces the upfront risks of greenfield agriculture projects. If done properly it demonstrates to potential investors that a project can deliver a stable financial return (e.g. by proving that good crop yields can be achieved and there is a reliable market).

Good project development should also involve structuring deals such that benefits are equitably shared between investors, the local community and the host country government. Failure to get this right will undermine a project's long-term sustainability. Managing environmental impact is also key.

There are no short-cuts. Project development is expensive – often 10% of the total project cost – and can take 2-3 years or more. It needs to be undertaken by a team with the right mix of agronomic, financial, legal and engineering skills. The unexpected often happens and project developers need to be prepared for a long haul.

Where investors have been accused of “land grabbing” it is often because of bad project development usually involving a failure to properly consult and gain the consent of the local community, who in some cases are sidelined when governments or local authorities allocate land directly to investors.

But in many situations projects do not even get out of the starting blocks. The project development process is seen as too risky and expensive given the complex technical, social and environmental challenges involved. The result is that many potentially viable projects never get beyond the concept stage and Africa’s agricultural potential remains unfulfilled.

AgDevCo believes there is a strong case for public subsidy of project development in the African agriculture sector. Firstly, this would allow more “bankable” projects to be developed in situations where private capital was unwilling to take the first step. Secondly, because public subsidy would come with strings attached, it could be used as a tool to ensure projects were designed to maximise smallholder farmer and community benefits.

The way to address "land grabbing" is not to put a moratorium on all foreign investment into African agriculture, as some campaigning groups have called for. Instead a way must be found of ensuring that project development is done properly and benefits are shared with local communities.

AgDevCo is a project development company operating in the African agriculture sector funded by donor agencies and philanthropic organisations. Acting as principal it invests its capital to develop greenfield and early-stage agriculture businesses. Success for AgDevCo involves attracting private capital into projects (at financial close) that are profitable and guarantee long-term sustainable benefits for smallholder farmers and local communities.