FOREIGN INVESTMENTS IN FARMLAND

MAKING AGRICULTURAL INVESTMENTS WORK FOR AFRICA:a parliamentarian’s response to the land rush

Kigali, 26-27 April, 2013

IN EAST AFRICA

Sue Mbaya Consultant, Land Policy Initiative

CONTRIBUTION OF LAND TO GDP

45.10%

32.00%

14.90% 8.00%

Contribution to GDP in East Africa (%)

ServicesAgricultureIndustry (Mining, Quarrying & Construction)Manufacturing

WHY FOREIGN INVESTMENT IN AGRICULTURE

• Historic under-investment in agriculture

• Regional commitments not achieved:

– 2003Maputo Declaration – 10% of budgets

– CAADP – 6% annual growth in agriculture

• Resulting gap between required investment and

domestic allocations

INVESTOR MOTIVES

• To address food insecurity concerns

• In search of renewable sources of energy

• Expansion of industries (mining, timber)

• Maximizing investments (low land rentals, cheap

labour, attractive incentives)

OVERVIEW OF INVESTMENTS Where

Kenya

Tanzania

Uganda

Rwanda

Burundi

What

Forestry

Biofuels

Food

WhoBelgium

Canada, Germany, Japan, Netherlands,

Norway, Switzerland,

Sweden, United Kingdom, the USA

Bangladesh, India, Qatar, Korea,

Singapore

Local investors

OVERVIEW OF INVESTMENT PROJECTS Burundi Kenya Rwanda Tanzania Uganda

Number of deals

15 3 15 4

Total area 705,388 15,150 576,024 80,000

Uses •Mining•Agriculture

(biofuels and food)

•Agriculture •Agriculture • Forestry

•Agriculture• Forestry

15; 42%

3; 8%4; 11%

14; 39%

Distribution of Land Based Investments in East Africa (hectares)

Kenya Rwanda

Uganda Tanzania

WHO IS INVESTING? HOW?

BelgiumCanada, Germany,

Japan, Netherlands, Norway, Switzerland,

Sweden, United Kingdom, the USA

Bangladesh, India, Qatar, Korea, Singapore

Local investors

Pvt foreign investor → government

Pvt foreign partnership → government

Pvt/local partnership → government

Local investors → government

HOW IS THE LAND USED

What

What

Forestry

Biofuels

Food99%

1%

}}

Burundi Kenya Rwanda Tanzania Uganda

Institutions • Kenya Investment Authority

• Land Control Board

• Export Processing Zone Authority

• Rwanda Development Board

• Tanzania Investment Center

• Export processing Zone Authority

• Uganda Investment Authority

• Uganda Carbon Bureau

Relevant Law/Policy

2005 Constitution

• Investment Law

• 2005 Land Law

• 2005 Organic Land Law

• Kalimo Kwanza (Agriculture First Policy)

Zones Export processing Zone

• Export Processing Zone

• Southern Agricultural Growth Corridor

POLICY BASIS FOR INVESTMENTS

INCENTIVES FOR INVESTORS Burundi Kenya Rwanda Tanzania Uganda

Taxes Income, property and construction taxes exempt for up to 8 years

•EPZ investors•10 yr tax holiday•Reduced taxes for 10 yrs•Exempt for oil related investments

VAT and income tax breaks

• Tax holidays• Exempt from

Corporate tax on profits

•Tax holidays up to 10-20 years•Withholding tax on plant and machinery

Remittance of proceeds

Permits to investors to remit

Repatriation permitted

Other exemptions

Protection from acquisition

No exchange controls

Protection from acquisition

Duties for diesel and agricultural equipment

•Duty on plant, machinery and other inputs •Stamp duty •Duty draw back (refund of duty on materials)

BENEFITS OF INVESTMENTS

Marginal gains:

• Employment – generally low paying, seasonal jobs

• Little evidence of foreign currency earnings and

technology transfer

IMPACTS OF INVESTMENTS (1)

Human rights considerations of investments highlighted by United Nations Human Rights Council:

• rights of land users • right to food• right to development • right to self determination • human rights of agricultural workers

need a clear set of foundational principles which guide investments and define accountabilities for parties involved

IMPACTS OF INVESTMENTS (2)

Alienation of landholdings from communities:

• Losses extend beyond land (livelihoods, way of life)

• Rights of women and pastoralists v. vulnerable

• De facto changes in tenure

• Communities not compensated fully

IMPACTS OF INVESTMENTS (3)• Incentives to investors accompanied by revenue losses

Case Study: The AgriSol Deal

325,000 ha• exemption from customs duties on all agricultural inputs• exemption from value-added tax (VAT) on all imported inputs• Exemption from value added tax on unprocessed agricultural produce• guaranteed transfer of net profits or dividends of the investment• Guaranteed remittance of net proceeds• ?Strategic Investor Status? – then exemption from the corporate tax (30% of net profits)

Investment: $100 million over a 10 year periodNet protfis from corn ONLY on 200,000 ha - $272 million a year

» Incentives may imply substantial unattained revenue for the government

Source Oakland Institute, 2011

• Smallholder farmers are marginalized

• Risks for the environment – EIA often not conducted– soil degradation, deforestation, loss of biodiversity– water depletion – use of marshlands for investments (Kenya, Rwanda)

to achieve positive agricultural investment, provisions and incentives to protect the environment and to encourage sustainable agriculture are required

IMPACTS OF INVESTMENTS (4)

PRIORITY ACTIONS FOR PARLIAMENTARIANS

Priorities for lawmaking:

• alignment of laws and policies to the F& G principles: democratization, transparency, good governance, popular participation, equity, poverty eradication, subsidiarity, gender equity and sustainability

• alignment to continental land processes – F&G– Nairobi Action Plan – ADB

Priorities for oversight:

• Access to timely, accurate information

• Improved governance of investments– scrutiny of contracts – legally binding social and environmental commitments and

accountabilities for all parties

• Implementation of global, regional and national human rights conventions

• Political will for addressing underlying issues

• Compliance with practices that ensure sustainability

PRIORITY ACTIONS FOR PARLIAMENTARIANS (2)

Priorities for representation:• Protection of community interests – facilitate empowerment of communities (to negotiate, to

represent own interests, to monitor)– advocate for marginalized groups

• protect from unlawful evictions • provide ‘voice’

– monitor implementation of investments for compliance with contracts and regulations

PRIORITY ACTIONS FOR PARLIAMENTARIANS (3)