New wave of foreign investment in Africa

1. New wave of foreign investment in Africa Carin Smaller, IISD 7 October 2010 Email: carinsmaller@gmail.com

2. Facts and figures What is different about this new wave of investment? Key problems: Land rights, water, employment, development World Bank case studies The legal implications and consequences The missing pieces What is the way forward? Overview

3. Facts and Figures 46.6 million hectares of land allocated to foreign investors in 11 months after the food crisis, from October 2008–September 2009 (two-thirds in Africa, 32 million hectares) Source: farmlandgrab.org The total area is greater than the arable land in France, Germany, United Kingdom and Italy, combined.

5. Facts and figures: country overview Source: World Bank. These statistics cover the period 2005-2009 and data was collected by the World Bank. Information is often incomplete.

6. Facts and figures Purpose? Food crops (37%), cash crops (21%), biofuel crops (21%) Actors? Governments concerned with food security (Gulf states, Japan, China, Korea and India) and private investors (agribusiness, industry, financial sector, investment funds and sovereign wealth funds) What stage? production (21%), initial development (30%), approved (18%), exploratory (30%)

7. What is different about this new wave? For the last decade, average land expansion was 4 million hectares per year. In 2009 alone, there were reported deals of 45 million hectares. The focus is Africa because of the perceived abundance of land and water. There is a new group of investors. Investors are targeting countries with weak laws relating to land title and ownership.

8. Key Problems Land rights Access to water: investors securing rights to water potentially at the expense of communities Employment: very low level of job creation Development: no link to broader development strategy Lack of information and consultation with communities Particularly negative effects on women Compliance with domestic laws: Environmental impact assessments (EIAs) Incentives undermine investment and encourage speculation

9. World Bank case studies • Success: rubber, coffee and cacao investment in DRC; agricultural investment in Tanzania • Problems: major conflicts with communities in Zambia, Liberia and Mozambique; rice project in Liberia displaced 30 percent of the local population. • Resistance: Mozambiquecancelled a project to produce sugarcane for ethanol

10. The Legal Implications Three sources of relevant law: domestic law, investment contracts, international investment agreements (IIAs) DILEMMA: weak domestic laws to protect people’s land, water and labour rights and the environment versus hard contractual rights and arbitration mechanisms for foreign investor under investment contracts and IIAs

11. …consequences • Investors may acquire rights to water, natural resources, land tenure and to export all products (“legitimate expectation”). • Investors may be able to avoid complying with new domestic regulations or be entitled to compensation when new regulations come into force (stabilization clause). • Investment treaties may require liberalization commitments, which means foreign investors must be treated the same as domestic investors, including being allowed to purchase land (“pre-establishment rights”). • Investment treaties may prohibit the imposition of performance requirements (hiring local workers, using local inputs, selling to local markets, etc…)

12. The world responds • Principles for Responsible Investment in Agriculture (World Bank, FAO, IFAD and UNCTAD) • Principles to address the human rights challenge of large-scale land acquisition (Special Rapporteur on the Right to Food) • Roundtables on Responsible Investment (Japan, U.S., African Union) • Research: World Bank, FAO, UNCTAD, IFAD, IIED, ROPPA, FIAN, GRAIN, Oakland Institute • Investor conferences: HighQuest Partners and Soya Tech • eDiscussion (IISD and Global Donor Platform) • Civil Society dialogue on large-scale land acquisition (ILC, ActionAid, AFA, ROPPA, COPROFAM)

13. The missing pieces • The World Bank • IFC/FIAS promotes deregulation of land markets and investment in land: “Facilitating the Land Market for Investment” • Developed country governments • OECD countries pushing FDI liberalization: Switzerland, Japan, etc. • U.S. Millennium Challenge Corporation (Madagascar, Mali, Mozambique), but USAID taking a different approach. • Investors and investment contracts • Still no clear list of names and their interests • Still no access to contracts and no transparency in negotiating process

14. The way forward Mobilizing parliamentarians, government officials, ministries Access to information: Freedom of Information Act? transparency initiatives Improved land and water governance Research into investors Different opportunities for investment in agriculture that focus on farmers NOT farmland

15. What can IISD do? • IISD can help to organize an expert seminar for government officials and/or parliamentarians on the following topics: (1) Options and alternatives for foreign investment in agriculture (including an overview of different types of investment projects, lessons learned, best practices, and case studies) (2) Understanding the international legal framework for investment in agriculture (implications of Bilateral Investment Treaties [BITs] and other International Investment Agreements [IIAs] for agricultural projects) (3) Key elements for drafting a model investment contract