You are currently browsing the monthly archive for October 2009.

courtesy AfromusingAgricultural investment is the one bright spot amid the gloomy outlook for FDI to developing countries as the recession drags on, according to the new World Investment Report 2009.  UNCTAD, which produces the report each year, predicts that agribusiness will be at the forefront of the next “FDI boom” as it is less susceptible to business cycles and slumps in demand than other sectors. 

FDI in agriculture brings with it the promise of direct government revenues (taxes, fees, royalties) along with jobs, market access, technology transfer and infrastructure.  On the other hand, large-scale investments and land transfers may threaten local rights, resource access and livelihoods.  Impacts may extend well beyond the actual project site if, for example, a big producer floods the national market and displaces existing small-scale suppliers. 

“Land grabs” have made plenty of headlines in 2009, but what is their real extent and impact?  One argument is that the phenomenon is exaggerated.  Recent land deals account for only 2-5% of suitable agricultural land in sample African countries, for example.  Many of giant deals such as the 10 million ha deal between the Republic of Congo and South Africa’s commercial farmers’ association Agri-SA, scheduled to be signed in October 2009, are likely in reality to involve development of much smaller contiguous areas.  Furthermore, most approved deals are yet to go into operation, raising the possibility that some at least are purely speculative.

But small total land areas do not mean low impact.  In spite of the common rhetoric that biofuels should – and will – be confined to “marginal” or “waste” land, the reality is that large-scale agricultural projects are targeting the best land.  In Mali, the national land registry shows that large-scale land acquisitions for biofuels and food over the past five years have been confined to the highest potential, irrigated lands.  These are the areas that are most likely to under existing uses and claims.

There are two key issues at stake.  The first is whether there is a place for large-scale agribusiness in the local and national economy – this is a question that every country needs to explore, preferably through open and wide-reaching public debate that weighs up the pros and cons honestly.  The second is that the actual substance of agricultural investment deals is key to long-term benefits and outcomes.  Liberia’s President Ellen Johnson Sirleaf, for instance, has been particularly alert to opportunities to renegotiate the terms of major natural resource contracts, leading to more equitable terms on taxation, transparency and local benefits in the country’s deals with ArcelorMittal and Firestone.

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According to conventional wisdom, there probably never was a great time to pay an unpredictable Latin American country with a dodgy debt reputation a lot of money not to sell a resource which your economy is dependent on. That was essentially the reaction of the majority of the international community when Ecuador´s President Rafael Correa first asked for international “compensation” not to exploit the estimated 960 million barrels of oil in the Ishpingo Tambacocha Tipituni oilfield, located deep in the heart of the Yasuni National Park. No amount of arguing about the benefits from protecting unrivalled biodiversity, isolated indigenous groups, or even the planet´s climate could move international governments to give Correa´s flagship environmental policy anything more than faint praise. So why, in the middle of recession, have the German government just made a concrete offer of $650m over the next 13 years?

In fact, the environmentalist arguments in favor of not exploiting the ITT have never been in doubt. What has changed is that Ecuador has made various compromises in order to transform the proposal from an environmentalist pipe dream to a viable alternative to an apparent development-conservation dilemma:

1 – Ceding a certain amount of autonomy to the financiers about the use of the money, be it in biodiversity conversation, renewable energies, or social programmes.

2 – Providing guarantees to investors, by selling bonds which would convert into debt with interest if any future government were to proceed with exploitation.

3 – Agreeing that the administration of any contribution would happen under the auspices of an international organization, possibly the Inter-American Bank.

4 – Accepting that governments and companies would only invest in the Yasuni-ITT if they could use it to offset their carbon emissions.

On the German side, the Government appears to be demonstrating that there is no inherent reason for governments to suddenly ignore environmental issues due to budget constraints. Beyond that, the willingness to put money into such an unconventional initiative demonstrates that governments can and should look beyond the short-term realities of the slump, and actually make investments in initiatives which do not simply entail a smooth return “business as usual” based on unbridled fossil fuel extraction.

The Yasuni-ITT Initiative is unprecedented for so many reasons, but perhaps the most interesting is that it threatens to marry an unlikely couple: carbon trading, and the non-extraction of fossil fuels. If we consider that the most consistent criticism of carbon trading is that it perpetuates a fossil-fuel based economy, it becomes clear that the Ecuadorian Government has taken the concept, and given it new significance. It is still early days, and Ecuador will be hoping to lure substantial new investment before exploitation can be explicitly ruled out. Nevertheless, in pushing the climate change debate towards a focus on non-resource extraction as the only secure way to ensure environmental security, the Ecuadorian and German governments have pointed the way towards a fundamentally new way of resolving the world’s environmental problems.

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