Rising commodity prices, global food security concerns drive increased investment in African farming

by Rafael Gomes

Rising commodity prices and growing global concerns over food security are driving increased investment in African commercial farming. Agricultural investment within the Southern African Development Community (SADC) is primarily driven by South Africa, which has the most advanced agricultural sector on the continent.

However, a lack of bilateral investment treaties between South Africa and most SADC countries and a lack of requisite land reform raises contract risks, including expropriation and contract revision. Foreign land ownership is impossible in most SADC member-states, requiring the need for free leases ranging from 50 to 99 years. Most leases are negotiated on an ad hoc and individual basis, thereby significantly raising contract risks.

Despite on-going efforts in some member-states to formalise land ownership on the basis of the western private-ownership model, most land deals will likely face risks of expropriation or contract revision in the five year outlook. In countries such as Namibia and South Africa, there are also growing risks of an acceleration of the transfer of agricultural land from white landowners to the indigenous population. South Africa recently proposed the Tenure System Reform Bill, expected to be tabled in March 2012, which aims to limit foreign and white ownership and to nationalise agricultural land.

According to farmers group Agri SA, almost 1,000 South African farmers are already producing crops in Namibia, Botswana, Malawi, Mozambique and Zambia, apart from extensive farming within South Africa itself. In total, some 22 African countries have already offered farming opportunities to South African farmers.

Other notable investors in the SADC include India, the GCC and China. Since 2008, China has begun investing some $800 million in Mozambican agriculture, with other key investments in Angola, Tanzania and Zambia.

Major international banks such as Standard Bank, ABSA and Standard Chartered, as well as some Chinese institutions, have expressed interest to fund such farming deals.

The Food Chain Blog

by Rafael Gomes

Rising commodity prices and growing global concerns over food security are driving increased investment in African commercial farming. Agricultural investment within the Southern African Development Community (SADC) is primarily driven by South Africa, which has the most advanced agricultural sector on the continent.

However, a lack of bilateral investment treaties between South Africa and most SADC countries and a lack of requisite land reform raises contract risks, including expropriation and contract revision. Foreign land ownership is impossible in most SADC member-states, requiring the need for free leases ranging from 50 to 99 years. Most leases are negotiated on an ad hoc and individual basis, thereby significantly raising contract risks.

Despite on-going efforts in some member-states to formalise land ownership on the basis of the western private-ownership model, most land deals will likely face risks of expropriation or contract revision in the five year outlook. In countries such as Namibia and South Africa, there are also growing risks of an acceleration of the transfer of agricultural land from white landowners to the indigenous population. South Africa recently proposed the Tenure System Reform Bill, expected to be tabled in March 2012, which aims to limit foreign and white ownership and to nationalise agricultural land.

According to farmers group Agri SA, almost 1,000 South African farmers are already producing crops in Namibia, Botswana, Malawi, Mozambique and Zambia, apart from extensive farming within South Africa itself. In total, some 22 African countries have already offered farming opportunities to South African farmers.

Other notable investors in the SADC include India, the GCC and China. Since 2008, China has begun investing some $800 million in Mozambican agriculture, with other key investments in Angola, Tanzania and Zambia.

Major international banks such as Standard Bank, ABSA and Standard Chartered, as well as some Chinese institutions, have expressed interest to fund such farming deals.

The Food Chain Blog

Afreximbank increases lending to African firms involved in agriculture

by Shaimaa Fayed

Egypt-based African Export Import Bank (Afreximbank) aims to boost its assets by 10 percent in 2010 to $1.6 billion with increased lending to African firms involved in agriculture, the bank's president said.

Jean-Louis Ekra said agriculture in Africa was being given a boost because of global concerns about food security that was pushing investment into the sector, and cited opportunities in countries such as Malawi. He also said business risks in Africa were often overstated by investors, and said he expected sturdy growth given the continent's 1 billion people, foreign exchange reserves in excess of $450 billion and agricultural potential.

"Historical data will show that less than 1 percent of the money that they (banks) lent in Africa was lost," he said. "More than 60 percent of the arable land of the world is here on our continent. The biggest challenge of the future ... is food, access to water. This continent has it. What is left for us is to turn this potential into reality," he said. "We've been doing more for certain countries like Malawi and doing more in certain items like fertilizers ... because the food crisis has made many more countries more interested in developing the agricultural sector," Ekra said in an interview.

Other sectors being eyed by the bank, which finances and promotes trade within and beyond Africa, include oil and telecoms, he said.

Trade finance experts have said the difficulty some poor African nations have in obtaining funding for their exports threatens their economic development.

"We still are not fully out of the so called financial crisis. It's very difficult for companies and for even banks to have access to the amount of funding that they want," he said, adding that his bank was seeking to help fill the gap.

Africa's trade in 2009 was around $900 billion, divided almost equally between imports and exports, Ekra said, adding that growth in trade was stalled by the private sector's lag in pushing for greater involvement in trade agreements.

"The private sector should as a bloc say 'look, we are not prepared to accept that (governments) go and sign an agreement that is not beneficial for us,'" he said, adding African trade delegations were often dominated by politicians not executives.

Reflecting growing appetite for African investments, he pointed to Afreximbank's $300 million five-year bond launched in Nov 2009 at a 9.125 percent yield, which was over five times oversubscribed.

Afreximbank, established in 1993, has authorized capital of $750 million. The bank's non-performing loan ratio averaged about 1 percent between 2004 and 2009, a statement from the bank said.

Its shareholders include African governments and private investors, and non-African financial institutions and its Egyptian clients include El Sewedy Cables, the largest Arab cable maker by market value, which supplies cables to various African countries.

Ekra said the biggest challenge facing African trade was the need to diversify exports beyond raw commodities such as cocoa to offset demand and price fluctuations on the global market.

Reuters

by Shaimaa Fayed

Egypt-based African Export Import Bank (Afreximbank) aims to boost its assets by 10 percent in 2010 to $1.6 billion with increased lending to African firms involved in agriculture, the bank's president said.

Jean-Louis Ekra said agriculture in Africa was being given a boost because of global concerns about food security that was pushing investment into the sector, and cited opportunities in countries such as Malawi. He also said business risks in Africa were often overstated by investors, and said he expected sturdy growth given the continent's 1 billion people, foreign exchange reserves in excess of $450 billion and agricultural potential.

"Historical data will show that less than 1 percent of the money that they (banks) lent in Africa was lost," he said. "More than 60 percent of the arable land of the world is here on our continent. The biggest challenge of the future ... is food, access to water. This continent has it. What is left for us is to turn this potential into reality," he said. "We've been doing more for certain countries like Malawi and doing more in certain items like fertilizers ... because the food crisis has made many more countries more interested in developing the agricultural sector," Ekra said in an interview.

Other sectors being eyed by the bank, which finances and promotes trade within and beyond Africa, include oil and telecoms, he said.

Trade finance experts have said the difficulty some poor African nations have in obtaining funding for their exports threatens their economic development.

"We still are not fully out of the so called financial crisis. It's very difficult for companies and for even banks to have access to the amount of funding that they want," he said, adding that his bank was seeking to help fill the gap.

Africa's trade in 2009 was around $900 billion, divided almost equally between imports and exports, Ekra said, adding that growth in trade was stalled by the private sector's lag in pushing for greater involvement in trade agreements.

"The private sector should as a bloc say 'look, we are not prepared to accept that (governments) go and sign an agreement that is not beneficial for us,'" he said, adding African trade delegations were often dominated by politicians not executives.

Reflecting growing appetite for African investments, he pointed to Afreximbank's $300 million five-year bond launched in Nov 2009 at a 9.125 percent yield, which was over five times oversubscribed.

Afreximbank, established in 1993, has authorized capital of $750 million. The bank's non-performing loan ratio averaged about 1 percent between 2004 and 2009, a statement from the bank said.

Its shareholders include African governments and private investors, and non-African financial institutions and its Egyptian clients include El Sewedy Cables, the largest Arab cable maker by market value, which supplies cables to various African countries.

Ekra said the biggest challenge facing African trade was the need to diversify exports beyond raw commodities such as cocoa to offset demand and price fluctuations on the global market.

Reuters

Zimbabwe's tobacco exports to Europe surge

Zimbabwe’s tobacco exports to the European Union in October registered a 45 percent growth for the month.  The Tobacco Industry and Marketing Board’s statistics show that seasonal exports to the EU were 23 192 tonnes, which it said was 45 percent higher than in the same period last year. Exports to the Far East were 12 343 tonnes, 25 percent firmer than 2009 levels in the corresponding period. China has bought 9 615 tonnes of Zimba-bwean tobacco since January 2010, representing a 32 percent increase from the previous year. Kenya, an emerging market, recorded a seasonal intake of 3 007 tonnes compared to only 79 tonnes in 2009. However, South Africa remains the largest buyer of local tobacco, accounting for 6 035 tonnes, or 49 percent of the region’s total purchases. Other significant volumes went to Sudan and Mozambique. The Middle East recorded a dramatic increase, with the United Arab Emirates becoming the third largest buyer of Zimbabwean golden leaf after the UK and China.  Dubai’s imports constitute 16 percent of the world’s total exports and 80 percent of the region’s consumption.

The Herald

Zimbabwe’s tobacco exports to the European Union in October registered a 45 percent growth for the month.  The Tobacco Industry and Marketing Board’s statistics show that seasonal exports to the EU were 23 192 tonnes, which it said was 45 percent higher than in the same period last year. Exports to the Far East were 12 343 tonnes, 25 percent firmer than 2009 levels in the corresponding period. China has bought 9 615 tonnes of Zimba-bwean tobacco since January 2010, representing a 32 percent increase from the previous year. Kenya, an emerging market, recorded a seasonal intake of 3 007 tonnes compared to only 79 tonnes in 2009. However, South Africa remains the largest buyer of local tobacco, accounting for 6 035 tonnes, or 49 percent of the region’s total purchases. Other significant volumes went to Sudan and Mozambique. The Middle East recorded a dramatic increase, with the United Arab Emirates becoming the third largest buyer of Zimbabwean golden leaf after the UK and China.  Dubai’s imports constitute 16 percent of the world’s total exports and 80 percent of the region’s consumption.

The Herald