Foreign investors are slowly making their way to African shores, with the region fast emerging as one of the world’s most attractive postcrisis investment destinations.
“Africa is turning into a fashionable post-crisis investment destination as investors regain their confidence and start to focus on the continent’s lack of direct involvement with the global market’s volatility drivers and trouble hotspots,” Keith Mullin, editor-at-large of Thomson Reuters’ International Financial Review, says, adding that Africa offers one of the most sought-after commodity nowadays: agricultural land.
Mullin predicts that Africa’s standing in the U.N.’s World Investment Report could soon rise.
“In its World Investment Report 2010, [the United Nations Conference on Trade and Development] noted that Africa still trails at the bottom of future investment destinations relative to the rest of the world,” he says. “But that could be about to change as foreign governments and private investors reset their investment horizons and start to look at Africa from a different perspective.”
But the increasingly growing interest foreign investors are showing Africa and its agricultural wealth is not without controversy, Mullin observes. In fact, the pros and cons of large-scale land acquisitions in the continent and the increasing participation of multilaterals and bilaterals in private equity funds are common subjects of “fierce debate” worldwide.
On land acquisitions, Mullin says the debate is on these being “either a cynical land grab that amounts to a new wave of exploitational colonialism or it’s the best opportunity Africa has had in decades to generate investment inflows that will fund lasting economic benefits.”
Mullin appears to take the latter view.
“For all of the protestations of exploitation, the opportunity to develop and commercialize Africa’s abundant agricultural land offers a range of hugely compelling economic opportunities for Africa as well as for international investors. The issue is ensuring deals are structured properly. At the same time as international buyers need to respect principles of responsible investing, governments need to be more accountable, transparent and strategic in how they structure deals,” he writes.
Mullin observes that aside from large-scale land acquisitions in Africa and the launch of international initiatives to boost local private small shareholder farming, investments in Africa’s agriculture development also come in the form of development agencies’ participations in private equity firms.
“The volume of cash being channeled into third-party Africa private equity funds is impressive,” he observes.
But here lies another subject of debate, he adds.
“The extent to which the development motive sits comfortably with the pure profit motive has long been a topic for debate,” Mullin argues. “MDBs and bilateral development agencies need to be transparent about this aspect of their business. They should publicize the returns they generate from investment in third-party vehicles, and be clear about what they do with those returns. Excess returns should either be re-invested back into the businesses they’re financing or be put into some form of profit-sharing with local stakeholders and communities.”