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COMCEC ANKARA 19 DECEMBER
INVESTMENT CONSULTING ASSOCIATES - ICA Amsterdam | Belfast | Boston | Dubai | Hyderabad | Johannesburg | Kuala Lumpur | Mumbai | Miami | New York
A New Generation in Strategy Consulting
1
CONTENTS
Introduction Study
Current State of Agriculture
Mechanisms and Drivers of FDI
Agricultural FDI Assessment
Case studies
Recommendations and Q&A
A New Generation in Strategy Consulting
PART I Presented by Mr. Matthijs Weeink
PART II Presented by Mr. Charles Krakoff
2
INTRODUCTION TO STUDY
A New Generation in Strategy Consulting
3
INTRODUCTION TO THE STUDY
Agriculture is one of the cooperation areas within COMCEC and of strategic importance for many COMCEC Member Countries:
How can agricultural Foreign Direct Investment (FDI) be encouraged among COMCEC Member Countries to make sure that host economies benefit from the positive aspects and mitigate potentially negative risks as much as possible?
A New Generation in Strategy Consulting
Food security Agricultural Employment Agricultural Trade Agricultural Productivity
4
REPORT STRUCTURE
This study examines the current agricultural state of the COMCEC Region and looks into the motives and drivers why corporate engage in FDI and more particular the agricultural FDI projects in COMCEC Member Countries with underlying facts and figures. Case studies and further estimates on potentials for agricultural FDI resulted in a list of policy measures and recommendations.
A New Generation in Strategy Consulting
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UNCTAD FDI DATA – FDI DATA PRESENTED AS MONETARY FLOWS
Foreign Direct investment (FDI) is investment made to acquire a lasting interest in or effective control over an enterprise operating outside of the economy of the investor.
FDI net inflows are the value of inward direct investment made by non-resident investors in the reporting economy, including: – Reinvested earnings and
– Intra-company loans,
– Net of repatriation of capital and
– Repayment of loans.
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FIRM LEVEL FDI DATA
Firm level data includes only those FDI projects that generate economic value (i.e. new jobs, invested capital expenditure in land, facilities, machinery, etc.)
FDI project data consist of the following types of FDI projects: – Greenfield Investment (a new operation)
– Brownfield Investment (expansions or re-investment in existing foreign affiliates or sites)
– New forms of Investment (joint ventures, strategic alliances, licensing and other partnership agreements), only when they lead to a new physical (Greenfield or Brownfield) operation
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CURRENT STATE OF AGRICULTURE
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PERCENTAGE OF THE URBAN AND RURAL POPULATION IN THE COMCEC, DEVELOPING COUNTRIES, AND THE WORLD (2012, PERCENT)
A New Generation in Strategy Consulting
Source: SESRIC, 2013
53,7 54,2 49,6
46,3 45,8 50,4
0
10
20
30
40
50
60
70
80
90
100
COMCEC Countries Developing Countries World
Urban
Rural
9
SIZE OF THE AGRICULTURAL POPULATION IN 2000 AND 2010
A New Generation in Strategy Consulting
Source: SESRIC, 2013.
42,3
49,0
42,2
36,2
43,9
38,0
30%
35%
40%
45%
50%
COMCEC Member Countries Developing countries World
2000
2010- 14%
- Largest decline in agricultural population in the COMCEC Member Countries
10
AGRICULTURAL LAND USE IN 2012
Countries
Total Land Area
Agricultural area Arable Land Permanent Crops Permanent Pasture
Million Hectare
Million Hectare
% of Land Area
Million hectare % of
agricultural area
Million hectare % of
agricultural area
Million hectare % of
agricultural area
COMCEC
3,129 1,392 44.5 293 20.7 55.2 3.8 1,043 75.7
Developing
9,767 4,160 38.6 942 27.1 118 3.4 3,091 69.6
World
13,003 4,911 37.6 1396 28.3 153 3.1 3,358 68.7
A New Generation in Strategy Consulting
Source: Author’s own calculations using FAOSTAT 2013
- Comparative advantage in Permanent Pasture - Relatively low amount of arable land
11
AVAILABLE WATER RESOURCES
Region Agricultural
land
Average Precipitation
in depth (mm/yr)
IRWR (km3/yr)
ERWR (km3/yr)
TRWR (km3/yr)
TRWR / Capita
(m3/yr)
Dependency Ratio (%)
COMCEC 1,415 48,471 5,378 2,487 7,865 4,759 32%
World 4,889 207,574 42,370 12,004 54,374 7,974 22%
COMCEC as % of
World 28.9 23.4 12.7 20.7 14.5
A New Generation in Strategy Consulting
- Acute shortage of Internal Renewable Water Resources, low Total Renewable Water Resources and relatively high Dependency Ration (i.e. high reliability on External Renewable Water Resources)
12
TOP 10 COUNTRIES WITH LOWEST TRWR
COMCEC Member Country TRWR (m3/capita/year)
Kuwait 7.09
United Arab Emirates 19.0
Qatar 31.0
Yemen 84.7
Saudi Arabia 85.5
Bahrain 87.6
Maldives 93.85
Libya 109.0
Palestine 201.6
Algeria 324.3
A New Generation in Strategy Consulting
Source: FAO. 2013. AQUASTAT database, Food and Agriculture Organization of the United Nations (FAO).
13
IRRIGATION TECHNIQUES
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61,570 (93%)
2,989 (5%) 1,568 (2%)
surface irrigation(1000 ha)
sprinkler irrigation(1000 ha)
localized irrigation(1000 ha)
Surface irrigation
Localized irrigation
Sprinkler irrigation
14
FERTILIZER USE PER HECTARE OF ARABLE LAND (2000 - 2011)
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0
20
40
60
80
100
120
140
160
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
KG
s /
He
ctar
e
COMCEC Member Countries Developing Countries World
- Gap between COMCEC Member Countries and the Developing Countries as well as the rest of the world is widening
15
PRODUCTIVITY PER HECTARE (2000 – 2012)
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1,5
2
2,5
3
3,5
4
2000 2002 2004 2006 2008 2010 2012
Pro
du
ctio
n p
er
he
acta
re (
ton
s)
COMCEC Member Countries World
16
AGRICULTURAL GDP BY COMCEC SUB-REGIONS (1990 - 2011)
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0
10
20
30
40
50
60
70
0
100
200
300
400
500
600
700
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
%
Bill
ion
US
Do
llars
Asian Group (left)
Arab Group (left)
African Group (left)
Asian Group (right)
African Group (right)
Arab Group (right)
Source: COMCEC Agriculture Outlook 2013; FAO Online database, 2013.
17
COMCEC MEMBER COUNTRIES AMONG THE WORLD TOP 20 PRODUCERS PER COMMODITY (2010)
Commodities Cocoa Coffee Cotton Maize
Natural
Rubber
Palm
Oil Rice Soybean
Sugar
Beet Tea Wheat
Afghanistan 20
Bangladesh 4 11
Burkina Faso 14
Cameroon 6 14 13
Cote d'Ivoire 1 11 8 8
Egypt 12 13 12 15
Gabon 20
Guinea 17 19
Indonesia 2 4 8 2 1 3 10 7
Iran 18 14 10 14
Kazakhstan 18 10
Malaysia 13 3 2
Mozambique 20 18
Nigeria 4 13 10 9 3 18 11
Pakistan 4 18 12 6
Sierra Leona 16
Syria 8
Tajikistan 17
Turkey 7 12 6 5 8
Uganda 19 12 13
Uzbekistan 6 18
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Source: SESRIC.
18
AGRICULTURAL TRADE BALANCE IN THE COMCEC SUB-REGIONS (2012)
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11,5 17,7
82,9
112,1
13,5
82,4
63,9
159,9
-2
-64,7
19,0
-47,8
-100
-50
0
50
100
150
200
African Group Arab Group Asian Group OIC
Export (in bn USD)
Import (in bn USD)
Trade Balance (in bn USD)
19
PERCENTAGE POPULATION UNDERNOURISHED WORLD MAP
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INVESTMENTS ARE NEEDED TO INCREASE PRODUCTIVITY LEVELS AND REDUCE THE PERCENTAGE OF UNDERNOURISHED POPULATION
20
MECHANISMS AND DRIVERS OF FDI
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INTERNAL CRITERIA SHAPING FDI DECISIONS
Internationalization is strategic
We have to internationalize or die
All bets are off tomorrow
Our competitors are already doing it
Only a few players will survive
Bigger is better
We have to take positions now
There are only a few interesting
targets left
Our home market is too small
Our home market is saturated
Eat or be eaten
Foreign competitors are entering our
home market
We need to be where the market is
It is key to have global access to clients
We need to be international from the start
It is too risky to depend on the home
market alone
We are just following our
clients – they are international
Source: From Local Champions to Global Masters 2001 by Paul Verdin and Nick van Heck
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Exploiting different factor endowments Supply chain optimization
Market seeking Resource seeking
Efficiency seeking Strategic-asset seeking
Enhancing synergies (i.e. technology, marketing channels and management expertise
Raw materials, Energy sources
following customers, suppliers or competitors abroad
STRUCTURING FDI DRIVERS
Companies take risk but evaluate alternative investment locations to optimize their return on investment
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LIST WITH INTERNATIONALIZATION MODES – WHERE TRADE MEETS FDI
Export
Licensing/Franchising
Foreign Direct Investment
Joint venture/Alliances
Cross border M&A
Greenfield FDI
Dep
th o
f in
volv
emen
t in
fo
reig
n m
arke
ts
Investment volume
Licensing / franchising
Export
Cross border M&A
JV / Alliance
Greenfield FDI
High Low
Low
High
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ADVANTAGES AND DISADVANTAGES OF DIFFERENT MODES OF FDI
Mode (including definition) Advantages Disadvantages
Cross-border M&A
To establish a wholly owned affiliate by acquiring (or merging with) an existing firm in a foreign market
• Quick access to the market
• Benefit from existing clients and sales channels
• Difficult to find the right target
• Possible governmental intervention / politics
• Management challenge – high risk of conflicts
A New Generation in Strategy Consulting
Mode (including definition) Advantages Disadvantages
Greenfield FDI:
To establish from scratch an operation entirely, in a foreign country
• Full ownership and control
• Strong signal to customers and other stakeholders
• Incentive potential
• Circumvent duties and customers
• Significant investment costs
• Requires time, resources and knowledge about local market
• Management control foreign operations
Cross-Border Merger & Acquisition as FDI Mode
Cross-Border Greenfield FD as FDI Mode
25
UNDERSTANDING THE CORPORATE INVESTMENT PROCESS
Implementation
Co
nsu
ltant
Clien
t
Prepare site visits Prepare discussions
with relevant governments and service providers
Incentive negotiations Real estate transaction and
acquisition support
Input cost model
Real estate support
Phase 2 Phase 1 Phase 3 Phase 4 Phase 5
Site visits
Resources for site visits
Define real estate objectives and accommodation needs
Define project and goals
Business requirements
Project
definition &
understanding
of strategy
Comparison of costs Analysis and
comparison
of locations
Project assumptions
Set up cost model Cost differentials
between locations
Determine geographic scope
Selection of location factors
Weighting location criteria
Data gathering Build model for location
analysis Present rankings of
locations Sensitivity analysis Exploration of incentives
Strategic Assessment Location Screening,
modeling &
benchmarking
Cost
comparison Community
Evaluations
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TOP LOCATION DETERMINANTS: PERCENTAGE OF PROJECTS CITING INVESTMENT MOTIVE
A New Generation in Strategy Consulting
Source: fDi Intelligence from The Financial Times Ltd, Sample: 58 projects.
44,4
25,9 20,4 18,5
13 11,1 7,4 5,5 3,7 3,7 3,7
Do
mes
tic
Mar
ket
Gro
wth
Po
ten
tial
Re
gula
tio
ns
or
bu
sin
ess
clim
ate
Nat
ura
l Re
sou
rces
Pro
xim
ity
to m
arke
tso
r cu
sto
mer
s
Infr
astr
uct
ure
an
dlo
gist
ics
Low
er C
ost
s
Skill
ed w
ork
forc
eav
aila
bili
ty
Pre
sen
ce o
fSu
pp
liers
or
JV…
IPA
or
Go
vt s
up
po
rt
Fin
ance
Ince
nti
ves
or
Taxe
s o
r Fu
nd
ing
Oth
er M
oti
ve
27
LOCATION FACTORS USED TO EVALUATE DIFFERENT INVESTMENT ALTERNATIVES
FDI determinant Site selection consideration Cost factors Quality factors Economic conditions Labour Labour Potential to recruit local staff
Flexibility of labour environment
Infrastructure Electricity Power supply
Water Water supply
Telecommunications and broadband Telecommunications and Internet
Internet Availability and reliability of shipping transportation
Natural gas
Freight shipment
Real estate Real estate Availability of land, office space, building and sites
Construction
Office space
Living conditions None Schools, safety, healthcare, etc.
Access to markets None Size of local market
Proximity to raw materials, components and equipment
Host country policies Macro policies None Access to foreign exchange
Legal and regulatory framework
Private sector Cost of finance Clear, stable and predictable policies
Efficient financial markets
Trade and industry Import duties Openness of economy to trade
Export duties Regional integration and access to markets
FDI policies None Ease of entry
Restrictions on land ownership
Investment protection and incentives
Transparent and stable policies
Investor strategies Business environment None Political, financial and economic stability
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BREAKDOWN OF COST (LEFT) AND QUALITY (RIGHT) MOTIVATIONS FOR FOOD & BEVERAGE FDI
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Prioritized Cost factors Prioritized Quality factors
Source: MIGA 2007
29
ROLE OF INCENTIVES IN ATTRACTING FDI
Orthodox: Incentives have little or no effect on investment decisions and their location;
Traditional: It’s all about the incentives. They are the key driver behind investments; and
Mixed: Incentives do matter, but it very much depends on situation, type and structure.
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WHY ARE THEY PROVIDED?
To overcome a competitive weakness such as high costs or weak business climate (so-called site equalization outlays);
To promote investment in deprived areas by offering incentives in poorer areas;
To attract particular industries by offering them incentives to invest;
To correct for market failures in the provision of capital and risk-taking of companies; and
To change the image of a location to make it pro-business.
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IMPORTANCE OF SOFT FACTORS
How Many Stops in a One-Stop Shop?
In seeking to establish a one-stop shop, first instincts are often to bring together representatives of different government agencies into one place. This is often described as the “one door” or “one roof” approach.
If, on going through the “one door,” the customer finds not several counters, but just one (or several, of which he can go to any one), this is a different type of organization: a “one window” or “one table” approach.
Online facilitation (in English)
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POTENTIAL FOR AGRICULTURAL FDI
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Source: Suleman (2009)
33
SUITABILITY – BASED IN INPUT FACTORS
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Total Renewable Water Resources (km3/year, 2012)
Arable Land (2012, percent) Labour Force (2012, percent)
34
ABILITY - COMCEC MEMBER STATE RANKINGS IN 2013 WORLD BANK DOING BUSINESS INDICATORS
Lowest Tier (rank) Middle Tier (rank) Upper Tier (rank)
Indonesia 128 Azerbaijan 67 Malaysia 12
Nigeria 131 Kyrgyzstan 70 Saudi Arabia 22
Bangladesh 132 Turkey 71 UAE 26
Palestine 135 Brunei 79 Qatar 40
Sierra Leone 140 Kuwait 82 Bahrain 42
Tajikistan 141 Albania 85 Kazakhstan 49
Sudan 143 Maldives 95 Oman 50
Syria 144 Morocco 97 Tunisia 50
Iran 145 Jordan 106
Mozambique 146 Pakistan 107
Gambia 147 Egypt 109 *Somalia: not ranked
Mali 151 Guyana 113 * Libya: not ranked
Algeria 152 Lebanon 115 * Turkmenistan: not ranked
Burkina Faso 153 Yemen 118
Uzbekistan 154 Uganda 120
Togo 156
Comoros 158
Cameroon 162 Djibouti 171 Guinea-Bissau 179
Suriname 165 Iraq 171 Chad 184
Senegal 166 Benin 175
Mauritania 167 Niger 176
Afghanistan 168 Côte d’Ivoire 177
Gabon 170 Guinea 178
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DIFFERENT NEED FOR DIFFERENT TYPES OF FDI AMONG COMCEC MEMBER COUNTRIES
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Stage I – Low Income
Dependent position
Stage II – Medium Income
Self sufficient Stage III – High Income
Independent position
Domestic production &
Necessary Imports
Domestic production &
Import substitution production
Domestic production &
Sufficient Import and/or Global Export Production
Foreign Direct Investment (FDI)
Process Driven FDI Increase Primary Productivity
Capital Driven FDI Increase Value addition
R&D Driven FDI Knowledge addition
International Trade
36
AGRICULTURAL FDI ASSESSMENT
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SCOPE AND SAMPLE OF OUR AGRICULTURAL FDI ASSESSMENT
Agricultural Main Sectors and related Sub-Sectors
Animal production (main sector) Crop production (main sector)
Animal slaughtering & processing (sub-sector) Animal husbandry (sub-sector)
Dairy products (sub-sector) Plant production (sub-sector)
Other agricultural sub-sectors included in this analysis
Lime & gypsum products Medicinal & botanical
Grains & oilseed Other (Beverages)
Coffee & tea Other rubber products
Leather & hide tanning and finishing Pesticide
Grains & oilseed Fertilizers & other agricultural chemicals
Food services Fruits & vegetables & specialist foods
Food (all other) Sugar & confectionary products
Seafood products Tobacco
Wood products
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EXAMPLE OF AN AGRICULTURAL FDI PROJECT
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Example of a landmark FDI deal in Cameroon
Biopalm Energy subsidiary of Siva Group into Cameroon
In line with the objective of diversifying into high-growth sectors, SIVA Group’s foray into large-scale agriculture viz., oil palm plantations through its associate Biopalm Energy, has seen substantial progress within the first two years of inception. In August 2011 Biopalm Energy (India) invested $1,907.24 million in Cameroon in the food & tobacco sector in a manufacturing project. The company is planning to establish a 200,000 hectare palm oil plantation in the south of Cameroon, as part of a joint venture with the National Investment Corporation of Cameroon. The 1.9bn investment is expected to yield 80,000 tonnes of palm oil within its first five years of production. - Sub sector: Crop production - FDI Project type: New / Greenfield from India into Cameroon
Biopalm Energy has been focusing on developing green-field oil palm projects and acquiring existing palm plantations in Africa [mainly Liberia, Sierra Leone, Côte d'Ivoire, Democratic Republic of the Congo, Cameroon and Mozambique], Asia [Indonesia and Papua New Guinea] and South America. Further information on their Website: www.svl.co.in
39
WHAT ARE THE ECONOMIC DEVELOPMENT GAINS BY AGRICULTURAL FDI?
Headline
Number of FDI projects 371
Total jobs created 115,910
Average project size (jobs) 312
Total capital investment USD 45.2 billion
Average project size USD 121 million
Share of Global projects 0.3%
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NUMBER OF AGRICULTURAL FDI PROJECTS BY YEAR AND DESTINATION WORLD REGION
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10
11
10
13
14
20
20
13
20
14
11
3
5
7
9
14
14
14
13
22
4
3
2
5
2
4
2
6
7
1
7
1
3
2
2
5
5
2
2
1
1
2
1
1
3
4
2
3
4
6
4
3
1
1
2
1
1
6
2
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Western Europe Asia-Pacific North America
Middle East Africa Other source world regions
Source: fDi Intelligence from The Financial Times Ltd
41
WHERE ARE ALL AGRICULTURAL FDI INVESTMENTS IN COMCEC MEMBER COUNTRIES COMING FROM?
Source world region
No of projects
Jobs Created Capital investment
Total Average Total
(USD) m) Average
(USD) m)
Western Europe 145 29,647 204 9,101.40 62.80
Asia-Pacific 112 51,240 457 21,235.90 189.60
North America 36 11,448 318 2,687.70 74.70
Middle East 30 11,430 381 6,457.10 215.20
Africa 21 8,925 425 3,631.40 172.90
Rest of Europe 21 2,237 106 1,458.00 69.40
Latin America & Caribbean
6 983 163 631.40 105.20
Total 371 115,910 312 45,202.90 121.80
A New Generation in Strategy Consulting
Source country No of
projects
Switzerland 34
United States 33
India 31
France 30
UK 23
Saudi Arabia 20
Singapore 18
Malaysia 15
Spain 14
Japan 12
Other source countries 141
Total 371
42
TRENDS IN AGRICULTURAL FDI IN THE COMCEC REGION
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Year Number of projects
Capital investment Jobs created
Total(USD m) Average(USD m) Total Average
2012 44 3,887.40 88.40 17,530 398
2011 51 9,654.70 189.30 20,708 406
2010 38 3,761.30 99.00 12,979 341
2009 46 5,863.40 127.50 12,471 271
2008 48 7,548.30 157.30 20,225 421
2007 29 2,891.00 99.70 6,040 208
2006 29 4,938.60 170.30 11,075 381
2005 25 1,978.90 79.20 4,917 196
2004 22 2,472.10 112.40 4,796 218
2003 39 2,207.10 56.60 5,169 132
Total 371 45,202.90 121.80 115,910 312
43
AGRICULTURAL FDI TRENDS BY DESTINATION WORLD REGION
Destination World Region No of projects
Jobs Created Capital Investment
Total Average Total (USD m)
Average (USD m)
Asia-Pacific 152 38,756 254 12,408.70 81.60
Africa 129 57,101 442 19,534.70 151.40
Middle East 56 12,740 227 9,127.40 163.00
Rest of Europe 33 7,043 213 4,091.20 124.00
Latin America & Caribbean 1 270 270 40.90 40.90
Total 371 115,910 312 45,202.90 121.80
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Source: fDi Intelligence from The Financial Times Ltd
44
AGRICULTURAL FDI PROJECTS BY DESTINATION COUNTRY
Destination country No of
projects No of
companies
Jobs Created Capital investment
Total Average Total (USD
m) Average (USD m)
Indonesia 68 55 20,277 298 6,776.70 99.70
Malaysia 50 41 9,561 191 2,304.70 46.10
Turkey 30 27 6,805 226 4,033.20 134.40
Nigeria 22 18 9,183 417 3,227.20 146.70
UAE 21 16 7,600 361 3,282.20 156.30
Egypt 21 20 4,314 205 1,921.70 91.50
Morocco 15 14 3,869 257 1,348.30 89.90
Mozambique 13 13 6,984 537 2,781.10 213.90
Uganda 10 7 2,664 266 594.40 59.40
Côte d'Ivoire (Ivory Coast) 10 10 1,870 187 351.70 35.20
Other destination countries 111 102 42,783 385 18,581.70 167.40
Total 371 279 115,910 312 45,202.90 121.80
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Source: fDi Intelligence from The Financial Times Ltd
45
CASE STUDIES
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GCC COUNTRIES: INVESTING IN FOOD SECURITY
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GCC Food Consumption, Total and Per Capita
47
GCC COUNTRIES: INVESTING IN FOOD SECURITY
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Saudi Arabia’s Imports of Selected Commodities as a Percentage of World Imports 2008
48
GCC COUNTRIES: INVESTING IN FOOD SECURITY
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Sample of Outward Agricultural Investments by GCC Countries
49
GCC COUNTRIES: INVESTING IN FOOD SECURITY
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Why do GCC Countries Risk Investing Instead of Relying on Trade? • Scant risk of not being able to meet need on international markets • Political and commercial risks of FDI in volatile countries • Target countries vulnerable to climate change
The 2008 Food Crisis Heightened Sense of Vulnerability • Wheat prices doubled from Jan.-Mar. 2008; Rice prices nearly tripled • Several exporting countries imposed export bans • Demand for bio-fuels increased demand for agricultural land worldwide
So GCC Countries Will Continue Outward Agricultural FDI • Mitigating risks by selling a substantial portion of crops locally • Reducing risks by diversifying pool of target countries • They will remain a prime source of agricultural FDI in other OIC countries
50
TURKEY: AN IMPORTANT FDI DESTINATION
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Turkey is one of the most suitable countries to receive agricultural FDI: limited land availability but excellent investment environment
51
TURKEY: AN IMPORTANT FDI DESTINATION
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• Food and beverage processing, agricultural R&D, and alternative energy identified as industries with the potential to become “centers of excellence” within the next 30 years
• Government in February 2011 approved the country’s first agriculture technopark in Mersin
• Monsanto has set up several R&D centers in Turkey • $23.7 bn Güneydoğu Anadolu Projesi (GAP) in SE Anatolia • FDI in the agriculture sector in Turkey has grown from about $14m in 2002
to more than $2.1bn in 2012 • With more than 54,000 ha. in greenhouse production, Turkey is world’s 4th
largest fresh vegetable exporter • Government goal of doubling agricultural production to $150bn and
increasing exports to $40bn in next 10 years, making Turkey 1 of world’s top 5 agricultural producers
52
TURKEY: AN IMPORTANT FDI DESTINATION
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SWOT Analysis of Turkey’s Agriculture Sector
53
ETHIOPIA: RISKY AND CHALLENGING
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Sectoral Contribution to Growth for Selected Countries
54
ETHIOPIA: RISKY AND CHALLENGING
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• Agricultural Development Led Industrialization” (ADLI) is a linchpin of the government’s overall development strategy, which aims for Ethiopia to achieve middle-income status by 2020
• To accomplish this, the Government has budgeted some USD16.6 billion over the 2010-2020 period 60% expected to come from Government and 40% from donors.
• FDI also expected to contribute substantially, especially in raising domestic value added through agro-processing, increased production yields, and better post-harvest handling, storage, and logistics
55
ETHIOPIA: RISKY AND CHALLENGING
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Top 10 Business Environment Constraints in Ethiopia
56
ETHIOPIA: RISKY AND CHALLENGING
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Agriculture Sector FDI in Ethiopia, 2000-2008 (million US$)
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ETHIOPIA: RISKY AND CHALLENGING
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Many sources of FDI – Netherlands, India, Denmark, GCC countries, But Saud Arabia is by far the largest. • Saudi Star: $2.5 bn, 290,000 ha. rice project in Gambella • Karuturi (India): leased 312,000 ha., also in Gambella, and
announced plans to invest up to $4 billion to produce palm oil, sugar and rice
58
ETHIOPIA: RISKY AND CHALLENGING
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The positive: • Sharp increase in agriculture value added, from US$5.28 billion in 2005 to
US$13.6 billion in 2009 • Transmission mechanisms necessary to generate economic growth caused
by FDI inflows are in place
The negative: • Weak regulatory framework and recent emphasis on maximizing FDI inflows,
leading to heightened tensions over land and water resources • Some highly publicized disputes between investors and government and
revocation of some leases by government • Alleged abuses with respect to seizure of land, inadequate compensation,
and botched relocations of local populations • Constant risk of water shortages
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ETHIOPIA: RISKY AND CHALLENGING
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Conclusions: • Ambitious investment objectives must not be allowed to outrun
a government’s capacity to oversee and regulate such investments, especially in the agriculture sector, where environmental and social vulnerability is especially acute
• Ethiopia may lose some FDI as a result of new policies limiting the pace of development and the size of land concessions/leases
• Revocation of some leases damaged Ethiopia’s reputation
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OVERALL CONCLUSIONS FROM CASE STUDIES
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• Need for good land use planning, aligning interests of communities and investors in a way consistent with sustainable resource use
• Both formal and customary land use and occupancy rights must be respected by investors and host country governments
• Local communities must share in benefits from public infrastructure investment, community investments, and equitable employment, and/or outgrower schemes.
• Preference for outgrower and smallholder cultivation over large-scale mechanized agriculture
• Rigorous economic analysis of land-related investments is essential • Allow direct negotiation between communities and investors • Tax idle land and set appropriate lease payments.
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RECOMMENDATIONS AND Q&A
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MAIN CONCLUSIONS
Agricultural productivity levels are relatively low in the COMCEC Region – room for improvement in terms of using fertilizers as well as machinery;
Increased levels of FDI are possibly a solution, but not necessarily – all depends on the regulatory framework;
There is certainly potential (suitability and ability) among COMCEC Member Countries – but focus must be on improving business and investment climate;
Countries such as Saudi Arabia, Qatar, as well as other GCC States, but also Switzerland, US and India are important sources for FDI in other COMCEC Member Countries.
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POLICY MEASURES
There are several policy measures that can reduce and mitigate the risks of agricultural FDI, both for the investor and for the host country:
Proper land use planning and respect for property rights;
Preference for outgrower and smallholder cultivation through stimulation programs by public bodies and international aid programs;
FDI attraction programs should be focusing on large scale agricultural investors;
Host-country governments should assess the economic viability and sustainability of proposed investment projects, and should allow direct negotiation between communities and potential investors;
Taxation of idle land and establishment of an appropriate level of lease payments, to make it financially unfeasible for investors to maintain fallow land for extended periods.
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FINAL RECOMMENDATIONS (1/2)
Based on the findings and conclusions we propose 5 distinct fields of policy intervention and cooperation at COMCEC level:
1. Improve the investment climate of COMCEC Member Countries by identifying and promoting specific agricultural investment opportunities in each COMCEC Member Country;
2. Based on the agricultural FDI assessment, prepare an investment promotion strategy and targeting plan, including a lead generation plan;
3. As a final step, prepare appealing Value Propositions in coordination with the national IPA’s, to illustrate the potential and profitability of investing in the agricultural sector;
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FINAL RECOMMENDATIONS (2/2)
4. Start working on a Media and Communications Strategy to disseminate the value propositions to the right audience;
5. Identify and list relevant public stakeholders as well as private investors in the COMCEC Region and use the COMCEC platform to stimulate debate and information sharing;
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Your Questions Please
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CONTACT DETAILS
Investment Consulting Associates - ICA
A New Generation in Strategy Consulting
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