Looking beyond Africa for food

With some African investments mired in bureaucracy, Gulf governments are turning to Europe and the Americas in their search for food security. Published in MEED, 17 February 2014

When Ethiopia’s Prime Minister Hailemariam Desalegn visited Abu Dhabi in January, one of the main messages he brought was how keen his country was to attract more investment in agriculture and infrastructure from the UAE. He has not been the only African leader to be making such a pitch in recent months. The Senegalese president, Macky Sall, was also in town in January urging more investment in his country’s farming sector. In December, it had been the turn of Felix Koskei, Kenya’s cabinet secretary for agriculture, livestock and fisheries.

In some ways, these politicians are pushing at an open door. With poor soil and little water, Gulf governments cannot produce anything close to the amount of food they need to feed their populations and are keen to invest abroad to ensure some long-term food security.

African farmland

The extent of the investments they are making is hard to gauge. Not all deals are publicised and, even where there is some public record, there is often a lack of detail.

One multilateral, non-profit organisation, Landmatrix, estimates that since 2001 investors from the Middle East and North Africa have been involved in at least 53 deals covering more than 3 million hectares of land worldwide. Another organisation, Barcelona-based Grain, points to 63 deals covering 7.5 million hectares.

Some of these deals may never have progressed beyond the negotiation phase to the point where money and leases actually changed hands, but even so some things are clear. Since the turn of the century, the vast majority of the deals have involved investors from the Gulf rather than other parts of the region, and most of their attention has been focused on African farmland, particularly in Sudan and Ethiopia. The most active Gulf investors are from Saudi Arabia, followed by the UAE and Qatar.

More recently, however, there have been signs the Gulf’s enthusiasm for African agriculture has been waning, perhaps as a consequence of the myriad problems that can hamper investments on the continent. These can include disputes over land ownership, bureaucracy and red tape, and the risk that sudden droughts or food shortages could lead host governments to impose export bans.

In an apparent attempt to avoid such troubles, there has been a noticeable rise in Gulf investors buying farmland in other parts of the world, including eastern and central Europe, South America and Australasia.

“Very few investments in Africa are going ahead,” says Edward George, head of soft commodities at Togo-headquartered Ecobank Transnational. “Only around 20 per cent of the investments promised in Sudan have been realised, and only around a quarter of the foreign direct investment. There has been a trend for Gulf governments to switch their interest to eastern and central Europe. My understanding is that a lot of them are looking to acquire going concerns that already have surplus production they can redirect to the Gulf. That’s showing they’re really not getting far with these projects in Africa.”

European allure

Two recent investments in Europe are good examples of this trend. The first came in January 2013, when the UAE’s Al-Dahra Agricultural Company signed a e300m ($408m) deal with the Serbian government to invest in its farming sector.

The deal involves eight farms covering 14,000 hectares, as well as investment in infrastructure and irrigation systems. The farmland is used to grow crops such as wheat, barley, corn, soybeans, sugar beet, citrus fruits and alfalfa. With Al-Dahra in charge, much of the produce will be exported to the UAE, but some will also be sold within Serbia or to other countries.

Two months later, a Saudi group, United Farmers Holding Company (UFHC), agreed a similar deal in Eastern Europe. UFHC is a joint venture of three firms: Almarai; Saudi Agricultural & Livestock Investment Company; and Saudi Grains & Fodder Holding. The £61.5m ($100.8m) deal to buy the UK-listed Continental Farmers Group gave them about 36,000 hectares of arable farmland in Ukraine and Poland, which should increase to 50,000 hectares by 2015.

“The investment strategy of UFHC is to make long-term investments in the agricultural sector, with the principal objective of developing sustainable sources of food, grain and fodder on a global scale,” said Khalid al-Malahy, director of UFHC, at the time of the deal.

Such investments often involve a complex weaving together of private and public sector interests. Saudi Agricultural & Livestock Investment Company, for example, is an arm of the government-owned Public Investment Fund and was set up specifically to make international agriculture investments. And Al-Dahra’s investment was made at the same time as several Abu Dhabi government bodies were taking a close look at Serbia, with the other notable deal being Etihad Airway’s purchase of a 49 per cent stake in Air Serbia.

It is not just Europe that has been attracting Gulf investors’ attention. Over the past year, leaders of Argentina, Colombia and Vietnam have all held discussions with GCC governments about the potential for investments in their agriculture industries and some deals have already gone ahead in those countries.

In December 2011, Almarai unveiled a SR312m ($83m) deal to buy Fondomonte, an Argentinian company that operates three farms covering 12,300 hectares and which grow corn and soybeans. Almarai said at the time that the deal was “in line with the direction of the Saudi government towards securing supplies and conserving local resources”. Almarai’s largest shareholder is another large Saudi food group, Savola, which itself has subsidiaries producing edible oils in countries including Algeria, Kazakhstan, Morocco, Sudan and Turkey.

Food security

Saudi Arabia’s efforts in this area are coordinated by the King Abdullah Food Security Programme, which aims to promote investment in overseas agriculture in order to ensure the country has sufficient food for its population. Other Gulf governments have set up similar bodies, or operate via their ministries of agriculture or sovereign wealth funds. Whoever is ultimately in charge, there is often a large number of organisations involved.

According to Fahad bin Mohammed al-Attiya, executive chairman of the Qatar National Food Security Programme, there are 19 government agencies involved in Doha’s food security initiatives. “Qatar imports more than 90 per cent of its food,” he says. “Food security is part of our national strategy.”

These agencies include Qatar Investment Authority, which set up Hassad Food in 2008 to invest in agricultural projects around the world. Hassad Food has since made investments in Sudan, Australia and India and has also looked at deals in Turkey and Moldova.

Another Qatari firm, Widam Food Company (Mawashi), is listed on the Qatar Exchange, but is partly government owned and is chaired by a member of the ruling family, Sheikh Naif Eid Mohammed al-Thani. It has invested in an Australian farm project and made a series of deals in Sudan to grow fodder and raise goats on at least two sites there.

As all this indicates, despite the difficulties and the rising interest in other parts of the world, Africa still has a role to play in Gulf countries’ food strategies. Indeed, one of the companies in the UFHC consortium, Saudi Grains & Fodder Holding, is owned by Saudi Arabia’s Al-Rajhi Group which also has several projects in Sudan and Egypt to grow alfalfa, barley, rice and wheat.

The religious and cultural similarities with some African countries, such as Sudan and Mali, make them attractive to Gulf nationals and the long-established trade links with other states in the Horn of Africa and along the Indian Ocean coast mean investors will continue to look for opportunities there.

One person who embodies those links is Mohammed Hussein al-Amoudi, a Saudi national who was born in Ethiopia. He is the founder of Midroc Group, which has made several large investments in Ethiopia through its subsidiaries Horizon and Agriceft.

These companies manage more than 56,000 hectares of land, and produce and export coffee, flowers, cereals, tea, fruits and vegetables. Another group company, Saudi Star Agricultural Development, has plans to develop 500,000 hectares in the country to grow crops such as rice, wheat, corn and sugar beet.

“We invest in land that previously would not support crops,” said Al-Amoudi in a speech in Addis Ababa on 2 December last year. “We transform this land into a potential source of food, not only to feed our own people and to create jobs, but also to earn foreign currency from export, which is vital if the broader economy is to prosper.”

Value-added investment

For every project that does go ahead in Africa, however, many more become mired in bureaucracy or tangled in disputes and do not make it beyond the drawing board. If that is to change, some investors may have to adapt their approach and be prepared to offer more in return than simply cash, according to Ecobank Transnational’s George.

“No one has yet come up with a model they can offer to an African government that is genuinely attractive,” says George. “If the key aim of all of these projects is simply to develop agriculture infrastructure and export all of the produce out of the country, that’s not really of interest to African governments. There has to be value addition.

“There are many ways that can be done. One is building the infrastructure in a way that helps the distribution of food, another is setting up plantations that offer support to smallholders in the surrounding area, and another is investing in processing. If they bring in some kind of industry with their investment, then it’s definitely of interest to African governments, but simply to say we’ll come in and do everything and just pay you the rent, that model doesn’t exist anymore in Africa.”