A 2021 African land rush seems unlikely, but issues persist
The late 2000s saw a surge of land investments in the Global South. In Africa alone, it is estimated that land deals affected up to 63 million hectares, similar to the total availability of arable land in Brazil. Dubbed “land grabs” in the international media, many of these deals resulted in serious and protracted disputes between investors and local communities, especially where the natural resource rights of those communities were ignored or unclear. These disputes can cause delays or abandonment of investments, also known as “tenure risk”.
As we enter 2021, there are early signs of a similar trend. A UN index of food prices has risen for 10 consecutive months and is now at its highest since 2014. The value of land is intricately linked to the price of commodities that can be produced from it. Surging commodity prices may therefore be followed by a greater interest in land to secure food supplies, an early warning sign of another land rush.
The underlying price dynamics are also similar to 2008. Rising demand from Asia has persisted despite a global recession. As the only major economy to post economic growth in pandemic-ridden 2020, China is importing record amounts of grains and cereals. Another similarity is that harvests in 2021 are being influenced by a La Niña episode, a global ocean-atmosphere interaction that can trigger droughts and floods in different parts of the world and disrupt food production.
A combination of these unfavourable conditions could continue to put pressure on food prices, but will it necessarily lead to another land rush? For investor behaviour to shift dramatically, systematic changes are required beyond those caused by weather events or the pandemic. In the 2000s, this change occurred because of the rapid introduction of biofuel mandates, coupled with high crude oil prices. This added a layer of industrial demand for food crops, leading to large-scale biofuel projects in sub-Saharan Africa, such as Addax Bioenergy in Sierra Leone or Agro EcoEnergy in Tanzania. A similar surge in industrial demand for food crops is unlikely to occur in 2021, as exhausted mandates, the use of waste products and low petroleum prices disincentivises any further blending of vegetable oil or sugar with diesel or petrol.
Instead, attention has focussed on a different source of renewable energy that could trigger other types of land acquisitions – investor interest in solar, hydro and wind energy projects in Africa has soared. With the exception of large-scale hydropower, this new wave of projects occupies land less valuable than that used for food production. However, there are exceptions: solar thermal systems can divert, and effectively capture, large quantities of water with a competing, prior use. Such is the case with Morocco’s Noor solar thermal complex which relies on scarce water from the El Mansour Edahbi dam. These renewable energy projects are therefore not benign from an environmental and social perspective. They can introduce frictions and entrench existing inequalities, especially for politically and socio-economically marginalised actors living in urban slums or on pastoral land.
Furthermore, part of the problem during the 2008-2010 land rush was that it involved the piling in of investors with no real understanding of emerging markets. A similar risk exists among investors seeking post-pandemic opportunities. Failure by investors to undertake participatory community needs assessments can result in tenure risk becoming the Achilles’ heel of the energy transition, causing prolonged disputes and lose-lose outcomes for investors and local people. This would delay the much-needed roll-out of renewable energy projects, especially in sub-Saharan Africa.
Nonetheless, corporate governance has certainly improved since 2010. Due diligence processes have been strengthened, and so too has the recognition of social and environmental risks. Quantifying such risks helps weigh up the benefits of due diligence processes, such as community consultations. Upcoming research by ODI shows that implementing measures to successfully mitigate tenure risk amounts to just 2-3% of the Net Present Value (NPV) of an investment. This compares to the costs of operational risks associated with tenure disputes which can be as high as 300% of the NPV.
Due to the ongoing energy transition and the improved quality of corporate governance, a 2021 land rush therefore seems unlikely, even if food prices continue to increase or interest in land for renewable energy surges. Yet issues persist. An OECD-FAO report on responsible agricultural supply chains found a large and persistent gap between corporate policy commitments and their actual implementation. That gap affected the need to ensure local communities have the right to free and prior informed consent, a crucial step towards avoiding disputes over land and ensuring renewable energy transition can be just, respecting the rights and aspirations of local communities.
Joseph Feyertag is a research fellow at the Overseas Development Institute (ODI), Roger Calow is a senior research fellow at the ODI, and Ben Bowie is a director at TMP Systems.