Where is best to invest in Africa?

Farmland varies between each country and region, therefore it is important for investors to investigate the markets thoroughly.

7 May 2013, Words by Ian Bailey

 
Where in Africa?

Africa is often seen as a homogenous region, which is written off as dangerous and risky. While there are political and business issues to contend with in most African countries the situation varies significantly for each country and region. It is important for any investor to take a specific and focused look at the market when deciding where to invest. Map 1 illustrates the key regions in SSA.

There are significant ‘growth corridors’ developing in southern and eastern Africa that not only unlock the potential for export for investors but also significantly strengthen local and regional markets. These include the growth corridors from Beira in Mozambique to Zambia and Zimbabwe and the southern agriculture corridor from Dar es Salaam flowing from Tanzania to the Congo.

Table 2 provides a snapshot of the key outputs (crops) grown in the regions and countries that are attracting particular interest for commercial agriculture.

Tenure

Land tenure is the backbone upon which all land and property markets are built. The World Bank estimates only between 2-10% of land in Africa is held under formal tenure and most of this is in urban areas or areas of historical farm investment such as the southern highlands in Tanzania. African agriculture is dominated by smallholder farming for subsistence and local markets.

The average holding is in the region of half a hectare. Most of the land is either state owned in one form or another; or held by tribal or other local communities. This weak tenure system can be both an advantage and a disadvantage for the overseas investor.

On the one hand, weak tenure allows easy access to vast areas of land, which are not governed under a formal tenure system and can then be bought under one concession.

On the other hand, this activity has been heavily criticised by international organisations, such as GRAIN, the World Bank, Oxfam, and the Oakland Institute.

The land tenure system and regulations vary for each country, but are generally based on a long leasehold interest of between 50 and 99 years, often with a renewable clause written in to allow effective ownership in perpetuity. Zambia and Tanzania are generally considered to have more simple structures due to common law.

Other countries, such as Mozambique, have a sensible DUAT system that offers title after an investor proves commitment under an initial two year permit and then allows investors to secure infrastructure through freehold, thereby registering security and value in perpetuity.

A focused on the ground approach is vitally important at this stage of the emerging SSA market. It is anticipated that the market will become more transparent and structured/regulated as it develops and therefore common terms and transactional evidence are likely to emerge. The current lack of ‘normal’ market characteristics requires a different strategy to ensure success. This includes the need to overcome obvious and unseen pitfalls.

The strategy needs to be sensitive to the market challenges and local issues and a direct, holistic and mutual involvement approach is advised. Each agreement will vary slightly depending on the country law and local tribal landowner situation but will be based on these sound principles.

 
 

Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

Hugh Coghill

Hugh Coghill

Director
International Farmland

Savills Margaret Street

+44 (0) 20 7016 3818

 

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