COMCEC...localized irrigation (1000 ha) Surface irrigation Localized irrigation Sprinkler irrigation...

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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

Transcript of COMCEC...localized irrigation (1000 ha) Surface irrigation Localized irrigation Sprinkler irrigation...

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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

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CONTENTS

Introduction Study

Current State of Agriculture

Mechanisms and Drivers of FDI

Agricultural FDI Assessment

Case studies

Recommendations and Q&A

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PART I Presented by Mr. Matthijs Weeink

PART II Presented by Mr. Charles Krakoff

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INTRODUCTION TO STUDY

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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?

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Food security Agricultural Employment Agricultural Trade Agricultural Productivity

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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.

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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)

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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

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SIZE OF THE AGRICULTURAL POPULATION IN 2000 AND 2010

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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

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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

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Source: Author’s own calculations using FAOSTAT 2013

- Comparative advantage in Permanent Pasture - Relatively low amount of arable land

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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

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- 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)

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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

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Source: FAO. 2013. AQUASTAT database, Food and Agriculture Organization of the United Nations (FAO).

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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

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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

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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

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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.

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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.

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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)

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PERCENTAGE POPULATION UNDERNOURISHED WORLD MAP

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INVESTMENTS ARE NEEDED TO INCREASE PRODUCTIVITY LEVELS AND REDUCE THE PERCENTAGE OF UNDERNOURISHED POPULATION

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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

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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

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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

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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

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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

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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)

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SUITABILITY – BASED IN INPUT FACTORS

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Total Renewable Water Resources (km3/year, 2012)

Arable Land (2012, percent) Labour Force (2012, percent)

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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

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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

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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

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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

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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

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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

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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

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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

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CASE STUDIES

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GCC COUNTRIES: INVESTING IN FOOD SECURITY

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GCC Food Consumption, Total and Per Capita

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GCC COUNTRIES: INVESTING IN FOOD SECURITY

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Saudi Arabia’s Imports of Selected Commodities as a Percentage of World Imports 2008

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GCC COUNTRIES: INVESTING IN FOOD SECURITY

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Sample of Outward Agricultural Investments by GCC Countries

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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

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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

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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

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TURKEY: AN IMPORTANT FDI DESTINATION

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SWOT Analysis of Turkey’s Agriculture Sector

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ETHIOPIA: RISKY AND CHALLENGING

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Sectoral Contribution to Growth for Selected Countries

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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

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ETHIOPIA: RISKY AND CHALLENGING

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Top 10 Business Environment Constraints in Ethiopia

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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

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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

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H.J.E. Wenckebachweg 210

1086 AS Amsterdam

The Netherlands

T: +31 (0)20 217 0115

F: +31 (0)20 462 3535

E: [email protected]

www.ic-associates.com

1005 Boylston St, #243

Newton Highlands, MA 02461

United States

T: +1 617 314 6527

F: +1 617 507 8560

E: [email protected]

www.ic-associates.com