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Thursday, 3 February 2011

Investment Watch (Agriculture)

Saudi firm Menafea Holding allegedly plans to invest $125 million in a 5,000 hectare farm in north-western Zambia during 2011, where it will grow pineapples and build a factory to produce juice. According to firm, "We have been granted 5,000 hectares of land to grow pineapples using the latest technology and are going to put up a factory to produce juice for local consumption as well as export". Not sure how this land is being procured and from which chief. More detail via Reuters.


  1. Cho,

    There should be a sunset clause on ALL foreign investment in Zambia.

    They can invest and recoupe their investment, but after 10 years (or 15 or 20), it should all revert into Zambian hands, with managemenet and ownership training and preparation happening in between.

  2. Zambians have known all the while that N/Western was good for growing pineapples and other fruit- why haven’t they set-up such a commercial enterprise themselves?-Its not rocket science innovation! What you are suggesting is reaping where one has not sown. I must admit, as Zambians, we’ve become very good at making suggestions and well articulated analyses-only after the fact! Why not use the Economics, Engineering, Science and Politics that we have so clearly absorbed from textbooks and put it into action- until then, I really don’t think we can set such conditions to foreign investors and I say let then reap as much and as long as they can!

  3. The above comment was directed @MrK

  4. Linda,

    Zambians have known all the while that N/Western was good for growing pineapples and other fruit- why haven’t they set-up such a commercial enterprise themselves?

    My first guess would be - 24% lending rates.

    -Its not rocket science innovation! What you are suggesting is reaping where one has not sown.

    Like what the foreign owned mines are doing. What do you think privatisation is all about. Those are the Zambian people's parastatals that are being sold for cents on the dollar.

    I really don’t think we can set such conditions to foreign investors and I say let then reap as much and as long as they can!

    I'd say you're insane.

  5. MrK,

    Sunset clauses of course exist in many countries especially in the context of major infrastructure development.

    I think in this case the key is to ensure land is not alienated in the first place. That is a lot of land which is forrever lost of the control of local people.

  6. Also, I don't see why mines cannot be owned by the Zambian state, and run by public or private sector management companies on a cost only basis?

    I think in this case the key is to ensure land is not alienated in the first place. That is a lot of land which is forrever lost of the control of local people.

    What if all families were allocated land on a permanent basis, without the possibility to sell it. They could either use it or lease it.

    Add that to a program of cheap credit for capital goods and small businesses, and it would stimulate the economy, lower unemployment and poverty.

  7. @Mrk it is uneducated and dilusional opinions such as yours that poisons the mindset of people around you. Africa and the average zambian will remain impoverished until as a people we decide to do things for ourselves instead of waiting for somebody else to do it and then trying to justify why we are entitled to it. Zambia has unmatched agricultural potential in southern africa but if other locals share your defeatest attitude then it will never be realised and the only people to gain will be the intelligent foreigners. and I wish them the best of luck, somebody should gain from it....

  8. Anonymous,

    I don't know what you are talking about.

  9. @MrK thats because you have no understanding of the fundamental economics behind emerging market growth. foreign companies will enter where opportunities exist as they have the resources to do so. the benifits through job creation and infrustructural development is where the local country stands to grow. if it is monitored, that growth filters through to the people. But people like you want foreign investors to do the hard work and then as you say, 10 or 15 years later give it away? what a joke... us africans are so short sighted, and your attitude is clear evidence of that. Go and educate yourself my freind...

  10. Anonymous,

    It is clear that you have some strong feelings on this issue! As one who is always interested in educating myself, I am curious about a couple of points that you have raised. I wonder in what specifics ways the fundamentals of economics are different for emerging markets than for more developed markets? Does "monitoring" cause "filtering" on its own, or are other mechanisms required as well? Do "investors" foreign or domestic do "hard work", or do they merely hire others at prevailing wages to do so on their behalf? The maximum single lease length on any piece of Zambian land is 99 years. Should all foreign investors be given that length of lease for agricultural plantations, or should the leases be renegotiated more frequently than that? Thanks for any answers, these are genuine questions.

  11. @yakima
    To answer your first question in developed nations when growth occurs there is already a certain level of consumer spending power, even if it is low, the spending and growth that occurs is from the bottom (or middle)up, in emerging markets like zambia this process tends to be reversed in that the spending power of the lowest group is negligent. emerging markets particularly in southern africa tend to be associated with political instability. (a generalisation but a look at Zim and Mr Malema down south suggests it is not far from the truth) therefore they tend to carry a risk that certain agricultural corporates percieve as to high. However the combination of good land, political stability and high prices on average have yielded fantastic returns for investors who took the 'risk' in Zambia in the last 10 years, and the word has spread. Yes most of these returns end up in the pockets of the investors at first but the benifit of the mentioned success has resulted in a $250 Million bioethanol sugar development in the kazangula district where local farmers have tendered and been allocated land. This is a joint venture with government as shareholders who can provide the 'monitoring' of wages and conditions while the local area enjoys development, job creation while contributiong to zambia becoming an exporter of bioethanol. the proceeds of which end up with government to use as they wish while the investors make their return. the same is happening in serenji, in the nansanga farm bloc. but wheat and maize, not sugar development. The point being made is that when jobs are being created and foreign investment is coming in the spending power increases, wages yes should be increased as yes it is the labourers who are 'working hard' but not to a point where such ventures become unviable. this type of investment, local or foreign should be encouraged and promoted as it was by previous gov. As it is not about who the farm will belong to in 20 years but about development that can have taken place in that time (development for the locals such as basic necessities and improvements that come with a booming town) added to that if the revenue gained from taxing such developments is correctly spent on again improving the lives of the locals, then I cannot see who is losing in such ventures?? South Korea, Japan, China have all followed similar investment paths and through the process of learning by doing have outperformed the original investors.. this is easily possible in the Zambian agricultural industry if only we dont treat the investors like they are here on borrowed time.. We must use them to be better than them, that is how emrging market growth sustains itself...
    have a good day.

  12. Anonymous,

    Thank you for that detailed and informative response! I agree with your description of disparity in consumer spending power between developed and developing. I think that there is another factor in the equation which is becoming more significant over time, which is the presence of as-yet-undeveloped natural resources. I am put in mind of a town in the american northeast (sorry can't remember it but could look it up if need be), which had leased the land on which it sat from a local native tribe for 100 years for $1 per acre per year. The locals were shocked and horrified that the tribe would have the audacity to raise their rents to prevailing market rates once the original lease was up.

    I think that it is excellent that agriculture is proving to be a profitable activity for FDI and Zambian farmers alike. The risk premium on the region is certainly a barrier to many investors and drives up the costs of external borrowing. I think that "joint ventures" can be very good, and from what I have read the Kazungula out-grower programme is well received in the district. As I understand it they are also taking measures to mitigate some of the environmental factors of intensive sugar farming elsewhere, though I don't have any certain evidence of this so anyone please correct me if this is wrong.

    I could certainly be wrong about this, but aren't those three governments rather protective of their agricultural sectors? Japan in particular has a reputation for being very free market except when it comes to farmers. I am also unconvinced on typical mechanised agriculture as a model, as I have been coming across an increasing amount of evidence like this:

    I certainly hope that when large scale projects like the pineapple plantation described above are implemented with best practices and "the latest technology," that they really mean that. I can also sympathize with investors who require sufficient time to make those investments pay. There is much to be said for collaborations in which significant skill transfers occur, and the nations you mention are to be commended for demanding technology transfers from partners. If the leases are too long or the compensation terms too fixed, then even if local pineapple farmers and juicers do become better than Menefea Holdings, will they have a level playing field to compete with them on?

    Hopefully there is a balance to be struck between these competing factors, so that agriculture growth and diversification can really be viable over the long term and deliver on the promise of development. Have a good day too!

  13. Cut the crap. Do as the Japanese and Chinese; learn all you can and then do it better. - So dont start by scaring those who can make an effort for your great nation.


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