Hedge Funds and Land Grabs: A New Scramble for Africa

Hedge Funds are reviled in the United States for their role in the U.S. economic crisis, but their activities in developing countries, especially in Sub Saharan Africa has been limited -- until a few years ago.

A controversial report by the U.S. based Oakland Institute, an independent policy think-tank accused Hedge Funds representing corporations, institutions, and individuals  in the United States and Europe of acquiring huge swaths of land across Africa, often under dubious circumstances, with little accountability to government regulations, or regard for the livelihoods of local populations. This trend, the report claims, is leading to food insecurity, displacement of small farmers, environmental degradation, and subsequently political instability and deepening poverty. To many, it represents a new scramble for Africa, only this time by private corporations, and in some cases, emerging market economies rather than by European powers.

While their influence in developed economies like the U.S. and Western Europe is well known, Hedge Fund activities in the developing world, especially in Africa have steadily increased under the radar. The report cited case studies from six African countries – Ethiopia, Tanzania, Sudan, Sierra Leone, Mali, and Mozambique where these companies have expanded land holdings, from just a few thousand acres a few years ago to millions of acres of farmland. Large-scale land acquisitions for commercial purposes in Africa are not new. Colonel Qadhafi bought and leased hundreds of thousands of acres of land in Mali, while the South Koreans leased huge concessions in Madagascar. The Saudi’s, the Emirates, and the Chinese are all in on the land deals. However, Hedge Funds and their subsidiaries are acquiring land at an unprecedented scale. In 2009 alone, they bought or leased nearly 60 million acres of land across Africa, an area roughly the size of Texas. According to the World Bank, land deals across the continent covered about 110 million acres in 2009, growing tenfold from the previous year.

Some non-governmental organizations have raised alarms over the massive land grabs across the continent, but some governments have defended these land deals, claiming that they provide much needed foreign direct investments (FDI). According to one Ethiopian official, “it’s not land grabbing, they are just looking to generate foreign currency to support their county’s development efforts. It is better than begging,” he added. This sentiment is widespread across the continent as governments neglect the needs of their people for the sake of attracting foreign investments, often with serious implications for small-scale subsistent farmers.

Kofi Annan, former U.N secretary general was quoted in a recent New York Times article describing this new influx of Hedge Funds as a new “scramble for Africa,” recalling European colonization of the continent in the 17th and 18th century. “We have seen a scramble for Africa before, and I don’t think we want to see a second scramble of that kind,” Annan said. “If the food security of the countries, rather than profiteering is not the main goal, it is straightforward exploitation.” In fact, the Oakland Institute cited multiple accounts where families were forcibly removed from their ancestral lands and livelihoods, often with little or no compensation to make way for export commodities, such biofuels, and cut flowers.

In Sierra Leone, the government embarked on a series of agricultural reform programs, with the aim of using agriculture as a way to develop a battered economy. For a country recovering from civil war that effectively destroyed its agricultural sector, investing in food security and other self-sufficiency projects is one way, according to “experts” to attract foreign investments. Nevertheless, the Sierra Leone government ever desperate for foreign investments gives anyone a free pass, as long as they claim to bring jobs for the millions of unemployed people it cannot provide jobs for. In fact, as the report reiterated, the Sierra Leone government makes no secret of its agricultural development strategy, looking at these deals as attracting Foreign Direct investments (FDI) through “a market-led approach” for private sector development of commercial agriculture.

Two companies currently operating in Sierra Leone were specifically singled out in the report. Quifel International Holdings, a Portuguese owned firm acquired nearly 130,000 acres of land in northern Sierra Leone, cultivating everything from oilseed to pineapple, sugarcane, mango, etc. The other is a Swiss owned renewable energy subsidiary -- ADDAX & ORYX GROUP. ADDAX is reported to have leased 20,000 hectares of land in Bombali district, also in northern Sierra Leone, growing sugar cane for ethanol production. These operations were set up with lofty promises of employment opportunities for people, and accountability for a responsible use of the land, but the realities on the ground, after just a few years of operations has been disappointing. A June 2011 land deal brief by the Oakland Institute accused ADDAX of employing only about 200 people, with no dedicated monthly salaries, benefits, or job security after promises to employ 4,000 people. In the case of Quifel, it claimed that villagers were hired only as casual laborers, and paid less than two dollars a day for a period of only a month, after which they are let go. It also promised to provide stable employment for thousands of Sierra Leoneans as part of its acquisition agreement.

These companies have used their official connections to wrest arable land from poor farmers, even though their unfulfilled promises of better schools and stable employment and wages as part of the deals they signed are not being met. It draws eerie similarities in my mind to 17th and 18th century European explorers infiltrating Africa, grabbing land and slaves, with the collusion of local chiefs to plunder the continent of both its human and natural resources. While I am not against a genuine opportunity to attract foreign investment for rebuilding battered economies, I am against misguided government policies, collusion of corrupt governments with Hedge Funds, and the impunity of well-known western institutions, corporations, and individuals in benefiting from this illicit enterprise.

See the full Oakland Institute Report here.

Mohamed Jallow is a former Colin Powell fellow (Class of 2008/2009). He is currently a program associate at the Council on Foreign Relations.