Bad Governance leads to bad land deals – the link between politics and land grabs

Ricardo Fuentes-Nieva (right) and Marloes Nicholls (left) crunch the numbers to find that big land investments sniff out countries with ‘weak governance’ – aka no accountability, no regulation, no rule of law, and a green light for corruption.

If you had bags full of money and wanted to buy land, where would you go for a good deal? If you’re only looking for ways to make a good profit and control your risk exposure, surely you would look for a place where you can influence the terms of the deal. This is the intuition behind the analysis published yesterday by Oxfam

The results of this analysis show that the global rush for land is mostly taking place in countries with weak governance.  We analysed the link between national governance and large scale agricultural land deals by combining information from two important databases – the Land Matrix[i] and the World Governance Indicator (WGI) Project. To do this, we cross referenced Information on over 200 countries and territories from the two databases. Using the Land Matrix we aggregated the total number of deals reported in each country and their average size; from the WGI, we used estimates of Voice and Accountability, Regulatory Quality, Rule of Law, and Control of Corruption. Once the two databases were merged, we analysed the link between the countries where large-scale land deals were – or were not – taking place and the four governance indicators for the period 2000 – 2011.

The results reveal a strong and significant link between land deals and weak governance. The majority (78%) of the 56 countries where land deals are taking place have below average WGI, and on average the pool of countries where land deals take place have 30% lower indicators than those without. These results are consistent over time.

A quick comparison between two countries shows that the land availability does not appear to be a significant factor in investment decisions. Guatemala, which scores below average on all four World Bank Governance indicators, has seen an estimated 87,000 hectares of land under deals between 2000 and 2011 despite high levels of hunger and malnutrition in rural areas. This is in stark contrast with Botswana which has a similar area of arable land per person (.11 and .13 hectares per person in Guatemala and Botswana, respectively) but which scored well above the average on World Bank governance indicators and did not record a single large-scale land deal in this period.

These results are hardly surprising. Other studies have found similar results. Researchers at the IMF ( here and here), using a different database and methodology, have previously found that “countries with weak land sector governance are the ones most attractive to investors – at least as gauged by the number of land-related investments.” They suggest that investors might pick countries with weak governance because “it is easier to obtain land quickly and at low cost where the existing protection of land rights is weak, given that public protection may not matter to investors who can muster their own resources to defend their property rights.” Research by the World Bank found that deals were often formulated for the benefit of investors rather than the countries involved. They report that “in many cases the nature and location of lands transferred and the ways such transfers are implemented are rather ad hoc – based more on investor demands than on strategic considerations.”

Why Might Weak Governance be Good for Business?

The story behind land deals and weak governance is one of power imbalance and destitution. It’s a story where the interests of local communities are set aside to promote the interest of large investors.

There are usually three actors in any land deal – the investor, the local community who owns or uses the land and the government.  The national government often acts as the intermediary (in wonk parlance, the government is the agent for the local community or the citizens, who are the principals). Weak governance – which basically reflects a gap between the interest of citizens and governments – enables investors to sidestep costly and time consuming rules and regulations, which for example, might require them to consult with affected communities. In countries where people are denied voice, where business regulations are weak or non-existent, or where corruption is out of control it might be easier for investors to design the rules of the game to suit themselves.

This analysis is only the first step towards a more in depth research project. Next steps include a more in depth analysis on the determinants of the number and location of deals (a double-hurdle estimation? suggestions appreciated from econometricians out there). We will also look at the geographical distribution of deals within countries to see if there is a link between the location of land deals in countries and socioeconomic indicators in those areas.

Land is such an important element of millions of people around the world that any issue related to use, access and ownership of it should be carefully analyzed. Agricultural investment is sorely needed but it should not be at the expense of people’s rights and access to land. There are potentially catastrophic implications of bad land deals. Poor accountability and regulation only means that people affected by land deals have fewer tools to defend their livelihoods and rights.

And if this all sounds a bit abstract, here’s what we’re talking about

Why the World Bank should declare a freeze on big land deals

‘Buy land. They’re not making it any more.’ Around the world, a lot of investors are taking Mark Twain’s advice to heart, and the resulting

land rush is doing an awful lot of damage. A hard-hitting, killer fact-tastic Oxfam briefing written by my colleague Kate Geary published today summarizes the stats (as far as we know them).

• In the past decade, an area eight times the size of the UK (203m hectares) has been sold off or leased out globally.
• The land acquired between 2000 and 2010 has the potential to feed a billion people, equivalent to the number of people who currently go to bed hungry each night (Oxfam calculation, all explained in footnotes).
• Two-thirds of agricultural land deals by foreign investors are in countries with a serious hunger problem.
• Two-thirds of foreign land investors in developing countries intend to export everything they produce on the land.
• According to the IMF, most of the land being sold off is in the poorest countries with the weakest protection of people’s land rights.

Once the land has been given away, it becomes a much harder and potentially nastier battle to take it back. The danger is that when the dust settles on this property rights freezing frenzy, millions of people will have l2ost access to land, countries will be saddled with bad deals, and investors will face a resentful population and a legal quagmire. So Oxfam is arguing that we need a freeze on investments involving large-scale land deals while we sort out the mess.

The organization we want to lead this is the World Bank, whose role its new president Jim Kim is currently reviewing. The Bank is the preeminent global development institution, and is ideally placed to send a big signal to governments and investors.

According to its critics, the Bank is also part of the land deal problem. Its private sector lending arm, the International Finance Corporation (IFC), has an official complaints mechanism known as the Compliance Advisor/Ombudsman (CAO). This has seen its case-load triple in the past two years, while in the decade to 2010 over 60 per cent of cases that it assessed related to land conflicts. Oxfam is a co-signatory to three formal land-related complaints to the Bank, one in Indonesia and two in Uganda – here and here.

Moreover, through its advisory services, the IFC encourages governments to streamline and consolidate investment-related policies and activities – in essence to create a ‘one-stop shop’ for investors. Recently, the Bank’s Investment Climate Advisory Services helped to create or support investment promotion agencies (IPAs) in Sierra Leone, Cape Verde, Senegal, Zambia and Tanzania, among others. In

Tanzania’s case, its IPA is mandated to identify and provide ‘available’ land to investors and to set up a ‘land bank’ of some 2.5 million hectares considered suitable for investment. That might all make sense in a well-governed land market, but is not helping if it smoothes the path of the current land rush.

But whatever the views on ‘Bank as problem’, it can most definitely be part of the solution. Its influence is huge, not just through its own actions, but its role in setting standards for other donors and investors. So Oxfam is asking it to declare a 6 month freeze, a time out during which it should review the World Bank Group’s investments, publicly support and help implement the catchily-titled ‘Voluntary Guidelines on the Responsible Governance of Land Tenure’ and lobby other investors to follow suit, overhaul its investment procedures and revise the kinds of advice it is giving to developing country governments.

Over to you Jim Kim

P.S. If you’re in Oxford this evening with nothing better to do, come to Blackwells for 7pm, grab a glass of cheap wine and help me launch the second edition of From Poverty to Power. Details here.

The latest (big) numbers on land grabs, and some powerful case studies

Oxfam adds its voice to the growing clamour about land grabs with two new reports out today. Land and Power: The Growing Scandal Surrounding the New Wave of Investments in Land pulls together some fascinating (and sometimes shocking) case studies from South Sudan, Uganda, Indonesia, Honduras and Guatemala, and adds up some big new global numbers. The New Forests Company and its Uganda Plantations goes into more detail on one of the case studies.

First the big number: the Land Matrix Partnership, a coalition of NGOs, academics and donors, has come up with a ceiling figure of 227m hectares (the size of Western Europe, 10x the UK) for the total area affected over the last 10 years. Big pinch of salt required – finding out exactly how much land has changed hands is incredibly difficult due to the lack of transparency and secrecy that often surrounds the deals. The 227 million figure is based on information on land deals from a whole range of different sources including government reports, academic research, company websites, international finance institutions media reports and the few contracts that are publicly available. My understanding is that this builds on the methodology used by other players like the World Bank, which came up with a 56m hectare figure in 2009, for deals over the 11 months to August 2009.

Due to all the different sources, with different company names and subsidiaries used, and different levels of information provided, there is bound to be some double counting or proposals that never materialised, (but also, no doubt, a bunch of deals we didn’t catch). So we are working through it all and cross-checking the data, but with over 2000 land deals this takes time. We’re up to 67 million hectares so far. I’ll keep you posted on where we get to.…

The case studies each contain different experiences and lessons. In Uganda, over 20,000 people have been evicted, many (and we talked to several hundred of them) claiming it was done violently, to make way for a forestry project of the UK-based New Forests Company.  The evictions were carried out by the government (although locals claimed they recognized NFC employees). NFC is saying the villagers were illegally on the land, they have received no reports of the use of violence, and take refuge in two independent endorsements of one of the plantations – certification by the Forestry Stewardship Council and a field assessment by the World Bank’s International Finance Corporation.

This raises important issues for even the best-intentioned investors – in many developing countries systems of formal and customary law coexist, and both need to be taken seriously – some of those evicted say they have been living on the land for 40 years or more. And the huge edifice constructed around sustainability, climate change and carbon sequestration (in this case involving both the FSC and the Clean Development Mechanism) really needs to be overhauled to make sure that if they are displaced, the people already living on the land exercise their right to Free Prior and Informed Consent (FPIC), get proper compensation, and are found alternative livelihoods. None of that seems to be happening in the case in Uganda.

Palm oil-based biofuels is emerging as a driver of some nasty land grabs, and the Indonesia case looks at the role of a Malaysian/Indonesian joint venture company named PT MAS (subsidiary of palm oil giant Sime Darby), which is alleged to have backtracked on promises of land and investments to displaced communities. We found similar things going on in South Sudan, Honduras and Guatemala (eviction pictured here).

Overall, what emerges is a mess. Dodgy authorities, whether local or national, out for a quick buck; investors all too willing to turn a blind eye and be content with box-ticking and legalistic excuses; land lying idle despite promises to turn into a productive marvel; land tenure systems that are murky and offer little defense to poor communities; legal systems that are inaccessible to poor farmers. But in a few cases, civil society protest and/or action by the authorities seems to be correcting some of the worst excesses, which at least gives grounds for hope.

Agricultural investment can be a real boon to poor farmers, but not if it’s done like this. The balance of power has to be shifted to local communities, who need a much greater say (through FPIC) in what happens to their land. Host country governments need to clean up their act and be much more transparent about the deals being negotiated; the home country governments of the investors need to do more on regulation and disclosure and drop their daft biofuels mandates, which are contributing to the scramble; investors need to stop looking for excuses and follow the example of other sectors such as garments or supermarkets in accepting responsibility for the whole supply chain, not just the bit they directly own (we used to hear these kinds of denials from the shoe and clothing companies ten years ago – not any more).

Public campaigning played a big role in shifting the clothes companies and needs to get behind campaigns on land grabs too. That example does at least offer hope – the land deals are a short-term response, but high prices are probably here to stay, so the more we can do to civilize big agriculture investments  and turn them into drivers of development, rather than misery, the better.