Implications of Uncertain Land Tenure on Investment Success

A guest post by Dr. Daniel Monchuk, Agricultural Economist, Cloudburst Group; Dr. Cynthia M. Caron, Assistant Professor of International Development and Social Change, Clark University; and Stephanie Fenner, IDCE Fellow, Clark University

Foreign direct investment and large-scale land acquisition for agriculture, extractive industries, and other land-based activities is on the rise in Sub-Saharan Africa. One emerging concern of increased investment is that local land conflict may adversely impact the economic viability of such investments, potentially threatening both the financial health of the investment and the livelihoods of local smallholders. In our research, we explore the financial implications of ignoring land tenure relations as part of early investment decision-making and project design. We present an analysis of eight case studies that draw attention to investment commonalities and highlight key differences in so far as they influence investment outcomes. We explore investment performance, and where possible, identify threats to corporate brand image or ‘on the ground’ threats that investors face when ignoring local land tenure relations and property rights regimes prior to investment. These threats include: disruptions to production as a result of local social unrest, sabotage, and/or the need to hire private security forces to protect the investment and manage relationships with smallholders. The three key questions guiding this research are:

  1. When assessing the financial risk of a large-scale land investment, what are the most important tenure-related factors for an investor to take into account?
  2. What are the consequences that companies face when failing to take such land tenure factors into account?
  3. What are the key land governance relationships between the state, private sector, and local communities in the context of responsible land-based investments?

These questions highlight the significance of recognizing land tenure early in investment decision-making and integrating land tenure relations into investment decision-making and project design. The implications are important not only from an investment point of view, but also from a development point of view, as local host governments and local communities are more likely to benefit directly from foreign direct investment that takes into account and respects local land rights.

The eight investment case studies were chosen to be generally representative of firms facing tenure-related difficulties in Sub-Saharan Africa. In general, our analysis suggests that respecting and recognizing local land rights minimizes social, political, and economic risks to communities, governments, and businesses. Seven of the eight investments either failed completely or were altered throughout the design and implementation process, resulting in significant financial losses or company bankruptcy. One commonality of these failures was the failure to consider tenure and resource rights during initial risk analysis. The questions emerging from this paper are a point of departure for additional primary research projects with interested corporate actors, investment firms, and national governments.

If you are attending the World Bank’s annual Land and Poverty conference, the presentation is at 3:00 – 4:30 pm on Monday in a session on impacts from interventions to secure land rights. Read The Implications of Uncertain Land Tenure on Investment Success.


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