Non-Performing Agricultural Investments Get the Axe



The recent revocation of investment licences granted to three foreign companies and one local investor was based on their failure to perform. DAWIT ENDESHAW & MISGANAW GETACHEW, FORTUNE STAFF WRITERS, get to the roots of this matter.


Karaturi, Agro Products Plc, a renowned but controversial foreign investment in Ethiopia’s agricultural sector, seems to be facing the beginning of its end. The Indian company came to Ethiopia in 2011 to invest in growing export standard wheat. The reception was warm. Government granted it 300,000ha of land in Gambella State, six times the size of Addis Abeba. The amount was slashed in concern that it was too big for a single company to manage. So later it was decided to give only third of the original land grant, 100,000ha. Despite all the expectations, five years down after the inked contract, the company has cultivated only 7,645ha.

Matters got out of hand when Tefera Deribew, minister of Agriculture told Indian media that Karaturi’s performance was way below expectation.

Now developing stories indicate that the company has even failed to repay 65 million Br of credit it received from Commercial Bank of Ethiopia (CBE). In response the bank has foreclosed the company’s assets; two weeks ago CBE sold two drilling machines to a local company for 2.3 million Br. An even worse scenario is the Bank’s announcement of a new auction on Karaturi’s lease right to 100,000ha of farming land, along with warehouses, dormitories and prefabricated houses earmarked for a another foreclosure auction. The collateral is located in Nure Zone, Jicao and Itang Weredas.

This brings into question the overall performance of large scale agricultural investments, especially at this juncture where the Agricultural Investment Land Administration Agency (AILAA) took a serious measure on 20pc of 97 large scale agricultural investment companies this year.

Globally the 2008 leap in food prices created a new interest in agricultural investment on a larger scale. This time the interest in land did not come with arms as it did with the colonial experience of other countries. No different from other countries in this regard, Ethiopia was also player in this global trend and welcomed the investment capital.

At that time, the government identified 3.5 million hectares of fertile land available for agricultural investment for both local and foreign companies.

Now in 2015, there are 5,680 local and foreign investors involved in the sector, with 5,583 licensed and handled by regions. The remaining 97 are large scale agricultural investors licensed and handled by the Agricultural Investment Land Administration Agency at the Federal level. A total of 2.43 million hectares of land is under the control of these investors: 476,000ha was allowed to the 97 big investors, while 5,583 was allocated to the others bringing the total area of land to 1.94 million hectares.

Data from the Agency show very low performance and productivity despite the huge size. Only 30pc to 35pc of the land has so far been made productive.

Companies like Saudi Star were given 25,000ha of land for the cultivation of rice in 2010. Owned by the Saudi billionaire Mohammed Ali Al Amoudi (Sheikh.), Saudi Star has started exporting.

That was the scenario that led the Agency to terminate the licences of three foreign companies and one local company. The Agency also issued first warnings to one local and six foreign companies and last warnings to five local and two foreign companies. From these eighteen companies, eight were granted land in 2010; the rest in 2011 and 2012. Benishangul, Gambella and Southern Nations Nationalities & Peoples (SNNP) were among the regions targeted for agricultural investment.

Of the total of farm land leased by 18 companies; 51,358ha were in SNNP; with the lion’s share of 197,000ha in Gambella and 62,000ha in Benishangul.

“The licences were given after cautious pre-assessment of companies’ capacity in terms of capital, and commitment in terms of business plans and track records of their engagement in the sector elsewhere in the world,” argued Daniel Zebene, communication director in the Agency.

There are two points at which licences may be obtained, regional and federal. Those that request areas of land bigger than 5,000 hectares are handled at the Federal Ethiopian Investment Commission. After securing the land companies clear it in preparation for their respective investment.

Daniel’s argument, however, does not stand up to scrutiny. Karaturi, a world class company, was on the verge of collapse in its business of agriculture investment in Kenya and Europe, when it got its licence to operate in Ethiopia.

Around the same time, figures indicated that its stock price had declined from 38 dollars to 1.30 dollars. It also had a pending court case over allegations of tax evasion.

What remains problematic is not only the scrutiny of the licensing process. The facilitation, collaboration and reporting mechanisms have been identified as serious hindrances to the success of the sector leading to undesired results.

Both parties voiced serious loopholes that hinder the success of the investment with a blaming tone.

“We give three chances in a form of levels of warning first, second and third, before final revocation. This is done to alarm the companies to get back in line and perform as per their timetable submitted to us as part of the business plan,” Daniel asserted. It is only when they fail to improve that we terminate the deal.”

Government does not quickly move to termination but plays a facilitatory role to enable investments to succeed.  Among the incentives offered by government are close support, facilitation infrastructure, duty free privileges and export tariff exemption. Regional offices are the major players in this equation.

Saber Farm Plc, JVL Overseas PTE Ltd and Mella Agro Development were companies whose licences were revoked.

Saber, an Indian company from India occupied 25,000 ha of land following its contract signed back in 2011, it is out of the ten Indian companies listed under the eighteen. It was engaged in Soya Bean and cotton production investment in Gambella State. Usually companies have three years of grace period and if they fail to start production within three years penalties that go to the extent of revoking licences will be imposed on them. Another Indian owned company in the list, JVL Oversees PTE Ltd involved in cotton farm in 5,000ha of land for 25 years located in the same region with 74 million Br capital in the year 2012. The company agreed by 158 Br lease price per hectare.

There are around 12 foreign companies investing in Gambella and seven of these are included on the penalty lists.

Ojulu Gnyigwo, head of the regional Investment Agency in Gambella, in his telephone conversation Fortune, claimed that the companies face no problem since they had finished all the processes from the Federal government. Rather he argued that so far there was an issue of forgery in investment licences among local investors. There were a number of cases in which investors illegally brought their own version of licences and used them to access land.

There were even cases in which some were caught while trying to access loans from banks, a source from the Agency told Fortune. A few were also prosecuted by the Anti-Corruption Commission.

In addition there are incidents that officials at wereda level illegally distributed land preserved by federal government for investment to other local investors. In Itang wereda for instance, officials were involved in illegally distributing a 27,000ha plot of land leased by an Indian company, BHO Bio-Products to four investors. Currently, this company is among the 18 penalized with a first warning. It leased the land in 2010 to farm oil seeds.

The problem occurred because of an information gap from the wereda, said Ojulu, failing to explain exactly what he meant, regardless of Fortune’s repeated inquiry. Regarding Karaturi which has faced a final warning he said he had no information on their current progress.

In case of Saudi which Ojulu said had so far developed only 7,000ha, the Agency has made an assessment based on a checklist from the federal government to evaluate its performance. Howver, Ojulu declined to disclose the result of the assessment.

Companies like Tigab Agro Industry present a different narrative to his theory.

After spending one whole year to secure land, the Company has been based in Benshangul Gumze State since 2011 and is cultivating cotton and oil seeds on 3,000ha of land. Because of a problem from wereda officials, we did not have timely access to the land.

“We accept the penalty, but we also have our reasons too,” said source from the Company. Except for a contract with the then Ministry of Agriculture, the company has no document that depicts its lease right over the land. Supposedly, administration at wereda level agree terms and handover the land to Tigab. Cabinet is supposed to sign on the document that guarantees the legality of the arrangement.

Under the contract between Tigab and MoA signed in 2011, the company agreed to develop half of the leased plot of the land within the first year and entire plot of the leased land within a period of not more than three years.

Following a failed attempt to deal with the local administration, the company secured the land with the push from the Ministry. There is a huge gap in the implementation body at the lower level, the same source told Fortune. In terms of security also, there were even times when our employees got arrested and with the help of security personnel from the federal police the issue was overcome. The penalized companies pointed to problems at regional and wereda level in handing over the land to investors.

Among the companies whose licences are being revoked is Mella Agro, the only local company. Located in SNNP, it has leased 5,000ha of land to cultivate cotton with 40 million Br capital. By the time of the contract it agreed that it would cultivate one third of land within one year and total land within a year and not more than three years. The countdown started from the date of receipt of all clearance from the government and other agencies at regional level. However except building offices and a workers’ rest room the company could not go further.

A source close to Mella attributes the failure to a transportation problem which the source says was caused by there being no single bridge across the Omo River, an obstacles to get into the farm land. “The company entered in to this investment with a promise by the government that it would construct a bridge.”

Mella Agro also mentioned conflict between a few ethnic groups creating a security concern for employees. The source related one incident where a driver working for the company was robbed and killed.  In his view those issues contributed to poor performance and their inability to obtain bank loans.

For Tigab Agro Industry though they have received a final ultimatum they are hopeful that their problem will be considered. They remain unable to get loan from the Development Bank and they could not renew their investment licence from the region.

Resistance from the local residents is another challenge faced by the investors. This particular issue has been at centre of concern as far as resettlement of local people is concerned; it has been a focal point of both political debates and human rights issues raised by activists.

Last year an investigative panel established by Board of Directors of the World Bank Group, reported that close to 26 indigenous people from Nuer group expressed their discontent over what they had alleged was “an involuntary” resettlement. They had alleged that Gambella’s regional government took their ancestral lands without their consent and used force during relocations. They claimed that they were moved to infertile land without any basic services. They also complained that while the land was leased to large commercial farm developers, they were unable to sustain their livelihoods.

Yet many companies that either have their licences revoked or that are penalized with warning, may knock at the court’s gate, appealing their case, said Daniel.

The sector, troubled with back and forth from all players, could not prevent the revocation of licences, hindering the anticipated earning of elusive foreign currency. Nevertheless, second Growth & Transformation Plan (GTP II), identified agricultural investment as a major source of economic growth, and major enhancer of the process of industrialization and export development.



By DAWIT ENDESHAW & MISGANAW GETACHEW
FORTUNE STAFF WRITERS

Published on Dec 07,2015 [ Vol 16 ,No 814]


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