Saudi Arabia Reaps Ethiopia’s Harvest

Saudi Arabia has reaped the first rice harvest from farmland it purchased in Ethiopia. Presented to King Abdullah this March, the harvest marks the first output of a controversial ‘outsourcing’ strategy, whereby Saudi investors purchase land overseas to produce food for Saudi consumers, bypassing local economies and the global food market.

Photo by: Martapiqs under a CC Licence

The approach is gaining credence in the Gulf. An arid climate and prohibitively expensive irrigation costs mean the region imports 60 per cent of its food. When food prices soar, such as the tripling of rice, wheat and corn costs experienced last year, Saudi Arabia becomes food insecure. Owning more farmland, even if overseas, gives it greater control over both the production and price of food.

The strategy is portrayed by the Saudi leadership as benign. Saudi Arabia manages the agricultural production and human resources. It is not, therefore, exploiting cheap local labour. Neither is it profiteering in the global food market from higher agricultural yield, since produce is flown back for Saudi consumption. Yet a closer look at the countries being approached by Saudi investors shows a preference for weak or unstable states with low taxation, minimal bureaucracy and insufficient capital to grow food on the land (and thus a willingness to sell land to those that can, for less than it is probably worth).

Nations visited by Saudi officials include Sudan, Kazakhstan, the Philippines, Ukraine and South Africa. In the case of Sudan, Hail Agricultural Development Company (HADCO) will invest as much as $45 million, cultivating wheat over 10,000 hectares, and the Sudanese Government are putting a further 780,000 hectares up ‘for sale’. All the while, Sudan fails to provide food for its own population, and is one of the largest recipients of aid from the UN World Food Programme.

Sudan is not the only poor country courting such investment. Cambodia is currently in talks with Kuwait and Qatar about a similar scheme. Hun Sen, the Cambodian Prime Minister, rejects criticisms that he is selling his peoples wares: ‘I think the Gulf can become our rice market,’ he claims. Yet the Gulf is interested in cheap land, not local produce, so talk of a ‘market’ seems confused. Simple payment for land could be of benefit to Cambodia’s development, of course, but Sen’s track record for receiving foreign investment is not too encouraging. Millions of dollars were paid to the Cambodian Government to secure oil drilling rights but have yet to appear on its balance sheet, according to NGO Global Witness.

For the people of Sudan, Cambodia and other nations in the Gulf’s sights, the new colonialism could begin impacting the most primary of commodities, and what payments are made will go to governments, not to the wider economies, serving only to reward leaders for their failure to till the land themselves.

Hugo's Bank

As North America slid into economic recession in September, Venezuela’s President Hugo Chavez met with fellow Latin American leaders ‘Lula’ da Silva, Evo Morales and Rafael Correa to discuss his Banco Del Sur (Bank of the South). Advocated by Chavez and launched in December 2007, Banco Del Sur is intended as a viable alternative monetary fund for Latin American development projects. Unlike the widely discredited International Monetary Fund (IMF) and World Bank, Banco Del Sur promises credit without structural or economic reform conditions, or the social disruptions characteristic of many Inter-American Development Bank (IADB)-funded projects. Argentina – which seven years ago defaulted on $9.8 billion of IMF loans – joined Banco Del Sur at Chavez’s request, along with Brazil, Bolivia, Ecuador and Paraguay.

One year on and Banco is still ‘in the cot’, not least because members have conflicting visions for it. Venezuela and Argentina anticipate the Bank’s involvement in regional monetary policy and balance of payments finance, while Brazil – which already has its own development bank – sees Banco Del Sur servicing Latin America’s Regional Trade Agreement, known as Mercosur.

Even if members can agree on the bank’s _raison d’être_, there are fears that its moderate credibility will make it hard to raise money from the international markets. Its seed capital is only $7 billion which, while hefty for a regional development bank, is dwarfed by IADB, which lends at least that amount per year from total reserves of around $100 billion. Banco’s credit rating is also depressed by that of its members. Chile, which has one of the highest credit ratings in the region, is not participating.

Banco’s association with Chavez is also worrisome. Venezuela's fraught relationship with the US and evolving alliance with Iranian President Mahmoud Ahmadinejad could give many potential investors the jitters. Until it can work the international markets, Banco will only lend money invested by its members.

Global recession will have varying impacts on Banco’s prospects. On the one hand, high dependency on raw-material exports makes Latin America vulnerable to falling international demand. Oil revenues, which account for the majority of Venezuela’s export earnings, may decline. Such developments could, in turn, limit member investments. Yet Argentine bank BBVA claims that high capital reserves and generally low indebtedness may help Latin America avoid the worst effects of recession. In November, Brazil’s two largest banks – Itau and Unibanco – merged to become the sixth biggest bank in the Americas, worth $41.3 billion. As the financial world order attempts to rebuild and cash seeks new places to alight, there could well be a stall for Banco Del Sur in the new market.