Africa is 'the Brazil of the 1970s' in Agriculture

Is sub-Saharan Africa, in agriculture, the Brazil of the 1970s?

Savills, the property consultancy, believes so – although acknowledging that acquiring land in the Dark Continent is "not for the faint-hearted".

"The African model is likely to show a similar, although accelerated, pattern to agricultural investment opportunities in Brazil," the group said.

"Forty years ago, Brazil had limited agriculture potential with poor infrastructure and a weak economy.

However, investment in infrastructure, "the availability of credit facilities and policy reform to consolidate land has turned around Brazil into a global hub of commercial agriculture".

Soybean yields in sub-Saharan Africa are coming in at only 32% of their potential, and corn yields at only 20%, Savills said.

'Significant growth corridors'

Indeed, investors should expect internal rates of return, in terms of net cash flows, of 8-25% over five-to-10 years.

Once operating at "full strength", which could take five or six years for an undeveloped site, the average enterprise should be yielding 20-25%, in terms of earnings before interest, taxation, depreciation and amortisation (ebitda) compared with capital invested.

And capital growth can be up to 30% over the first five years, Savills said, if acknowledging that increases can be "highly variable".

The company highlighted "significant growth corridors" developing in southern and eastern Africa "that not only unlock the potential for export for investors, but also significantly strengthen local and regional markets".

These include swathes from Beira in Mozambique to Zambia, and from Dar es Salaam in Tanzania to the Congo.

'Not without risk'

However, such riches will not come easy, Savills said.

"It is often understated that to transform this land into a commercially productive asset requires a large amount of readily available capital, good external infrastructure, technical expertise, especially at farm level, and time.

"As with all investments with potentially high returns, investing in sub-Saharan Africa is not without risk."

And even if complications of poor roads, or land tenure, can be overcome, there is the potential for criticism from the many agencies, such as Oxfam, the Oakland Institute and the World Bank, concerned over the social costs of land grabbing.

It is "ideal" to invest in farms of 1,000-5,000 hectares, big enough to allow economies of scale while offering a lower risk of touching land ownership sensitivities.

"Investors looking at very large scale tracts of land, in excess of 5,000 hectares, may attract negative government and international publicity as part of an 'anti land grabbing campaign'," Savills said.