Increasing Agricultural Productivity:

Encouraging Foreign Direct Investments in the COMCEC Region

Introduction

Agriculture is central to the provision of food and the eradication of poverty and hunger that still

exists in many parts of the world. Not only does it provide significant mass and rural

employment, it is also a major contributor to national economic growth and a considerable

foreign exchange earner for many developing countries including the COMCEC Member

Countries.

The COMCEC has been working to enhance economic and commercial cooperation among its

member countries for 29 years. It has recognized the importance of agriculture, and made it one

of the six cooperation areas. Since the agricultural sector is playing a crucial role in economic

growth, employment and poverty reduction in least developed, developing and transitional

economies, including the COMCEC Member Countries, the COMCEC aims to increase and

enhance the cooperation in this particular sector among its members through encouraging

foreign direct investment (FDI) in the COMCEC Region.

Despite its importance in the COMCEC Region, the agricultural sector performance compares

relatively weak to other sectors, and FDI volumes in this sector are comparatively low.

Paradoxically, FDI can be used as an instrument to increase productivity, stimulate local

entrepreneurship, enable technology and skill transfers, and is therefore considered a positive

contributor to further growth in this sector. In addition, a significant increase in new

investment, and continuous private sector interest in agricultural development in the COMCEC

Member Countries is imperative to address more socio-economic challenges such as eradicating

poverty, reducing chronic food insecurity and tackle rising food prices.

In this respect, this study aims to provide policy recommendations for attracting more FDI in the

agricultural sector in the COMCEC Region and in the same time mitigate risks of agricultural FDI

as much as possible. By means of an explorative study regarding the current state of the

agricultural sector, followed by an agricultural FDI assessment into the COMCEC Region as well

as by illustrating several case studies, main drivers behind agricultural FDI are disclosed and the

potential for agricultural FDI for different COMCEC Member Countries are evaluated. To prepare

this study, the positive benefits of FDI have been widely analysed and empirically tested, yet,

there is significantly less literature on the costs and risks of FDI in general, let alone in the

agricultural sector.

It is clearly understood from the study that FDI flows in general have been significantly rising

worldwide since early 1990s. However, as for the COMCEC Member Countries, the level of FDI

flows was generally unsatisfactory. The total accumulative FDI flows to all COMCEC Member

Countries increased from only $6.8 billion in 1990 to $12 billion in 2000, and reached their peak

of $145.8 billion in 2007 before decreasing to $ 134 billion in 2011. The 57 COMCEC Member

UNCTAD, 2009. World Investment Report: Transnational Corporations, Agricultural Production and Development. United

Nations New York and Geneva.

J. Awwal, 2009. Fostering Intra-OIC FDI in the agricultural sector. Islamic Development Bank, Occassional Paper No. 14

Economic Policy and Statistics Department