Increasing Agricultural Productivity:
Encouraging Foreign Direct Investments in the COMCEC Region
28
means to promote economic growth, create employment and raise technology levels. 50
Arguments favouring the impacts of agricultural-specific FDI point to its capacity to reverse the
long-term underinvestment in agriculture, which a substantial number of regions have been
confronted with, as well as gaining access to better technology and expertise. In turn, this access
can enhance productivity and corresponding economic growth, employment creation and rise in
personal incomes.
Such benefits could eventually contribute to sustainable economic development and poverty
reduction in host countries as most of the population living below the international poverty line
consists of smallholder farmers in rural areas of developing countries.51 Critics oppose this line
of reasoning by stressing the fact that agricultural FDI in countries with relatively weak
institutions, regulatory frameworks and ill-defined property rights might result in FDI projects
that are socially, environmentally, technically and financially unviable and which lack any
potential beneficial effects on host economies. The aim of this section is to stress the importance
of FDI in agricultural sectors by providing an analysis of positive effects of FDI that underscores
the significance of agricultural FDI to host economies.
2.4.2 Capital formation and food security
Ensuring regional and global food security requires fundamental shifts in institutions, policies,
investment (both domestic and foreign) and incentives in order to attract large-scale adoption of
sustainable agricultural practices. 52 In fact, one of the key constrains to expansion in agricultural
production in developing countries is insufficient FDI in the agricultural sector. Domestic
investment in agriculture is constrained by the limited availability of domestic savings and
heavy reliance on international aid funding. The relatively low public investments in the
agricultural sector by governments and the decreasing share of international aid funding on
agriculture have created a public investment gap between the required and supplied
agricultural investments 53.
These low investments, which have persisted over the last 30 years, have reduced agricultural
productivity drastically. Agricultural production has been too slow to respond on recent food
crises whereas the future is likely to see even more pressure on the agricultural sector as rapid
population growth continues, especially in Sub-Saharan Africa. Sustainable food production
systems are capital-intensive.
50 Msuya, E., 2007.
51 Ibid
52 Gunasekera et al, 2012.
53 FAO, 2012a.