Increasing Agricultural Productivity:
Encouraging Foreign Direct Investments in the COMCEC Region
36
convince private investors to consider investing there. Agricultural FDI can contribute to the
construction or improvement of local infrastructure such as roads, (cold) storage facilities,
irrigation dams, rail networks and port facilities, either directly by the investor or indirectly by
the government58 . Improvements in infrastructure benefit both farmers in the connected
locations and rural populations in general59. For instance, FDI that has been attracted to the
Ethiopian sugar industry has led to the construction of irrigation dams as side effect60.
Yet, investing in infrastructure might not always serve a rational purpose in terms of cost and
benefits, despite the socio-economic benefits of improved market access for rural and remote
areas. Initial as well as ongoing costs for constructing and maintaining physical infrastructure
must be balanced against the socio-economic benefits for the region. FDI, and as a result,
increased production, might turn this balance in the right direction. Improved infrastructure
correlates positively to additional FDI and therefore, ideally, creating an economic growth spiral.
Unfortunately, sophisticated roads and ports alone are not sufficient. Carriers such as Maersk,
MSC, and Malaysian Air, as well as third party logistic (TPL) providers, such as DB Schenker and
Kuehne and Nagel must be interested to operate in the country, and this will only happen if
demand is sufficient to justify the market entry costs. If this is the case, then supply chain costs
will reduce and the country’s competitive position in the global market place improves.
In low income and developing COMCEC Members, the general logistics are reported to be poorly
developed and weakly linked, in some cases even non-existent. The main problem has to do with
low scale and therefore lack of demand for transportation services, which in turn, results in high
logistics costs. In countries lacking global service providers, local companies serve the demand
for logistics services to the best of their capabilities. Unfortunately, shortage of refrigerated and
freezer trucks, and limited temperature controlled warehouse facilities are a constraint to
agricultural production, especially for fresh and perishable products. It is estimated that in
countries with limited infrastructure and underdeveloped logistics, about 40 percent of the
post-harvest crop is lost as a result of poor or no storage61.
The other important impacts of the FDI are indirect multiplier effects and productivity gains.
Multiplier effects are generally perceived as one of FDI’s main benefit to local economies. The
transfer of (intangible) resources and assets such as knowledge, technology, product innovation,
skills and organisational capacities from foreign investors to host economies are also frequently
highlighted as another important justification for attracting FDI. Foreign investors frequently
possess superior resources, which have enabled them to expand beyond their home market(s)
and achieve competitive advantages through investment in foreign markets.
Consequently, a potentially valuable effect of agricultural FDI on host countries is the transfer of
agriculture-specific expertise (e.g. technologies), engagement of agricultural R&D and best
58 FAO, 2012a
59 Gerlach and Liu, (2010)
60 Gunasekera et al, (2012)
61 USAID 2013.