Increasing Agricultural Productivity:
Encouraging Foreign Direct Investments in the COMCEC Region
37
practice experiences to host country firms that eventually enhances host countries’ agricultural
productivity, capacities and competitiveness.62
In fact, various studies have shown that significant increases in levels of total factor productivity
(TFP) have occurred in sectors which are dominated by FDI, certainly over and above what
domestic investment would have generated 63. Much of such productivity gains are a result of
technological development through spillovers, enhanced efficiency and diversification of
production.64 Agricultural FDI can influence multiple actors along production chains, varying
from direct food production to providers of farm inputs and food distributors, generating wider
economic benefits for host countries. Introduction of new varieties of crops and commodities
contributed to volume increases of production, yields and exports65.
An inflow of agricultural FDI has the potential to stimulate or crowd-in domestic investment,
which in turn can contribute to balancing the agricultural investment gaps. Financial constraints
for local farmers can be eased too by agricultural FDI as FDI involvement in the agricultural
sector often includes contract farming or integrating schemes (Gerlach and Liu, 2010). Through
this means, local farmers can obtain access to credit. An example is British American Tobacco
Limited in Uganda, which provides credit facilities at low interest rates to its contract farmers.
Finally, efficient marketing and the adoption of higher standards with regards products and
processing processes have been acknowledged as positive effect of agricultural FDI on host
economies. Such standards relate for instance to certificates (e.g. Global GAP standards and ISO
standards) that are globally recognised and can thus increase market access and value-adding
activities for smallholder farmers.
62 Deshmukh, 2012; Djokoto, 2011; Gerlach and Liu, 2010; Gunasekera et al, 2012
63 Msuya, 2007.
64 Gerlach and Liu, 2010.
65 Gerlach and Liu, 2010; FAO, 2012a.