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Land investors urged to respect local rights to avoid financial pain

Source: Thomson Reuters Foundation - Tue, 5 Feb 2013 16:28 GMT
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LONDON (AlertNet) - Businesses involved in large-scale land acquisitions in developing countries should respect local land rights and consult communities affected by their deals if they want to protect their investments and avoid financial losses, experts said on Tuesday.

report commissioned by the Washington-based Rights and Resources Initiative (RRI) warned that where international investors ignore existing or customary local land rights when buying land - for example to grow crops for food or biofuels - they can face a huge jump in operating costs if the resulting tensions lead to delays or even abandonment of the project.

Jeffrey Hatcher, director of global programmes at RRI, a coalition of organisations that aims to support indigenous groups in securing rights to land and forests, said the financial risks of "land grabs" have been under-estimated and are not reflected in the costs of borrowing to fund projects or insurance contracts.

"Investors and creditors face real and substantial financial risks, especially when they dispossess local people of their land rights in deals with governments," Hatcher told a panel discussion in London.

The report, written by the Munden Project, estimated that the operating costs of a three-year investment of around $10 million could be as much as 29 times higher than a normal baseline scenario if the project were forced to stop its activities because of local opposition. The impact decreases as the size and length of the investment increases, it noted.

The report gives examples of where such problems have occurred. For example, in Orissa, India, a failed venture by the metals and mining firm Vedanta resulted in a negative financial outlook from credit ratings agency Standard and Poor's. The company's actions have also been connected to an upswing of the Naxalite insurgency in eastern India, the report said.

SEKAB, the largest importer of biofuels into Europe, tried to lease some 420,000 hectares of land in Zanzibar in Tanzania to grow sugar-cane, but did not carry out proper studies into its impact. When this became clear, SEKAB’s attempt to obtain additional credit was denied, it pulled out of East Africa and had to write off at least $20 million, according to the report.

Samuel Nguiffo, secretary-general of the Center for Environment and Development in Cameroon, where foreign companies are planning to establish huge palm oil plantations, said that in an ideal world, the money invested in big land deals would trickle down to local people, compensating them for the land and livelihoods they may have lost. "But Africa is not always like that," he added.

Investors may think they can make more profit by investing in places where the rule of law is weak, but this is a fallacy, he said. "They are likely to lose money, and there will be very high financial and reputational costs," he said, warning that land grabs in Africa could lead to "major conflict in the near future".


To avoid this, governments - often the major brokers of land deals - should play a stronger regulatory role to protect the interests of both the private sector and communities, Nguiffo said.

Li Ping, a senior attorney with Landesa, noted that China is moving to tighten domestic regulation governing the acquisition of agricultural land, not least because it fears land grabs could stoke social unrest. But Chinese companies are not applying the same standards abroad because their country is so hungry for natural resources, he told the London event.

A second RRI report, also released on Tuesday, said developing countries now face a choice of whether to embrace a more sustainable development path built on respecting the rights of all their citizens, or to hand out their people's lands and forests to industrial investors, hoping for faster economic growth.

Andy White, RRI coordinator, said that in 2012 many governments had shown they were more interested in selling off their resources than protecting their people.

"This could also be called 'The Great Giveaway', where governments are creating a society of land labourers versus a society of land owners," he said.

By 2012, developing-country governments had recognised communities' ownership or long-term use rights to 31 percent of forests covering more than 490 million hectares, the report said. That is a major improvement on 10 years ago, when the figure was 22 percent, White said.

But in many cases, he added, legislation is little more than an "empty vessel" and doesn't grant local people full rights to access and use land. Most progress has been made in Latin America, while Africa and Asia lag behind and are advancing very slowly, White said.

He noted that a rising number of land rights activists are also being harassed, beaten and killed for protecting land, with the death toll doubling between 2002 and 2011, according to Global Witness. Community and NGO leaders find themselves "caught in a vice between governments and global markets," he said. "The violence is an indication of the desperation faced by a lot of people."


The RRI report highlighted Myanmar as a potential flashpoint, as it emerges from decades of secretive and authoritarian rule. Even as it takes tentative steps towards democracy, the government has increased hostilities in the northern state of Kachin, where mining, logging and hydropower projects have failed to consider the land rights of indigenous peoples, the report said.

A government effort to introduce a system of community forests 15 years ago on 918,000 hectares by 2030 has achieved less than five percent of its target so far, and dense forest cover across the southeast Asian country fell from around 46 percent of its land surface in 1990 to just 20 percent in 2010.

“The leadership of previous governments guiding Myanmar started a race to sell off our natural resources, and our livelihoods have become collateral damage in the process," Maung Maung Than, project coordinator for The Center for People and Forests (RECOFTC), said in a statement. "As our country opens up to the outside world, we need to stay focused on reducing poverty, not increasing it.”


The rise in mining exploration is another trend to watch, as it is triggering more conflict, RRI's White said. In Liberia, for example, three times as much land has been allocated for mining activities as for forestry or agri-business, he noted.

On the positive side, there are signs that some companies may be starting to understand the importance of respecting local communities and their land rights, he added. For example, when Finnish wood products firm Stora Enso discovered it had not followed legal procedure in buying land for a plantation in China's Guangxi Province, it began renegotiating a lot of those contracts, he said.

On Tuesday, Jakarta-based Asia Pulp & Paper Group (APP), one of the world's biggest pulp and paper companies, said it would stop using timber from Indonesia's natural forests and use only trees from plantations, in a drive the Rainforest Action Network said could be a milestone if the company keeps its promise.

RRI's Hatcher said there is a need to explore the possibility of a different business model that could be based on preserving local ownership of land.

"People in civil society understand the risks of operating in these environments, but we need to open up the conversation and see if there is a shared interest (with business)," he said. "We don't know yet."



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