Many countries in sub-Saharan Africa see foreign direct investment as crucial for jump-starting their economies, and they are tapping into fast-rising demand for biofuels. Without stronger public-sector engagement, however, the potential for rural transformation will not be realized.
Bioenergy investment is on the rise in sub-Saharan Africa, driven by growing demand from the EU, the U.S. and other markets with biofuel blending requirements. Although Africa’s biofuels output is still small – under 1% of global production in 2014 – it is increasing: from 2006 to 2011, bioethanol production in Africa nearly doubled, to 135,000 m3 – about 60% of it for export.
Sugarcane is of particular interest in sub-Saharan Africa, as it is a commercially proven, tropical energy crop with significant potential in the region. Welcoming governments add to the appeal; foreign direct investment – a record 80 billion USD in 2014 – is crucial to African economies, and bioenergy is seen as a way to attract FDI, boost exports and drive rural development.
Yet an in-depth study of the Makeni Project, the largest agricultural investment ever in Sierra Leone, highlights the pitfalls of pursuing such a strategy without a foundation of effective public engagement and investment. Development partners need to prioritize capacity-building in this and other Least Developed Countries to help them fill that critical gap, the study finds.
“Land-based foreign investments are very contentious, but well-designed projects can do a great deal of good in a rural community,” says Matthew Fielding, a project manager at SEI who led the study. “Our research suggests that is the case with Makeni. But this project also shows the limitations of FDI as a driver of development. Without an effective public sector to provide oversight, infrastructure and key services, problems will arise, and opportunities will be missed.”
The 400 million EUR Makeni Project was launched in 2008 by Addax Bioenergy Sierra Leone (ABSL), a subsidiary of AOG. It is backed by six development finance institutions, two of which are equity partners (Swedfund and the Netherlands’ FMO). It includes a roughly 10,000 ha sugarcane estate, plus a distillery expected to produce about 85,000 m3 of ethanol per year for export to the EU. A power plant fuelled by the sugarcane bagasse will feed 15 MW into the national grid, about 20% of the country’s electricity supply. Construction was completed in 2014, and full production capacity is expected to be reached in 2017.
ABSL has said it wants the project to be “a benchmark for sustainable investment in Africa”. Indeed, it is the first in Africa to be certified by the Roundtable on Sustainable Biomaterials, which called it “a model for sustainable projects in Africa”, citing provisions covering food security, stakeholder dialogue, human rights, land and water rights, and rigorous environmental criteria.
“Unlike extractive industries, which attract FDI but create few domestic jobs and emphasize short-term profits at the expense of social and environmental goals, modern bioenergy offers a path to long-term sustainable development,” says Francis X. Johnson, a senior research fellow at SEI and co-author of the study. “But are public and private actors – and the communities themselves – committed to the long-term engagement needed to realize the potential? The Makeni Project, which is embedded in an underdeveloped rural area, gave us an extraordinary opportunity to explore that question.”
The study examined the impact of the Makeni Project on six villages in the project area, comparing conditions there with those in three other villages nearby. All households in each village were surveyed: 327 in total in November 2013, and 331 in April 2014. The research focused on key livelihood assets: natural resources, infrastructure, financial resources, social capital and skills. Poverty was found to be widespread, with a 62% likelihood of households living on less than 0.50 USD per day; 90% relied at least in part on subsistence agriculture. Almost all reported food shortages.
The Makeni Project has created thousands of jobs – 3,455 as of December 2014, 46% permanent (the rest are short-term or seasonal). Through the Farmer Development Programme (FDP), a required impact mitigation effort, ABSL has also provided training in farming, business and other skills; introduced mechanized agriculture with modern inputs, and set up vegetable gardens. This has sharply increased rice crop yields, diversified diets and supported small-scale commercialization. In addition, ABSL has built hundreds of kilometres of roads and extensive other infrastructure.
Yet by leasing large amounts of land, the study shows, the project has directly affected the availability and use of key livelihood resources. Moreover, a lack of government oversight and engagement on the ground has resulted in missed opportunities – from roads built by the developer that could be extended to reach isolated villages, to jobs that local people cannot take because they lack the skills.
“Least Developed Countries seeking to make the most of FDI need to make it a priority to develop appropriate policies and mechanisms to enforce them,” says Fielding. “Particular attention needs to be given to regulatory structures, technical know-how, and coordination among key agencies. But we know countries are unable to be able to do this alone – development partners, finance institutions and NGOs have to support these efforts.”
This kind of engagement is also crucial to ensure the long-term viability of the FDI projects. That point was highlighted when, on 25 June, ABSL announced that operations would be “downscaled” for the remainder of 2015, and “a review of all options for the future” would be conducted. The company noted several “unforeseeable events” – particularly the Ebola outbreak – that had had “a significant impact on the timeframe, costs and revenues initially planned”.
“The challenges to get to this stage of the project have been massive, and it would be a major loss for Sierra Leone if ABSL could not find a way forward,” Fielding says. “The Makeni Project has been a trailblazer, and if it succeeds, it will attract others. If it fails, it could deter investment for many years. At the same time, this situation is a stark reminder that the Makeni Project is a business endeavour, and it needs to be profitable. That is a key difference between FDI and development projects.”