POINTERS: Expanding Africa's Oil Palm Plantation

By: Mr. Thompson Ayodele

Thompson Ayodele is the Director of Initiative for Public Policy Analysis, a public policy think tank based in Lagos, Nigeria. He attended Obafemi Awolowo University, Ile-Ife, Nigeria, where he got a degree in humanities, and Kwara State Polytechnic, Ilorin, Nigeria, where he also received his Diploma in Law. Prior to his work with IPPA Nigeria, he was a journalist with “The Comet,” now rested. Mr. Ayodele was Deputy Country Director, Students In Free Enterprise(SIFE) Nigeria from 2002 to 2006. He is currently a coordinator of Malaria Free Zones, a Free Africa Foundation Project, in Nigeria, Cameroon and Benin Republic. He is an avid writer and a frequent commentator on public policy issues in Nigeria. His articles have been published in the Wall Street Journal, New York Times, New York Post, Providence Journal, Washington Post, Baltimore Chronicle, Australia Financial Review, Business Day South Africa and several media outlets locally. He has also granted countless media interviews to the BBC, Swedish Television CNN, Irish Times, Associated Press (AP), Radio France International, Voice of America as well as Reuters. He has authored and co-authored many publications including, Does Nationalization Increase Investment? The Experience in Nigeria, The Nigerian Clothing Design Industry in Lessons from the Poor, edited by Alvaro Vargas Llosa, Public or Private Solution to Pension Problems in Nigeria, Drug Use in Nigeria: An informal survey of Doctors, Pharmacists, Healthcare workers in Lagos, Ondo and Ogun, African Case Study: Palm Oil and Economic Development in Nigeria and Ghana; Recommendations for the World Bank's 2010 Palm Oil Strategy, Public-Private Partnership: Will it Fix Infrastructure in Nigeria?, Corruption in the Nigeria SMEs Sector, Subsidizing artemisinin-based combination therapies: a preliminary investigation of the Affordable Medicines Facility – malaria, The Economic Regulation of Payment Cards in Nigeria and Safe Medicine and Intellectual Property Rights Protection in Nigeria. Mr. Ayodele is married with kids and has travelled widely.

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Palm oil accounts for 34 per cent of the world’s annual production of vegetable oil and 63 percent of the global exports of vegetable oils. Palm oil has long-term benefits for the economy: creating more jobs and rural development. African countries’ experience of palm oil development provides a clear example of how palm oil, as a result of its high yields and low production costs is a highly effective means of alleviating poverty.

The expansion of oil palm plantations means establishing a steady supply for food demand tomorrow. According to the World Bank, demand for palm oil is expected to double by 2020. This growth is driven largely by rising consumption in China and India. Evidently, the cultivation of palm oil is not being driven by a single industrial sector but the global rise in demand for palm oil as a whole. Whether for food or energy needs, African producers are trying to benefit from this rise in demand to raise themselves out of poverty, increasing government revenue as a result.

Despite challenges, African producers are attracting investments at unprecedented rates. This has earned endorsements from international aid agencies such as the World Bank and the International Fund for Agriculture Development. In the same way, developed economies government should create a system that support palm production as a way to build a self sustaining African economies rather than the present regime of aid which often end in the pocket of few. Already, companies from South East Asia, the Americas and even Europe are looking to the continent to invest in the emerging agriculture sector – to the benefit of African producers and global food security.

For investors looking to participate in African growth, increasing Africa’s Oil palm plantation is the one to consider. Over a decade ago, few investors were giving African economies a sideways glance. But in the last few years, many countries in West Africa have attracted investment about $6bn specifically for palm oil plantation.

The increased demand for palm oil, together with its high yielding and easily manageable nature makes this particular product an attractive crop for farmers and investors alike. The industry in Africa is dominated for decades by smallholder farmers. The expansion in palm oil plantation is basically to address shortfall in local production coupled with the need to take advantage of the steadily rising demand from consumers across the emerging economies and from the bio-fuel sector globally. This is possible given the support from several African governments in Nigeria, Liberia, Ghana, Uganda, Ivory Coast and several other countries which see the crop as a cornerstone for economic development.

However if African nations are to continue to benefit from increased investment in oil palm plantation and the tremendous rewards of economic development and social empowerment accompanied oil palm development, international trade channels must remain open. Locally, African governments need to make land available and urgently resolved land-ownership disputes with existing investors which could delay operations and consequently dim further expansion drive.

Long-term employment in the sector requires access to markets. Palm oil production cannot occur in absence of demand, both global and domestic. European biofuels demand is one part of many required to support the sector. Nevertheless, investing in the expansion of oil palm plantation today means establishing the supply for food demand tomorrow. This can only be accomplished by expanding palm oil cultivation in Africa, one of the last regions with sufficient land available for cultivation.

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Questions & Answers (11) :

Thompson Ayodele

11 years ago

Answer to: POINTERS SECRETARIAT--There has been an increased growth in Nigeria and Africa palm oil industry in general. Thanks in large part to the recent investments into the sector by investors mostly from Malaysia and Indonesia as well as other countries in Europe and North America. For now, I am not aware of any African country that is undertaking any collaborative efforts with other African countries regarding taking a joint effort to develop palm oil industry. Efforts taken so far are at governmental level internally. The most visible collaborative efforts are with companies from Malaysia and Indonesia. However, I understand that some EU governments are interested in the palm oil industry and are planning to invest in the sector but they have caved in to campaign by environmental NGOs and pull their investment plug.

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5 years ago

Thompson Ayodele

11 years ago

Answer to: Peter Lavina--African countries should not target their own domestic market alone. But right now there is still a huge gap between local production and demand. Most African countries are net exporters of palm oil with the exception of Ivory Coast. For now targeting the domestic market will be productive and profitable. That does not mean they should jettison foreign markets as well. It is incorrect to say that it will be too costly to produce palm oil for export. In the short run, this might be the case but it is bound to become profitable in view of other uses of palm oil globally particularly its use for bio-fuel.

Thompson Ayodele

11 years ago

Answer to: SAMSUL KAMAL ROSLI--Unfortunately I don’t have the data for the total area being planted with palm oil in Africa. I can be specific in some few countries such as Nigeria. The total area of land for palm oil plantation in Nigeria is 2,514,090 hectare of land. In Ghana, around 285,000 ha of oil palm was cultivated. Smallholders cultivated nearly 88% of the total area under production but produced only 72% of the oil palm fresh fruit bunch. By and large, there is still vast land in Africa that can accommodate huge oil palm plantation.

Thompson Ayodele

11 years ago

Answer to: Sarala Aikanathan--There is a general interest and focus on attracting investment in Africa not just to Zambia alone. It is not surprising that the Zambian government is encouraging investment flow. However in view of the political structure and the size of Zambia it would be good to explore government buy-in first into the project. The best way this can be done is to work through the ministry of agriculture and investment board first. The ministry and the board will provide the route to follow. Again it would be good to have someone from Zambia who would serve as a local contact person. In this case it is good that someone in the Central Bank is acting as your contact person but should extend his/her network to help you get someone in the agriculture and investment board. They could take the project to higher political authorities. Based on my experience in Nigeria, I am not the best partner to drive the project ahead except the law in Zambia allows them to do this.

Thompson Ayodele

11 years ago

Answer to: Kamal Azmi Land ownership is a key risk that investors must take cognizance of when making investment decision in Africa. Having political support is not enough to guarantee a peaceful take off of the business. This is because key government officials change frequently and newly appointed or elected ones might not make the project a priority. Land is a critical issue in many African countries. In some countries such as Nigeria government owns the land and only it can allocate land. In some countries as well, individuals/ communities and family members can also alienate land but subject to approval from government. Problems with land can be mitigated in a situation whereby when government alienate land, the firm which the land is alienated to should also pay compensation to the original land owners. There is a strong attachment to land, such compensation would minimize whatever problem that could arise later on. Therefore the best way to minimize risk is to seek local buy-in into the project being considered. Above all there should no short cut, investors should seek and follow the laid out procedures and not seeking concessions that could appear unreasonable and which may backfire when a new government comes in.

Thompson Ayodele

11 years ago

Kamal Azmi 2013-07-24 13:59:46 We have noted there are a huge tract land in West Africa region. However, many investors are facing with tricky land tenure and ownerships and busines risks and political factors. Can help to explain how to mitigate some of these factors. Thank you Land ownership is a key risk that investors must take cognizance of when making investment decision in Africa. Having political support is not enough to guarantee a peaceful take off of the business. This is because key government officials change frequently and newly appointed or elected ones might not make the project a priority. Land is a critical issue in many African countries. In some countries such as Nigeria government owns the land and only it can allocate land. In some countries as well, individuals/ communities and family members can also alienate land but subject to approval from government. Problems with land can be mitigated in a situation whereby when government alienate land, the firm which the land is alienated to should also pay compensation to the original land owners. There is a strong attachment to land, such compensation would minimize whatever problem that could arise later on. Therefore the best way to minimize risk is to seek local buy-in into the project being considered. Above all there should no short cut, investors should seek and follow the laid out procedures and not seeking concessions that could appear unreasonable and which may backfire when a new government comes in.

Kamal Azmi

11 years ago

We have noted there are a huge tract land in West Africa region. However, many investors are facing with tricky land tenure and ownerships and busines risks and political factors. Can help to explain how to mitigate some of these factors. Thank you

Sarala Aikanathan

11 years ago

Dear Mr. Thompson Ayodele: We have a collaborating party in Zambia, who works with Zambia Central Bank. He is encouraging investment to flow into Zambia. He is keen to have the Malaysian Palm Oil industry players to be one of the investor. Do you have any broad views of how to develop a working plan for this effort which could support growth plantation expansion in Africa?

SAMSUL KAMAL ROSLI

11 years ago

Roughly, what is the total area being planted with oilpalm in Africa??

Peter Lavina

11 years ago

Due to high production and handling cost, am I right to say the right business model for oil palm plantation investment in Africa is to target their domestic market to achieve self-sufficiency. It may be too costly for the palm oil produced to be exported

POINTERS SECRETARIAT

11 years ago

Dear Mr. Thompson Ayodele. Thank you for your article about EXPANDING AFRICA’S OIL PALM PLANTATION. I would like to know whether the Nigerian and AFRICA palm oil industry is experiencing growth the past years and is there collaborative efforts undertaken by African countries to develop its palm oil industry jointly with other African countries and the European Union. (This question was e-mailed by Dr. Adel Youssef Girgis of the Food Technology and Research Institute of Egypt to the POINTERS Secretariat)