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Twisted rules and land deals

Posted by Ricardo Fuentes Nieva Previously the Head of Research, Marloes Nicholls Campaign Assistant

8th Feb 2013

If you had bags full of money and wanted to buy land, where would you go for a good deal? If you're only looking for ways to make a good profit and control your risk exposure, surely you would look for a place where you can influence the terms of the deal. This is the intuition behind the  analysis published yesterday by Oxfam.

The results of this analysis show that the global rush for land is mostly taking place in countries with weak governance. 

The global rush for land is mostly taking place in countries with weak governance.

We analysed the link between national governance and large scale agricultural land deals by combining information from two important databases - the Land Matrix and the World Governance Indicator (WGI) Project.

To do this, we cross referenced information on over 200 countries and territories from the two databases. Using the Land Matrix we aggregated the total number of deals reported in each country and their average size. And we used estimates of four governance indicators: Voice and Accountability, Regulatory Quality, Rule of Law, and Control of Corruption. Once the two databases were merged, we analysed the link between the countries where large-scale land deals were (or were not) taking place and the four governance indicators for the period 2000 - 2011.

The results reveal a strong and significant link between land deals and weak governance. The majority (78%) of the 56 countries where land deals are taking place have below average WGI, and on average the pool of countries where land deals take place have 30% lower indicators than those without. These results are consistent over time.

Comparison of land deals and governance indicators

The diagram on the right shows the average governance indicators fromm 2000 to 2011. The World Bank Governance Indicator project awars a score between plus 2.5 and minus 2.5 on each indicator. A score above zero indicates relatively good performance;  a score below zeroindicates relatively poor performance.

A quick comparison between two countries shows that land availability does not appear to be a significant factor in investment decisions. Guatemala, which scores below average on all four World Bank governance indicators, has seen an estimated 87,000 hectares of land under deals between 2000 and 2011 despite high levels of hunger and malnutrition in rural areas. This is in stark contrast with Botswana which has a similar area of arable land per person (.11 and .13 hectares per person in Guatemala and Botswana, respectively) but which scored well above the average on World Bank governance indicators and did not record a single large-scale land deal in this period.

These results are hardly surprising. Other studies have found similar results. Researchers at the IMF (here and here), using a different database and methodology, have previously found that, 'countries with weak land sector governance are the ones most attractive to investors - at least as gauged by the number of land-related investments.'

They suggest that investors might pick countries with weak governance because, 'it is easier to obtain land quickly and at low cost where the existing protection of land rights is weak, given that public protection may not matter to investors who can muster their own resources to defend their property rights.'

Research by the World Bank found that deals were often formulated for the benefit of investors rather than the countries involved.

Research by the World Bank found that deals were often formulated for the benefit of investors rather than the countries involved. They report that, 'in many cases the nature and location of lands transferred and the ways such transfers are implemented are rather ad hoc - based more on investor demands than on strategic considerations.' 

Why might weak governance be good for business?

The story behind land deals and weak governance is one of power imbalance and destitution. It's a story where the interests of local communities are set aside to promote the interest of large investors.

There are usually three actors in any land deal - the investor, the local community who owns or uses the land and the government. The national government often acts as the intermediary (in wonk parlance, the government is the agent for the local community or the citizens, who are the principals).

Weak governance - which basically reflects a gap between the interest of citizens and governments - enables investors to sidestep costly and time consuming rules and regulations, which for example, might require them to consult with affected communities. In countries where people are denied voice, where business regulations are weak or non-existent, or where corruption is out of control it might be easier for investors to design the rules of the game to suit themselves.

This analysis is only the first step towards a more in-depth research project. Next steps include a more in-depth analysis on the determinants of the number and location of deals (a double-hurdle estimation? suggestions appreciated from econometricians out there). We will also look at the geographical distribution of deals within countries to see if there is a link between the location of land deals in countries and socioeconomic indicators in those areas.

Land is such an important element of millions of people around the world that any issue related to use, access and ownership of it should be carefully analysed. Agricultural investment is sorely needed but it should not be at the expense of people's rights and access to land. There are potentially catastrophic implications of bad land deals. Poor accountability and regulation only means that people affected by land deals have fewer tools to defend their livelihoods and rights.

Blog post written by Ricardo Fuentes Nieva

Previously the Head of Research

More by Ricardo Fuentes Nieva

Ricardo Fuentes

Blog post written by Marloes Nicholls

Campaign Assistant

More by Marloes Nicholls