HOW TO CREATE WIN-WIN LAND DEALS

STRATEGIC REVIEW OF DAEWOO LAND DEAL IN MADAGASCAR AS CASE STUDY

INAF U6355 GLOBALIZATION

Spring 2011

School of International and Public Affairs, Columbia University

Presented by Kevin Cyrus Hong

GLOBAL TRENDS

DRIVING FORCES

• Price volatility in global markets

• Global food crisis

• Surging demand for agrofuels and other energy and manufacturing demands

• Sharp rise in investment in both the land market and the soft commodities market

CLIENT CONTEXT

• Growing demand for food in China

• Decrease in available arable land due to environmental degradation and urbanization

• Chinese investment in infrastructure development

• MOU signed in June 2007 for Chinese settlers to move to the Zambezi valley

• Government denies such a deal following a public uproar

• Re-visiting the suspended deal

LAND DEALS AS “WIN-WIN”

Investee Country

• Foreign direct investment

• Improved agricultural infrastructure

• Increased employment opportunities

Investor Country

• Increased access to agricultural resources, especially for food-insecure countries

LAND DEALS AS “LAND GRABBING”

• Described as “neocolonial land grabs”

• Exploitation of soil fertility and water access

• Exportation of all produce

• Displacement of local farmers and residents

• No or little tangible benefits to local communities

BACKGROUND - MADAGASCAR

• Capital: Antananarivo

• Area: 587,041 sq km– Arable land: 5.03%

– Irrigated land: 1.85%1

• Population: 21,926,2212

• Median age: 18.2 years

• Literacy: 68.9%3

• GDP: $20.73 billion4

• Economy: primarily agriculture (26.5% of GDP, 80% of employment)5

DAEWOO LOGISTICS

• Set up in 1999 after the spin-off from Daewoo Corp.

• Logistics, shipping and resource development

• Filed for bankruptcy in 2009

• Currently operating under Chapter 7

DETAILS ON LAND DEAL

• 99-year lease for 1.3 million hectares (3.2 million acres), equivalent to half of the total arable land in Madagascar

• Production of food and biofuel for export

• Cost of leasing: $5 vs. $0 per hectares per year

• $2bn infrastructure investment in a port, roads, irrigation, and power plants, along with schools and hospitals for locals

TIMELINE

2008 Nov

Deal reported by Financial Times

2009 Jan

Violent protests begin; Opposition

leader AndryRajoelina calls on the president to

resign

2009 Feb

Dozens of casualties during

opposition demonstration;

ongoing political turmoil

2009 Mar

Military coup; Rajoelina

assumes power with military and

high court backing

DISTRIBUTIVE POLITICS

Supporting Interests Demand Side Supply Side Prediction

Benefits from Supporting Ability to Generate Political Action

Interests Substitutes Magnitude Per Capita Numbers Coverage Resources Cost Amount

Madagasy Government

Other FDIs Large Considerable Small Moderate Large Moderate Moderate

Daewoo Logistics Other

investments Large Considerable Small Little Small Moderate Limited

Madagasy farmers with land tenure

Few Large Large Few Little Small Very high Little

Korean farmers (livestock)

Lower price Moderate Small Large Extensive Limited Very high Limited

Korean citizens Lower price Moderate Small Large Extensive Limited Very high Limited

Opposing Interests Demand Side Supply Side Prediction

Benefits from Opposing Ability to Generate Political Action

Interests Substitutes Magnitude Per Capita Numbers Coverage Resources Cost Amount

Opposition party None Large Substantial Small Moderate Large Moderate Large

Madagasy farmers w/o land tenure

None Large Large Considerable Extensive Small High Large

Madagasy citizens None Moderate Small Huge Extensive Small High Huge

Korean farmers (agricultural)

Few Moderate Moderate Large Extensive Limited Very high Little

WHAT WENT WRONG

Collective Action

Political Instability

Lack of Transparency

Deal Size and Terms

Mediatization/ Heightened

Interest

WILSON/LOWI MATRIXBenefit

Concentrated Dispersed

Co

st Co

nce

ntr

ated

Interest Group Politics

Entrepreneurial Politics

Dis

per

sed

Client PoliticsMajoritarian

Politics

ENTERING MOZAMBIQUE

Political Stability

Previous Deals

Deal StructureDeal Size and

Length

Transparency

MADAGASCAR VS. MOZAMBIQUE

Political Stability

Previous Deals

Deal StructureDeal Size and Length

Transparency

Madagascar

Mozambique (Scenario 1)

Mozambique (Scenario 2)

DISTRIBUTIVE POLITICS

Supporting Interests Demand Side Supply Side Prediction

Benefits from Supporting Ability to Generate Political Action

Interests Substitutes Magnitude Per Capita Numbers Coverage Resources Cost Amount

Madagasy Government

Other FDIs Large Considerable Small Moderate Large Moderate Moderate

Daewoo Logistics Other

investments Large Considerable Small Little Small Moderate Limited

Madagasy farmers with land tenure

Few Large Large Few Little Small Very high Little

Korean farmers (livestock)

Lower price Moderate Small Large Extensive Limited Very high Limited

Korean citizens Lower price Moderate Small Large Extensive Limited Very high Limited

Opposing Interests Demand Side Supply Side Prediction

Benefits from Opposing Ability to Generate Political Action

Interests Substitutes Magnitude Per Capita Numbers Coverage Resources Cost Amount

Opposition party None Large Substantial Small Moderate Large Moderate Large

Madagasy farmers w/o land tenure

None Large Large Considerable Extensive Small High Large

Madagasy citizens None Moderate Small Huge Extensive Small High Huge

Korean farmers (agricultural)

Few Moderate Moderate Large Extensive Limited Very high Little

RECOMMENDATIONS

• Careful analysis of local context

– Land availability

– Land tenure

• Transparent negotiation process

• Innovative business model

• Long-term engagement with local interests

• Image and reputation management