Strategic Weekly Analysis

4 May 2011 FDI Team

Vol. 2, № 15.

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From the Editor's Desk

Dear FDI supporters,

This issue of the Strategic Weekly Analysis includes two articles prepared by the Global Food and Water Crisis Research Programme and one on investment in Africa.

The first of these considers the recent tightening of foreign ownership laws by Brazil and the lessons that could be learnt in Australia. The second analyses a report prepared by the United Nations on the impact of climate change on cities.

The third article in this issue examines foreign investment in Africa and identifies the need for greater Australian government involvement.

Two Strategic Analysis Papers will be issued over the next week. The first, titled Pilbara Prospects 2020, examines the likely developments and challenges faced by this region over the next ten years. The second examines Pakistan’s strategic outlook over the next ten years and makes judgements about its foreign policy objectives.

FDI will also issue a draft summary of the major outcomes from four workshops held in Perth, Sydney and Canberra.  These workshops sought to determine what China’s strategic objectives in the Indian Ocean region might be, between now and 2020.  Similar workshops will be held to consider the strategic objectives of India and the United States and how these might impact on Australia.

I trust that you will enjoy this edition of the Strategic Weekly Analysis.

Major General John Hartley AO (Retd)

Institute Director and CEO

Future Directions International

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Brazil: Food Security Concerns Lead to Restriction of Foreign Ownership

Background

The Brazilian Government recently announced a decision to further restrict foreign land ownership in Brazil, amidst fears that rural land acquisition by nations such as China undermined food security. This decision reflects a larger rethinking of the question of foreign ownership of natural resources that is occurring both in Australia and globally.  

Comment

Since 1971, the Brazilian Government has limited the outright purchase of rural farmland by foreign individuals, companies and governments for food security reasons. However, this law has been largely circumvented, with foreigners owning 1.8 million hectares of Brazilian land – a figure which has grown by 11.5 per cent since 2008, according to the Brazilian land distribution agency.

As one of the world’s most important agricultural powers, Brazil made a decision in 2010 to severely restrict all new farmland investment from abroad. Under the new law foreigners can own no more than a quarter of the country, with no nationality having a share greater than 10 per cent. The new law also places restrictions on the number of "fiscal land modules" – of 100 hectares each – that can be owned by foreign nationals. Foreign nationals without companies will only be allowed to own up to 15 modules without seeking permission from the National Congress, and companies with only part capital control may not own more than 30 modules. 

The decision to reduce foreign investment is not straightforward for an emerging country like Brazil, which is dependent on the growth and strength of its agricultural sector. Brazil is currently the world’s largest exporter of coffee and sugar, the second-largest grower of soy beans and the third-largest exporter of maize. With global food prices hitting record highs in February, Brazil is eager to attract new capital to expand production, but it does not want to run the risk of speculative investment and foreign land grabs. Most recently, investors from East Asia and the Middle East have joined the ranks of those interested in Brazilian land ownership.

The move to restrict foreign ownership comes at a time when the sovereign practice of large scale land acquisition represents a serious threat to nations’ food and bio-energy security. China, South Korea and the Gulf states, in particular, have begun buying up agricultural land in Africa and elsewhere in an effort to shore up food security for their growing populations. 

Foreign land grabs are not unique to developing countries. As a country with a reputation for high quality and reliable food production, counter-seasonal production cycles, low sovereign risk and consistently high productivity growth, Australia attracts considerable attention from global investors. According to Federal Opposition Agricultural Spokesman John Cobb, however, Australia’s 'current rules for foreign investment are outdated and do not address food security.'

Mr Cobb tabled a motion in the House of Representatives of the Federal Parliament, seeking to have the Productivity Commission conduct a review of the levels of foreign ownership in Australia, with a view to restricting the practice in the future as a means of ensuring Australia’s food security. The motion passed with bipartisan support. 

Australia could profit from following Brazil’s example, as a fellow agricultural power with international appeal, if the Productivity Commission finds that levels of foreign ownership in Australia represent a threat to food security. However, the efficacy of Brazil’s ostensibly hardline move is in doubt after an announcement in April that China would be investing the equivalent of $10 billion in soy production and processing in Brazil. This indicates that more than foreign ownership restrictions may be needed to safeguard future food security. 

Prue Campbell

Research Intern

FDI Global Food and Water Crises Research Programme

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Cities Impacted by Climate Change: UN Report

Background

Climate change is a global issue that will continue to have an impact on nations for the forseeable future. In years to come, cities may struggle to provide effectively for their inhabitants if the local climate changes. In response, the United Nations has produced a report that concludes that urban areas must take responsibility for climate change mitigation and adaptation.

Comment

The UN Human Settlements Programme Global Report on Human Settlements: Cities and Climate Change, released in late March 2011, explores the relationship between climate change and urban development. It focuses on the contribution that urban areas have made to climate change, the resultant impacts from that contribution, as well as the mitigation and adaptation responses that should be applied in urban areas. 

The report argues that it is important to understand the effects that cities around the world are having on climate change in their local environment, to ensure development towards a sustainable future. It stated that cities should not just be part of the problem but can also be a part of the solution. 

The report emphasises that although only two per cent of the world’s land area will be affected by sea level rises, the cities in the affected coastal zones are some of the largest in the world and make up 13 per cent of the world’s population. Estimates suggest that by 2030, approximately 60 per cent of the world’s population will be living in an urban area. For this reason mitigation and adaptation responses are both important. The following map highlights the cities that face current climate-related hazards.

Global City Concentrations

               

Source: UN Human Settlements Programme 2011, ‘Global Report on Human Settlements: Cities and Climate Change’.

 

Urban areas contribute to greenhouse gases considerably through a need for energy supply, especially electricity generation, transportation, production and waste. These all require the consumption of fossil fuels and also produce impacts associated with changes to land use. The report cites estimations that the amount of human-induced greenhouse gas (GHG) emissions could range between 40 to 70 per cent of total emissions. Although cities are responsible for a significant amount of GHG, they also have the greatest potential for changes towards efficiency and sustainability. 

The report emphasises the importance of effective mitigation responses that lie at the heart of the issue. It suggests that climate change will have an impact on a city’s capability to provide basic services, such as water and food supplies, energy provision and industrial production. 

Therefore, it is important to develop adaptation responses, as well as looking at the ability of individual towns and cities to implement these responses effectively. In addition, the report also explores the possible policy directions that can be taken by individual urban areas and suggests that without forward planning it may be difficult in the future to adapt infrastructure and this may increase the risks imposed on the city’s inhabitants. 

Action is needed on a local level but national governments, non-government organisations, the private sector and the international community (including organisations such as the United Nations Intergovernmental Panel on Climate Change), need to support this local action. This support could be achieved through finance, knowledge transfers and contributions to the planning and implementation of strategies. Enhancing communication and co-ordination between the local actors involved is an important factor.

It is important to understand the relationship between cities and climate change in an attempt to develop effective mitigation and adaption responses. Developing cities are increasingly looking to the developed and pioneering cities for knowledge and assistance on climate change strategies. 

Catherine Anderson

Research Intern

FDI Global Food and Water Crises Research Programme

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Australia’s Great Game in Africa 

Background

Brazilian, Russian, Indian, Chinese and South Africa (BRICS) investment in Africa has been the topic du jour in academia and media over the last decade. However, Australian investment, particularly in the resources sector, has also grown exponentially, bolstered by the increased stability and prosperity of the continent, as well as greater resource opportunities to supply high-demand resource markets. The April announcement by Western Australian based International Goldfields, highlights the financial rewards available to Australian venture capitalists. Africa has long been on the periphery of Australian foreign policy, but the Australian government must now engage with Africa to maximise benefits for both companies and the country. 

Comment 

The last decade has witnessed a geo-political contest in Africa reminiscent of the 19th century “Scramble for Africa”. The prevalence of the continent’s untapped natural resources has been recognised by the Australian resources sector. Last week’s announcement of increased exploration rights in Mali by International Goldfields, complementing existing tenements in neighbouring Cote d'Ivoire, highlights this growing trend. The Australian mining industry’s African projects are not, however, limited by geography or commodity; they extend throughout the continent, with Australia the third largest spender on mineral exploration after South African and Canadian companies.[1]

Geo-political developments and economic reforms have increased the viability of African projects. Since the end of the Cold War, the continent has experienced greater democratisation and conflict resolution complemented by economic reforms and greater fiscal responsibility. Bolstered by commodity demand from BRICS states, African GDP has risen by 4.9 per cent annually between 2000 and 2008.[2]  The relative increases in stability and prosperity have led to Australian resource investment in an array of states within the continent, including Tanzania, Botswana, Burkina Faso and Ghana.[3]

Investment within the African resource sector provides benefits far beyond economic returns and diversified commodity sources. Africa provides a theatre for expanded research and development opportunities, to overcome challenges facing the mining industry.  Challenge mitigation relies on innovative and global testing; the unique geographic character of Africa provides a setting conducive to the application and development of processes that may benefit the Australian industry. 

Venture resource investment in Africa allows collaboration and engagement with stakeholders beneficial to project management, such as development banks, donor agencies and research institutions. Opportunities exist for joint venture projects with BRIC state owned companies, such as the Simandou Project in Guinea between the Chinese owned Chinalco and Rio Tinto. 

African investment, however, is not without risk, as demonstrated by the Simandou Project. Corruption, civil unrest and nepotism are endemic to the region and may stall or cause a project to collapse. The Australian government has been slow to recognise the increasing geo-political and geo-economic importance of the continent and must provide greater diplomatic assistance to enterprises wishing to invest in Africa.

Australia has the comparative advantage of being viewed as a less malevolent state than European and BRICs nations, due to its relative resource wealth and non-colonial past.

Kevin Rudd has signalled in a speech at the Annual Commonwealth of Nations lecture he will use the upcoming Commonwealth Heads of Government meeting as an opportunity for greater engagement in the region. Venture mining firms in the region would benefit from increased AUSAID assistance to foster goodwill towards Australian parties. The forum further provides a theatre within which to develop dialogue regarding bilateral investment ties to provide incentives and protection for Australia companies. 

Liam McHugh 

Strategic Analyst 

FDI Northern Australia and Energy Security Research Programmes

[email protected]

 

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What’s Next?

 

  • The 4th Annual Kimberley Energy and Resources Development Conference will be held  9-10 May 2011 in Broome, Western Australia. For more information visit https://www.iir.com.au/kimberley
  • The 3rd Annual Border Security Conference will be held 10-11 May in Melbourne. For more: https://www.iir.com.au/bordersecurity
  • On 16-20 May,  the Wash Conference will be held in Brisbane. It will focus on water supply systems, sanitation and hygiene and is coordinated by the Water and Sanitation (WASH) Reference group in conjunction with AusAID. For information visit: https://www.watercentre.org/wash2011007A
  • The Asia Research Centre, Murdoch University, and the Department of Foreign Affairs and Trade are hosting a public lecture by Professor Kenneth Chern on the topic: The Japan Nuclear Crisis, International Responses. It will be held 18 May, 12.30pm on the 8th floor conference room, Exchange Plaza, Sherwood Court. To register by May 13: [email protected]
  • The seat of the African Union (AU) in Addis Ababa, Ethiopia will, from 20 to 25 May, host the Second Africa-India Summit Forum under the theme Enhancing partnership shared vision.

 

 

 

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

 

 

Published by Future Directions International Pty Ltd.

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Tel: +61 8 9486 1046 Fax: +61 8 9486 4000

E-mail Gary Kleyn: [email protected] Web: www.futuredirections.org.au

 

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[1] Donnelly, R. and Ford, B., The flag follows trade in Australia’s relations with Africa, August 2010 

[2] Leke, A., Lund, S., Roxburgh, C., van Wamelen, A., What's Driving Africa's Growth, 6 August 2010

[3] Bromby, R., Scramble to Africa Continues, 20 April 2011

 

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

Published by Future Directions International Pty Ltd.
Suite 5, 202 Hampden Road, Nedlands WA 6009, Australia.