The International Land Market: Development Opportunity or Neo-Colonialism?

The debate concerning the possible taxation of inputs related to natural resources, in order to avoid speculation on land, it’s now at under the analysis of different observers. Cash compensations paid by international investors could result in benefits to the hosting countries, then able to finance public works. However, from the reports on large land acquisitions, it seems that governments are not interested in benefit from these revenues.

In fact, many countries are well disposed to grant the use of these resources requiring minimum compensation or even nothing, in order to attract more foreign capital. In addition, although there are no reliable data on the long-term macro-economic effects, given also the multi-year duration of the contracts, seems that the main interest of developing countries is orientated towards the stimulation of the local economy. Leaving out the possibility of an immediate return in taxes, developing countries governments seem to prefer contractual clauses that commit investors to create infrastructure, irrigation canals, storage sites, roads and ports, in addition to creating jobs for rural communities.

Anyway, despite these obligations, transfers of land below market price may encourage speculative acquisitions, especially considering the long duration of the contracts. Another question concerns the way in which the fees may be periodically changed. In Ethiopia, some contracts consider a periodic adjustment of the rent in relation to the inflation growth, as well as in Uganda where the required payment may be renegotiated every ten years. Said that, remains to understand what is actually the legal value of commitments made by investors in exchange for the low rents to use the land. The host countries government interest for the construction of infrastructure, irrigation systems, roads and social services could in fact reserve unexpected consequences. National laws as well as contracts provide mechanisms to protect both parties in case the duties are infringed. Yet, the capacity and the intention of governments to apply these rules are arguable.

For instance, projects started in the 70s in Sudan remained all the time just on paper; only today Khartoum government has forced Arab investors to start them in order to avoid the cancellation of agreements. Part of initiatives encouraging fresh international capital consists in tax relief on import duties for machinery, and for a certain period of time, even on profits arising from farming. Potentially, the taxation of dividends and assets associated with the investment could generate bigger revenues than the same leases. Nevertheless, several agreements provide for tax exemptions, part of a broader framework of initiatives to support investment.

A clear example is Sudan, which focusing on agriculture as a strategic sector of its economy deduct every payment of customs duties or taxes on land investments, as well as on the profits obtained. In addition to the rental fees, many states point to protect the investments through the deployment of armed forces or providing attractive discounts related to the use and extraction of water. Summarizing, we can say that the potential economic benefits for the host countries are not maximally exploited. These countries tend more to attract long-term investments rather than obtaining an immediate profit. The risk for host countries is that given their easy concessions to investors and their weak legal framework, they will not be able to see real and balanced economic benefits.