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Land use: Fortunes tied to a new speculative force in Kenya

Posted In Business - By admin on Wednesday, September 5th, 2012 With No Comments »

For generations, the fortunes of those who farmed the gently sloping hills north-east of Nairobi have fluctuated with the world price of coffee. Come next year, they will be linked to a new speculative force.

The highest profile of a string of real estate developments gnawing at the fertile farmland around Kenya’s capital, involves developers transforming a 2,400 acre coffee estate into a modern, gated suburb of 25,000 houses.

 Tatu City, as the project is called, will consume billions of dollars in investment from inside and outside the country, will employ thousands of Kenyans and, if it proves successful, eventually house about 62,000 people.

No new town planning, undertaken by the private sector, has been attempted in sub-Saharan Africa on quite this scale.

The development is symptomatic of Kenya’s changing demographics, the aspirations of its wealthier classes and of shifts under way in the direction of the economy. It is also stirring concern about the lack of a strategic and forward-looking policy governing the use of land at a time when the country faces conflicting pressures from housing, food and hard currency shortages.

Coffee has traditionally been a big contributor to foreign exchange earnings, but the crop has been in steady decline over the past half century, with the current crop, at 40,000 tonnes, less than a quarter of what it was at independence.

Josphat Kinyua, a vice-president of Renaissance Partners, the merchant banking arm of the Russian investment bank that is a leading partner in the Tatu City project, argues that coffee, farmed and marketed in the way it has been, is no longer a good business in the area near Nairobi.

“This is coffee land, but it is now sitting next to the best infrastructure we have had since independence,” he says speaking of the superhighway that passes near Tatu on its way from Nairobi to the industrial and market town of Thika, and provides a fast route into the city centre for would-be commuters. “Tatu employs 300 low skilled pickers and weeders on a seasonal basis. That’s not the best use of the land,” he says.

A new generation of land owners has come to this view. There is no longer the same attachment either to the land itself, Mr Kinyua says, or to the cash crops it has traditionally produced, such as tea and coffee, which, when sold as beans, fetches the farmer about 5 per cent of the retail price of a Starbucks cup of coffee.

The commercial logic behind the real estate developments is stark.

“The difference in unlocking the value of real estate and agriculture is so material,” says Aly Khan Satchu, an investment analyst based in Nairobi.

“The value of the land if converted into real estate would be 10 times the current share price,” he says, of a string of tea and coffee companies listed on the stock exchange with estates around Nairobi and Mount Kenya.

“They are starting to sell,” he says, listing one estate that has just obtained a licence to convert and another that is seeking state approvals. The argument of whether you grow coffee or build homes is one that any chief executive now has to consider to maximise shareholder value.”

All of which is beginning to worry those who still depend on cash crops for their livelihood. Vava Angwenyi is director of Vava Coffee, which buys from a co-operative of more than 200 smallholders who farm land in Central province, the same area where Tatu City is planned.

“Central production is the crème de la crème of coffee,” says Ms Angwenyi, whose company is the only one in the country that exports fresh-roasted packaged coffee worldwide.

“Because of land going to real estate, we are experiencing shortages of coffee. We fear that five years from now Kenya may not be producing enough coffee for export.”

She says most of the land going to real estate is owned by the bigger coffee estates. But smallholders are also talked into selling their property.

Nor is it just coffee estates that are affected. Near the Rift Valley town of Eldoret, one of Kenya’s most sophisticated wheat farms is being split in two, with investors seeking to turn part of it into a golf course and resort.

Savannah and pasture land is also affected, with the northern town of Isiolo also marked out for a big resort development that could transform the local economy.

Odenda Lumumba, of the Kenya Land Alliance, a civil society group, notes that in Central province the developments are interfering with agricultural land and cash crops, whereas, in the savannah, it is wildlife and pastoralists that are affected.

He paints a bleak picture of the consequences of an ad hoc approach to development for both the environment and for the economy if the momentum continues to gather unchecked. New townships in arid areas are interfering with pasture land and with wildlife corridors, concentrated as they are around water points. That could ultimately affect the tourism industry.

Some economists say this is perhaps inevitable. Kenya may be destined to become a net importer of food, as it continues to urbanise and its economy shifts from one dependent on cash crops, to one providing the region with industry and services.

Yet, both Mr Kinyua and Mr Lumumba agree on one thing. Kenya would benefit from a more strategic policy governing the use of land. Only 13 per cent of it is fit for arable use.

Kenya is showing the strains already from climate change and if the vast proportion of the population that is below the age of 25 are to expect jobs, it will require careful planning.

Mr Kinyua says the Tatu City developers have been scrupulous in following the rules and regulations, and that the other coffee estates they have bought will continue to be farmed, only more intensively.

By studying similar developments elsewhere in the world, notably around Mumbai in India, they have come up with a novel way to provide high-end housing and urban management without placing additional burdens on an overstretched state, he says.

But he suggests that the government could introduce a law in which companies using arable land for real estate would be compelled to compensate, for example, by irrigating land elsewhere.

FT

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