Former Wall Street banker Philippe Heilberg gambles on a warlord's continuing control of 400,000 hectares of land in South Sudan (Update 1)
[UPDATE: Tuesday 13 January 2009: I have added four new reports here below and highlighted some text in red for future reference]
Financial Times report by Javier Blas and William Wallis in London January 10 2009:
BUYER SEES PROFIT IN WARLORD'S LAND- - -
A US businessman backed by former CIA and state department officials says he has secured a vast tract of fertile land in south Sudan from the family of a notorious warlord, in post-colonial Africa's biggest private land deal.
Philippe Heilberg, a former Wall Street banker and chairman of New York-based Jarch Capital, told the Financial Times he had gained leasehold rights to 400,000 hectares of land - an area the size of the emirate of Dubai - by taking a majority stake in a company controlled by the son of Paulino Matip.
Mr Matip fought on both sides in Sudan's lengthy civil war but became deputy commander of the army in the autonomous southern region following a 2005 peace agreement.
The deal, between Mr Heilberg's affiliate company in the Virgin Islands and Gabriel Matip, is a striking example of how the recent spike in global commodity food prices has encouraged foreign investors and governments to scramble for control of arable land in Africa.
In contrast to land deals between foreign investors and governments, Mr Heilberg is gambling on a warlord's continuing control of a region where his militia operated in the civil war.
"You have to go to the guns: this is Africa," Mr Heilberg said by phone from New York. He refused to disclose how much he had paid for the lease.
Jarch Management Group is linked to Jarch Capital, a US investment company that counts on its board former state department and intelligence officials, including Joseph Wilson, a former ambassador and expert on Africa, who acts as vice-chairman; and Gwyneth Todd, who was an adviser on the Middle East and north Africa at the Pentagon and under Bill Clinton at the White House.
Laws on land ownership in south Sudan remain vague and have yet to be clarified in a planned land act. Some foreign experts on Sudan as well as officials in the regional government, speaking on condition of anonymity, doubted Mr Heilberg could assert legal rights over such a vast tract of land. The deal is second only in size to the recent lease of 1.3m hectares by South Korea's Daewoo from the government of Madagascar.
Mr Heilberg is unconcerned. He believes that several African states, Sudan included, but possibly also Nigeria, Ethiopia and Somalia, are likely to break apart in the next few years and that the political and legal risks he is taking will be amply rewarded.
"If you bet right on the shifting of sovereignty then you are on the ground floor. I am constantly looking at the map and looking if there is any value," he said.
He was also in contact with rebels in Sudan's western region of Darfur, dissidents in Ethiopia and the government of the breakaway state of Somaliland, among others.
Mr Heilberg said Jarch had no agricultural expertise but would seek joint-venture partners to cultivate the land, which is in one of the remotest parts of Sudan, in a region bordering the White Nile and with no tarred roads.
FRONTIER SPIRIT EMBRACES RISKS OF SOUTH SUDAN
From the Financial Times by Javier Blas and William Wallis 10 January 2009:
There are few regions in Africa as remote and undeveloped as southern Sudan. Unity state, where Philippe Heilberg says he has secured a huge tract of arable land, is inaccessible even by south Sudan's standards.- - -
Aside from AK-47s, it is deprived of most of the trappings of the modern world. Even a road network that has been under construction since 2005, when a peace agreement ended the long civil war between the predominately Muslim north and the Christian and animist south of the country, has yet to reach it. But Unity state does border the White Nile and its flat, arable land could, with billions of dollars of investment in irrigation and roads, be transformed into a world-class breadbasket.
As commodity prices spiked last year, Gulf countries poured hundreds of millions of dollars into securing land in the fertile Nile valley farther north to grow food crops for exporting home.
Mr Heilberg is convinced that demand for land is now gravitating south. Other experts say investors are scouting out opportunities in the south, albeit on a far less ambitious scale. That is despite imprecise land laws and the risk of a new civil war should the oil-rich south vote for independence in a planned referendum in 2011.
Mr Heilberg has experience in commodities markets on Wall Street and in Asia. To help him as he looks for opportunities in Africa, he has pulled together a board at his US-based investment vehicle, Jarch Capital, that includes Middle East, Africa and security experts with years of experience at the Pentagon, CIA, White House and state department.
He is of a resurgent class of western businessman drawn to the potential of Africa's remaining frontiers, who have been energised by Asia's appetite for the continent's natural resources.
Sudan experts familiar with his business strategy liken him to buccaneering capitalists such as Sweden's late Adolph Lundin, who acquired mining and oil concessions in Congo and Sudan while civil wars were still raging and turned huge profits when he sold them on.
In both countries, however, legal wrangling has often prevented mineral concessions from becoming productive. Mr Heilberg has experience of this problem after being embroiled in a dispute with the south Sudan government over oil exploration rights also claimed by other companies.
Some experts on Sudan believe his 400,000 hectares will face a similar fate and that his ultimate strategy is to trade whatever claim he can sustain over the land to investors with a greater capacity to develop it. He says the land has great potential for biofuels and food crops and is looking for joint-venture partners.
He insists the law is less important to his deal than the clout he has bought into by associating with a former warlord, Paulino Matip, whose family says it owns some of the land in Mayom county, in Unity state.
"I never understood why the oil industry could spend $1bn drilling dry holes but they do not want to take a single dollar in legal risks," Mr Heilberg told the FT.
Mr Matip fought with the Sudan People's Liberation Movement against the northern army before gaining notoriety during a bloody civil war episode when he switched sides to form his own militia, with backing from parts of his Nuer tribe and the Khartoum regime. "I am sure Paulino has killed many, but I am sure he done it in protection of his people," Mr Heilberg says.
Following the 2005 peace agreement his forces were appeased when he was brought in as deputy commander in the army of the autonomous south.
Mr Matip's son Gabriel, who controls the company in which Jarch has bought a majority stake, said he had negotiated with tribal leaders to secure access to more land. He said the company also had the agreement of the ministry of agriculture in south Sudan for the development of the land.
U.S. INVESTOR LEADS SOUTHERN SUDAN LAND LEASE DEAL
From Reuters (New York) by Megan Davies 12 January 2009:
A U.S. investor who previously worked for insurance firm American International Group Inc (AIG.N) has led a deal to lease a substantial amount of farm land in Southern Sudan, where he sees ripe opportunity for investment and development.- - -
Philippe Heilberg, chairman and CEO of New York-based investment firm Jarch Capital, told Reuters on Monday he expected high returns from the approximately 400,000 hectares of land in Mayom county and anticipated Jarch being involved with the land for "decades".
He declined to say how much had been paid for the lease.
Jarch said in an emailed statement that agriculture in Southern Sudan is exempted from U.S. sanctions provided that the Government of Sudan in Khartoum does not have any interest and no imports or exports pass through nonexempt areas. Jarch said it will only deal in Southern Sudan.
Heilberg said Jarch felt comfortable investing in Mayon and that the local politicians and population would be accepting of the investment.
"With risk, you have to look at risk and reward together -- this is why we pick our areas very carefully," he said.
Africa's biggest country has suffered decades of strife. Its north-south war -- separate from the conflict in its Darfur region -- was Africa's longest civil war and claimed the lives of some two million people.
A north-south peace deal was struck in 2005 and a semi- autonomous south Sudan government was then formed with the right to vote on secession by 2011.
The United States has imposed sanctions on Sudan since 1997. In October 2006, U.S. President Bush signed an act that lessened restrictions on the government of Southern Sudan. The United Nations Security Council imposed an arms embargo on rebels and militia in March 2004 but not on Sudan's government.
"There's always an issue of instability," Heilberg said. "There's no perfect scenario. We're not investing in the U.S. This is more frontier land. Its also extremely fertile land."
Under the deal, Jarch Capital's related company Jarch Management has agreed to lease about 400,000 hectares of prime farm land and buy a 70 percent interest in South Sudanese company LEAC for Agriculture and Investment Co Ltd.
Jarch Management, based in Hong Kong and registered in the British Virgin Islands, said it was buying the stake from Gabriel Matip, the eldest son of General Paulino Matip Nhial, Deputy Commander-in-Chief of the Sudan People's Liberation Army (SPLA). The SPLA is the the armed wing of the southern Sudan People's Liberation Movement (SPLM).
Under the deal, it is leasing the land from Paulino Matip. In addition, Jarch expects to acquire more farm land within Southern Sudan.
LEAC has the right to grow cereals, oil seeds, vegetables, fruits and flowers and can process these products for both local and export use, Jarch said in the statement.
Heilberg, who studied at Wharton, worked for the foreign exchange trading department of Salmon Brothers Inc -- now part of Citigroup Inc (C.N) -- before working for AIG during the 1990s as a partner in its commodity division, according to Jarch's website.
Heilberg said the deals had actually been agreed in summer of 2008, but that Jarch had waited until now to make them public. (Editing by Andre Grenon)
From the Financial Times 13 January 2009:
Land is not in short supply in south Sudan, where Philippe Heilberg, a US businessman, has laid claim to 4,000 sq km of fertile territory in a deal with the family of a notorious warlord. But then neither was it when Cecil Rhodes extracted mineral rights from King Lobengula of the Ndebele and used these to push the frontiers of the British empire beyond the Limpopo river. Some 120 years later, Zimbabwe is still struggling to overcome a legacy of unequal land distribution.- - -
Mr Heilberg is a former Wall Street banker whose private investment company, Jarch Capital, counts former CIA, State department and Pentagon officials on its board. He may be no Rhodes - his recent forays into Africa have yet to bear much fruit and include an acrimonious dispute over claims to an oil concession in south Sudan. His latest venture does, though, have a decidedly 19th-century flavour to it.
It is the largest private land deal in Africa yet - involving the lease of a huge tract of remote territory bordering the Nile. Because ownership laws remain vague in south Sudan, Mr Heilberg concedes that the deal depends as much on control exerted by Paulino Matip, the warlord whose son's company claims rights to some of the land, as it does on legal title.
As such it could set a dangerous precedent. A certain class of businessman has thrived on a high-risk, high-reward formula in African conflict zones. Where state authority has crumbled, rights of ownership are murky at best but staking claims can prove lucrative.
Since the days of Rhodes, speculators have often been drawn to the minerals in which so much of Africa is rich. The scramble for their control has fuelled recent conflicts, while legal wrangling has often rendered valuable assets unproductive for years after conflicts end. It would be a tragedy for Africa if land, perhaps the greatest of all its resources, became a victim of the same dynamic.
Foreign investor interest has been sparked by the spike in commodity prices last year and the global concern about future food supplies that has followed. There are vast expanses of arable land in Africa lying fallow. Gulf and Asian countries as well as western businesses are taking note.
There is a need for investment if the continent's full agricultural potential is to be achieved. At a time of growing shortages, there is also an obvious need for African governments to prioritise domestic supplies. If the continent is to avoid repeating history, the big deals and speculation should come later.
SELLING AFRICA BY THE POUND
From Reuters blogs by Matthew Tostevin 13 January 2009:
The announcement by a U.S. investor that he has a deal to lease a swathe of South Sudan for farmland has again focused attention on foreigners trying to snap up African agricultural land.- - -
A few months ago, South Korea’s Daweoo Logistics said it had secured rights to plant corn and palm oil in an even bigger patch of Madagascar - although local authorities said the deal was not done yet. Investors from Asia and the Gulf are looking elsewhere in Africa too.
Investor interest in farmland – not only in Africa – grew sharply after food prices shot to record highs last year. Although commodity prices have fallen since, there is still anticipation of long term demand growth once the world emerges from its current economic troubles.
Philippe Heilberg, chairman and CEO of New York-based investment firm Jarch Capital, told Reuters he saw ripe opportunity for decades in south Sudan’s Mayom county. The deal covers land nearly twice the size of the Indian Ocean island of Mauritius.
Land is being leased from General Paulino Matip Nhial, Deputy Commander-in-Chief of the Sudan People’s Liberation Army (SPLA) - the armed wing of the ruling Sudan People’s Liberation Movement (SPLM) in semi-autonomous South Sudan. Jarch Management is also buying an interest in a local company from Matip’s son.
But should Africa be handing out its land to foreign investors and will the local people and countries involved be the ones to benefit?
This commentary in the Financial Times made comparisons with the colonial grab for Africa’s resources and points out the damaging legacy that remains.
“There is a need for investment if the continent’s full agricultural potential is to be achieved. At a time of growing shortages, there is also an obvious need for African governments to prioritise domestic supplies. If the continent is to avoid repeating history, the big deals and speculation should come later,” it said.
Is it wise to discourage such investment, though, if investors are willing to bring big money to put the land to more efficient use than is currently the case? While some areas of Africa are densely populated and every scrap of ground is farmed, other hugely fertile areas are barely used.
Investors argue that they can bring jobs long term and will improve local infrastructure - perhaps more so than if they were taking land for less emotive mining or oil concessions - as well as increasing food supplies and foreign exchange earnings. Elsewhere in the world, mechanised agriculture and bigger farms have led to major productivity increases - although environmentalists argue they can cause damage too. Despite their best efforts, African governments have not always proven themselves the best at managing agricultural resources. Might Africa miss out on development that has helped fuel broader economic growth in countries such as Brazil?
Land ownership could also prove contentious. In the distant past, it was often held by communities as a whole or vested in traditional authorities. State officials now often have the greatest say. That opens the potential for official abuse of yet another valuable resource. Since governments can come and go unpredictably that also means an increase in risk for investors and can only be a further encouragement to cut costs for a quick return.
Heilberg said Jarch felt comfortable investing in Mayom and that the local politicians and population would be accepting of the investment.
“With risk, you have to look at risk and reward together - this is why we pick our areas very carefully,” he said.
So is major foreign investment in land a danger to Africa or is it an opportunity that the continent cannot afford to miss? Is there a way of making it work for everyone’s benefit? What do you think?
Note from Sudan Watch Ed.
I find these reports deeply disturbing and depressing. More on this matter later.
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See Sudan Watch 14 January 2009: South Sudan's proposed Land Bill will deny Sudanese ownership of their own land by granting foreigners 99 year leases