Africa to exploit palm oil potential – at last

Africa, which gave the world the oil palm, may at last be about to make significant money out of the $50bn market – especially if the potential for a wave of Chinese investment is fulfilled.

West Africa alone has, in the last three years, attracted pledges of some $6bn from foreign giants such as Sime Darby and Wilmar International for developing oil palm plantations, broker Hardman & Co said.

And this could be supercharged if China, which currently has little presence, undertakes what would be a logical step to invest in an industry which, through palm oil imports, it is one of the world’s biggest consumers.

Indeed, ZTE Agribusiness, a subsidiary of Chinese telecoms group ZTE, is believed to be in talks with the Democratic Republic of Congo about the development of 1m hectares of oil plam plantations.

‘Strategy to disengage’

"Today, at a time when Africa’s natural resources are in great demand, China is well-positioned politically and financially, with $3 trillion of foreign reserves, to secure access to Africa’s resources," Hardman analyst Doug Hawkins said.

"For China, the acquisition of significant natural resource assets in Africa can be seen to be a strategy to disengage from global market pricing mechanisms that are always priced in US dollars and driven by US markets like Chicago.

"Chinese businesses can be expected to invest in the African oil palm sector."

Net importers

Such a strategy would provide a second benefit for China, besides providing supplies of palm oil, in nurturing the growth a middle class population who would represent a market for Chinese goods.

And it would chime with the policy of many African countries of attracting foreign investment in their palm oil sector to encourage an industry which, continent-wide accounts for only 4% of world production of the vegetable oil, even though the oil palm originated there.

Currently, only two African producing states, including Ivory Coast, better known for its cocoa beans, are net exporters of palm oil.

Nigeria, once world leader in palm oil output, "imports nearly 46% as much oil as it produces today", Mr Hardman said.

Big two

The oilseed has been championed in the last two decades by Indonesia and Malaysia, who now account for 85% of world production between them.

However, the dearth of fresh land for development in the Asian palm powerhouses has heightened interest further afield, within the narrow band around the equator in which oil palms successfully grow.

In Africa, Liberia is the biggest producer by area, with more than 140,000 hectares of plantations. Congo has 110,000 hectares and Sierra Leone, 99,000 hectares.

In Africa overall, "only about 1.14m hectares can be identified as agro-industrial plantations, and all too frequently … these need rehabilitation."

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