“We are looking at gold and calling it rock”

Originally published for the World Bank’s People, Space, Deliberation blog, Namati Community Land Protection Program Director, Rachael Knight, presents Namati’s approach for supporting communities to calculate the replacement costs of their communal lands and natural resources.

Communal land, forests, and water sources are essential to the survival of many communities around the world. However, investors seeking resources may negotiate contracts that do not include rental payments. To address this imbalance, Namati and its partners designed an activity to empower communities to grasp the inherent value of their common areas to them, so that they can reject inequitable contract offers and negotiate contracts that will lead to community prosperity.

Across Africa, Asia and Latin America, investors are increasingly approaching rural communities seeking land for logging, mining, and agribusiness ventures. In response, international and national advocacy organizations are stepping forward to provide support to communities in negotiations with investors, often with a focus on ensuring adherence to international laws such as the right to free, prior, informed consent (FPIC).[1] Yet even in situations when investors have followed FPIC principles and conducted a formal “consultation” to seek community consent to their proposed business venture, these consultations are generally conducted in a context of significant power and information asymmetries. Communities are frequently pressured by high-level government officials to consent to deals that they do not fully understand or desire. Community members may not be aware of the rental value of their land on the national market, the expected annual profits the investor will gain from the venture, the overall net worth of the investors’ company, and other financial information critical to negotiating a fair contractual agreement, including the value they themselves are deriving from their common lands. As a result, they have difficulty calculating an appropriate rental cost that leaves them in an equal or better position than before the investment.

Communities depend upon communally-used and managed forests, water bodies, and grazing areas for their survival, yet it is precisely these lands that are first to be allocated to investors, claimed by elites, and appropriated for state development projects. In many countries, weak legal protections for communities’ customary or indigenous rights to their lands and natural resources exacerbate the situation, making common lands and forests especially vulnerable to unjust, opportunistic or forceful land acquisitions. Yet common lands are often the only bulwark that the poorest families have against starvation: multiple studies have shown that poor families rely most heavily on common areas for the provision of their basic necessities. (Qureshi and Kumar 1998) These poor families, which often have little or no land on which to farm, both subsist upon and earn their livelihood from these lands, hunting and gathering basic resources to consume and sell on the market. (Shackleton, et al.2001). It is not only the poor who rely on common lands, however: studies have shown that even the most relatively wealthy community members rely on communal land to gather wild foods and medicines, hunt and fish, graze their animals, collect wood for fuel, and source building materials. (Shackelton, et al. 2001; Gray and Altman 2006; Qureshi and Kumar, 1998).

Yet as a result of power and information asymmetries, investors frequently wrangle land concession contracts that include either no rental payments at all, or rental payments that are significantly below fair market value per hectare. For example, in his review of various large-scale land concession contracts, Cotula (2011) found that the leases governing these concessions contained either no rental payment at all or payments of $2 to $5 USD per hectare annually. In some cases, governments themselves impose unjustly low rental rates on their citizens as an incentive to attract foreign investment. In Sierra Leone, for example, the Ministry of Agriculture’s Investment Policies for Private Sector Promotion in Agriculture in Sierra Leone January (2009) caps annual rental rates at $5 USD per acre or $12 USD per hectare.

To address these information asymmetries and strengthen communities’ bargaining position during land concession negotiations with potential investors, Namati and its partners[1] have designed a two-hour “Community Land and Natural Resource Valuation Activity” which aims to facilitate each community to very quickly grasp the inherent value of their common areas to them and thus give them pause before consenting to land concession agreements that offer very low rental rates.

During the valuation exercise, facilitators ask community members to:

  1. List all the ways that community members use their common lands;
  2. List the top six to ten main resources that community members gather from their common lands;
  3. Assign a monetary value to each resource using a direct market valuation approach; and
  4. Determine the composition of a “typical family” in the community;
  5. Determine how much a “typical family” would have to spend to replace the quantity of each resource used on a weekly, monthly, and annual basis.

Despite efforts to keep the pilot replacement cost valuation exercise relatively straightforward, Namati and its partners encountered significant challenges to the exercise’s intended simplicity. To address these challenges – such as varied frequency of use, price consistency, and community members’ desire to mix goods gathered for household consumption with goods gathered or grown for sale/livelihood – Namati and its partners arrived at a “standard basket” of six or seven resources that are used by community members cross-nationally. These include: fuel (firewood), fodder for livestock, hunted protein (game/fish), a frequently consumed wild vegetable, a frequently consumed wild fruit, and a building/roofing material used every year (thatch). In regions where water is scarce, water for household use is also part of this basket.

The total annual replacement cost of the six to ten “standard basket” goods discussed is summed to arrive at the annual replacement cost for a “typical family.”  The facilitators then ascertain the number of households in the community and multiply the cost to a “typical family” by the number of families in the community as a whole. Invariably, the number arrived at is astronomically high – over one million USD/year – and incites gasps, exclamations, and animated conversation. In communities that have already granted a portion of their common areas to an investor, the reaction is generally stunned silence, followed by anger and outrage. Following the calculations, the facilitators lead a discussion about the kinds of activities – ceremonies, celebrations, cultural festivals, etc. – that take place on the common lands and cannot be valued on the market. They may also discuss the idea of the community’s common lands as a “free supermarket” critical to a household’s ability to feed and clothe its children, build its home, etc.

Given the challenges that Namati and its partners faced while piloting a community-led replacement cost valuation activity, any analyses and conclusions are still preliminary. However, the averages indicate that further research may lead to a finding that concessions agreements with very low annual rental rates will further impoverish poor rural communities and adversely affect community members’ ability to survive. Averaged across 14 communities, calculating only an average of 7 items gathered or grown for household use, the average replacement cost of common lands shared by an average of 863 households is $1,394,352 annually. In a hypothetical situation in which an investor requests a 1000-hectare concession of community common lands, remunerated at $4 USD/hectare per year, the rental cost would total $4,000/year. Even if Namati’s basic method of replacement cost valuation is wildly inaccurate (failing to include certain goods and services while over-valuing others), the data indicate a differential of more than 100 times the hypothetical rental fee.

Namati’s partners’ field teams have reported that after undertaking the valuation activity, community members expressed feeling more cautious about agreeing to potential investments, more emboldened to demand benefits from land deals, and more adamant about imposing limits or restrictions on investors’ actions. Viewed in this light, the pilot exercise is proving to be effective. Community members in Liberia have exclaimed, “We are looking at gold and calling it rock!” and “People can secretly sign land documents to get small money in their pockets but you see how rich our land is…” The Valuation Activity may also have longer-term conservation/sustainable natural resource use impacts, as community members understand how valuable their local resources are.

Going forward, Namati and its partners will work with an economist and a professional valuer to craft a more accurate method for capturing replacement costs. Once a proper methodology has been established, Namati will share the strategy widely to allow other NGOs to facilitate this exercise, with the eventual goal of gathering and analyzing data from across the world to better inform community members, policy makers, and investors. Potential future impacts may include:

  • Challenging international conceptions that undeveloped land has little worth, and thus requires investment to “unlock” its value.
  • Convincing national governments to change their imposed caps on rental payments to communities. Artificially imposed rental payment caps eliminate the possibility of authentic, properly-negotiated contracts between communities and investors. Communities that are aware of the actual value of their lands and empowered to negotiate with investors as equals may broker concession agreements that bring prosperity and development to rural communities.
  • Avoiding future conflict: Concession agreements that pay communities a fair market value for their land – factoring in the replacement costs of necessary natural resources and livelihoods – may reduce investor-community tensions, sabotage, and violent conflict over the long term, making investments more profitable.

Photograph of Members of the Sihan Clan planting a boundary tree, Rivercess County, Liberia by Namati

[1] United National Declaration of the Rights of Indigenous Peoples (UNDRIP) articles 10, 11, 19, 29, 30 and 32.

[2] The Sustainable Development Institute (SDI) in Liberia, the Land and Equity Movement in Uganda (LEMU) and Centro Terra Viva (CTV) in Mozambique.

May 5, 2015 | Rachael Knight