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The Chain: Sime Darby Aims to Responsibly Divest from Liberia by the End of 2019

September 9, 2019

Sime Darby aims to sell its assets in Liberia by the end of 2019. The company has been considering a possible sale since early 2019. In February 2019, Chain Reaction Research (CRR) reported that a sale of its Liberian plantation was complicated as a result of high operational costs, a limited planted area, and expenses related to corporate social responsibility (CSR). At the time, Sime Darby said it was reviewing its assets in Liberia to examine various options, including a sale or developing a smallholder programme with NGOs.

The company is reportedly in talks with three buyers. As a final resort if a sale to these potential buyers fails, Sime Darby would give the concession back to the government. Sime Darby is pointing out that CSR will be a high priority when selecting the potential buyer. “When we leave, not if, we want to ensure the party that takes over will act responsibly,” Mohamad Helmy Othman Basha, the company’s group managing director, said.

The plantation has been an ongoing financial burden for the company, which signed a 63-year concession in 2009. The Liberian government agreed to Sime Darby developing a plantation with 220,000 hectares, but currently the total planted area is 10,400 ha. Fresh Fruit Bunches production in FY2018 totaled 65,000 metric tons and CPO output was 16,000 MT. Liberian operations have led to impairments, and Sime Darby Liberia saw an operating loss of RM 71 million in FY2018 on weaker crude palm oil (CPO) prices and high costs from operations and CSR. The company reportedly laid off 350 workers over the summer. A plantation worker told FrontPage Africa: “Sime Darby contributes USD 1.2 million every month, whether it is by taxes, income taxes, through purchasing, etc. So, you can see that a lot is going to change after they [leave] in December.”

In its early years of operating in Liberia, Sime Darby faced a number of community complaints because of its aggressive expansion. In 2016, it implemented a moratorium on new land clearings. Since Sime Darby issued its moratorium on new development in Liberia three years ago, the company recognized that its original development plans were untenable. Customary land rights are entrenched in Liberian legislation and efforts to halt deforestation have grown, which increased risks for Sime Darby’s expansion plans. Sime Darby’s undeveloped land bank in Liberia contains high-density forest. Approximately 45 percent cannot be developed responsibly.

A concession-based model is unlikely to work in Liberia. Full concession development would require negotiations with a large number of communities, which would involve decades of negotiations with uncertain outcomes and possibly result in significant delays to project development. An inclusive and sustainable smallholder arrangement is the viable approach, significantly reducing reputational risks and conflict.

As CRR noted in February, divestment could lead to sustainability consequences, including negative impacts on Liberian farmers and human rights. Divestment may incidentally facilitate an increase in deforestation as a result of former workers seeking other sources of income. Liberia has seen several examples of failed investments and adverse impacts of irresponsible divestments. Sime Darby says it is trying to exit Liberia with as much caution as possible. “The Liberia asset remains loss-making but we are quite confident that in the next few months we will exit in an appropriate manner. We have been present there for more than 10 years, so when we leave, we want to do so in the best way possible,” said Mohamad Helmy Othman Basha.

In response to the news of Sime Darby’s upcoming divestment, Alfred Brownell, the 2019 Goldman Prize for Winner for Africa and the Founder and Lead Campaigner for Green Advocates International, a Liberian NGO which filed a complaint against Sime Darby to the RSPO Complaint Panel on behalf of the Project Affected Communities, states: “It is imperative that Sime Darby is cognizant of its commitments to honor the Free Prior Informed Consent (FPIC) of the communities at every stage of its investments under the RSPO. This includes an obligation to fully informed local communities and workers of the divestment process, and that no commitments made in the series of bilateral negotiations between the company and the project-affected communities are left unfulfilled. All potential buyers are put on strong notice to exercise maximum due diligence to ensure that all the legacy and liability issues associated with the Sime Darby investments in Liberia are completely resolved prior to any decision to invest into or take over this portfolio. Not doing so will be at their detriment.”

Investors will likely note that if Sime Darby sells its Liberia concession, it may not recoup its investments made there over the past decade. Earlier this year, it estimated that the recoverable amount of the subsidiary was RM 269.2 million, compared to RM 403.6 million in 2017. In the last two years alone, Sime Darby’s capital investments totaled RM 197.2 million in its Liberian subsidiary.

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