[Unpublished] Trade in the eyes of Africa

Written in Accra, Ghana, in summer 2007 for New York University’s specialized reporting program

 

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Sylvia Ashie

Sylvia Ashie sat among a dozen empty tables at her open-air restaurant in Tema, an industrial town outside of Ghana’s capital Accra, writing check after check, signing invoice after invoice. After a few moments of silence, still looking down at her checkbook, she asked, “Do you think people in the U.S. want to do business in places like this?”

In the early ‘90s, Ashie, 57, owner of Sylvia’s Catering Services and restaurant, opened up a second business selling food ingredients to feed the factory workers at US-based Unilever’s 24-hour factory in Tema. But when the multi-national manufacturer pulled the plug on the partnership in 2004 to import cheaper goods from abroad, Ashie had to find new ways to make money.

“I thought, well, they’re not buying ingredients from me anymore, and I have this factory sitting here,” she said. “I might as well start doing something on my own.”

After a two-year bout recovering from cancer, Ashie returned to her factory in October 2006 with the idea for Sylvia’s Hot Pepper Mix, a special blend of shrimp, smoked fish, onion, peppers, garlic and salt. With funds left after chemotherapy, she opened up her third business, hiring on four workers to sell small-order batches of her signature spice to local businesses.

Her spice appeals to local taste buds and is sold in shops around greater Accra, but product analysts tell her that in order to appeal internationally, she needs to remodel the product appearance from her simple, labeled clear plastic bags to something more eye-catching. This year she’s redesigning the bag with a Chinese manufacturer, hoping the aluminum-lined Polyphane packaging will attract bigger business.

“Right now I’m looking for a market outside—Africa, Europe, the U.S.,” Ashie said. “I need to get my packaging right first.”

Marketing schemes are one of many challenges that hundreds of small business owners in Africa face while going head to head with stronger, more experienced world leaders and emerging businesses in other rapidly growing, developing economies. Suppliers with better experience and capabilities stiffen the competition when mass-produced imports often are cheaper than the domestic brand, and small businesses can lose customers on their home turf.

Though many countries are gaining more stability with declining inflation and slow growth, trade gaps are multiplying. Between 2003 and 2006, the trade gap between sub-Saharan Africa and the United States widened from $18.8 billion to $47.1 billion. Developing African countries depend more and more heavily on imports from the United States and Europe for technology, foodstuffs and finished goods, and export mostly raw goods that bring in low
revenue.

Silvia Ashie's factoryin Accra, Ghana
Silvia Ashie’s factoryin Accra, Ghana

With the lowest purchasing power in the world, Africa has made its name as a world supplier for raw materials, oil and natural gas, selling off valuable resources to more developed countries that process them and make more expensive goods. Stronger producers rake in profit from the cheap costs of materials, then export goods worldwide, including to the African countries that sold them raw materials in the first place.

Leaders in trade have spoken up to move African countries away from being the world’s bottom rung suppliers. Gradually, businesses are thinking past selling raw cocoa to Switzerland, timber to Germany, or oil to the highest bidder. While the biggest exports are still oil, platinum and diamonds, investments are being put into strengthening non-traditional industries and helping small- and medium-sized enterprises, the businesses that propel the majority of the domestic non-oil economy. Manufacturers are exploring ways to produce more expensive goods and make bigger profits. By producing more finished and semi-finished goods, businesses add value to their products, selling them at a higher price and maximizing profit.

But in a continent where the oldest free economy was born just 50 years ago in Ghana, infrastructure problems and lack of technology and business experience pull down entrepreneurs. Domestic problems are then buried by burning financial and trade questions, with small businesses scrambling for investors and market access. In sub-Saharan Africa, trade is pulled down by supply-side constraints from an underdeveloped infrastructure. Transportation and energy problems cost businesses time, money and partnerships. In West Africa, the region-wide energy crisis and dilapidated one-lane road systems slow down transport.

Along trade routes in Burkina Faso, Togo, Ghana and Mali in West Africa, truck drivers can be delayed 15 to 40 minutes per hour along the route because of customs delays. In these countries with anywhere from seven to 19 checkpoints each, customs officials accept bribes from $3 to $25 per 100 kilometers, and a truck driver could pay up to $105 to drive through Mali. The Malian police and Burkina Faso customs officials take the highest bribes at $11.50 and up to $6.80, respectively, according to a road-highway governance report published in July by USAID, a government foreign aid agency. Record-high fuel prices and low financial access shut down domestic airlines, buckling under the competition of international lines.

Businesses in landlocked countries can’t afford air freight, and are forced to make costly ground commutes to port cities on coastlines. Delayed traffic leads to late deliveries, low expectations and lower demand. Palm oil exporters in Guinea are facing challenges with its shipments to the United States. Before making a business deal, exporters send samples of their goods to potential buyers, which are then approved and ordered in large quantities. However, once the palm oil reaches its overseas destinations, buyers claim that the shipment isn’t the same product as the sample, then question whether the African exporters are familiar with quality specifications in order to ship products properly and efficiently.

Silvia Ashie's hot pepper mix
Silvia Ashie’s hot pepper mix

Small businesses lack experience with product development, efficient packaging and timely development. Technical standards in developing countries are miles behind first-world economic leaders. Consistent energy supply isn’t always guaranteed and broadband web access is a distant dream for many businesses. And because these infrastructural impediments challenge businesses and therefore damage credibility, high interest rates hinder making big investments.

African exports only make up two percent of the world’s trade market, compared to six percent in 1980, though the population of Africa has nearly doubled to over 900 million people since then. According to U.S. trade representative Susan Schwab, one extra percentage boost would add $70 billion to trade revenue, which is almost three times the amount of all current foreign development aid combined.

The United States is taking steps to facilitate trade with the sub-Saharan by giving African countries more market access. In 2000, President Clinton signed the African Growth and Opportunity Act, which removed major trade barriers by allowing 6,400 nontraditional types of exports, from footwear and apparel to woodwork and foodstuffs, to enter the United States duty- and quota-free. Now 98 percent of African imports enter the country duty-free.

Since the Act was implemented in 2001, sub-Saharan Africa’s revenue from non-oil imports to the United States went up from $7.6 billion to $44.2 billion. This July, U.S. Secretary of State Condoleezza Rice announced the AGOA Diversification Fund to help African countries diversify their economies.

But even after five years, the Act still hasn’t reached its full potential. Only 3,800 of the applicable products are actually imported into the United States through AGOA. Many small businesses find their own ways into the U.S. market without facilitating the benefits of AGOA, according to USAID. Business relations are made without using AGOA, partly because investors aren’t even aware of AGOA and its benefits, one Rwandan representative said, who pushed for more ways to sensitize American investors and businesses about the benefits of AGOA at July’s forum on the Act in Accra.

The U.S. Millennium Challenge Corporation, the government’s outreach sector put into action in 2004 to assist developing countries, created the Millennium Challenge Account to invest in infrastructure projects in developing countries. There are 19 MCC compacts in Africa, chiefly to improve transport, irrigation and energy problems. This July, the MCC signed onto a 5-year compact of $362.6 million to improve water conditions the southern African country of Lesotho, improving health and providing more desirable incentives for private investment.

The Bush administration has already chipped in over $3.8 billion and counting through the Millennium Challenge Account alone. It also set up health, financial, and education initiatives to battle AIDS and malaria epidemics, the $200 million African Global Competitiveness Initiative to build capacity for trade and competitiveness in the sub-Saharan, and a faculty exchange program for Africa’s top agricultural experts to study in America. President Bush has signed three beneficial AGOA incentives for the 38 eligible countries, most recently to extend market access to the trade and apparel industries until 2015.

The public sector has demonstrated heavy involvement in shaping the African economy, but now the ball lies in the court of private investors to work with individual African businesses through AGOA and other market initiatives. But, as African and American representatives pointed out at the AGOA forum, U.S. private investors aren’t even aware of AGOA and its benefits, much less are they aware that there is even any potential working with small and medium businesses in Africa.

“Capital is a coward. It goes where it feels comfortable,” said Ron Greenberg, a division chief for USAID, at the AGOA forum. Investors’ natural hesitance to put their dollars in foreign territory puts African SMEs in a catch-22. With insufficient funds to make their businesses more desirable, small businesses are left in need of technical and financial assistance, while scrambling to find a door into the U.S. market.

But market gurus see the exotic African identity as a leg up in the U.S. market over other cheap imports. With the success of the Product (Red) cross-brand marketing campaign and Vanity Fair’s July 2007 issue devoted to all things Africa, guest edited by U2 front man Bono, U.S. consumers have shown that they are open-armed to Africa. “Africa is hot,” Bill Releford of the Global Integrated Development Group commented, touting Africa’s marketability in the U.S. market at the AGOA forum. By “branding Africa,” Releford’s pet term for capitalizing on the African identity, the continent could bring in major revenue through nontraditional, non-oil industries, such as textile, apparel, furniture, home décor and food.

Market in Accra, Ghana
Market in Accra, Ghana

AGOA facilitates trade by providing market access for thousands of African small business owners, producing growth with the ultimate goal of reducing poverty in the sub-Saharan least developed countries. But the lingering issue of financial aid raises concerns for African officials, who don’t think long-term investors want to jump into the game with only eight years left on the initiative’s clock. Though AGOA, initially meant to expire in 2008, has been renewed until 2015, the African Civil Society is pushing to set the Act’s benefits in stone by extending the Act for 20 to 30 more years.

U.S. non-trade investments also signal that the U.S. private sector isn’t overlooking business in Africa. A few U.S. corporations have set up camp in Africa to reduce production costs, making their products affordable to African consumers. Coca-Cola, the largest employer in the continent with 60,000 African workers, carries the motto, “Local people process local resources to provide a local product,” reducing production costs to make its products affordable to every consumer. This July, the Minnesota-based agricultural giant Cargill dropped a $70 million investment in Ghana to construct a cocoa manufacturing plant in Tema, across town from the major domestic cocoa processing company Golden Tree, a benchmark that U.S. investors are slowly moving in on Africa’s increasingly fertile economic opportunities.

But while major efforts are underway to ease business with the United States, African leaders seem more apprehensive about bringing down the barriers with the European Union, who proposed an Economic Partnership Agreement to liberalize trade relations between Europe and Africa. While AGOA is an initiative to increase market access for African SMEs, the EPA would remove tariffs for all goods within its “Everything But Arms” regulation to ease importing on both ends.

However, because European industries have stronger production capabilities, African leaders worry that lesser developed African industries aren’t ready to compete with the European Union, and increasing trade with Europe will worsen trade deficits in Africa, already at $750 million in South Africa and $2.38 billion in Ghana, two of the strongest economic and political bodies on the continent. “Europe’s products will come into our zone without any tariffs, and our products will not be able to compete with their products,” says Dr. Lanto Harding, chief of trade and development at the West African Monetary Institute. “They’ll kill our industry.”

Leaders say building up the economy will take more than strengthening SMEs, which is AGOA’s most prevalent success story. With its vast array of resources, Africa has the capability to promote larger business ventures and create “star” companies, following the model of India’s multinational Tata Group, the world leader in several industries from tea to information technology, which brought in $21.9 billion in 2005-2006 and now exports to over 140 countries.

P1020985“We need to get the macroeconomy right. The government also needs to determine if it has to help some sectors of industry to move the economy forward,” Harding says, suggesting that the government should facilitate national banks to build specific industries by offering soft credit and venture capital. “That type of thinking is not yet very prominent in the government…it has not become the focus yet.”

But right now, since development efforts and business assistance focus on aiding SMEs in an array of industries, small-business entrepreneurs like Sylvia Ashie are focusing on making bigger business partnerships and increasing their market desirability, in order to eventually attract private investors to pave the way into the American or European market.

Development experts and trade ministers in both the United States and Africa concede that facilitating trade is the single most effective way to build the economy and industries, ultimately reducing poverty. SMEs that are eager to enter the U.S. market must work against the clock to establish business partnerships by 2015, when AGOA expires and direct U.S. public assistance to trade reaches an end. And when foreign help expires, African industries must be ready to stand on their own in the world market.

Despite the United States’ multibillion-dollar investments, U.S. Ambassador to Ghana Pamela Bridgewater stressed that the limited work of the public sector won’t help maximize growth. “Private sector growth–trade and development–will have a direct impact on good governance,” she said the AGOA forum. “Government can provide an enabling environment…It is our job to help you, but to not stand in your way.”

Instead of increasing government assistance, she said encouraging the private sector’s involvement in trade with African businesses is key for economic progress. “We need [a] holistic approach to positive structure–civil society, the private sector and government working hand-in-hand,” Bridgewater said. “Most importantly, Africa has to take its place on the global stage. Demand it, you’ll get it.”

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