Sunday, July 14

Dr. Akinwumi A. Adesina, President of the African Development Bank, emphasises that respect is not given but must be earned through consistent, concrete action over time (Adesina, 2023). As it stands, Africa still needs to earn that respect.

It is so evident, at one point, that Donald J Trump had to simplify Africa’s schizophrenia in one word. Then the world went berserk. He still holds the unenviable record as the only global leader bold enough to say it out loud.

Turning to the theme of his speech, “For the World to Respect Africa,”  Dr. Akinwumi A. Adesina said, “We must eliminate poverty, create wealth and stop begging for food.” He tackled nine critical factors hindering our progress in global standing. He stresses the need for African countries to take action in poverty reduction, agricultural productivity, value addition, industrialisation, climate resilience, energy access, health security, good governance, and youth empowerment.

Multiple Sclerosis

Many factors contribute to Africa’s schizophrenia, but this piece will focus on the lack of value addition to cocoa and gold. This has led to international companies buying these raw materials far more profitable than the African countries they purchase from.

Genesis

For the sake of our ancestors, I will dare not trivialise the forcible abduction of 12 million of some of our robust and intelligent through the transatlantic slave trade. We were progressive in our own right. It may not be the European version of progress, but our social, economic, and political development was disrupted. After abolition, the legacy of colonialism continues to shape Africa’s economy and politics to this day. That being said, this does not justify Africa’s schizophrenia. It instead bears witness to the words of the world-renowned philosopher – In the abundance of water, the fool is thirsty – Robert Nesta Marley, 1976

Cocoa & Gold

Let’s study cocoa and gold. These commodities are significant sources of export revenue, foreign exchange earnings, and government income. Ivory Coast and Ghana produce over 65% of the world’s cocoa, while Ghana, South Africa, and Mali contribute significantly to the world’s raw gold demand. Still, the benefits have often been limited due to a need for more local processing and value addition.

We must shut the door to poverty.

” The export of raw commodities is the door to poverty. The export of value-added products is the highway to wealth” – Dr. Adesina.

Many African countries continue to export these commodities in their raw form. International companies that process and market the final products dominate the industries, with limited participation and zero ownership by African businesses and governments.

What is value addition?

Think of value addition as something like cooking a meal. Raw ingredients like vegetables and meat are like raw commodities. When you process these ingredients by chopping, seasoning, and cooking them, you add value and create a delicious Senegalese joloff rice worth more than the sum of its parts. Similarly, when countries process their raw materials into finished products, they add value and generate higher profits.  In mineral resources, value addition involves processing raw commodities like cocoa and gold into consumer goods such as chocolate and jewellery. This process is crucial for capturing a larger share of the value chain. it increases economic value and generates higher profits. This is precisely what the majority of African countries are incapable of.

Processing

Ghana and Ivory Coast are primarily involved in the early stages of the cocoa value chain, focusing on harvesting, fermenting, and drying the beans. As a result, they miss out on the economic benefits of later stages, such as roasting, grinding, mixing, and packaging, which companies in Europe and North America primarily carry out.

By exporting raw cocoa beans, these countries lose the opportunity to create jobs, generate income, and build thriving industries.

Low profits from raw materials.

For example, a $2 chocolate bar sold in Europe or North America may contain cocoa worth only a couple of cents, with most of the value added through processing, packaging, and marketing.

In 2021, the two countries sold raw cocoa beans, making 2.84 billion and 5 billion USD, respectively. In the same year, these private chocolate companies out-profited the cocoa-producing countries.

With a legacy spanning an impressive 158 years, Nestlé has transformed from a small-scale operation in Vevey, Switzerland, into an international goliath. It is a publicly traded global leader in the food and beverage sector. In 2021, it made an astounding total revenue of $95.28 billion.

With a history of 113 years, Mars, Incorporated grew from its humble beginnings in Tacoma, Washington, into a global powerhouse. In 2021, it generated an impressive total revenue of $45 billion. The media-shy, family-owned private company is in its fourth generation.

Only two establishments, a family and a private company, are more prosperous than many African countries.

Ghana vs Switzerland: A Tale of Two Nations in the Gold Value Chain

Ghana, the leading gold producer in Africa, primarily focuses on the early stages of the gold value chain, such as extraction, crushing, and grinding. In contrast, Switzerland is the world’s leading country in gold exports, accounting for about 23% of global exports. And listen to this: it has no significant deposits of gold. How, did you ask? Because it focuses on the later stages of the value chain, particularly in designing, crafting, polishing, and finishing gold products.

This stark difference in value addition has resulted in a significant disparity in the economic benefits. While Ghana exports raw gold or semi-refined bullion, Switzerland imports it and transforms it into high-value luxury products.

The story is similar to that of African cocoa-producing countries. Ghana, Mali and Sudan often receive only a tiny percentage of the final value of the gold jewellery sold in international markets. Yes, I intentionally excluded South Africa, and that’s for a different conversation.

Encourage investment in local processing and manufacturing facilities to increase value addition within Africa.

According to unconfirmed sources, 10% of Africa’s raw materials are processed locally.

African countries can capture a more significant value chain share by investing in cocoa processing plants and gold refineries. Initiatives like the Ghana-Ivory Coast joint cocoa processing facility should be replicated.

Why Africa is NOT adding value to its mineral resources

1. Lack of infrastructure:

One of Africa’s most frequently cited obstacles to value addition is inadequate infrastructure, such as reliable electricity, transportation networks, and communication systems. Critics argue that these fundamental components make operating processing and manufacturing facilities easier and more costly.

However, this challenge should be viewed as possible. In collaboration with international partners, African governments must prioritise infrastructure development as a critical enabler of industrialisation. The African Development Bank estimates that closing Africa’s infrastructure gap would require an annual investment of $130-170 billion. By channelling resources towards building roads, ports, power plants, and other critical infrastructure.

2. Political instability and weak governance:

Another counterargument revolves around political instability and weak governance. Sceptics contend that a stable and predictable business environment will allow investors to commit resources, as they may face significant risks and uncertainties.

While political risks cannot be eliminated, they can be mitigated. How? Strengthening our democratic institutions, combating corruption, and promoting the rule of law. Initiatives such as the African Union’s “African Peer Review Mechanism” (APRM) provide a platform for countries to assess and improve their governance practices. African countries will encourage domestic and foreign investment by creating a more stable and attractive investment climate.

3. Insufficient human capital and technological capabilities:

African countries struggle to compete with more developed nations in processing and manufacturing without a solid human capital base and access to advanced technologies.

Our governments must invest heavily in education and skills development to address this challenge. This can be achieved through partnerships with international educational institutions, vocational training programs, and knowledge transfer initiatives.

4. Trade barriers and market access:

Imagine you’re a farmer trying to sell your crops at a market in a neighbouring village. However, to reach the market, you have to pay a toll at the village entrance, and once inside, you find that the other farmers are given better spots to sell their crops. These obstacles include international markets creating tariffs, non-tariff barriers, and market access issues African countries face when selling their value-added products in global markets.

Competition doesn’t hurt. To overcome this challenge, African countries must actively engage in trade negotiations. We must seek to establish favourable trade agreements with key partners. Regional integration initiatives, such as the African Continental Free Trade Area (AfCFTA), can help to create larger domestic markets and enhance the competitiveness of African industries. Besides, we should trade more among our 54 countries. In the long term, we will create products to target niche markets where we define our competitive advantage.

While the path to success may not be easy, Africa can overcome these obstacles with the right policies, investments, and partnerships.

Tiger’s Roar

Sovereign Wealth Fund

With abundant natural resources, Ghana has been exporting raw materials for decades. However, its leaders understand that relying solely on these finite resources is unsustainable.

Picture a giant piggy bank for an entire country, called a sovereign wealth fund, where Ghana can reserve some of the money it makes from selling its natural resources, like an intelligent saver putting aside cash for a rainy day.

When cocoa or gold prices fluctuate, Ghana’s trusty sovereign wealth fund steps in like a dependable friend, helping to keep the economy steady and preventing major mishaps.

Imagine if every African nation followed suit, establishing well-managed sovereign wealth funds to tap into their resource wealth and secure their financial future.

While the ultimate goal is to add value through local processing and manufacturing, sovereign wealth funds offer a powerful interim tool for generating wealth, stabilising economies, and investing in the well-being of the people.

In conclusion, Africa’s lack of value addition in its mineral resource industries is a critical issue that demands urgent attention and action. For too long, the continent has been trapped in a cycle of economic exploitation, exporting its raw materials to international companies that reap the lion’s share of the profits. This has perpetuated poverty, undermined Africa’s global standing and has not earned the continent enough respect.

Donald Trump’s statement was deeply offensive, but mainly to our Narcoqueens and Godfathers, aka politicians and the elite class. They know they failed not only themselves but the continent. However, the blueprint for growth is an open secret. Tackle the challenges head-on and take control of our destiny. By investing in local processing and manufacturing, promoting fair trade practices, strengthening governance, and supporting African entrepreneurs, we can break free from the vicious cycle of resource exploitation.

Moreover, by establishing well-managed sovereign wealth funds, our countries can effectively manage resource revenues, protect against economic shocks, and invest in critical development initiatives that uplift the lives of their citizens.

The path forward is clear. The benefits are immense from increased export revenues, job creation, technology transfer, and sustainable economic growth.

To all those who believe in Africa’s potential, we urge you to join us in this cause. Support initiatives that promote fair trade, local processing, and African economic empowerment. Advocate for policies that prioritise the development of value-adding industries and protect the interests of African countries. Invest in African businesses and entrepreneurs, and help build the infrastructure and skills needed to compete in the global marketplace.

The time for action is now. Let us work together to build a future where Africa’s resources catalyse sustainable growth, prosperity, and respect. By doing so, we can prove that Africa is not a “shithole” but a continent of immense potential, resilience, and promise.

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