Take the example of coffee. In 2014 Africa —the home of coffee— earned nearly $2.4 billion from the crop. Germany, a leading processor, earned about $3.8 billion from coffee re-exports.
The concern is not that Germany benefits from processing coffee. It is that Africa is punished by EU tariff barriers for doing so. Non-decaffeinated green coffee is exempt from the charges. However, a 7.5 per cent charge is imposed on roasted coffee. As a result, the bulk of Africa’s export to the EU is unroasted green coffee.
The charge on cocoa is even more debilitating. It is reported that the “EU charges (a tariff) of 30 per cent for processed cocoa products like chocolate bars or cocoa powder, and 60 per cent for some other refined products containing cocoa.”
The impact of such charges goes well beyond lost export opportunities. They suppress technological innovation and industrial development among African countries. The practice denies the continent the ability to acquire, adopt and diffuse technologies used in food processing. It explains to some extent the low level of investment in Africa’s food processing enterprises.
Something for an audience member to raise the next time an EU ambassador gives one of those tired and colorless lectures on “good governance.”
Update: You can find individual country reports from the Oakland Institute, a California based think tank, here.
I am on record as having reservations about the latest scramble for Africa African governments leasing vital arable land to foreign companies and governments (esp. in the face of high levels of food insecurity in the region).
Like many, my first reaction was to protest against these land deals. Like most natural-resource concessions on the Continent, they appeared to favor only the foreigners and a tiny clique of well placed individuals in African governments – at the expense of the many.
But I am beginning to have second thoughts. This latest land grab on the continent maybe the catalyst of an African green revolution. Most African governments gave up on non cash-crop agriculture in the 1970s. Some, like Nigeria, abandoned agriculture wholesale and quickly became net exporters of agricultural goods. Bad policy (see Bates) and non-agricultural resources (mostly oil and metals) were to blame.
While my general skepticism remains, here are potential upsides:
Commercialization of non cash-crop agriculture: The vast majority of agricultural production in Africa takes place in smallholder farms that are hard to finance or insure (tea, coffee, and other cash crops get all the money). Their small sizes also limit the economic feasibility of improvements such as mechanization, irrigation, etc. The advent of commercial production of food crops in the region will have market effects, for sure. Agricultural SM&Es and even Big Agriculture will bring much needed capital to this vital sector of the economy.
Land consolidation: This is already happening (and is the main source of my skepticism regarding the benefits of these deals). With consolidation comes economics of scale, R&D, mechanization, etc. I hope that African governments will ensure that this latter day enclosure movement takes place in a humane manner. It is in their own interest since most of these governments’ political bases reside in the countryside and live on subsistence agriculture. Consolidation might also spur further growth by creating demand for more goods (people earn wages and their are no longer producing their own food). Remember that specialization determines the extent of the market (Adam Smith).
Technological diffusion: With commercialization will come irrigation, mechanization, use of fertilization, R&D, etc that will most certainly diffuse to the local agricultural sector. Rain-fed agriculture when you have the Nile, the Niger, the Voltas, the Congo, the Zambezi, Tana, Athi, etc, is so pre-Mesopotamia.
Political reforms: In my view, one of the key impediments to political reforms in Africa has been the persistence of what Hyden called the “uncaptured peasantry.” A landed peasantry that can live off the land allows politicians to play with the macro-economy like there is no tomorrow. If the people get off the land, the general performance of the national economy will have a bigger impact on their lives. Suddenly, reaction to stratospheric inflation rates and other failures in the macroeconomy will not be confined only to urban centres. This will, in part, serve to end Africa’s tyranny of the countryside – a situation in which ethnic chiefs elected from the countryside ignore the underrepresented urban dwellers – and spur real democratic accountability.
Discussion of the downside of these deals is already out there. It also helps to look at the potential upside (at least in the long-run). I remain convinced that the real pro-poor growth in Africa will come from SM&Es and big business, whether in agriculture or other sectors.