Strange Journeys along Africa’s Value Chains

 

Africa has massive quantities of natural resources whether they are minerals, oil or agricultural products or human resources and yet there is no transformation of these products into either intermediate products or final goods. In the SADC region, between the Congo River and the Cape are 250 million plus people with all the resources they need- minerals, fuel, land , water and industrious people to be as rich as the citizens of the developed world. Yet everywhere, with the exception of the sons and daughters of the elite,  there is poverty and massive unemployment and hopelessness for the younger generation. Everywhere and in all commodities Africa’s place remains at the bottom of the value chain. Africa, despite all the hype,  is as it was largely in the past, the proverbial ‘hewers of wood and drawers of water’ of the new and increasingly New Asiatic mode of production that we call globalization. 

 This is because the middle part of the value chain, that process whereby there is transformation of basic inputs is occupied by one or other country and small African states simply cannot produce at prices which are competitive.

Take two of Africa’s biggest resources- gold and diamonds. If the possession of unprocessed resources were enough to make a country industrialize then Africa countries like South Africa and Botswana and DRC would be huge producers of gold jewellery and polished diamonds. The cost of transporting processed gold and rough diamonds is a tiny portion of price and so the advantage of being close to a high value to weight item is very small indeed. That means getting both resources to a low cost centre is minimal and there is no advantage of processing them in Africa. India employs 4.3 million people process and sell diamonds and gold into jewellery.

This control of the value chain is true of even the most bulky commodities. With the invention by the Japanese of the super-bulk carrier in the 1960’s Japan became then and remains today the world’s second largest producer of refined copper ( after China) while having almost no copper ore , expensive electricity and expensive unskilled labour. All this was a result of deliberate industrial policy and the development of super bulk carriers by Japan which could bring copper from Chile and Indonesia to the great Japanese refineries at very low cost.

Coffee on the other hand should be easy for Africa to process but even this is not. After all Africa is the home of coffee and  unlike gold or diamonds it is a very low cost to weight item and therefore it should be easy to process in Africa where the coffee is grown.  But oddly it is Germany, without a single coffee bush outside a green house,  that is the world’s biggest exporter of green coffee and not Brazil, or Ethiopia or Vietnam  and Germany exports more green coffee than all of Africa put together. Why, because of logistics? Ground coffee has a limited shelf life and must be processed close to destination market or have easy access to the  supermarket shelf. The great European coffee firms import large volumes from Africa, Asia and Latin America and then export it in the same unprocessed coffee to other countries of the EU. They do not even process but because their flight connections are so good with the connections of other European countries they are a natural entrepot for a short shelf life green or even roasted beans which deteriorate within a few weeks. The trade in Europe is dominated by large European processing companies which know their market and that market will remain under the control of these firms. African countries have long harbored dreams of exporting processed coffee in volume but this will not happen until the day that Africa  has firms that are  national champions that are  sufficiently endowed that they can either merge with or acquire large European processors. So when it comes to one of Africa’s finest exports the continent remains largely confined to exporting green beans with European companies processing and adding the value.

But what of logs. This is one of tropical Africa’s biggest exports. Tropical countries like DRC Ghana Gabon Cameroon Congo are big exporters of tropical  forest products. Countries like Togo DRC and Congo have continued to ship out round logs with no value addition. But logging is amongst the most corrupt of industries globally. These logs are easy to under measure and mis-identify and therefore incur less taxes and royalties and usually result in bigger bribes for officials and ministers. But some countries have succeeded in moving down the value chain to the production of sawn timber and plywood and veneers. This includes relative success stories like Ghana where 76% of forest exports are now processed products and only 21% are logs.

Where Africa has universally failed however has been in the value added end product, which is commonly wooden furniture where all of Africa together exports no more $600 million per annum in 2016 and almost 55% of those exports comes from Egypt, which, to be polite is not exactly known as a forestry powerhouse. It shows once again that having the natural resource contributes little further down the value chain.

 

These facts are used by simple minded economists who argue against beneficiation of African raw materials. Why beneficiate, they argue? The ownership of the resource provides no commercial benefit down the value chain. Look at Egyptian furniture, or German coffee or Japanese copper or Indian diamonds. None of them have the natural resource and yet they can export in relatively large volumes at competitive prices. How can they do this? It is simply because they have worked out the ingredients for making their countries and those products in their economies competitive and are continuing to work at it because they know it is competitiveness that matters. That is what is missing in Africa, not a policy direction on a range of products because it does not matter whether it is beneficiation of diamonds or the manufacturing and export of refrigerators. What is missing is a political elite that ‘gets it’ and knows that success for Africa rests on becoming internationally  competitiveness and is willing to do whatever it takes to make their countries competitive. Some economic managers in Ethiopia and a few other countries understand competitiveness but the rest are mostly  feeding their citizens empty and absurd platitudes about an industrialization that has not occurred and will never occur unless there is profound shift in policy thinking in Africa. And so the children wallow in shanty towns or worse, drown in the Mediterranean dreaming of a better life in Europe because their own homes offer no employment possibilities and a future of misery and poverty.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where his employed.