Monday, 30 May 2016

Why we can't buy Ghanaian chocolate bars


I was quite struck by this article about a woman making artisan chocolate in Ghana:

Ruth had come over to meet potential trade buyers and told me her story. Chocolate was for her currently a cottage industry, using her garage as a factory and employing her mother to grind beans obtained from a nearby farm. To my mind, it was a chocolate equivalent to a micro-brewery, converting local crops for local consumption. Surprisingly, she is the first independent business to make artisan chocolate in Ghana.

It's a reminder - as the writer makes clear - that Africa is a very different place from the myth presented by NGOs like Oxfam or Save the Children with their images of starving children, subsistence agriculture and wicked foreign investors. Instead, we've a glimpse of an increasingly urban society filled with enterprising people like Ruth. It also tells us that the traditional source of funding - the bank loan - can be difficult for traders like Ruth to secure.

But before we get to tied up in feeling sorry for Ruth and her mum, let's remember she has the resources to travel to London to pitch to trade buyers at an exhibition promoting hundreds of Ghanaian businesses to buyers in the UK. The writer suggests - because he's from a cuddly social enterprise background - the sort of crowd-funding approach to financing Ruth's business that Hotel Chocolat and Brewdog has used. Make an offer - whether it's a cash return or free chocolate doesn't really matter - to potential small investors.

And it struck me that, regardless of the way in which investors are rewarded for their investment, this is a very good way of financing a business - the business-owner transfers the risk to the investor. And it's true that crowdfunding can be an effective means for many initiatives - Bradford's Drunken Film Festival for example - but wouldn't a better route for nascent small businesses like Ruth's being the issue and sale of share capital? Either through 'Dragon's Den' style angel investors or other routes to equity markets.

The other problem for a Ghanaian chocolate business is, of course, the way in which the developed world protects its chocolate business:

Cocoa producing countries limit themselves to mainly exporting beans -rather than manufactured cocoa, or chocolate products- mostly because of tariff escalation. The EU has a bound rate of 0 percent for cocoa beans, but a 7.7 percent, and 15 percent ad valorem duty on cocoa powder and chocolate crumb containing cocoa butter respectively;
Similarly, Japan applies a bound rate of 0 percent for un-processed cocoa beans, but charges a 10 percent tax for cocoa paste wholly or partly defatted, and a 29.8 percent duty on cocoa powder containing added sugar;
The US has no ad valorem on cocoa beans, but imposes a duty of 0.52 cents/Kg for cocoa powder -with no added sugar- and tariffs could go up to 52.8 cents/Kg for imported chocolate products containing cocoa butter.

Maybe that's for another day but it's a reminder that, for all our heart-on-sleeve keening about Africa, we consistently make it more difficult for businesses from places like Ghana to do business - other than on our strict and expensive terms - here in the developed world. To start with Ruth will get some protection if she focuses on small consignments but the tariffs will kick in the minute she's exporting for resale rather than individual consumption.

The best thing - other than investing - the the developed world can do is stop placing barriers between producers and manufacturers in places like Africa and the markets they needs to succeed in Europe, North America and Japan.


1 comment:

Thomas Forth said...

I agree with the general thrust of this post; trade not charity will help poorer countries become richer more quickly. But I wonder if your assertion that "we consistently make it more difficult for businesses from places like Ghana" is outdated. My understanding is as follows and while I am reasonably confident that it is correct I apologise in advance if it is not.

Until recently Ghana enjoyed tariff-free access to the UK market for its chocolate, in any state of processing, under the EU's ACP-group agreement (1). A continuation of this tariff-free access was offered to Ghana in recent economic partnership agreement (EPA) negotiations with the EU.

My understanding is that Ghana has chosen to trade this tariff-break away so that it can apply tariffs on certain EU goods, especially clothing. I think that this, and Ghana's failure to ratify its EPA, are probably mistakes. But I am also confident that Ghana's trade ministry is vastly more capable and infinitely more informed than I am to judge that. And even if they are not, it is Ghana's sovereign right to take such a decision.

It's probably also important to note that under the everything-but-arms initiative many countries like Ghana, including most of its poorer neighbours, enjoy tariff-free access to European markets for all goods except weapons. That includes chocolate.

Ghana does not benefit from the EU's brilliant everything-but-arms initiative because it is, as you note in your piece, too wealthy.