Sunday, May 26, 2024

Value Addition: The Numbers Behind The Practice

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The Starbucks coffee brand is about ten years younger the independent State of Uganda having been founded in 1971 in Seatle, US in 1971.

According to the 2019 Starbucks Annual Fiscal Report, the entity had net earnings of $3.6b from 32,660 stores globally and had an estimated 346,000 employees that is about ten people per store bigger, but collectively rivalling Uganda’s entire civil service that stood at 308,753 according to the 2018 Statistical Abstract by the Uganda Bureau of Statistics (UBOS).

Starbucks is reported to have experienced a double expansion in the last ten years only. So how is this possible? The answer is in “Value Addition”. In our local coffee market commercial lingua, there are only three major words, read products, that dominate our local coffee industry; “Kiboko”, dry coffee with the husk, “Kaase”, dry coffee bean, “chai kkawa”, a cup of coffee in your local tea joints.

On the other hand, Starbucks not only has all these but also has a line of; Lattes, Frappuccinos, and Iced Coffees, et cetera. The Iced Coffee category alone, as I observed from recent internet research about their menu, has 10 sub-categories from “Cold Brews” to” Iced Clover Brewed Coffees” altogether with 55 different varieties in just the iced coffee category alone.

So, in spite of the introduction of coffee in Uganda in 1900 with varieties from Malawi and Ethiopia, 81 years prior to the founding of this global leading brand, Starbucks, if sold out entirely at its estimated $30b by GO.BankingRates .com can fund Uganda’s entire annual agriculture sector budget for 112 years. Yes! You read right, One Hundred Twelve years, based on the finance ministry, National Budget Framework Paper for the Financial Year 2019/2020 – 2024/25 dated December 2019, that forecasted a total annual agriculture sector budget for 2021/22 at sh990b or about $270m as at today’s exchange rate.

These statistics seem to indicate that our low economic performance is simply a choice. Even with nose distance options and access to data and information, Africa still chooses to remain an exporter of raw material and net importer of finished commodities.

This means the African farmer cannot scale-out into a plantation farmer, an African entrepreneur cannot have sufficient capital reserves to fund research and development, an African Banker cannot break the chains of foreign capital and the attendant controls and an African government cannot sustainably grow its tax base hence reduce its foreign debt. Our entire model of agro-based production fails before it starts. These economic shackles rooted in colonial policy and trade imbalance are still reigning and can only be broken with a systematic scale back on raw agro-export policy and the attendant practices.

However, this is not possible without a push back from our Western allies that continue to benefit from this trade imbalance. So, if this is what we expect, the question now is, what is the way forward? Trade negotiations? Under whose watch? The World Trade Organization, formally known as the General Agreement on Tarrifs and Trade, GATT, has existed since 1948 with few practical solutions. So this being as it is, what can an African Agro-Transformation Agenda adopt to circumvent these realities? Here is a 25-year, seven-stage solution all within the sovereign of any African State;

Farmer aggregation

The organisation of smallholders into production and trade groupings has all benefits from the collective increment in bargaining power and better lobbying capacity with government and financiers against all sorts of market barriers to enhancing enforcement of good agro-practices and providing economies of scale at all levels of production.

These groupings in the agriculture sector are the equivalent of worker’s unions, professional guilds, and manufacturer associations. Without these, the sector shall remain clouded in focus and limp on pace.

Small holder to plantation production

With farmer groupings functional, gradually individual farmer interest will be superseded by group interest and private smallholder farmers will be operatively swallowed into collective group interest. This would essentially render all private smallholders as part of plantation production even if their land may not necessarily be physically aggregated. The positive of plantation production is bulk-driven economies of scale which is an essential precursor for the “value addition” journey.

Knowledge and Technology Transfer

On accumulation of bulk, there shall be an obvious need for some technology to manage several processes such as; deterioration-free storage, extending shelf life, raw material dressing, grading, extraction, processing of by-products, etc. These processes shall need some form of technology. This technology is; one, produced by the West, and two is the foundation for the detailed production processes such as; infusion for coffee, distillation for wine, the addition of preservatives to packed foods, lacing multiple foods with other ingredients etc. If we deliberately start with understanding the base technology then over the years the foundation for understanding both the science and culture of industrial production begins to take root.

Build Capacity from the Bottom of the Production Chain

When there is locational advantage of raw materials coupled with industrial processing knowledge, this triggers the balance of industrial location towards the source of raw materials rather than source of market. The economic feasibility therefore will begin to suggest that some early value addition processing can be profitably done locally. This shall render Africa attractive at least as an industrial base for some pre-export processing.

An Aggressive Agro FDI Policy

On arrival of favoured investment destination status or agro-production, Africa must make a decision to not only make the best of this status but also to ensure that it is a decision made out of not favour or sympathy by foreign investors but one based on objectivity. As such, we must pursue Foreign Direct Investment, FDI, with resolve for another two centuries. This shall mean several reforms in; education and skilling, macro-economic and fiscal policy, governance, and sustainable development especially in view of climate change.

Soft Diplomacy

The lamentations of exploitation that characterized post-independence Africa are beginning to sound stale to Africa’s youthful population. It’s a story that has clarity in both what transpired and for what end the global resource distribution was distorted. These cries must be replaced with sober leadership that is consistent with three main agendas; equity, humanity, and national economic transformation. Diplomacy laced with these macro pillars for any leadership, if consistent, shall stand beyond any global institutional tyranny and unfair resource exchange over time especially as the West’s becomes less overtly aggressive.

Seize the Continental Market – AfCFTA

The UNCTAD 2019 report that the intra-African trade measured by the volume of exports and imports was 2% in the period 2015 to 2017 and yet as high as 61% for Asia and 67% for Europe in the same period. So why is there more trade among the Nation States in other continents than in Africa? No clear answers. But clearly, this is a market to tap. With the African Continent Free Trade Area, AfCFTA, agreement in force since January 2021, we see some “light” for a future market for our home-grown value addition products.

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