With the world racing to achieve the Paris climate agreement target of reducing global emissions by 45% before 2030, Africa is in dire need of ... financing, a study by Climate Policy Initiative says.
Alex Assanvo, the executive secretary of the Côte d’Ivoire-Ghana Cocoa Initiative, believes the African Continental Free Trade Agreement (AfCFTA) could offer solutions.
Bringing processing home
“It is my big dream,” Assanvo says, to push cocoa as a pilot project and show how the AfCFTA can be deployed to encourage more processing of raw commodities on the continent. “This is probably one of the best tools we have to start promoting local processing. We need to bring it to a level where processing becomes cheaper in Africa.”
Trade under the AfCFTA officially started on 1 January last year, but not a single product has been traded under the agreement as yet because some practicalities are still outstanding. Negotiators are still trying to achieve the rules of origin, which is 90% of the products. This currently stands at just over 87%.
When it is implemented, it will turn Africa into the biggest free trade area in the world, which could make local processing more competitive, even if the largest market for chocolate isn’t on the continent itself.
Assanvo, who was director of corporate affairs for cocoa within Mars Wrigley’s European operations before, says his biggest fight was to ensure a decent income for farmers. This is also why he was appointed in his current position in August last year after the world’s two biggest cocoa producers (together the two countries produce 60% of the world’s cocoa) realised they cannot rely on goodwill to secure decent cocoa prices.
Today there is a strong awareness that a living income, decent farmer income is relevant
“Today there is a strong awareness that a living income, decent farmer income is relevant,” he says. In April, for example, a group of EU parliamentarians asked the European Commission to open up negotiations with Ghana and Côte d’Ivoire to address the low cocoa prices.
The group of parliamentarians call themselves the Responsible Business Conduct Working Group and argue that low prices paid for cocoa are a key driver of deforestation and child labour in the sector.
Cadbury faces fresh accusations of child labour on cocoa farms in Ghana https://t.co/xid9TqjRvb
— @Kliment Levi (@LevyLoiseau) June 13, 2022
Most cocoa farmers in Côte d’Ivoire and Ghana earn well under $1 a day and Europe is the biggest market for the two countries.
Just after the $400-per-ton surcharge – or living income differential (LID) – was introduced in 2020 on top of a separate quality premium for beans, Covid-19 struck and hurt demand in the $100bn chocolate sector.
Buyers then negotiated the country premium down, rendering the LID surcharge ineffective.
Even now, farmers complain that prices are not what they should be, prompting Côte d’Ivoire and Ghana to start publishing the country’s premium every month to ensure transparency and encourage compliance.
The price of poor prices
Assanvo says he accompanied the two heads of state – Nana Akufo-Addo and Allasana Ouattara – to Brussels recently where they made a strong case for better prices.
“Ouattara was making the link to a possible security threat if we create more poverty,” he says. This is a reference to growing terrorist activity in the region.
There are also sustainability and environmental concerns. For example, in Ghana, illegal mining is destroying agricultural land. “They go into farms and the farmers sell off their farms […] cheap[ly]. They have lots of cash, and the farmer has no cash,” Assanvo says.
Illegal miners would offer the cocoa farmer $10,000 for his land, which is more than the farmer has earned in years. Even those who don’t want to sell their land might see it polluted with toxic water if the farmer next door sells.
There is also the futures market, with speculation being a major determiner of cocoa prices, and the impact of this needs to be limited, Assanvo says. “We can talk [about] sustainability, but this would be affecting sustainability.”
How the AcFTA could work
The heat and the relatively low chocolate consumption on the continent mean that processing cocoa into chocolate hasn’t taken off on a large scale in West Africa. However, with the free trade area it could make sense to open a factory in a place like Rwanda and send the cocoa there to be processed, Assanvo says.
“We are an agricultural continent,” he says, so cocoa would be a good pilot project. Nigeria and Cameroon are also cocoa producers, and together with Côte d’Ivoire and Ghana make up a large part of the African Union.
He says the AfCFTA could be implemented for cocoa processing and be used as an example of how to leverage the agreement to boost processing.
Aside from cocoa, other products, such as cosmetics and antioxidants, could also be promoted on the continent. Tariff-free trade would make this easier. “How do you promote it, because when people come here, they find it’s still cheaper to produce these things in the US and sell [them] in the US than in Africa.”
He says although the AfCFTA has the ambition to change this, it’s currently failing in its mandate. “If they cannot create this environment that forces people to realise that it is better to produce in Africa than elsewhere, then it is not relevant,” he says.
Right now AfCFTA is great, but they need a quick win, and this could be a quick win
Thus far he has tried – and failed – to set up a meeting to discuss the matter with AfCFTA executive secretary Wamkele Mene. “We couldn’t yet find a time to have a meeting,” Assanvo said during the week that saw him and Mene attend the summit in Davos. Assanvo was busy setting up a high-level meeting to discuss better prices for cocoa before the next crop in October.
“Right now AfCFTA is great, but they need a quick win, and this could be a quick win,” Assanvo says.
Mene might not be entirely on the same page as Assanvo for now, but in a separate interview, he agrees that the AfCFTA establishes a framework for value addition – in this case, producing chocolates from cocoa. “We are in discussions with Afreximbank about support, not just to the cocoa industry, but in general,” he says, including producing textiles and clothing from cotton, and the automotive industry, where countries need finance to set up processing plants in order to be part of the value chain.
He said the AfCFTA secretariat, together with Afreximbank, would “jointly support and identify where there is need for trade finance for value addition for us to see the industrialisation that we want to see on the African continent”.
Traders hold out for change
Far simpler than setting up processing plants is facilitating small trade, an aspect of the agreement that businesswoman Meron Dagnew fears might be neglected.
In 2020, she told the UN Africa Renewal website how excited she was for tariff-free trade to start, but her enthusiasm has since been dampened.
Dagnew imports premium, roasted coffee from her native Ethiopia to Ghana, where her husband is from, and from Ghana she used to export locally-produced craft chocolates to Ethiopia. However, the 160% tax on chocolate in Ethiopia, where it is regarded a luxury item, meant she couldn’t be competitive.
READ MORE Ghana: The coming cocoa production slump
“Ethiopia has ratified the agreement but not yet taken the step of organising the AfCFTA in the country or working with the secretariat [in Ghana],” she says, adding that many officials don’t even know what the trade agreement entails.
Last week, the Ethiopian minister for planning and development, Fitsum Assefa, revealed that Ethiopia had so far failed to submit its offer for its goods and service commitments under the agreement, while other countries had been negotiating for the past nine months.
Ethiopia derives large revenues from high taxes on the imports of goods, but Fitsum said “we should at least submit our complete service offers and participate in the negotiations”, according to the Addis Ababa-based The Reporter newspaper.
The power lies in each country to make it work
Officials had already approved a list of such offers, but Ethiopia has seen significant internal political turmoil in the past two years, which has had an impact on the government.
“The AfCFTA can only be strong if African member countries can make it happen within their countries. It is a continental policy, but it can only be implemented if it is first established in countries, and then regionally,” she says. “The power lies in each country to make it work.”
Understand Africa's tomorrow... today
We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.View subscription options