What would happen if Ghana, the world’s second-biggest cocoa producer, refused to ship the raw material to Switzerland, one of the biggest manufacturers of chocolate? We may be about to find out.
During a state visit to Switzerland last year, Ghana’s president Nana Akufo-Addo visibly stunned his hosts by declaring that henceforth Ghana would cease raw cocoa exports to the country. “There can be no future prosperity for the Ghanaian people in the short, medium or long term if we continue to maintain economic structures that are dependent on the production and export of raw materials,” he said.
Akufo-Addo may have been exaggerating for effect. Ghana, second only to Ivory Coast in production, is responsible for about a fifth of global cocoa exports. These have not stopped overnight.
But the point he was making was spot on. Of the $130bn global chocolate industry, less than $2bn goes to Ghana. Many farmers live in penury. Some employ children or extend their farms by cutting down forest to make ends meet. Farmers get at most 7 per cent of the chocolate value chain. Those who make, sell and market chocolate grab more than 80 per cent.
Akufo-Addo has set his country the challenge of producing chocolate bars on a commercial scale. Is this realistic? The short answer is yes, though it is maddeningly difficult. The obstacles, from shoddy infrastructure to lack of manufacturing and market knowhow, are formidable. Yet unless Ghana can crack the problem, many Ghanaians will be condemned to poverty in perpetuity.
People have been making chocolate in Ghana for two decades. Several domestic companies make bars for Ghana’s growing domestic market, though much of this is not of high enough quality to be attractive to European consumers. Two Ghanaian sisters run ’57 Chocolate, one of several artisanal manufacturers producing high-end chocolate in small quantities.
Fairafric, a German-Ghanaian company, is trying to break the mould by producing export-quality chocolate in large quantities. It has built a $10m factory north of Accra, the capital, that will produce 50m bars a year, rising to 100m. That is still modest by the standards of automated European contract manufacturers, which can churn out 10 times that amount for global brands.
Hendrik Reimers, fairafric’s founder, says that by turning beans into bars domestically, five times more value stays in Ghana. The problem, he says, is not that cocoa beans are sold too cheaply. In Europe 200 years ago, most people were smallholder subsistence farmers. “I don’t think Germany would have developed any faster if there were better prices for potatoes,” he says. The remedy is not to raise the price of cocoa but to process it.
Ghana starts off at a disadvantage. It has no dairy industry, so milk powder must be imported. Its packaging does not compare for cost or sophistication with the west. Energy is more expensive and less reliable. Ghana is hot, which means you need more power to keep the chocolate from melting. It is further from global markets and so less attuned to consumer tastes and less close to big retailers such as supermarkets.
None of this is insurmountable, says Reimers. True, Ghana cannot yet compete on price with robotised western factories. But made-in-Ghana chocolate does well in a premium market. It can also tap a growing segment of western consumers, especially millennials, who respond to stories about supply chains that create decently paid jobs.
The discussion goes well beyond chocolate. In Asia, almost no economy of any size clambered out of poverty without manufacturing. As economists including Dani Rodrik and Ha-Joon Chang have argued, Asian economies from Japan and South Korea to Taiwan and China clawed their way on to the development escalator by training their workforce in factories.
Most African economies, as Ghana’s president says, are locked in neocolonial trading relationships. They supply raw materials from bauxite and copper to coffee and cashew nuts. Few manage to capture much of the value. Thus dirt-poor Congolese miners dig cobalt for the billion-dollar battery industry and Nigeria exports crude oil only to reimport refined fuel and heating oil from Europe.
Breaking those patterns is incredibly hard. For countries aspiring to lift their people out of poverty, it is also essential.
Credit: Financial Times