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Business News Thu, 31 Aug 2006

Special Interest Politics Kills Consumers.

Representatives of the Ghana Trade and Livelihoods Coalition (GTLC), a nationwide advocacy organization of small-farmers and producers are calling on government to increase import tariffs on rice to 30% from the present level of 20% for a period of up to 10 years.

This, they believe will help change Ghanaian attitude from liking imported rice to eating locally produced rice and saving Ghana some forex and “generate proceeds to be invested into the development of the rice sector and for the creation of the proposed Agriculture Fund”.

True, there are various brands of imported rice on every street corner of Accra with almost no show from locally produced rice. But it would take more than an imposition of a ban or even 100 per cent import tariffs to force Ghanaian palate to eat only local rice. Nigeria tried 110% tariffs on rice importation and the very year the tariff was imposed, consumption of imported rice doubled, simply because locally protected rice was still beyond the pockets of many ordinary Nigerians. Or rather they began thinking like every rational consumer; spend on high quality but cheap imported rice and save money for other economic decisions.

However, the coalition’s request, has deep roots in what is gaining currency as the new African leadership thinking; that we (Ghanaians and for that matter Africans) need to be self-sufficient in food production with governments leading the process.

But Government-promoted self-sufficiency can only lead to higher prices for long-suffering consumers, with trade barriers to keep more efficient (cheaper) producers out. For instance, in June 2006, Ghana’s Parliament asked the Minister of Agriculture to introduce price controls in order to cushion farmers during seasons of plenty. However, we have travelled that path before when marketing boards, price controls and state land control gave birth to massive state serfdom.

I think we should be talking about self-sufficiency in consumption instead. After all, Hong Kong, the richest country by per capita status has never been self-sufficient in food production but rather self-sufficient in food consumption.

Hong Kong demonstrates a fundamental logic of trade- you don’t have to eat only because you produce food. You engage in useful trade in activities that matches your strength and use a percentage of the proceeds to buy food. And that’s what voluntary exchange is all about. Hong Kong derives its prosperity from hi-tech services Industry.

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So either we start diversifying our economies to accommodate the development of Information Communication Technology (ICT) as others (India, Malaysia, Taiwan) have done or we remain dependent on rain–fed agriculture merely because 70 per cent of Africans live off the land.

Today, we are witnessing how the World Trade Organization is trying to rescue the Doha trade round with difficulty simply because member governments assume trade is only negotiable by its agents.

Trade occurs among people, not governments. Since the complexity over Doha’s potential failure I have ceased to believe trade ought to be negotiated by governments.

However, even though the WTO fails to secure elaborate African deal for greater access to markets of wealthy countries, there are still many market opportunities that are ripe for the taking within African countries.

These opportunities include increasing the extent and breadth of intra-African trade, and more broadly, viewing trade as a positive (not zero-sum) game whereby countries benefit from both exports and imports.

The United States Agency for International Development estimates that 70 percent of all tariffs in the world are erected by developing countries against other developing countries. The World Bank estimates that 92 per cent of the benefit to developing countries from liberalising agricultural trade comes not from reducing subsidies, but from cutting their own tariffs and dismantling non-tariff barriers.

Today, WTO statistics show that trade among African countries accounts for only about 10 per cent of their total exports and imports with the continent’s share of intra and inter regional trade flows to Western Europe alone reaching 51.8 % in 2001. Africa’s total exports grew by an impressive 30% in 2004, after rising strongly in 2003.

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Although leaders of poor African countries noisily claim that trade barriers by wealthy countries are the cause of their poverty, they would do well to look in their own backyard first.

In 2005, Nigeria, the most populous African country banned 96 Ghanaian products –including textiles, starch, rice poultry and others. As I write, leading poultry farmer in Ghana, Rev. Dr. Kwabena Darko is negotiating with Nigerian authorities within the so called ECOWAS trade liberalization protocol to export just 100,000 crates of eggs worth US$ 40,000. Others he can control, such as in Central African Republic can’t be accessed because there is limited or no flight connectivity so he needs to make do with 25,000 crates of eggs to Cameroon a week for $10,000.

Did you know that as there was massive artificial famine in Niger, Nigeria, its next door neighbour had tons of food in Northern Nigeria? Or when famine struck in Northern Kenya, with the humiliating offer of dog food from a New Zealander, Western Kenya had tons of food?

Did you also know that Niger imposed 38 per cent tax on fertiliser imports while its poor citizens suffered needless famine? Isn’t this one reason why in sub-Saharan Africa, farmers apply an average of only 8 kilograms of fertilizer per hectare per year when their counterparts in Asia and Latin America, use an annual average of 140 kilograms of fertilizer per hectare of crops (International Fund for Agricultural Development, 2006)

Unfortunately you hear questions from simple economic deviants such as “how can countries in Africa, most of which have similar economic structures, benefit from selling to each other the same goods they produce?”

“How, for instance, would Uganda get to sell its excess maize or coffee to Tanzania, which probably has about as much maize and coffee to deal with?”

A simple answer is-that is essentially why there should be trade; If there is trade then people will specialise, doing what they do best and then buying whatever is cheapest from whoever does it best- period!

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Thankfully, African heads of state pledged in June 2006 to reduce the cost of fertilizer by harmonizing taxes and tariffs across the continent by mid-2007. But the bigger cuts should be seen in local lending rates that averagely hovers around 30% with the burden of accessing loans eased with simpler and faster credits. While they should be commended for this bold decision, it remains to be seen whether their resolve would be tested by this needless call for more protectionism.

How, for instance, should Darko Farms, the leading Ghanaian poultry farmer compete favourably with cheap but well packaged chicken when more than 50% of the company’s cost comes from poultry feeds alone? What about salaries, machinery and maintenance?

It great to eat what you grow. If rice importation was banned or made difficult, how would Ghanaians cope with the 70% short fall since local production caters for only 30%?

Ghanaian attitudes are important in this equation. The average Ghanaian consumer has suffered because of shoddy and defective goods manufactured locally by protected industries that do not have to compete in an open market. So who can blame him for buying higher quality foreign goods? Haven’t some savvy businessmen learned to successfully compete, for instance by providing locally produced rice in sophisticated packages, which ensure that the rice isn’t stale when it arrives to the consumer. Similarly, some smart Ghanaian entrepreneurs now collaborate with their Italian counterparts to produce in Italy, tomato paste brands with Akan names, Ghana’s widely spoken language. One of these hotly pursued products is called “Obaapa” which translates as “great woman”.

Lack of storage facilities and marketing chains also mean that up to 50% of tomato grown in Ghana rot on our farms because they can’t be carted to the market through unmotorable roads that have received a clean bill of health in the books. The absence of a comprehensive land tenure system which is tied to raising collateral for a loan.

A recent Financial Times report on the Agricultural sector in Ghana revealed that even though permanent crop land has increased in the last 10 years yields basic food crops have grown only marginally. Also An estimated 5 per cent of irrigatable land is actually irrigated in Ghana. And Very few agricultural agents are keen on doing their jobs.-Each technical officer is responsible for helping 1,300 farms irrespective of size.

All of this suggests that Africans, and especially our leaders, need to focus on improving the well being of average Africans through real reforms. The solution lies partly in encouraging intra- regional trade. Ordinary Ghanaians need the assurance of their leaders to enhance agricultural trade within, through a number of holistic multi-tier approaches: comprehensive land reforms, infrastructure development, provision of efficient and competitive services in the areas of roads, railways, ports, communication, information and technology; the removal of illegal roadblocks; the simplification and harmonization of customs and border procedures and more and stringent international trade standards.

At the same time we need to revitalise farmer-based organisations that have died out due to excessive government control and political interference since the 1960s.

More broadly, the solution for Ghana’s and other African countries is to adopt workable institutions to encourage development. Decentralising political power, ownership and control of natural resources would be an important first step. An effective, transparent and accountable legal system would be another.

When combined with respect for private property and the rule of law, these reforms would encourage entrepreneurship, innovation and even environmental protection amongst average people because they empower people – rather than the politicians and influence peddlers. As economies grow and develop, people will be able to afford better technologies, clean water, superior energy sources, better healthcare, and insurance.

The sad fact is that when rent-seekers like the Ghana Trade and Livelihood Coalition blame western countries for our poverty, they simply give politicians more excuses to delay badly needed institutional reforms. Trade is a positive sum game. It is voluntary, gives us many choices and should not be controlled. Do ordinary Ghanaians a favour: spare us your populist, flawed and special interest economics.

Source: Franklin Cudjoe (Imani Ghana)