But it needs the right kind of investment, says Toby Quantrill, from the Fairtrade Foundation
THERE are few, if any, challenges facing Africa today not shared by many of the richest countries in the world just before their economies took off. So argues Cambridge economist Ha-Joon Chang in his acclaimed book last year, 23 Things They Don’t Tell You About Capitalism.
There appears, says Chang, no inherent reason why Africa cannot become the next great economic success story. Indeed there are some good reasons why it might. Rising global demand for food, for instance, can be good news for Africa if the infrastructure and institutions are in place to effectively capture and retain a fair share of the profits for national coffers and local communities.
Africa can be a good place to invest. But the right kind of investment is needed. A critical barrier to success for many African export-led businesses is the lack of physical infrastructure and social capital making goods less globally competitive. So investing not just in short term profits, but for long-term – in institutions and in wider society – is key.
It is therefore important to ensure that profits do not just flow out of the country
– whether via transfer mispricing or into the tax haven accounts of the super wealthy. Instead benefits of investment and trade must be felt at community level, translated into education, health, local infrastructure. Without this, investments will remain risky, in the context of wider social and political fragility.
Many companies are now recognising their success is bound with social progress. Global brands like Cadbury, Starbucks and others understand the business imperative of investing in communities and enterprises they procure from to ensure long-term continuity and quality of supply.
A good example of this is Cadbury who have engaged in supporting cocoa producing communities in Ghana, based on the understanding that it is in their long term interests that young people stay in those communities and continue to produce high quality cocoa.
As well as investing directly in strengthening local institutions and improved agricultural techniques, it is also important to develop opportunities for value addition at a local level, for instance processing, packaging and marketing to local markets.
Fairtrade can provide a route for companies to invest in ways that help to meet these criteria, through provision of a minimum price, an additional premium for investment and pre-finance.
In addition, there are a number of other reasons why investing in a Fairtrade supply chain could provide the advantage in the marketplace that investors seek.
Fairtrade certification requires small farmers are organised in democratic organisations. This provides increased ability to gather and use market information, innovate and ensure they obtain the best possible prices.
In addition, being part of the Fairtrade system means organisations are linked into the continent wide network of producers, operating under the banner of ‘Fairtrade Africa’.
In South Africa it is now possible to buy coffee, wine and other goods bearing the Fairtrade mark sourcing from countries such as Ethiopia and Rwanda. Fairtrade Africa has great ambition to scale up by launching more products and to develop awareness and support for Fairtrade among African consumers.
Perhaps of most immediate importance, however, is that the Fairtrade mark has exceptional public recognition and approval among consumers, large companies, retailers and government in most developed economies. In the UK, Fairtrade label recognition is at 74 per cent of the adult population and retail sales in 2009 were over £800m. Globally, Fairtrade sales are £2.8bn. So the Fairtrade movement and Fairtrade certification is extremely valuable to businesses seeking to sell products into UK, European and other developed country markets.
Toby Quantrill is head of policy at the Fairtrade Foundation