‘Fair trade is not the solution’
Two weeks ago, Zimbabwe’s Deputy Prime Minister, Professor Arthur Mutambara, said embracing protectionist policies would boost industrial development. Among key demands of foreign investors in Africa is the exact opposite – liberalisation. But this is despite the fact that just about every developed nation industrialised through protectionism. This week, The Southern Times backs up Prof Mutambara’s pro-protectionist stance with a series of articles that critique “free trade” and liberalisation.
For someone so softly spoken, ANDREW RUGASIRA from Uganda, made a lot of noise during his recent visit to the UK to promote his book.
You could not find a newspaper that had not reviewed his book, nor a prominent radio programme he had not been on. But if there is a story which needs to be told, it is that of Rugasira and his Good African Coffee company.
It encapsulates the challenges that businesses and entrepreneurs in Africa face, whilst also providing a template for aspiring entrepreneurs to learn from. He spoke to New African magazine.
The conversation was supposed to be “off the record”, but Andrew Rugasira insisted it should be on the record.
“You should record it,” he insisted on seeing the dictaphone on the table. “I was really surprised at the extent to which entrepreneurs on the continent don’t publish their business experiences, yet everybody talks about the private sector being the engine for growth and no one ever visits the engine room and sees what’s really going on”, he added.
You can sense his frustration, especially when he talks about how far the rhetoric and theory by politicians are from the reality on the ground, both in Africa and also in terms of accessing export markets.
“The governments say they have removed all the tariff barriers, but what about the non-tariff barriers?” Rugasira asks. “How about access to market issues? How about the failure to raise capital?
“People talk about agriculture being the next big thing, they say Africa’s growth is at six percent or seven percent, but hang on a minute, I mean, I have visited 36 banks but none of these financial institutions wanted to lend me money, it wasn’t just even me.
“In Uganda where I come from, only four percent of the total loans given by the banks goes to agriculture, whilst 64 percent of the population in Africa is engaged with agriculture, contributing 34 percent of GDP.”
So what about the non-trade barriers he mentioned?
“I went to school here in the UK,” he replies, “so in theory it should be easy for me. I have some networks, I know the culture. But it took me two-and-a-half years to be able to sell my product.
“It took 14 trips back and forth. Imagine an SME in Africa without the inherent advantages I have. So with all the talk from the Commission of Africa, I said, no, I really have to document this stuff in a book.”
He decided to write the book when he took a year “away” from the business (a business owner is never truly away from his business) to do a Masters degree in African Studies at Oxford University.
The review of his book in The Times was positive but Rugasira was not happy with the conclusion of the review which said the book was a sign of “premature triumphalism”.
“I really took exception to that,” he tells me. “The first reason I wrote the book was to really get it written because African businesspeople don’t write. Secondly, it was to really bring a kind of empirical perspective to the debate.
“Lastly, it was to encourage other entrepreneurs and to show them the pains other entrepreneurs, like themselves, were facing.
“I don’t think it’s very helpful if you write with hindsight and with reflection that allows you almost to be able to revise. To write in the now is much more helpful for other entrepreneurs, and helpful for myself.
“I record my mistakes, my failures, my wins, unintended consequences, lessons, assumptions, going to work with the farmers, the cynicism I found, and the exploitative nature of the global industry.”
Despite the publicity that his company has received over the years in the international media, Good African Coffee is still small by international standards.
This further highlights the difficulty of an SME to emerge as a global player and to penetrate markets not only in Western Europe but also in Africa.
“We have made certain breakthroughs in the UK,” he discloses, “but I am still raising capital to scale up so that we are not just a company that supplies Tesco (the biggest British supermarket chain), but also to be able to service the requests I get and sell my product in Poland, in Czechoslovakia, in Australia and Singapore.”
So what is stopping him?
“My main issue is one of scale, and to scale up I need to expand our factory in Uganda, I need more technology, and for all this I need capital.”
Rugasira has no axes to grind. On the contrary, he is charming, down to earth, and has gentle manners. He represents the new generation of “young Africans, educated abroad, who are changing Africa through enterprise and sheer perseverance”.
And yet throughout our meeting, he seems to be emphasising the fact that there are a large number of structural issues that require urgent attention.
He is virulent about the lack of progress in Africa.
“Africa exports only 18 percent of manufactured goods and imports 65 percent. No economy has developed without value addition,” he says, and goes on: “10 percent of African trade is within Africa itself, it’s a joke. I mean there is just no way you can sustain that.
“40 percent of trade happens in North America, 63 percent happens within the EU, and here we are talking about Africa opening for business. For whom? Which business? The young people want jobs!”
When it was put to him that the growth figures are real, that the impact of the telecoms boom is real, and that there have been considerable improvements in governance and the way the economies are managed, Rugasira continued his mini diatribe.
“In the West, the talk of Africa is positive. Africa is ready for investment, blah blah blah, which, if you are looking at the extractive industries, makes sense. If you read the McKinsey Report, yes it makes sense.
“But on the continent, where are the opportunities for the youth? The jobless youth are one of the potentially biggest explosive issues, not just in North Africa but also in Sub-Saharan Africa. There is a disconnect between what is communicated and the reality on the ground.
“For example, the governments are not delivering services efficiently. Capital for young entrepreneurs isn’t available, infrastructure is poor and there is no reliable energy. All these things are lacking, and are constraining young people from doing business.
“The cost of importing a container from Dubai to Mombasa is US$1 800, and taking that same container from Mombasa to Kampala costs US$3 800.”
Rugasira is also concerned about new EU regulations, as well as the artificial barriers that exporters face – and how this indirectly impacts the community of farmers who depend directly on his business.
“You have supposedly free access to global markets, but in many cases you have indirect barriers such as stringent, phytosanitary and packaging standards that change and shift. A year or so ago, they introduced these really stringent EU phytosanitary standards that affected cereals, nuts, and things like that, and the World Bank estimated that it would cut Africa’s exports of these cereals and nuts by about 63 percent.”
Rugasira goes on: “Already you have a huge structural war due to the Common Agricultural Policy, which takes 40 percent of the EU budget, and agriculture contributes less than two percent of GDP in the EU and employs less than five percent of the workforce.
“That’s not just unfair or unjust, it’s almost criminal! I mean, denying African producers the opportunities to sell quality products to the EU and denying EU consumers the opportunity to get wonderful African products is criminal.”
He is equally critical of the “fair trade” mark, which he describes as “compassionate consumption” with little impact and little profit trickling down to the growers.
“Fair trade is not a sustainable model,” Rugasira insists. “It is a Western kind of charity model that cannot work. It cannot develop or claim to be developing, growing farming communities by adding pennies to pounds of coffee, and then doing all the roasting and packing overseas.”
Rugasira is passionate about this issue, so he goes on: “Globally, the annual value of the coffee which producers sell is put at US$25 billion, whilst the coffee which is actually traded and sold in Western markets stands at US$128 billion!
“So ‘fair trade’ coffee may have been sourced from rural farmers in Africa, but the real profit margins go to companies in the developed world.
“As such, (the Fairtrade Foundation that owns) the “fair trade mark” does not even address the structural issues we’ve mentioned. It is a romantic engagement of charitable thinking but it cannot work. It might be well-meaning but it’s misguided and it’s posturing.
“Smallholder coffee farmers are poor because they don’t have an access to the inputs that will get them to a higher level.
They are at the lower end of the value chain, that’s why they are poor. They don’t diversify their crops and they have insecurity in terms of their finances.
“So to turn around and say that (fair trade) is a solution, I can’t accept that. If anything, it becomes like an unintended obfuscation and distracts the conversation from the real issue.
“Agriculture has been proven to have two to four times more potential to bring about prosperity than any other sector.
But fair trade is not the solution. Dealing with the structural issues is.”
To change the subject, we asked him what he is most proud of. “It’s been very fulfilling in terms of the impact that we’ve had on the farming communities,” he says. “We have set up 17 savings and credit coops. The farmers who were all shackled by the rural loan sharks, are now free, their households are free.
“You can just see the transformation from mud huts to permanent structures. Not because we gave them money, we just gave them the knowledge.
“We trained them to grow better coffee, we paid a premium price, we helped them structure their little village banks, and they have put their savings in these banks and lent one another money. I mean all we did was apply knowledge and that was the main ‘technological tool’.
“The farmers now have their dignity. And the trade relationship problem (between Africa and the world) is the lack of dignity.”
Maybe, with hindsight, Rugasira does represent this new generation of Africans, on whose shoulders so much rests. Grounded, frank and with a willingness to drive change…back home.