South Africa’s renewal of the African Growth and Opportunity Act (AGOA) with the United States (US) a few months ago seemed to be about local poultry, when in fact negotiations were about a wider range of exports from 39 predominantly sub-Saharan African countries.
All had to meet the criteria of good governance, sound democratic values and protection of property rights. Countries such as Zimbabwe and Swaziland did not make the cut. It also did not go unnoticed that sub-Saharan Africa accounts for around $1.6 trillion of Africa’s $2.4 trillion GDP. AGOA therefore gives the US economic reach into countries where it would ordinarily have no influence.
AGOA is not a gift. As South Africa discovered, its economic strength on the continent does not guarantee its AGOA membership, and the accompanying eligibility to trade at preferential rates with the US. If South Africa did not loosen its stance on the anti-dumping tariffs imposed on chicken imports from the US, it would feel the costs in more lucrative areas, such as motor vehicles and parts, and wine and citrus exports. In the end, South Africa agreed to take 65,000 tons of bone-in chicken imports per annum, free of anti-dumping duties, from the US. Concessions could, however, have been as high as 300,000 tons, threatening an industry in which almost a billion chickens are slaughtered each year for local consumption.
The arrival of 16,000 tons of US chicken, a few weeks ahead of the deadline in mid-March this year, allowed South Africa to retain its preferential access to the world’s biggest market, and benefit from the latest version of AGOA, which was extended until 2025.
The arm wrestle between the US and South Africa may have been prompted by pressures the Americans were facing elsewhere. The dollar was strong at the time and the US needed to find export markets for its chicken. There was also the issue of a trade war looming with its neighbors, Mexico and Canada, over meat-labeling legislation, where the World Trade Organization ruled in favor of these countries being allowed to retaliate with $1 billion in punitive tariffs.
Another plausible reason was Russia imposing its own sanctions on the US in retaliation for economic sanctions it suffered while attempting to Balkanize the Ukraine. With threats to its industry coming in fast and furiously, pressuring South Africa to make the concessions must have seemed an easy option.
With the focus on what concessions the South African poultry industry had to make, it was easy to lose sight of the shortcomings in South Africa’s domestic trade policy. The concessions shed light on the lackluster performance of the manufacturing sector, caused by the political economy tilting left, protectionist trade policy, restrictive regulation, and labor disruption.
The pending Private Security Bill on the local security industry, which could see 51% of US-based companies, like Chubb, G4S and ADT, sold to South African participants, was also a worry, as were plans to limit foreign ownership of property. While the knee-jerk response may have been to assume that greater local ownership translated to black economic empowerment, a more significant interpretation is that no private foreign entity has an equity interest in South Africa’s state defense and protection services, and by extension, neither should they have controlling equity interest in private security establishments.
Land restitution may also fall short of AGOA legislation. The still-to-be promulgated Regulation of Land Holdings Bill will not affect foreign ownership of residential property, but will prohibit ownership of agricultural land, which could instead be leased for between 30 and 50 years. A ceiling on land ownership would be set at 12,000 hectares, regardless of nationality.
The potential overhaul of intellectual property laws, which could impact the pharmaceutical industry, is also concerning. While it makes socio-economic sense to roll out cheap generic drugs to as many South Africans as possible, foreign-owned multi-nationals may see this as an infringement of patents on their own more expensive medication.
Although the controversy surrounding the chicken industry seems to have settled, South Africa is still vulnerable to the vagaries in US trade policy. Should the US feel aggrieved by any of its preferential offerings, they may be withdrawn much quicker than what was allowed under the older version of the agreement. South African policymakers should be more cautious when making decisions, especially those that affect US interests.

Playing Chicken  With The US

The world’s second largest exporter of cocoa is currently experiencing serious economic pain.
Proceeds from Ghana’s cocoa, timber and gold exports have not been enough to cater for its national lifestyle. Add liquid gold to the mix and suddenly this regional champion is showing symptoms of the proverbial Dutch disease so early in its crude oil career.
Ghana’s financial system is now frequently constipated, coping with low savings and high borrowing rates. Its also is characterized by unsustainable appetite for foreign goods, resulting in missed spending targets, inflation and dollar-denominated thinking. Sustaining real economic growth has therefore been difficult. In a nutshell, West Africa’s second largest economy is engulfed in a failing currency crisis.
The Ghanaian cedi is suffering its worst humiliation against major trading currencies in decades. Consumer price inflation peaked at 14.5% in April. Public sector spending has remained way above the regional sub-Saharan average for many years, even as the country continues to record fairly strong growth.
By contrast, the cedi has depreciated in recent years. As a result, equities on the Ghana Stock Exchange (GSE) have also been losing weight, shedding about 16% of their value in US dollar terms this year alone.
The business community and ordinary Ghanaians feel helpless. Their view is that politics now threaten to transform their currency into ordinary tissue paper.
“Notwithstanding the fact that Ghanaians are resourceful and resilient people, local businesses have been hit hard by this currency crisis… the authorities need to cultivate public empathy, they need to involve the business community in their fiscal planning process,” says Albert Ngumba, general manager of e-commerce firm Cellulant Ghana.
The crisis has induced a total slowdown of the once stable polity and left politicians and economists puzzled on how to stop this once bubbling economy from drifting away.
How is it that Ghana now finds it difficult to pay its bills after years of sustained economic growth and after commercial production of crude oil began in 2010? How can a nation be growing into poverty?
For those interested in the fortunes and foibles of African nations over the last five centuries, this is an old tale. The logic of the international marketplace is a simple linear equation: if weaker economies have weak currencies then stronger currencies will produce stronger, more robust economies. This is the turf of the world’s central banks.
Of course, beyond the currency conundrum, one of the reasons why economies fail is fiscal indiscipline. This has been the bane of Ghana’s current economic woes. Its current account deficit, according to the Bank of Ghana (BoG), the banking industry regulator, was a whopping 12.30% of its GDP, as at December, 2013. Debt-to-GDP ratio is forecast to reach 51.2% by the end of 2014. If this figure ever gets to the 60% mark, Ghana might lose its status as a lower middle-income country, according to the IMF.
Government’s quest to increase teachers and civil servants pay blew up in its face: public sector salaries now gulp 70% of internally generated revenue. These civil servants represent less than 1% of the population. With falling commodity prices, and energy supply hiccups, the fiscal deficit is expected to persist for at least another five years.
To stem the negative currency tide, the BoG outlawed companies from maintaining domiciliary accounts and engaging in foreign currency denominated transactions in February. It also limited withdrawals to approximately $10,000. The plan did not work. The cedi has depreciated by more than 6.4% since then. The BoG promptly unfastened the guidelines in July. The effect of this policy flip-flop on the psychology of the markets has been mixed: macro- and micro-level economic pains, heightened currency and sovereign risk ratings, faith in the ability of the economy to turn around in the long term, and erosion of confidence in government’s economic management capabilities.
The matter is threatening Ghana’s hard won reputation as a magnet for foreign investment. Ghana’s share of Africa-bound FDI ($3.3 billion per annum) needs to grow. The value of exports also needs to grow. Ghana’s business and political elite need to be stimulated to increase their appetite local products.
For most Ghanaians, whose outlook on life has been defined by decades of mass penury and perseverance, this is proving to be a bitter pill to swallow, especially after President John Mahama made promises of steady and sustained economic progress.

Growing Into Poverty

A sea of deep blue flowers borders the highway between Harare and Bulawayo. The 74 acres of heavenly blues, morning glory, dahlias and lemon drops are part of an experiment.
Charlene Mathonsi’s project began a year ago, when the 29-year-old approached new farmers in the Kadoma district of the Mashonaland West province, hoping to convince them to cultivate flower seeds instead of Zimbabwe’s staple maize and tobacco crops. With seeds from the Netherlands and basic skills learned from former white farmers, the Chemagora Collective has produced seven tons of seeds ready for export.
Zimbabwe has exported flower seeds to Rotterdam for more than 20 years, peaking at $60 million in 2004, but as the economy wilted, exports dropped by nearly 70%.
Reviving Lion’s Head, the Mathonsi family farm, meant cooperating with new farmers to turn flowers into a cash crop. But the farm’s survival also relied on earning the respect and collaboration of the 40 laborers who called the farm home for generations before the Mathonsis purchased the 1,236 acres of land.
“For me, the biggest challenge was the women. I think in my first few months I actually cried,” says Mathonsi.
“If you come in as a woman, even though you have the education, these people have been working the land. I’m a young girl, 10 [years] or so younger than them, and I’m instructing them what to do.”
While the male workers immediately accepted Mathonsi in her new role as farm manager, the women resisted.
“They have an established hierarchy. You say something and they do something else. They’re not listening and you feel small,” she explains.
It was only several months later, once Mathonsi had proved that she could work just as hard as the next woman, that she finally gained their trust and respect.
“I think they’re the backbone of this. They’re the ones who work the land, so if you don’t have them on your side, you’re doomed to fail.”
Zimbabwe’s aggressive agrarian reform policies and emphasis on agriculture as a source of independence and income has resulted in a generation of women with more say on the land they till. But Mathonsi is quick to add that it is women of privilege and education, like her, and not necessarily the semi-skilled laborers, who benefit.
“The girl child and women are the most vulnerable. Working with them for me is the most important thing I try to encourage our kids to go to school and try to help financially, especially the girl children, because if you don’t educate them, they’ll be just like their mothers and be back in the field. That is not progress. It’s a cycle of poverty.”
Graduating with a degree in Agricultural Sciences from the University of Zimbabwe, Mathonsi was forced to return to the family farm when she could not find a job in a failing economy.
“It was just such a difficult time,” recalls Mathonsi, who jokes that she may have blocked out the worst memories of that period.
“We would pay salaries knowing that the money would be worth nothing the next day.”
That year’s grain harvest not only became a source of income, but a source of survival, as the family bartered grain for basic necessities and distributed the little that remained for food.
“We were lucky that we grew sorghum that year, because there was no maize in the country and the crop saved a lot of lives not only our own, but people in the area.”
The land Mathonsi returned to after her studies had changed drastically. Between 2000 and 2004, Zimbabwe’s Fast-Track Land Reform program saw 170,000 new black farmers occupy 4,000 white-owned farms. The program was a controversial one, plagued by violence and corruption. Europe and the United States reacted to news coverage of white farms being attacked and burned by sanctioning the already ailing economy.
As the dust settled, many of the new farmers struggled to maintain production rates. The commercial farm next door to the Mathonsis’ Lion’s Head became a subdivided village of 50 families, made up of war veterans, former teachers and other public servants.
Kicked off the land after more than a decade, the former farm owner who Mathonsi did not want to name, formed an unlikely bond with the recent graduate, and became her mentor.
“All the contacts, all the advice, is all [from] him,” says Mathonsi who credits her success to this vital relationship.
She was advised to convert the struggling dairy farm into a beef and crops farm.
Kadoma district is Zimbabwe’s rural heartland, and innovative ideas like the Chemagora Collective are not common practice elsewhere in the country.
In areas with better rainfall and more fertile soil, the sacrifices of Zimbabwe’s land reform policies are beginning to yield a healthy profit.
Zimbabwe Takes Back Its Land is a collection of reams of data and tables of statistics that aims to prove that the land rogram implemented by President Robert Mugabe’s regime has created a new generation of farmers who are reaping the rewards. Following first-time black farmers, who turned Zimbabwe’s large-scale tobacco, maize and cattle farms to small-scale communal farms, with more unconventional crops like tomatoes and pumpkins, the publication argues that the three decades of empowering black farmers has made southern Africa’s former bread basket a model for reformation.
However, the Commercial Farmers’ Union has pointed out that Zimbabwe’s agricultural output is less than a third of what it was in the 1990s and that the country is still reliant on food aid.
“There is always a period in which farmers are learning and looking for investment,” says Ben Cousins, a researcher with the Institute for Poverty Land and Agrarian Studies.
Cousins says Zimbabwe’s strategy shows that it is possible to subdivide singularly owned commercial farms to benefit more people.
“There is lots of room for agency for the farmers themselves, they do not have to be passive beneficiaries of the state,” he explains.
For Mathonsi and the farmers of the Chemagora project, circulation of the US dollar has been a relief, with their flower seeds selling at $3 a kilogram. They say the government’s goal to reintroduce the Zimbabwean dollar will be a setback to the their cash crop.
“What kind of Zim dollar would it be? Would it be the Zim dollar that runs like it did the last time?” wonders Mathonsi.
While land reform has empowered half a million black farmers since independence, the policy still does not guarantee ownership, because the state-based tenure system means that land can no longer be bought or sold.
“When you get this land, what says it’s yours?” asks Mathonsi, who believes real empowerment is marked by a title deed.
“I feel safe in the fact that my parents bought this farm, my family owns it. Yes, our title deeds don’t work, but I have that knowledge that through any sweat, any tears, I know its ownership. It’s not going away, so I will do anything in my power to make sure it works out.”
Cousins agrees that ownership would make access to finance easier.
“Yes rights need to be clarified, but there’s no evidence that you need private property for land to be productive.”
Now as comfortable branding a cow as she is negotiating export rates, Mathonsi and Lion’s Head have weathered the economic storm.
To break even each month, the farm needs $3,000, but Zimbabwe’s continued political isolation and subsequent sanctions make credit impossible. Mathonsi has had to sell a few head of cattle to get the hard cash she needs to pay wages.
Despite the continuous challenges, land in Zimbabwe is as emotional an issue as it is practical. Usually ready with a smile, Mathonsi is passionate but pragmatic as she talks about what the land means to her.
“Land is where the cash is at. Working the land is the basis; I’m the block on which the economy is built.”
She is also clear that it is people who ultimately give land its value.
“It’s not a nine-to-five job. It’s driving pregnant women to the hospital at three o’clock in the morning because they are your workers, you have to look after them. You bury them. It’s like a village. You are a success if they are a success. Failing is not an option. You cannot disengage.”

Harvesting change: Zimbabwe’s new farmers

It doesn’t matter how many capital cities you have flown into; the descent into Maputo never fails to impress. It is a breath-taking expanse of wide, deep water flowing into the Indian Ocean, 92km long and 32km wide, that sparkles in the sun. When Portuguese navigator, Lourenço Marques, surveyed the bay in 1544, on behalf of his seafaring country, tears of joy must have welled up in his eyes. Maputo is a perfect natural harbor made for ships. Marques laid the foundations for the port and lent his name to the colonial city that grew up.
The mouth of the harbor is hemmed in by banks thick with bush, and the blue waters lead right up to the city of Maputo, perched on a ledge of rock above the cranes, palm trees and funnels of the mighty ships in dock. Offshore tankers from Namibia to New York line up for their turn at the quayside.
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They say in Maputo you are never far from the port, and in many ways it dominates the city, home to two million people. It helped pay for the high-rise concrete buildings of this rich city center—or “cemento”, as it is called in Maputo—but for many years it was failing.
In the early years of this century, the port was crumbling to dust after decades of neglect. By 2003, the roads to the port, once among the busiest in Africa, were strewn with rubble. There was barely enough working equipment to load the dwindling amount of cargo. Hundreds of idle casual dock workers lounged by the waterfront waiting for jobs that would never come.
It is a sign of changing economic times in Maputo that private business has been allowed to ride to the rescue with the dash of Zorro. The government of Mozambique invited Grindrod—Africa’s largest shipping company—from South Africa, and DP World, from Dubai, to operate the harbor in return for a stake each.
The turnaround was dramatic.  The number of ships docking in Maputo has doubled, compared to 2003, to more than a thousand-a-year. Coal exports have more than doubled to four million tons and chrome exports are set to reach two million tons this year—five times what they were in 2003. The port is reopening rapidly to trade and now handles everything from citrus fruit to steel from neighboring Zimbabwe.
The change in fortunes, for this key piece of infrastructure, couldn’t have come at a better time to support the rising economic fortunes of Mozambique. The Moatize coalfields, in the north-west corner of the country, are set for a boom; gas has been discovered on the northern coast of Mozambique and BHP Billiton’s Mozal smelter in Matola, south of the capital, is churning out aluminum for export. Rio Tinto has been buying up coal mining assets to add to its international portfolio.
Maputo millionaire Venancio Matusse, an engineer by trade, is one of 42 shareholders in the consultancy, Mozambique Gestores, which manages the port and owns 3% of the free carry business. He said the port is investing $800 million in security and dredging the channel leading to the docks to make way for the big ships. The Maputo River empties into the bay, bringing with it tons of silt that choke the channel.
“A lot of money needs to be spent on the dredging; it is a job that almost never ends,” says Matusse.
“Now the port has all the equipment it needs, but still needs to grow. We need to earn more of the container cargo market because that is where the money is. One challenge is the time goods take to go through the port inspection side. You can take three or four days to clear your goods and that costs money.”
Fernando Lima, a veteran journalist in Maputo, agrees that the port has a long way to go.
“If you look at the container terminal, it is completely congested. Grindrod has attracted a lot of business and now the terminal is facing serious problems of congestion,” he says.
“There is also a problem with bureaucracy, especially when it comes to customs. Delays mean you are losing money as an importer or exporter, which is bad when you have to compete with Richards Bay and Durban in South Africa.”
Even so, millions of dollars are
flowing into infrastructure at the port and another school of thought is that exporters from South Africa—struggling against high cost and a lack of rails at home—could be looking towards Maputo. Either way, to borrow from the words of American writer Mark Twain: reports of the demise of the Port of Maputo have been greatly exaggerated.

Tag: Exports

FORBES AFRICA SOCIAL MEDIA

Playing Chicken With The US

Growing Into Poverty

Harvesting change: Zimbabwe’s new farmers

The Port That Came Back From The Dead