Africa Business Communities

[Column] Bob Koigi: Africa’s economic stardom is pegged on value addition

In one of the most historic payouts in the history of Kenyan agriculture, tea farmers last year received Sh61.99 billion, about $597 million, in what was attributed to a favourable demand for the leaf at the international markets and good climate.

Of the 60 per cent smallholder farmers who form the bulk of the tea producers in Kenya registered under the Kenya Tea Development Authority, KTDA, each would on average earn about Sh50, or $.050 per kilo of leaf delivered. For a country that prides itself as the world’s leading exporter of black tea, with the commodity being an anchor foreign exchange earner, it was a welcome development and one that has now incentivized more farmers into the trade. But that is as far as the celebrations go.

Picture this. An American in a New York cafe  pays $4 for a cup of tea made from a two gram tea bag, if say the cafe sells 500 cups of tea, it will have sold a kilogramme worth of tea raking in $2,000.

What is wrong with this scenario? This in effect means that a kilogramme of tea in the US fetches $2000. And considering that Kenya is the biggest exporter of black tea, chances are that the tea bag, albeit packaged by an American firm originated from Kenya.

The question then would be, is there then any cause for celebration  for the record $597 million bonus payout that saw the best paid tea factories around the country dole out $0.50 for every kilo of tea leaves delivered to KTDA.

Plainly put, the Kenyan farmer is getting a raw deal for his toil because of not embracing value addition that would otherwise fetch him more for every kilogramme of tea sold at the international market.

Indeed, it has been demonstrated that value addition could increase incomes even six times, comparing results from investments in Sri Lanka. Yet the Kenyan tea situation is a microcosm of an African scenario with the continent losing billions by exporting raw materials then buying them back as finished products.

It is still mind blowing that a continent that counts on agriculture as a major driver of its economy and a key employer of its people still imports up to $40 billion worth of food each year. The import bill is everyday ballooning and the trade imbalances widening, and we have ourselves to blame.

Yet the few attempts at value addition have demonstrated the immense value accrued by moving beyond primary production.

Think about the basic attempts at value addition; the roadside display of handicrafts and African wear in major cities across the continent, or the traders rudimentally manufacturing steel bars rather than exporting iron ore. Yet they earn higher than they would with raw products. We shouldn’t look further for inspiration.

It calls for a concerted effort and creating conducive environment across the value chain to ensure that anything worth adding value to is tapped. While the government has the herculean task of creating enabling environment for such initiatives to happen and flourish including putting in place policies and legislation that incentivize more players to add value while pointing them to the right markets, the private sector equally has a duty to step up to the challenge by building more industries while enhancing skills and technologies.

The financial service providers for example should be on the front seat in coming up with products that attract millions of traders struggling to access capital and credit for their ventures.

The panacea to the 21st century problems in Africa like spiralling unemployment and dwindling household incomes lies in value addition across all sectors from mining, manufacturing agriculture and ICT.

Ivory Coast has positioned itself as a country to watch in terms of value addition. The global frontrunner in cocoa production recently opened the first of its kind industrial scale chocolate factory.

With cocoa accounting for a fifth of the country’s economy, over a half of exports and employing more than two thirds of the population, it is anyone’s guess the turn around the decision to invest in adding value to cocoa will have for the country.

No country can claim to have a vibrant economy relying only on sale of raw products and nations of Africa are no exception. The magic to transform these economies into powerhouses lies in transforming inputs into outputs.

Multiple award winning Kenyan journalist Bob Koigi is the Chief Editor East Africa at Africa Business Communities

Also read:

[Column] Bob Koigi: Awakening the giant: How Ethiopia overtook Kenya to become East Africa’s economic power house

[Column] Bob Koigi: Pause and reflect on role of inputs in breaking hunger cycle

[Column] Bob Koigi: Why Africa should pay more attention to recommendations of just concluded Post harvest conference

[Column] Bob Koigi: Smallholder irrigation a key panacea to Africa’s perennial food shortage

[Column] Bob Koigi: Why we need change of tact in feeding a burgeoning population



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