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Manufacturing in Africa Can be Profitable – And Developmental

Isolda Agazzi

GENEVA, Mar 21 2011 (IPS) - Investing in adding value to raw materials is crucial for the development of the African continent.

Some foreign entrepreneurs have created food-processing businesses in Africa and are making good money, despite an occasionally difficult business environment.

“A vibrant SME (small and medium enterprise) sector is key for employment, increased income, economic diversification, exports and foreign direct investment,” asserts Mohamed-Lamine Dhaoui of UNIDO, the United Nations Industrial Development Organisation.

“But, in Africa, manufacturing contributes only to 10 percent of gross domestic product,” adds Dhaoui, who is director of business, investment and technology services at UNIDO.

Raw commodities, like fuel, metals and unprocessed foods, form the most important part of African exports. In contrast, manufacturing export is limited to 29 percent of exports – low compared to other regions.

But the development of the private sector in Africa faces major challenges: a difficult business environment, inadequate technical support services, poor infrastructure and weak technological development, with high costs for processing and electrification.

Advantages of the African business environment include low labour costs, even though the labour force sometimes needs professional training. “And agriculture is one of the key sectors for manufacturing, with its agro- industry, cash crops and food industries,” Dhaoui notes.

Some foreign investors have taken up the challenge of manufacturing agricultural products directly in Africa. They are adding value locally, thereby contributing to local development while making good money.

Gary Hannam, CEO of the Swiss company Olivado Ltd, decided to create an international brand of extra virgin avocado oil that is manufactured in Kenya.

“In the Central Highlands of Kenya there is an abundance of good avocados and little domestic competition because local people don’t eat them,” he explains. “The possibility of having organic and fair trade certification is quick and the bureaucratic process is corruption-free.”

Despite some setbacks, a fair trade organic programme was set up in the record time of seven months. Hannam points out that Olivado is now the largest organic exporter in Kenya, with 820 small farmers certified. After extensive training programmes for farmers and the staff, they are now able to supply supermarkets directly.

“Our employment policy is to identify local people with good potential and train them. A former cleaner is now a fruit manager. And farmers’ incomes have doubled,” he explains.

Despite poor infrastructure – water, power and roads – Olivado has become a leading international brand of extra virgin avocado oil that has a presence in 22 countries. The number of farmers is expected to increase to 2,000 in the next four years, producing 460,000 litres of oil.

Based on the Kenyan model, the company is about to start a new factory in Colombia. “I am looking for partners to share this small Swiss company’s ideals,” he concludes.

Hans Peter Werder has another success story. The founder of HPW Ag, a small Swiss enterprise with only 12 employees, has built a dried fruit factory in Ghana. “Our strategy is to develop products with added value and target niche markets in Europe,” he explains.

“There are many advantages to beneficiation in Ghana, starting with the proximity to the production place and that you need only 15 kg of pineapples to make one kg of dried fruit. But there are also challenges, like unstable fruit supply, especially from small-holder farmers, inflation and the artificial value of the Ghanaian currency,” Werder notes.

Pineapples, coconuts and mangoes are prepared in Ghana, certified fair trade by Max Havelaar and sold in Switzerland and other countries.

In Ghana, fruits are prepared in partnership with a local company, Blue Skies, that employs 900 people in rural areas where the rate of unemployment is particularly high. This generates a demand for local hardware and other services.

HPW Ag helps pineapple growers to get fair trade certification. “Today we are the leading agricultural services provider in Ghana. We are responsible for the export of 35 percent of all pineapples from Ghana and possibly have the largest dried fruit factory in Africa. The factory is designed to pack consumer units at source and to supply retailers directly,” says Werder.

The key element is the procurement of fruit from multiple sources: 50 percent come from big growers and 50 percent from small ones. “If you stay only with big producers, who sell abroad, you depend on the export market. And with the small ones, you don’t know if they will have enough fruit,” Werder adds.

The processing of fruit is done in partnership with a South African dried fruit factory. Management is handled by a team in Ghana and through the relationship with the South African company.

Innovative ideas were required because of the high costs of electricity, gas and oil. HPW Ag decided to work entirely with renewable energy from the organic waste it produces.

Werder cautions that customers must take into consideration sustainability factors. “Whenever I send out my pitch, the answer is: send me the price list. Yes, I can send the price list, but Europeans should look also at sustainability.”

HPW assures consumers that approximately 37 percent of the consumer price remains in the country of origin.

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