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High lending rates drive investments away — Dr Lacey

GHANA should introduce measures that will help halve the cost of borrowing or risk losing investments in agriculture and agroprocessing to neighbouring countries, the Team Leader of the West Africa Food Markets (WAFM) Programme, Dr Terry Lacey, has observed.

Unlike Ghana where lending rates hover around 22 per cent, interest rates in Nigeria, Burkina Faso and Niger average some nine per cent, making cost of funds in Ghana twice the amount in its three neighbours, he told the GRAPHIC BUSINESS in an interview.

This is because those countries “have much better banking systems,” Dr Lacey told the paper on the sidelines of a forum dubbed: ‘Regional Lessons Learnt’ organised by the WAFM in Accra.

He explained that Ghana’s situation undermined the potential of business growth, especially small and medium enterprises (SMEs) and investments in agriculture.

He said although the country had enormous potential in agribusiness, the financial environment had blocked the natural energies of farmers and entrepreneurs, thereby limiting growth.

Should Ghana succeed in halving the cost of funds, he said, the country “will have an explosion in agricultural production, manufacturing and production.”

Giving Burkina money to Ghana
Using the WAFM programme to buttress his point, Dr Lacey said the cost of money in Ghana had weakened the potential of the programme, making it difficult for his outfit to invest more in factories to help increase food production for domestic and export markets.

“Unfortunately, the cost of money as of now is the major barrier to developing the thing (WAFM programme) further because it has the highest cost of money among all the countries.

“If we go from Ghana, where my cost is 22 per cent to fund a factory, across the line into Burkina Faso, we are going to get the same money for nine per cent.

And we have actually been using Burkina money to pull sales out of Ghana into Burkina Faso instead of using Ghana money to push sales out of Ghana into Burkina Faso and that is because the cost of money is high.
— Dr. Terry Lacey

Quicker solutions
Dr Lacey said his outfit had since tabled the concern before the Bank of Ghana (BoG) and a commitment received to help introduce reforms that would address the bottlenecks for rates to fall.

Although the central bank had put an official in charge of the concern, signifying its commitment, he said the WAFM programme and other stakeholders would like to see solutions quickly.

With oil production halving the contribution of agriculture to gross domestic product (GDP) from 32 per cent to 16 per cent, he said the country needed to prioritise the financial hurdle to face the agricultural sector to help lift growth in the sector and boost job creation.

Beneficiary firms
Dr Lacey said the WAFM had benefited over 560,000 small holder farmers, more than four times its original target.

It has also raised more than £16 million alongside a UK grant of £7 million to support improved food production, promoting economic integration and regional food trade in ECOWAS.

“This has helped to bring together Anglophone and Francophone West African countries to combat food insecurity which has affected more than 10 million people,” he said.

He said 12 firms in the four countries benefited from the programme.

In Ghana, three companies benefited and they are Premium Foods in Kumasi (which diversified from maize to include cassava processing along with a major new processing plant), Amya Agro Plus, which is processing cassava starch mostly to export to Burkina Faso and Kedan Limited, a maize trader that was supported to diversify into commercial maize processing.

About WAFM
WAFM is a UKaid/Department For International Development (DFID)-funded project aimed at addressing regional food insecurity in the Economic Community of West Africa States (ECOWAS) and enhancing staple food trade along the Ghana-Burkina Faso and Nigeria-Niger corridors.

It was an enterprise-driven programme where private sector firms were supported to reach farmers, consumers, youth and women, creating and consolidating jobs and improving nutrition, incomes, prosperity and stability.

The programme was managed by the Palladium group and implemented in Ghana, Nigeria, Niger and Burkina Faso.

The forum in Accra was to provide stakeholders an avenue to share their experiences on the five-year programme which ended this year.

It brought together more than 60 partners and stakeholders, including UKaid/DFID and 12 agribusiness firms from Burkina Faso, Ghana, Nigeria and Niger as well as Cross Border Trade promotional groups.

A BRIGHT NEW BREXIT BOOM IN WEST AFRICA ?

Nigeria, with half-a-billion people by mid-century, offers a post-Brexit boom for British investment and trade. But UK traditional Anglophone markets in Nigeria and Ghana are next door to the Francophone Sahel, with insurgency growing from Mauritania to Mali, via Burkina Faso to Niger, North East Nigeria and Cameroon.

The prospects for traditional UK West African markets, trade and investment now depend increasingly on the prosperity and stability of the Sahel, with political violence in Burkina Faso now worse than in Mali, and insecurity creeping into Northern Togo, ever closer to the borders of Ghana.

Yet the Francophone countries have high growth rates, with investment opportunities in agri-business, and networks of Small Holder Farmers larger and better organised than in the Anglophone countries.

Ten years ago the main reason for food insecurity in West Africa was drought and climate change. Now there are ten million West Africans affected by food insecurity every year and the main cause is insurgency and political violence, with large numbers of Internally Displaced Persons (IDPs) and refugees.

This shift reflects successes as well as challenges. Rapid urbanisation, a growing middle class, increased economic growth and accelerated development confirm UK trade and investment opportunities across the Sahel, as well as in coastal Francophone West African states including Ivory Coast, Togo and Benin. But this progress means many people in towns and rural provinces are left out of prosperity in the cities.

Rural-based rebellion in the Sahel is led by jihadists, dissidents and organized crime. Al Qaeda groups have come together. ISIS-linked groups are building broader political coalitions. The Sahel has minerals, uranium and large oil and gas reserves, plus the benefits of new economic growth. There is a lot to play for.

The opportunity to be seized, by the UK, along with France, Germany, the EU, the USA and China is that soft power, investment and trade offers better prospects in the Sahel and West Africa than militarization. Ten million more prosperous farmers in the next three years offers more traction than 50,000 foreign troops later. But how to facilitate enough security to do this, plus the political will and finance to make it happen ?

So the Francophone countries in West Africa look now to Great Britain, free to make a fresh start. Will the British bulldog bouncing with Brexit bravado land a firm footprint in the Francophone Sahel, or will it be a toothless bulldog, barking but without the bite to get its teeth into these Francophone markets ?

France, led by President Macron, is shouldering the military responsibilities to help hold back the insurgency, and dropping the old West African CFA Franc to bring in the Eco as a new regional currency, hopefully in step with the plans of the Economic Community of West Africa (ECOWAS) to evolve a common currency.

The French seem ready to welcome more support for the Sahel and are sympathetic to diversification of trade and investment links in the smaller Sahelian economies whilst eyeing the bigger Anglophone markets like Nigeria and Ghana. Could the Brexit British reciprocate and put more effort into the Sahel ? An entente cordiale borne of Brexit bilateralism, by two neighbours both committed to prosperity and stability in Africa.

If the UK wants long term benefits from increased trade and investment in Nigeria and Ghana then better to adopt a wider regional perspective rather than hoping that a vertical silo approach would be enough to safeguard UK interests in these traditional markets. The Sahel needs roads, infrastructure, renewable energy, irrigation and agricultural equipment as well as investment and financial and banking services. There is plenty of scope for investment, trade, regional partnerships and joint ventures. If Great Britain and France can cooperate to make the Airbus fly, then why not to ensure that the Sahel and West Africa will not fall?

However, the UK bureaucracy was not geared in the past to an integrated approach pulling together development finance, investment and trade. Practical horizontal integration between UK departments, ministries and agencies has not yet really hit the ground. The new Sahel Department jointly run by the Foreign and Commonwealth Office (FCO) and the Department for International Development (DFID) can help do this.

Development agencies have a track record in social projects and in fighting against poverty but less experience of market-driven private sector development. Broader and more balanced economic development and growth needs backing from fiscal policies, Central Banks, Commercial Banks and Development Finance Institutions, with scope for social and financial innovations appropriate to the Sahel, including Islamic banking.

Development stakeholders worry that new emphasis on finance will undermine social priorities. This does not have to be so. Old-fashioned well-intentioned development projects cannot scale up agriculture and economic growth without the private sector and banks. But international banks have been risk-averse on SME lending for agriculture and Africa. West African banks and development agents are learning de-risking of agri-lending to SMEs and farmers. We need a lot more of this, with positive social and economic impacts.

If a bright bold post-Brexit British strategy to support development, growth, prosperity and stability in the Sahel and West Africa is to succeed then it will have to embrace a modern, holistic and integrated regional approach. To develop new financial and networking capacities and help put the local private sector in the driving seat, alongside a strengthened economic civic culture. Development stakeholders cannot do this without government support for the business enabling environment. Previously poor governance helped lead to insecurity. This has to change.

The message for post-Brexit British decision-makers and taxpayers is clear. Better to address these issues now, and support the Sahel and West African economic growth, prosperity and stability, especially via agri-business and support for Small Holder Farmers. Use the Brexit bounce to bat the ball into the Sahel. Help tackle the problems and challenges in the Sahel and West Africa today, with benefits from new trade and investment, or look out for the consequences of not doing so to bounce back to us at home tomorrow.

Let’s not wait for French and British Coastguards to have to stop more boatloads of illegal migrants between Calais and Dover. Instead work together to help make sure the people of the Sahel and West Africa will have a future.

Terry Lacey 31.01.2020

terrylacey2003@yahoo.co.uk

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About Dr. Terry Lacey

Terry is a Senior Manager with the Economic Growth team of the Palladium Group. Prior to Palladium, he was the Team Leader of the DFID funded Market Development in the Niger Delta (MADE). He worked in Nigeria with the German Development Cooperation (GIZ) in Plateau, Niger and Ogun states on major economic development programmes. He has worked in East, West and Southern Africa, the Caribbean Region, the Middle East and ASEAN countries, mostly in support of MSMEs and private sector development, via trade, market development and in the ASEAN energy sector. He has worked in conflict areas (Palestine, Lebanon, Somalia and political transitions in Southern Africa). He has been a European Commission official in Brussels and Togo and an NGO manager covering Africa, the Caribbean, the Pacific and Asia.

Terry has some specific background in the WAFM countries (Nigeria, Niger, Burkina Faso and Ghana), working on community-based agro forestry initiatives in Burkina Faso, and on projects with community banks and rural development programs in Ghana, and in a variety of agricultural promotion projects in Nigeria.