Trade Wave Leaves Africa Parched


By Stephen Buckley

Washington Post Foreign Service

Tuesday, December 31, 1996; Page A01

Third of four articles

ACCRA, Ghana—For years, customers could not call Kwabena Afari, a pineapple exporter, directly in Aburi, his hometown 65 miles north of here.

His clients first had to call this city, Ghana’s capital. Then someone here would call the Aburi post office. Then a post office messenger would go to Afari’s home.

If anything went wrong, and it frequently did, Afari might not receive the message for days.

"Customers were complaining," said Afari, 46, who recently bought a cellular telephone.

"My guy in Turin got fed up. He said, `I can’t work with you anymore. It’s too hard to communicate.’ "

Afari’s struggles are a grim example of what ails sub-Saharan Africa and its roughly 600 million people. As a great wave of trade and foreign investment transforms the global economy, drawing hundreds of millions out of poverty in developing countries and creating new industries and jobs, sub-Saharan Africa has been left behind.

Afflicted by political instability, wrongheaded economic policies, lack of basic infrastructure and a dearth of investment in education and health care, the world’s poorest people have grown poorer over the past decade. The great engines of growth in the post-Cold War world—trade and foreign investment—essentially never started turning in African countries, despite the efforts of a number of nations to implant the developing world’s new free-market model.

"It’s not that we have been left behind" in the global economy, said Lucia Quachey, who heads the Ghanaian Association of Women Entrepreneurs. "It’s that we haven’t even started."

An estimated 40 percent of Africa’s people live on less an $1 a day. Between 1989 and 1992, nearly half of the continent’s countries suffered negative economic growth rates. Only in the last two years have there been signs of an upturn as countries such as Ghana, Uganda, Tanzania and Mozambique pursue free-market policies; this year regional growth may reach 5 percent, according to the International Monetary Fund.

Still, over the past 20 years, per-capita income has crawled upward by roughly $70 in Africa, compared to a $900 jump in East Asia. While trade between developing countries in East Asia and Latin America and the rest of the world has boomed in the last decade, African countries are still struggling to find markets for products from pineapples to finished goods. And foreign investors, who have poured more than $400 billion into the Third World since 1988, have largely shunned Africa.

The continent receives roughly 3 percent of the foreign direct investment flowing into developing countries. And that share could fall further: The United Nations reports that foreign investment in the continent plunged by 27 percent last year, to $2.1 billion—less than China received in two months. Only South Africa, with its new democratic government, trained work force and rich resources, is drawing substantial investments from multinational companies.

Western and Asian business leaders say Africa lacks the basic infrastructure and stability to sustain investments in the low-wage manufacturing plants that are the basic building block of foreign investment. And they say most African countries do not have the consumer buying power that would justify local production of televisions and microwave ovens.

"With Africa," says John Koo, president and chief executive officer of the Korean giant LG Electronics, "we have a problem making investment decisions and we don’t have a solution at the moment."

The region’s investment predicament is compounded by a slackening of traditional aid to developing countries by international organizations and rich countries, including the United States. Total official aid to sub-Saharan Africa has fallen from almost $17 billion in 1990 to $15 billion in 1994.

"We see certain countries going through budgetary difficulties that want to back away from offering development aid. They say everything ought to be referred to the private sector," said Henri Konan Bedie, the president of Ivory Coast. But "if you wait until the private sector comes to build primary schools for children, I think you could wait a long time."

Crippled Economies

The continent’s lack of preparedness for the new model of global economic growth is linked to a history pocked with wars, coups and counter-coups. Since the late 1950s, 25 African countries have undergone at least one violent government change, with some nations entrenching coups as political ritual. Nigeria, the region’s most populous nation and potentially most economically powerful, is stumbling through its sixth government since independence in 1965.

Meanwhile, many longtime dictators and strongmen have held their economies hostage, maintaining unprofitable state-owned enterprises, keeping high tariffs and price controls and explicitly supporting corruption. And even those few countries, like Ghana, that have avoided war and political chaos and tried to open their economies to the new flows of world capital have been crippled by a lack of domestic investment, inconsistent policies and corruption.

Africa’s economies will be crippled "as long as you have these mafia governments, these predatory states," said George Ayitteh, a Ghanaian who teaches economics at American University. "In Nigeria, in Zaire, all over the continent, the people in government are just looters."

Ghana offers one case study of how the region has floundered. At independence in 1957, it boasted of one of sub-Saharan Africa’s most promising economies, leading the world in cocoa production and holding an extraordinary range of natural resources, including gold, diamonds, oil, aluminum, timber, bauxite, rubber and cotton. By the 1960s, its per-capita income matched that of such countries as Malaysia and South Korea.

But the Black Star, as Ghana was nicknamed, plummeted as five coups rocked the country between 1966 and 1981. By the early 1980s, more than 1 million Ghanaians had fled to neighboring West African states. Shops were virtually empty. Infrastructure deteriorated. Inflation zoomed to 123 percent. After the 1981 coup, new leader Jerry Rawlings embraced World Bank and IMF reforms that helped resurrect the economy. By the early 1990s, 5 percent economic growth rates had become a constant. Inflation dropped to 10 percent.

Ghana, with 17.5 million people, also launched an ambitious effort to draw foreign investors, loosening a once-onerous investment code and offering generous incentives to outside entrepreneurs. It established export processing zones. It got a site on the World Wide Web. Having embraced the formula that has brought wealth to countries from the Philippines to Chile, Ghanaians waited for their own economic takeoff; the country was touted as one of the best-prepared in Africa for foreign investment.

Yet the campaign for foreign capital has foundered, except in the mining sector. Critical areas such as agriculture and manufacturing, both with the potential to produce large numbers of jobs, have attracted relatively little investment. Overall, foreign investment makes up only 4 percent of Ghana’s gross domestic product.

A government campaign encouraging the export of so-called nontraditional products—such as pineapples—has also largely failed. Export of Ghana’s pineapples, among the sweetest in the world, lags behind that of Latin American competitors: In 1994, Costa Rica exported $45 million worth of that fruit, compared to $5 million for Ghana.

Potential agricultural investors, like foreign investors generally, are often scared off by the country’s unreliable infrastructure, especially in rural areas, which often do not have telephones, electricity or water and where many roads are impassable.

The rocky dirt roads to Afari’s pineapple farm are riddled with foot-deep holes, divots, dips, mounds and widening puddles. Bad roads can mean damaged fruit, delayed orders and astronomical repair costs for Afari’s aging tractor.

There are 3.5 phones for every 1,000 Ghanaians. Sub-Saharan Africa averages 4 phones per 1,000 people, compared to 4 per 100 in Asia and 6 per 100 in Latin America. The entire region has fewer phones than does New York City. Domestic long-distance telephone calls often do not connect, and international calls can be nearly impossible. Electricity is sporadic, even in parts of the capital. Some sections of Accra are without water most of each week.

Outside investment has thus barely helped to dent this nation’s overwhelming poverty. Bare-chested fishermen toss their nets into coastline waters, hoping that day’s catch will feed their children. Tiny factories—with names like Hallelujah Construction Bricks—dominate its towns. Subsistence farmers hawk fruits and vegetables on rickety tables along the rural roadside.

Ghana’s people make about $430 a year, approximately the same as 30 years ago. Unemployment exceeds 25 percent in urban areas.

The government repeatedly has said it would like Ghana to become a middle-income nation by the year 2020. The World Bank estimates that, at this rate, Ghana will not reach its target until 2045.

Basic Investment Needed

A tour of the Ghanaian countryside makes clear one large reason that world capital flows have bypassed this nation. Before foreigners can be drawn to invest, governments must make basic investments in infrastructure, such as roads and electricity, and in people, through health and education.

But Ghana has not made those investments in places such as Asene, 90 miles north of Accra.

The vibrant village is a place where some residents plant rows of red and pink flowers around their squat concrete houses. Teenagers play furious games of table tennis in the village center. A blur of rickety shops does heavy business seven days a week.

Asene, with about about 1,000 residents, is blessed with some of Ghana’s richest soil and is among its leading producers of cocoa. A plethora of goods available at the market attests to Asene’s rich agricultural potential: peppers, pineapples, tomatoes, rice, soy beans, ground nuts, cassavas, plantains, palm oil, soy oil.

Nana Ako Frimpong II, the village chief, desperately wants investment in Asene. "The government has been telling people to invest in rural areas, but people have not come," he said.

Investment in Asene would allow villagers to finish the health clinic they have labored to build for the past five years. The current facility is a cramped, one-room building used only as a maternity clinic. Today, a pile of sand and stones sits before the clinic-in-progress, where weeds bristle in the four unfinished sections.

Investment also would mean Asene residents could repair and rebuild some local schools, which now have holes peppering their roofs, potholes in their classrooms and scuffed and marred chalkboards. Asene’s residents must build their own clinics and schools because, at least in such remote areas, Ghana’s government does not. From 1990 to 1994, health spending and education spending averaged 1.2 percent and 3.7 percent, respectively, of the country’s gross domestic product.

The result is that 149 of every 1,000 babies born in rural Ghana die before age 5. Rural immunization rates are only 39 percent. Only 77 percent of Ghana’s children are enrolled in primary school; less than 40 percent make it to the secondary level.

Education is critical to foreign investors. In Asia, manufacturing plants built by international investors such as Nike, Sony or Honda hire only workers with a high-school education. Asian countries have invested heavily in primary and secondary school education, creating a large potential work force for labor-intensive manufacturing plants. In Ghana, as in many other African countries, there is no critical mass of such workers.

"Even with the best of economic policies, rapid economic growth will not be feasible unless Ghana invests more, and more effectively, in human capital," a 1995 World Bank report said.

Those words ring hauntingly true for people like Nicholas Adjei, one of Ghana’s millions of subsistence farmers, for whom the simplest dreams remain out of reach. He would like to educate his three children, buy a car, build a home. Right now he cannot even afford a second-hand bicycle. He makes $200 a year.

Adjei lives in Oyarifa, a village 20 miles north of Accra. One recent morning, as low clouds mottled the hills near his farm, Adjei bent at the waist, chopping at the cool dry soil with his short hoe. It takes him weeks to turn over the soil, because he cannot afford to rent a tractor. He cannot even buy a bag of fertilizer, which has tripled in price since 1993.

"I want to do more, but I can only do enough to help my family to eat," he said, sweat gleaming on his face. "I asked the bank for a loan to help me build up the farm. They said I needed to show that I already have that amount of money saved. I said if I had the money, why would I be coming to you for a loan?" Adjei added, "If I could export pineapples, I would If I make money, I can invest more in my farm. But I do not have the means."

The Ghanaian government continues to tinker with its economic policy, seeming to believe the country can join the world economy if only it sets the right rules for foreign investment. So far, the strategy has only proved that having the right policies is only the beginning of what is needed to attract investment capital and build trade-based industries.

On paper, Ghana has offered foreigners powerful investment incentives. They include 8 percent income taxes for companies that invest in non-traditional exports; tax breaks for those who invest in sectors such as agriculture and manufacturing; and some exemptions on customs duties. In a change from the past, foreign companies in Ghana can have 100 percent ownership, easily repatriate their money and are legally protected from having their businesses nationalized.

Yet this year, foreign investment outside the mining, petroleum and timber sectors has dropped sharply, from $94 million for the first half of 1995 to $41.2 million for the same period in 1996.

In addition to the absence of basic infrastructure, and the failure of the government to create an educated work force, Ghana’s foreign investment campaign has been hamstrung by problems of day-to-day economic and political management, analysts say. For much of this year, for example, entrepreneurs in and outside the country were nervously awaiting December’s elections, which Rawlings won in a vote widely regarded as free and fair. Mindful of Ghana’s politically explosive past, investors are taking no chances.

"This is the first time [since 1966] that we’ve had four straight years of an elected civilian government," said Charles Mensa, director of the Institute of Economic Affairs, a Ghanaian think tank. "Our stability is very, very thin. . . . We have to work at it."

But even with the political progress, Rawlings’ government has driven off investors with uneven management of the domestic economy. Huge increases in the money supply caused inflation to surge to 58 percent last year. Interest rates are sky-high for Ghanaians, and the value of the local currency is steadily sliding.

Critics say such conditions mix the welcoming signals Ghana has tried to send to foreign investors.

"You look at the investment policies on paper, and you think Ghana is a paradise on earth," said Quachey, 52, of the Ghanaian Association of Women Entrepreneurs. "Look at what’s happening on the ground and it’s hell on earth," added Quachey, a high-decibel, air-punching, arms-flailing, desk-pounding entrepreneur-cum-activist who has manufactured garments for over 20 years.

In fact, despite the liberal rules, investors have complained that goods and equipment can be trapped in customs for weeks. Others have had documents delayed in government ministries for months. Some have reported that civil servants have yelled at and cursed them.

A World Bank report last year noted that "the government’s commitment to liberalization has not reached the middle and lower level of government officials, where hostility and corruption are often present."

In August, Rawlings chastised various government bureaucracies, including customs, immigration, the lands commission, and the telephone, water and electric companies for creating roadblocks to foreign investment.

Yet some entrepreneurs accuse Rawlings himself—a former socialist whose regime arrested and investigated numerous entrepreneurs after he took power in December 1981 -- of still harboring disdain for the private sector.

After winning the election in 1992, the president urged Ghanaians to shun products made by companies led by supporters of opposition parties. His administration also became enmeshed in high-profile lawsuits by entrepreneurs accusing his regime of unlawfully taking away their businesses.

In one case, the government took the nation’s largest tobacco company—with some 1,000 workers—from its Ghanaian proprietor and formed a new tobacco enterprise.

Such cases do "have some negative impact" on Ghana’s drive for foreign investment, said Cletus Kosiba, director of public relations for the Ghana Investment Promotion Center. "But . . . we are not going to allow practices that affect government adversely. Businessmen have a responsibility to the state."

The dearth of foreign investment means that there are few jobs for the tens of thousands who have flocked to Ghana’s cities in recent years, hoping to find jobs in the newly liberalized economy. Unemployment rates in urban areas have soared to 25 percent. And even those who have jobs must scramble to feed their families. Samuel Opoku Asare, a 51-year-old tailor in Accra, recently moved his family because he could no longer afford rent in his old apartment. He had to move to a neighborhood where residents lack water and electricity.

Asare, with five children, sends them to school by paying fees a little at a time throughout the year. He used to buy the children clothes three times a year; now they get new outfits once annually. He said his family also eats less today because the price of food staples has skyrocketed in recent years. The price of rice is 20 times higher than it was in 1992.

As Ghana’s economy has skidded, so has Asare’s business. As he spoke in his shop, his work hung around him: slacks, a navy blue jacket with gold buttons, a gray suit, a pair of pinstriped pants. "Customers ordered these a long time ago," the friendly, well-spoken tailor said. "They just can’t afford to pick them up." "Right now, we are almost bankrupt," Asare said. "I pay my workers, and then I have nearly nothing left. I make about $300 a year now, and that mostly comes from my little cocoa farm." As he met with visitors, Asare said that he had not had any customers for 10 days. And no one had come in that day.

"Life has become very hard," Asare said, looking down. "We are willing to work, but there are no jobs. The [currency] keeps going down. Prices keep going up. . . . I have a radio, but I can’t afford the batteries for it."

Copyright 1996 The Washington Post Company