The Economist - UK (2022-05-07)

48 Middle East & Africa The Economist May 7th 2022

Africaneconomics

The paradox of untapped riches

G

hanahasacuriousproblem:itpro­

ducestoomuchelectricity.Underthe

termsofopaquecontractswithgenerating

companies,thegovernmenthasbeenpay­

ingover$500mayearforpower thatis

neverused.Thatisodd,becausethecoun­

tryishardlyawashwithenergy.Theaver­

ageGhanaianusesasmuchelectricityina

yearasanAmericandoesina fortnight.Al­

thoughaccesshasexpandedrapidly,more

thana quarterofruralhouseholdsarenot

connectedtothegrid.

Thebiggestobstacletoeconomicdevel­

opmentisofteninadequateresources.But

notalways.In Ghana, generating power

hasprovedmucheasierthandistributing

it.So,too,inseveraleastAfricancountries,

includingUganda,whereinstalledcapaci­

ty is nearly double peak demand—and

yourcorrespondentsitswritingthisina

blackout.Electricityisnottheonlyindus­

trywhereresourcesaresometimesplenti­

ful,andneedsareobvious,butdemand

doesnotjoinupwithsupply.Callit thepar­

adox of untapped riches: surplus and

shortage,existingsidebyside.

Seekinghide

Thisriddleismostapparentinpartsofthe

economywherethemarketoughttolink

upsupplyanddemand.Yetinmanycases

lorriessitidleonroadsides,evenastraders

cannotfindvehiclestocarrytheirgoods.

Or factories run short of supplieseven

thoughtheresourcestheyneedseemplen­

tiful. Ethiopia has more livestock than

anywhereelseinAfricaandthetanneries

toturnhidesintoleather.Yetsomeofits

shoeandglovemakersimportleatherfrom

asfarafield asChina.“Mostoftheraw

hidesandskinsaresuppliedfromhouse­

holdbackyardslaughter,”explainsTesfaye

BirhanuoftheLeatherIndustryDevelop­

mentInstituteinAddisAbaba,thecapital.

Thesecanberuinedbybacteriawithinsix

hoursofslaughterif nottreatedproperly.

Even Aliko Dangote, Africa’s richest

man,cannotescapetheparadox.In 2016

his conglomerate opened a tomato­pro­

cessingplantinnorthernNigeriatoturn

thecountry’svastcropoffreshfruit—half

ofwhichrotseachyearbecause ofpoor

handling and storage—into the tinned

paste that is currently imported. But a

shortageoftomatoesforcedthefactoryto

shutdown withinmonths because ofa

cropfailurecausedbya voraciousmoth.

Severalyearslaterthefactorywasstillop­

eratingata fractionofitscapacitybecause

ofproblemsingettingenoughtomatoes of

therightquality.

Adifferentvariationofthisparadox al­

soarisesinstate­managedmarkets,  like

electricity,wheregovernmentshave strug­

gledtoforecastsupplyanddemand, and to

buildtheinfrastructurelinkingthe two. It

alsoappears withingovernmentinstitu­

tionsthemselves.Becauseofpoor  man­

agement,healthministriesinAfrica fail to

useabouta fifthofthebudgettheyare allo­

cated,despitehospitalsrunningshort  of

medicines.Theunderspendissimilar  in

agricultureministries,sometimesfor  the

simplereasonthatmoneyforfarm inputs

such as subsidised fertiliser is released

aftercropshavebeenplanted.

Anothermismatchisininfrastructure.

Governments and investors often  have

moneytospend.Anddemandfor  roads,

portsandthelikecontinuestogrow.  But

bankable projects—thelinkbetween  the

two—areinshortsupply.“Thereis  fund­

ing,a largepipeline,anda needfor spend­

ing,butnotenoughmoneyisbeing spent,”

argueanalystsatMcKinsey,a consultancy.

Theyreckon80%ofAfricaninfrastructure

projectsfailatthefeasibilityandbusiness­

planstage;fewerthan10%reachthe point

offunding.Evenhigh­profileschemes can

stutter. By2020, atthe endofthe  first

eight­yearphaseoftheProgramme for In­

frastructureDevelopmentinAfrica, an ini­

tiative led by the African Development

Bank,  construction  had  started  on  fewer

than half the planned projects. 

In a survey by the European Investment

Bank, more than 60% of African banks say

that  a  lack  of  “bankable”  projects  signifi­

cantly  constrains  their  lending  to  small

businesses;  a  similar  proportion  of  entre­

preneurs  tell  World  Bank  researchers  that

they cannot get a loan when they need one.

What do these diverse examples have in

common?  One  obvious  theme  is  broken

connections—quite literally, in the case of

power  grids.  A  quarter  of  the  electricity

that is sold in Ghana is lost due to derelict

distribution infrastructure and theft, esti­

mates Theo Acheampong, an energy econ­

omist  at  Aberdeen  University.  Bad  roads

and  grasping  middlemen  stand  between

farmers and buyers.

Sometimes the missing link is informa­

tion,  such  as  the  credit  histories  that

would  help  banks  assess  the  riskiness  of

would­be  borrowers.  A  second  lesson  is

that quality trumps quantity. Yes, Ethiopia

has a lot of cows, but they need to be kept

healthy  and  slaughtered  skilfully  if  their

hides are to be turned into brogues. 

A few rotten tomatoes

None  of  these  obstacles  is  insurmount­

able.  Farmerline,  a  Ghanaian  firm,  uses

technology  to  connect  farmers,  their  sup­

pliers,  lorry  drivers,  warehouses  and  buy­

ers. “We know how much food people are

growing ahead of time, we know the loca­

tion,” says Alloysius Attah, its co­founder.

“It  gives  us  an  edge  on  how  we  plan  our

supply chain.” Tomato Jos, a startup in cen­

tral  Nigeria,  is  trying  to  crack  the  tomato­

paste conundrum. It spent years talking to

and  then  training  farmers  before  its  first

tin rolled off the production line. “It’s not

as  simple  as  just  setting  up  a  factory  and

mopping  up  supply,”  says  Mira  Mehta,  its

American  founder.  “Roads  are  horrible,

market  information  is  bad,  tomatoes  are

perishable.  You  have  to  actually  control

your supply chain.”

Unclogging  bottlenecks  is  often  un­

glamorous, costly work that businesses are

loth to do on their own because it will ben­

efit free­riding competitors. “There has to

be  an  intentional  effort  from  government

to  support  the  market,”  says  Ed  Brown  of

the African Centre for Economic Transfor­

mation, a think­tank in Accra, Ghana’s cap­

ital.  In  farming  that  may  mean  enforcing

standards, or providing support and credit

to help build up a whole supply chain. Mr

Brown  notes  the  success  of  Ethiopia  and

Kenya  in  developing  cool  storage  at  air­

ports, which allows farmers to export flow­

ers and fresh vegetables to Europe. 

Economists  have  long  known  that  re­

sources alone do not make a country rich.

African  economies  alreadyhavemany  of

the pieces of the growth jigsaw.What mat­

ters is how they slot together.n

K AMPALA

Why resources sometimes go unused, even where they are badly needed

When life hands you tomatoes