West Africa is one of the business world’s last frontiers. Blessed with rich mineral deposits, fertile soil, and access to important waterways and ocean ports, the region has been an economic center for centuries, attracting ivory hunters, textile traders, miners, and metal craftsmen (see boxed insert, "A brief overview of West Africa").

Today, however, West Africa is among the globe’s poorest regions. Its 225 million inhabitants have a per capita income of less than $1,500 a year (even after adjustment for low local prices), roughly level with India’s and less than a tenth of Western levels. They have almost no mass-produced consumer goods and only four telephone lines and 40 television sets per 1,000 people, low even by the developing world’s standards. Half the population has no access to potable water, and infant mortality is almost 87 in 1,000. Even though the population is largely agrarian, daily calorific intake is 60 percent that of people in developed countries, and crop yields are a fraction of Western levels (see boxed insert, "Affluence and agricultural demand"). West Africa is barely able to feed itself.

Though the situation is dire, it is not without hope. There is a remedy, and it lies in the restructuring of agricultural value chains. At present, farming productivity is minimal, a result of food crops being produced in near-subsistence conditions on small family-owned or leased plots with scant investment in seeds, fertilizer, pesticides, and machinery (Exhibit 1). The typical daily ration of cassava, yam, or maize is processed by hand in each home, or by street vendors. Quality and cleanliness vary greatly, and wastage is high.

The creation of a modern agriculture and food industry in West Africa calls for change in a number of areas. Farmers will have to shift to hybrid seeds and utilize fertilizers, herbicides, and other modern crop inputs and production methods. Processing facilities will have to be built and operated to convert these crops into food products, which then must be marketed and distributed. Finance must be found for trucks, tractors, combine harvesters, processing equipment, irrigation systems, and so on. Some form of futures and options market will be needed to smooth out bumps in supply and demand and help growers manage production risk.

The task is enormous—and could be enormously lucrative for Western companies in the agriculture, food, and farm equipment industries, which have a role to play in the restructuring, through either direct investment or alliances with local companies.¹ The expected incremental margin pool available annually for eliminating the storage and distribution waste from a single crop—maize—will be up to $110 million in Ghana alone, and up to $500 million in the region as a whole.

The opportunities for Western companies should be understood in the context of West Africa’s political and cultural history. Three generations of colonial rule—bent on exploiting Nigerian oil, Ghanaian gold, Guinean and Sierra Leonian diamonds, cocoa, and coffee—came to an end with the struggle for independence in the late 1950s and early 1960s. Ghana, under the leadership of Kwame Nkrumah, gained independence in 1957. Nigeria (under Nnamdi Azikiwe) and Côte d’Ivoire (led by Houphouet-Boigny) followed in 1960. By 1965, all 16 West African nations had established independent governments.

Today, from the perspective of Western multinational companies, the countries of West Africa fall into three categories: Nigeria, the franc zone, and Ghana and other small English-speaking nations.

Nigeria

Nigeria is at the center of the West African business frontier. With some 110 million inhabitants, it accounts for half of the West African and one-fifth of the total African population. It enjoys vast petroleum resources that have made it a mainstay of OPEC and the fifth-largest supplier of crude oil to the United States. In addition, the country is a leading producer of cotton, maize, and many other crops.

Nigeria reflects the scale and diversity of the region. With a land area of almost 1 million square kilometers, it is larger than the United Kingdom, France, and Portugal combined. It comprises more than 250 ethnic groups, of which the Yoruba, Ibo, Edo, Fulani, and Hausa are among the largest. Ethnic relations between tribes thrown together by the vagaries of the continent’s partitioning are often uneasy. As part of its efforts to revamp an image tarnished by human rights abuses and decades of coups, riots, manipulated elections, and military rule, Nigeria has attempted to provide leadership in the region, for example, by playing a central role in establishing the Economic Community of West African States and addressing regional conflicts.

Nigeria is often characterized as a difficult place for legitimate business. Indeed, companies searching for quick profits routinely fall victim to a variety of well-organized frauds. Moreover, large portions of the economy continue to be government-run and closed to foreign investment. Yet informed, sophisticated investors with a long-term perspective have been able to capitalize on the many opportunities available. Nigeria is starting to attract a new wave of European, North American, and Asian investors.

The franc zone

Stretching across West and Central Africa is a band of former French colonies bound by culture, language, and currency and known as the franc zone. The zone includes Côte d’Ivoire, Senegal, Mali, and 10 other states comprising almost 94 million inhabitants. Most franc zone countries have mainly agricultural economies, and the zone is the third-largest producer of cotton after the United States and Uzbekistan. It is also the world’s biggest cocoa producer and fifth-biggest coffee exporter.

The franc zone owes its existence to France’s colonial policy, which pursued a mission civilisatrice to pass on French culture and language. In the course of its rule, France used its education system to create a black African elite whose language, modes of thought, professional orientation, and tastes were predominantly French. In addition, the French established the CFA (Communauté Financière Africaine) franc as the common currency, an arrangement that still continues.

Located in the middle of the franc zone, and with a population of around 14 million, Côte d’Ivoire is at the forefront of economic development and the zone’s largest agricultural producer. With few natural resources beyond fertile soil and abundant rainfall, the country has built its economy around the export of raw cocoa beans, a wide variety of other food and cash crops, and many processed agricultural products.

Côte d’Ivoire epitomizes the new West Africa. Its progress has been aided by a relatively stable political environment and policies designed to foster investment and open up its society to the world. The government initiated a wide-ranging privatization program in 1991, through which 40 of 60 state companies have been sold. A government-initiated one-stop business establishment service has cut red tape and allowed businesses to incorporate and register a company in as little as 10 days. This service is increasingly used by foreign investors seeking to establish a foothold in West Africa. The process of obtaining work permits has been streamlined and the need for travel visas eliminated for US, French, and other European Union nationals on short visits.

To broaden its outlook beyond France and lower the language barrier to US and UK investment, Côte d’Ivoire launched a program in the early 1970s to provide top students with scholarships to English-speaking universities. As a result of this, together with other efforts, GDP growth exceeded 7 percent in 1996, while the market capitalization of the Abidjan Bourse, currently the only stock exchange in French-speaking Africa, has trebled since 1990.

Ghana and other English-speaking nations

Ghana and the three other small English-speaking countries, The Gambia, Liberia, and Sierra Leone, have an aggregate population of just over 20 million. Ghana, which enjoys relative political stability, offers the most attractive environment for business investment and has already made sound economic progress. Lacking extensive mineral riches beyond the gold deposits for which it is famous, and with a population of 17 million, the country is opening its agricultural sector to investment, privatizing aggressively, and marketing itself as a business gateway to West Africa. Cocoa is the main agricultural export. Investment progress so far is encouraging, with $1.3 billion in net foreign capital attracted in 1996—second only in sub-Saharan Africa to the Republic of South Africa’s figure of almost $10 billion.

Liberia and Sierra Leone, on the other hand, represent a West Africa still struggling toward political stability. Liberia, traditionally the United States’ staunchest ally on the continent, home to some of the world’s largest natural rubber plantations and iron ore holdings, and a favorite port of registration for commercial shipping fleets, was marginalized during the 1980s by a debilitating civil war. Sierra Leone, bordering Liberia on the west, has also suffered a civil war. Unrest has largely halted formal investment and severely reduced access to foreign exchange, which was historically obtained from the export of diamonds and non-precious metals.

The Gambia, meanwhile, with a population of only 1 million on a sliver of land along the lower Gambia river, offers investment opportunities in peanut farming and other food crops and in secondary industries related to tourism.

Where the action is

Natural resources are still the area of greatest foreign corporate involvement in the region. Nigeria’s oilfields attract all the big international oil companies, many of which have formed joint ventures with local investors and the government. Côte d’Ivoire also has a nascent oil industry. The oilfields encourage the development of related businesses: Nigeria has a $3.6 billion liquid natural gas facility under construction, for example, and has proposed a $260 million natural gas pipeline to supply Ghana, Côte d’Ivoire, Benin, and Togo. In Ghana, economic liberalization and the partial privatization in 1994 of the Ashanti Goldfields Corporation have brought a similar boom in gold mining.

Infrastructure too has been the object of outside investment. Telekom Malaysia has purchased 30 percent and management control of the Ghanaian telephone authority for $50 million and is committed to spending a further $500 million to develop and modernize the country’s telecommunications apparatus. Côte d’Ivoire is using "build-operate-transfer" schemes to construct bridges and highways, an exhibition park, an urban railway system, water and sewage plants, and power plants. A bid to build and operate one $270 million power plant was recently won by ABB Energy Ventures, an arm of ABB Asea Brown Boveri, and an Ivorian affiliate of the Aga Khan Fund for Economic Development. Similarly, Africa Online, a subsidiary of Prodigy, an Internet service provider specializing in international content and value-added transaction services, is rapidly establishing a leading position providing high-quality Internet access services in Ghana and Côte d’Ivoire.

Agriculture is a mine of unrealized economic promise. National agricultural policies have typically focused on encouraging the growth of small subsistence farmers, who are often sub-scale and undercapitalized. In addition, much recent public and private investment has been devoted to more immediately attractive manufacturing and high-tech areas.

Some creative companies are already finding ways to use local infrastruc-ture to build profitable franchises. Consider Pioneer Hi-Bred’s activities in Nigeria. A world leader in the production and sale of seeds, US-based Pioneer entered the Nigerian market by purchasing a seed company. Along with the seed assets, Pioneer acquired a stake in Nigeria’s Coca-Cola operations. By using contract farmers to produce hybrid seeds, and forming a network to distribute them that is based on the established Coca-Cola distribution and retail network, Pioneer has built a dominant position.

Among other Western multinationals exploring opportunities in the region, Procter & Gamble entered Nigeria in 1993 determined to learn to operate in West Africa’s biggest and toughest market. Today, its Nigerian arm is profitable. In Côte d’Ivoire and Ghana, agri-giants Cargill and ADM vie for the lead in cocoa trading and processing.

The processing and distribution of cash crops offer additional sources of value. Currently, most cash crops receive minimal processing before bulk shipment abroad. As a result, only a fraction of the crop value is captured by processors inside West Africa. Cheap local labor that could be employed for processing goes unused, and the opportunity to build local infrastructure is lost.

Côte d’Ivoire’s cotton industry illustrates the opportunities in this area. The Ivorian government has a stated objective of processing locally at least 45,000 tons of its annual 115,000 ton cotton fiber harvest by the turn of the century. This aspiration is supported by incentives such as investment tax breaks and customs exemptions. Incremental returns are likely to be attractive because the processed product commands higher margins than the raw cotton fiber.

Moreover, with less than 20 percent of current production processed locally, healthy regional demand, and the existence of several Ivorian manufacturers that could serve as investment platforms, there is plenty of opportunity for expansion. There may also be lucrative openings in exporting textiles to neighboring countries. Nigeria’s cotton consumer market, for instance, has a large middle-market segment that might be better served with Ivorian cotton than with imports from outside West Africa.

Regional cocoa processing is another example of cash crops’ potential. Value is created by the greater ease of transporting products such as cocoa liquor, cake, and cocoa butter (all three are lighter, more convenient to package, and less likely to deteriorate than cocoa beans), and by taking advantage of low labor costs in the cocoa-producing nations. Moreover, local markets for cocoa products are slowly emerging, and West African governments are eager to encourage such job-producing ventures.

Finally, many West African countries are eager to cultivate non-traditional agricultural sectors. In Côte d’Ivoire, for example, the government aspires to expand rubber, banana, and pineapple production, and has put in place wide-ranging incentives to encourage investment. In Ghana, fresh fruit production for the EU market has been developed over the past few years into a lucrative growth industry.

Restructuring the maize chain

Even more interesting openings lie in food crops for local consumption. A detailed look at Ghana’s maize chain, for example, reveals restructuring opportunities typical of those to be found throughout West Africa. While specific solutions to the maize chain’s myriad inefficiencies are beyond the scope of this article, it is clear that Western companies specializing in agribusiness, transportation, and food processing will have many chances to apply their basic processes and products, with potent financial effect.

Maize is an important food crop in Ghana. About 1.2 million tons are produced each year on just over half a million hectares, concentrated in the central and eastern parts of the country. Almost 85 percent of the crop is produced by small farmers on plots of a few hectares. Most land is controlled by traditional chiefs who lease it to their village subjects for three to five years. Leasing arrangements are generally informal contracts between farmer and landlord, with the farmer making payment in cash or kind.

The production process remains labor-intensive. A hand-operated cutlass similar to a scythe serves as the main tool, and the farmer’s family as the main source of labor. In the spring, farmers prepare the land by cutting down weeds (few use herbicides) and burning scrub. They then dig a line of shallow holes and insert two or three seeds, typically selected from the previous year’s harvest, into each hole. The growing period is marked by the rainy season that usually stretches from early June to mid-September. During this time, farmers tend their crops and build or refurbish barns in anticipation of the harvest. In the central and northern regions, there is an additional minor rainy season in March that affords farmers a second planting season.

The early-fall harvest season is the busiest period. Farmers use all available family members and any other hands they can afford to hire to harvest the maize manually. The most prosperous growers may hire small mobile gasoline-powered decobbers to remove the grain from the cob. But mostly this crucial activity is performed by hand by children, or by beating bags of maize with sticks. The crop is then stored in barns to dry.

The next stage is distribution. Typically, a bag of maize is transported from the farm gate to a rural market by the farmer. The rural markets are run by representatives of the local chief, a market traders’ association that manages general market operations, and a "market queen" who oversees transactions. The market queen may set price floors or ceilings, and has the authority to halt trading should prices veer wildly out of line. Traders travel from the towns to purchase the maize, but with limited access to capital, they may spend several days journeying inland to return with only a few 100 kilogram bags.

Once purchased by an urban trader, the maize bag is transported by truck to an urban market. When it arrives, the maize is repackaged by the urban trader and sold on wholesale to retailers or retailed to food sellers and poultry farmers. The food sellers, who often purchase on credit, typically transport the maize to millers, who convert it into a fine powder before it is cooked into the staple dishes banku and kenkey.

As a result of the poor efficiency and unpredictability of the food chain, Ghana has to import basic commodities to feed its people. Large quantities of rice are imported to feed city dwellers most years, for instance. In addition, large-scale livestock production relies heavily on imported grain, despite the proximity of Ghana’s maize belt.

There is clearly enormous scope to modernize and streamline this process. The use of new high-yielding seeds offers one possibility. Ghana’s Crop Research Institute (CRI) develops seeds for domestic use, and has recently introduced several varieties designed for different regions of the country. Combined with modern farm practices such as the appropriate use of fertilizer and herbicides, the new varieties can yield up to three times as much as the old. Several government agencies and international organizations such as the Global 2000 project, a US-based non-governmental organization headed by former president Jimmy Carter, have also tried to introduce new hybrids for local production, but farmers’ adoption of new seeds and production methods has been slow at best. The agriculture ministry estimates that modern hybrid seeds are used in no more than a quarter of planted areas.

Similarly, pesticides, fertilizers, motorized farm equipment, and irrigation also offer opportunities to raise productivity. Although poor access to capital and lack of training make adopting these tools difficult, they have been used successfully in other developing countries.

A second possibility to create value in the maize chain lies in Ghana’s poorly managed storage and distribution activities. Up to half of the annual har-vest is lost between the farmer and the end consumer. Post-harvest loss starts on the farm. Because most farmers cannot afford to hire extra laborers or equipment, they are unable to harvest all their crop at one time. They have to break off to sell their first batch before they can harvest the rest. Meanwhile, the crop left in the field may rot.

In addition, many farmers store their harvest in makeshift barns while they hire extra workers to husk the corn or wait for market prices to rise. With little protection from the elements, produce in these barns is susceptible to damage from insects, animals, and rain. Moreover, quantities of maize are lost when it is bagged and re-bagged as it travels along the value chain (Exhibit 2).

Such vast losses occur despite the existence of an extensive network of cleaning and storage facilities operated by the Ghana Food Distribution Corporation, an arm of the agriculture ministry. Several factors have limited the corporation’s effective management of these assets. Political expediency has led to the siting of several silos far from the corn belt, while cash constraints have limited silos’ ability to purchase maize. Use of most of the silos has not exceeded 20 percent, and several are entirely unused.

Reducing farm-to-market losses will require storage and distribution sys-tems to be restructured to create an efficient, market-focused operation. Any efforts undertaken by Western companies would have to involve three interlinked components:

Inject capital to finance the harvest-to-sale stages of the value chain. A key problem is lack of capital to acquire grain. This can be traced to the failure of government financing and the lack of an efficient private system of credit. The current system is dominated by village-based individuals who charge usurious rates for short-term loans. As a result, farmers rarely borrow to fund the upfront costs of high-yielding seeds and other productivity-enhancing inputs. But if farmers were more certain of the price their crops would fetch at market, not only would they be more likely to borrow, but loans would stand a better chance of being repaid. Western companies could fill the role of finance provider.

Provide drying and storage facilities near the growing regions. Unsuitable storage is the main cause of waste, but could be largely eliminated by modern storage methods.

There are also trading opportunities for companies that could provide inexpensive maize for public consumption between harvests. To do this, companies would have to build or lease (where available) grain silos and drying facilities.

Build the infrastructure to provide decobbing and short-haul transportation. Growers of food crops in most of West Africa do not have the resources to move the maize harvest from farm gate to storage, and then to market. While private entrepreneurs have emerged to fill this role, investors should have at least a core decobbing and transport capability to help them understand the transport issues, ensure access to grain, and give them leverage in negotiating with other transport providers.

With efficient storage and distribution, attractive opportunities will emerge upstream in increasing production efficiency, and downstream in improving the value added in food processing. Finally, Western companies involved in the restructuring will naturally be aware that what can be done for maize can be done for almost any crop grown in West Africa.