The ability to make complex policy decisions that reflect good value for money in terms of cost effectiveness, cost efficiency, feasibility, scale of impact, relevance, and sustainability while placing countries firmly on a path to meeting their medium and long term development goals, is arguably the most important role of government.

The Collaborative Africa Budget Reform Initiative (CABRI) organises “sector dialogues” on value for money to assist senior government officials improve on this process using a case-study approach.

The purpose of the case studies is to present a real life problem to the officials, which they work through, using the information presented in the case study, the knowledge from the seminar presentations and their own experience.

CABRI’s recent sector dialogue on Value for Money in Agriculture brought together senior officials from finance and agriculture ministries from 10 African countries. The dialogue was held in Dakar, Senegal on 29-30 July 2013. Four country case-studies were prepared for the seminar (available on CABRI’s website). This blog provides an essence of the practical exercise and demonstrates the complexity of policy making drawing from two of the four country case-studies that were prepared for the dialogue.

Key Dialogue Question: Should Ghana invest more in the processing of raw cocoa beans?

The rhetoric of increased value addition resonates within the continent. Why should Africa remain producers of raw materials and not manufacturers of processed goods? Ghana is the second largest producer of cocoa beans in the world after its neighbour Ivory Coast. However, less than 25% of Ghana’s cocoa beans are locally processed - limiting Ghana to capture only 5% of the estimated $28 billion of the global intermediate products market, and only an insignificant share of the global final consumer market of $87 billion. With these statistics, the answer would seem obvious: process, process, process! But, let’s look at the other side of the coin which explains the difficulty in making this policy change. To begin with, raw bean cocoa production contributes 10% of Ghana’s GDP and generates 25% of export revenues. Therefore, it’s a valuable commodity for the economy and an important source of rural employment.

Here is the trap: Ghana’s main cocoa crop is considered to be among the finest in the world with its bigger size beans and higher butter yield and therefore fetches an additional 4 to 6 percent premium on the international market. Not only would the premium be lost if Ghana processed its beans, but would then have to face higher freight costs and high tariff walls. For example, the EU levies no duties on the import of raw cocoa beans, but levies a 7.7% and 15% - ad valorem duty on cocoa powder and cocoa cake, respectively. It’s interesting how international trade agreements are designed to keep developing countries producers of raw materials!

In addition to trade barriers and losing the premium, there are valid concerns about losing Ghana’s firm footing in the market as a leading cocoa producer and venturing into the unknown in terms of competing internationally on processed goods and with no history in the market. Venturing into processing in the short and medium term will also mean supporting foreign owned businesses who dominate the processing industry in Ghana.

The question of “to process or not to process” created an interesting debate at the dialogue, especially in light of the context. With a heavy deck of cards stacked up against processing, it was interesting that no one at the dialogue suggested that Ghana maintains the status quo. It was agreed that more incentives for processing is needed but at the same time, it’s important to maintain the quality of raw beans at source. Ghana cannot neglect the long term potential benefits of processing.

In the short and medium term, cocoa beans revenue may decline and foreign companies, who dominate in the processing industry, may stand to gain a large share of profits. However, there are potential long term benefits that could transform the economy including an untapped regional market. Kenya offers some examples whereby a lot of local companies are now processing coffee and selling profitably in the East African region.