Monday, July 4, 2011

USAID’s intervention and Rwandan coffee exports

Easterly and Reshef (2010) argue that foreign aid can boost exports but only if projects are implemented carefully in consultation and working with producers and exporters in the country. For instance, after the 1994 genocide in Rwanda, USAID funded two projects to educate local business people in agribusiness. Local officials convinced the agency to figure out which efforts could improve local incomes, and it hit upon specialty coffee. The aid projects helped to form grower coops, taught coffee-washing techniques, contacted potential buyers, and provided the initial capital to build coffee-washing stations. The result is that Rwanda has become a source for high-quality specialty coffee that is sold in the United States.

They also argue African exports are not as dismal as has been portrayed in the media and by researchers. In the 15-year period from 1994 to 2008, sub-Saharan Africa saw its per capita exports of goods rise an average of 13 percent per year. That average is less than China's export growth rate of 19 percent, but on a par with India, and far above Germany's 8 percent and the 4 percent rate for the United States. Given the well known difficulties in exporting from Africa (let alone running business there), 13 percent annual growth rates of exports per capita are no small feat, they argue.

A summary of the paper in July 2011 edition of NEBR digest:

The exports of sub-Saharan African nations include some "big hits" -- that is, exports that dominate national trade. These exports change over time in a way that can't be easily explained by commodity prices or other global factors. And, although the sub-Saharan nations use conventional measures to boost their export revenues, such as moving up the quality ladder, concentrating on comparative strengths, and liberalizing trade rules, part of their success is idiosyncratic: entrepreneurial persistence, luck, and cost shocks can lead to big hits, even where the anticipated probability of success was low.

Sub-Saharan Africa has a relatively low share of manufacturing exports and a much higher share of agriculture, food, fuel, ores, and metals. There is considerable variation within categories, however, with some nations able to export high-value food exclusively to Europe or to the United States. Export successes are rare, but when nations do get a big hit, sales of that good tend to skyrocket. For example, the average share of the top export from 37 African nations is 47.6 percent of all of that nation's exports. The second largest export, by comparison, accounts for only 13.7 percent of exports on average. This pattern is somewhat more extreme than that of non-African nations. The top export share among 130 non-African nations averages 27.5 percent, and the second strongest export averages 11.6 percent.

The big hits also vary widely over time. In Ghana, for example, coconuts, Brazil nuts, and cashew nuts were No. 67 on the list of top exports in 1996 but had climbed to No. 4 by 2008. Meanwhile, unwrought aluminum fell from No. 6 to No. 132 in that same 12-year period. In Ethiopia, fresh vegetable exports rose from No. 182 to No. 5, while buckwheat and other cereals fell from No. 6 to No. 229. These rises and falls are primarily attributable to changes in the quantity exported. Price changes only account for 10 percent of the changes in shares for the median country.

Persistent entrepreneurs, timing, and happenstance also play a role in export success. Gahaya Links, founded in 2003 by two sisters, now sells Rwandan woven baskets to Macy's and other U.S. retailers, despite the problems that typically plague handicrafts ventures in the developing world. A Canadian-trained chemical engineer in Tanzania entered the prawn business after a London-based acquaintance requested the product. The big breakthrough came, however, when he moved into catching white fish in Lake Victoria to supply a European market hungry for his product.