Climate change migrants in Ghana

When you travel north in Ghana, the climate becomes drier and the villages poorer, until you end up in the Upper East and Upper West regions - friendly, slow-moving places, dry for most of the year and becoming more so. In other words, exactly the sorts of places where you would expect climate change-related migration to begin.

Sam Knight in the Financial Times tries to unpick the climate change migration debate. Is climate change migration something entirely new, or merely a continuation of existing trends? It looks like the numbers will be greater than we have been used (the Stern review suggests anything between 200 and 500 million people over the next 50 years), but that doesn't mean that starving farmers from Burkina Faso or Bangladesh will be pitching up in European capitals. More likely, the children of the rural poor will migrate to coastal cities and the educated youth of the capitals will migrate to richer countries, as they do now.

So what can we do about it? Beyond the obvious priority of containing climate change, I can think of two helpful policies:

1. Invest in agriculture in vulnerable areas - whether it's drought-resistant seeds, irrigation, new kinds of crops that reduce soil erosion or thrive in drier (or more volatile) climates
2. Improve transport links between coastal and inland regions: that facilitates seasonal migration, which keeps remote areas alive through remittances and periodic visits. It will also bring down the cost of living and make it easier for people in the arid areas to sell whatever they grow to richer urban consumers

On the other hand, these two are unlikely to work:
1. Trying to restrict migration - through passports, ID cards, quotas, . People will still move, only they will pay more for it and people traffickers will collect the difference
2. Bribing people to stay at home through welfare payments, social services, etc. Investing in health and education in rural areas is a great area, but it's more likely to promote migration than discourage it

Climate-induced migration is nothing new: we've been at it since the Sahara was green. It may be that the last few millennia were the abnormality and human migration patterns will end up looking more like they did before we invented agriculture.

Sustainable cocoa isn't all it seems

The movement to certify cocoa has taken two steps forward in recent months. Consider these two stories:

1. Mars, which is the world's largest end-user buyer of cocoa, has promised to certify that all its cocoa will come from sustainable sources by 2020. Unfortunately, this article from the Financial Times does not tell us what a 'sustainable source' is, how it will be certified or why it will take over 10 years to complete the process. However, they do hint at the root of the problems of the cocoa sector: very low yields in West Africa, where two-thirds of the world's cocoa comes from. Mars seems to understand that since there is little primary forest left to cut down in Ghana or Côte d'Ivoire, the only way to increase cocoa production is to apply inputs to existing trees and replant them with higher-yielding varieties.

2. Cadbury, the UK's best-selling chocolate maker, has announced all its Dairy Milk bars will be certified 'Fair Trade' by the middle of 2009. The BBC reports this will mean tripling the volume of Fair Trade cocoa it buys from Ghana, to 15,000 tonnes. The more detailed press release points out that they are no longer relying just on Ghana's well-established 'Kuapa Kokoo' cooperative, but will help set up farmers' groups and cooperatives in other parts of the country.

Both Mars and Cadbury promise that chocolate prices won't rise, while promising higher farmgate prices for the cocoa growers. How can they do this without squeezing their profit margins? I can think of two ways. First, certified cocoa has been expensive in the past because it was a niche product. If certification becomes the standard, the economies of scale may make it cheaper to operate the tracing systems, audits and inspections required for certification. Two, Fair Trade (which Cadbury backs, but Mars doesn't) guarantees a minimum price to farmers, but when cocoa prices are as high as they are now, there is no difference between Fair Trade and the world market price. (There is a small 'bonus' for Fair Trade growers, but it's tiny and usually given to the cooperative for community projects, rather than individual farmers).

Will these schemes help cocoa farmers, then? I'd like to see more details of what Mars is planning, but there are some benefits. If certification works, it will make the supply chain more efficient and thus cut out some of the profits made by middlemen. If Fair Trade works, it will reduce the risk of a sudden crash in cocoa prices leaving farmers worse off. Neither of these schemes will do much to reduce poverty in cocoa-growing communities, however. To increase their income, they will need to raise productivity. Higher productivity will come from growing more and better cocoa on the same land, with higher-yielding trees and more inputs including fertiliser (sorry). You can do this through subsidised credit and government- or private-sector led replanting schemes; certification and higher prices alone will not be enough.

Cocoa prices hit a 'record high' - or do they?

The Financial Times reports a sudden increase in the cocoa price, as bad weather and black pod disease lead to lower-than-expected deliveries to ports in Cote d'Ivoire. Good news for cocoa farmers, if the price spike is passed onto them. My concern is, it won't be - the traders will take a profit and the underlying conditions that led to the price spike will return. In the medium term, prices are likely to fall anyway, as global demand for chocolate (and especially high-quality chocolate, such as that coming from Latin America and Ghana) flattens after years of steady increases. (See this from the same paper).

Viewed over the last 15 years, the current price of £1,820 per tonne certainly looks impressive:

















However, the current price may be less impressive than it looks, for two reasons. First, this chart reveals a similar spike in 2002 (presumably a result of the civil war in Côte d'Ivoire) that was followed by a 50% drop in prices and a 5-year slump. That would now equate to a price of around £900. Second, cocoa futures are priced in pounds, but the biggest cocoa producers and consumers use euros. Since the pound's value has declined from around €1.40 a year ago to €1.10 today, a cocoa price of £1,800 today is equivalent to around £1,400 a year ago - namely €2,000. The effective export price in Côte d'Ivoire, whose currency is tied to the euro, is some 10%-15% lower now than in July, when cocoa prices peaked at £1,700 (then €2,200 or $3,000).

In the meantime, what might be the effect of cocoa prices on the second round of Ghana's presidential elections, scheduled for 28 December? Probably very little, since the Cocobod fixed its annual price in August. But with only a percentage point between the two candidates, small psychological factors could make the difference. To all friends in Ghana and friends of Ghana, I wish you a peaceful Christmas and an even more peaceful election.

What I miss about West Africa - and what I don't

I'm spending a few weeks in northern England, preparing for a move to London. After a few days I am used to the weather again; but in other respects the UK feels quite alien. Here are a few things I have found myself missing about life in Ghana:

1. The way people dress. Wearing clean, colourful and well-tailored clothes seems to be a source of pride for Ghanaians everywhere; I am shocked at how little many Britons seem to care about their appearance, wandering around in dirty T-shirts and ill-fitting tracksuits.

2. Courtesy to strangers. In Accra, it's quite usual to greet other passengers in a share taxi or minibus with a low-key "good morning". Anyone doing so in a London bus would get embarassed looks in return and quite possibly a torrent of verbal abuse.

3. A nod and a smile. Walking down a street in Accra at night, I know I stick out. But if I walked past a group of young men, my instinct would be to nod at them, smile and maybe say hello in passing. I would expect them to reciprocate, even more so in rural areas.

Walking around parts of north London a few days ago, my instinct was quite different. I averted my gaze from passers-by and walked fast so as to indicate that I was "minding my own business". There aren't many young people hanging around on street corners, but those who are there exude an air of menace (they are usually harmless, of course - but perceptions matter).

There are other things I don't miss:

1. Tropical fruit - mangoes and papaya especially. This surprised me, because I love all tropical fruit and devour it in large quantities. But the apples and blackberries which are all over rural England in September are equally delicious.

2. Uneven streets and pavements. Walking along a typical street in Accra is an obstacle course of open drains, potholes and cracked slabs. It's worse for pedestrians than for motorists. I used to think UK pavements were shockingly uneven, but maybe they have got better, or else my standards have slipped.

3. The humidity. I'm a dry kind of guy. I like mountains and deserts. The UK isn't exactly dry, but at least I don't wake up in the morning drenched in sweat.

How long does it take to adjust? The plane from Accra to Heathrow was a mix of British, Ghanaians and British-born-but-still-partly-Ghanaians. Almost all spoke with 100% London accents. At least, they sounded a lot more authentically London than I ever will.

The market versus the mall

Whenever I travel out of Accra towards Ghana's central or west coast, I pass through Kaneshie station - which is really a large market with a bus station attached. It looks chaotic, but is actually very well structured: if you can bear the noise and the smell, you will be on a minibus to almost anywhere within a minute or two. The market sellers are organized too: all the plastic-sandal-merchants are in one corner, all the beef-and-goat-meat-choppers in another.

A few miles away is the Accra Mall: a new, air-conditioned shopping emporium as clean and bland as any other in the world. Between the stressed-out SUV drivers and lost-looking backpackers, upper-class local kids 'hang out' in the food court, because that's what kids do in malls.

Where is the future of African retail? For now, my money is on Kaneshie market. Their local produce is cheaper and better (never mind the cold chain: it was picked this morning) and their imported Chinese crap is as cheap and as crap as anyone else's. The problem is, there are no economies of scale and virtually no product differentiation. 500 people selling the same pile of onions equals 500 tiny profit margins. Fine if you are content for people to just survive. Not fine if you want some of these businesses to grow, employ others, maybe move into a proper shop so I don't have to trip over goat heads on my way to the beach.

So far, so much anecdotal speculation. Fortunately, when I got back from the beach I found this new paper by Rafael La Porta and Andrei Shleifer. (Thank you Dani Rodrik for pointing it out). Their question is: does a large informal economy help or hinder economic development? Their answer is: neither.

According to La Porta and Shleifer, there are three ways of viewing the informal economy. The first is the 'romantic view', associated with Hernando de Soto and a thousand microfinance outfits. According to this view, the sellers at Kaneshie market are all budding entrepreneurs. Give them secure property rights and some microloans and presto, within a few years we'll have a Kaneshie Mall with a plastic sandal supermarket and value-added goat head products.

Not much evidence for that, unfortunately: it turns out that almost all small businesses stay small even when you pump them up with microloans. So how about the 'parasite view', exemplified by this article from the McKinsey Global Institute? These guys say informal firms have a cost advantage in spite of their low productivity, because they pay lower taxes and rent than the formal ones. This prevents more productive formal-sector firms from getting off the ground. The solution: cut taxes on the formal sector and enforce them in the informal one. Then watch the Accra Mall outcompete the street markets, just like Wal-Mart does in Mexico.

This is a controversial view: who likes Wal-Mart? There's not much evidence for it either. Many city governments have cracked down on street vendors and markets, only to find them creep back months or years later. Zimbabwe's Operation Murambatsvina ('Drive Out the Rubbish') in 2005 destroyed the informal economy in Harare, but did nothing to alleviate food shortages. Rather than the informal entrepreneurs rushing to register their businesses, most just stop trading and are forced to find another livelihood.

The most interesting finding of the paper is that the formal sector does not grow out the informal sector, it replaces it. Most formal firms started off that way: they registered and paid tax from the beginning, using seed capital from friends, family or foreign investment (rarely banks). That lends credence to the third view of the informal economy, the 'duality view'. This view explains the productivity differences between formal and informal firms in the skills of their owners and managers. Skilled managers (usually those with a college education) go to work in the formal sector, where their productivity is rewarded with high wages. Less educated managers stay in the informal sector, whose meagre returns are commensurate with their skills. The formal and informal sector are different people selling different things in different markets. The South African running the Nike store in the Accra Mall would no more think of competing with the Hausa shoe trader at Kaneshie than she would of buying her biltong from him.

A good friend recently came to Accra to research the same topic and he described the informal sector as facing a 'mesh ceiling': there is no insurmountable obstacle to small businesses growing large, it just almost never happens. He found that even when market-traders and shopkeepers were selling the same product, their perceptions of the challenges and opportunities of the business were completely different. In particular, the shopkeepers, who usually have some access to credit, complained bitterly about high interest rates and stingy banks; the market traders, who have none at all, didn't even mention it.

The informal economy doesn't formalize when an economy develops, therefore: it just gradually becomes less important. In the USA, 95% of food is sold in supermarkets; in Latin America it's close to 50-50 and in China their share is growing fast. Shoprite won't put my local fruit seller out of business. But her grandson might get a job there.

"Aid is good, business is better"

Last week's International Herald Tribune carried an article by two most unusual co-authors: the world's largest diamond miner and Africa's first woman president.

President Johnson-Sirleaf of Liberia and Nicky Oppenheimer of De Beers write: "Countries must be willing to make a change in mind-set from the idea that foreign programs and plans will lift countries out of poverty to a belief in their own vision for their future. Foreign aid should only temporarily support countries while they implement difficult reforms and get on their feet."

Fantastic. I wonder how long 'temporary' means, though? Ghana has had billions pumped into it over 50 years and there is no sign of it stopping anytime soon. In fact, Ghana is getting more aid than ever - partly because its government has the capacity to spend it. Even more deservedly, Liberia is (at last) getting the huge inflows it will need to build up its infrastructure and public services. Not much of it is channeled through the government yet, but that is beginning to change.

In the longer term, though, I wonder if it might be wise to plan ahead for when the aid money will stop? Cutting off aid from one year to the next is hugely damaging, but pretending that it will continue for ever is a recipe for continued stagnation and dependency. I'd favour a negotiated drawdown - somewhere between Obama's 2 years and McCain's 100 years.

Some countries will need help for longer than others. Post-war countries are a special case and so are small islands or landlocked countries without natural resources. But I'd argue the chances of, say, Kenya or Ghana becoming middle-income countries by 2020 would actually be enhanced if we could agree a plan for aid drawdown now. (It has been done: look at Botswana, South Korea, Taiwan, Mauritius, even India is now a net donor).

So, Madam President, will you be brave enough to announce the date when Liberia will be independent from aid?

Belated benefit from slave castles

Last year a trip to Senegal opened my eyes to the evils of the slave trade in West Africa. More recently, I went to visit two of the 'slave castles' on the coast of Ghana. Both are carefully preserved and profoundly moving. I was impressed, as I have been throughout Ghana, with the knowledge and professionalism of the guides. They provided telling details of the greed and hypocrisy of the mostly British and Dutch traders. At Elmina (below), the governors used to have women they had captured parade in the courtyard and select one by leaning over their balcony. She was then dressed, washed and brought to the governor's quarters. If, at close quarters, she was found wanting, she was sent straight back to the dungeons.

The guides reminded us that these people operated with the connivance and support of European governments and many African rulers as well. Very few people are blameless in this sorry saga. So credit goes to the government, local authorities and Africans from the diaspora for helping to keep the memories alive.

In one respect, though, I felt that the slave castles were sadly unable to break from the past. Both the towns of Elmina and Cape Coast seemed extremely poor and unable to profit from their main attractions. I had expected to find legions of small hotels, restaurants and souvenir stalls, which might bring the people of these towns some belated benefit from their sorry history.

Instead, the dominant mode seemed to be "bus in, bus out". There are tourist hotels along the beaches, but virtually none in the towns. At Elmina, I only found one hotel catering to visitors; at Cape Coast, just a few budget backpacker places. Where there should be a bustling restaurant-and-souvenir complex, there is a ruin with a faded sign promising a 'visitor centre'. What went wrong? Where did the money go? Even the postcard and wood carving sellers, who are ubiquitous on Accra's beaches, were absent.

I would never suggest turning these lively fishing towns into slave coast Disneyworld. But fishing is a risky business and in decline, thanks to the European fishing fleets offshore. If big projects have failed, how about promoting small businesses? There are lots of little chop bars that no visitors go to: you could find a few ambitious ones and help them print English menus, maybe hire a kitchen help, put up some coloured umbrellas, then double prices. Or maybe set a fruit seller up with microloans to buy a juicer - I'd rather pay $1 for a glass of orange juice than try to peel my own for 10 cents. Or organize a fisherman's cooperative to offer canoe rides in the afternoon, for $5 per person? Set a fixed price, post it on a few notice boards and anyone shy of bargaining will jump at the opportunity.

Of course, if it were so easy, someone would have done it already. Would they?

Microfinance for the armchair investor

I have been a big fan of Kiva since I stumbled across their website nearly two years ago (just before a NY Times article got them widely noticed). Late-night visitors to the Kennedy School of Government's computer lab found me perched on the edge of my stool, pondering the relative merits of investing in chickens in Kenya, a bookstore in Bulgaria and cassava-grinding in Colombia. It's strangely addictive, or would be if I could remember my PayPal password.

Lately, though, I've begun to wish there were more Kivas out there, for two reasons. One, Kiva doesn't pay interest. That's fine if you only have $100 invested, but put $1,000 in and you start to notice. Two, a lot of the businesses I lend to are very small, doing very similar things. I'm all in favour of food retailers, but there is a limit to the number of them a street or market can support. I have at least 5 vegetable sellers within a 5-minute walk of my house in Accra. (That's 5 times more than I did in Cambridge, unless you count WholeFoods). Any new one would probably compress the margins of the others.

So I was excited to discover MyC4 yesterday, Denmark's answer to Kiva (with loans in euros!). MyC4 is set up for bigger loans: they pay interest, usually around 10%. This cost is passed onto borrowers, but if the loans are bigger, the operating costs fall to compensate. Best of all, the interest rate is set by auction, so the borrower gets to borrow from whichever lender offers the lowest interest rate. It's a slightly different model - more wealth creation than poverty reduction perhaps - but a welcome one, in my opinion.

I bought €100 of credit and jumped straight in. So far, MyC4 only has partners in three countries, but one of them is Côte d'Ivoire, which is exciting because they don't get a lot of microfinance. Right now I am invested in 2 Ivoirien businesses and am waiting to hear if my bid to invest in one in Uganda has been accepted.

Even with the prospect of larger loan sizes, though, the most common business model on MyC4 is "X buys Y wholesale and sells it retail. The loan will enable her/him to buy more stock." Sure, but food and clothing retail is highly competitive in most developing world cities I know, so the potential for additional profit is small.

What am I looking for, then? Three things. One, rural lending. Microfinance seems to be as scarce in rural areas as it is common in the cities (how many Ugandan microfinanciers operate outside Kampala? maybe this Kiva fellow can tell me). Small loans for fertiliser and seeds would make a huge difference to many farmers. Two, product differentiation. Three, businesses that add value to commodity items. I can get delicious mangoes and pineapples all over Ghana, but no fresh mango juice. I'll bet if you wheeled a juicer around Accra you could make some good money and undercut Coca-Cola at the same time. Good for you, good for Ghana and great for my teeth.

The cocoa story: part 1

I have come to Ghana to work on a project to raise the incomes of cocoa growers - already the motor of the rural economy here and in several neighbouring countries.

Ghana is the world's second-largest cocoa producer and three-quarters of a million farmers make a living from it. Unfortunately, their productivity levels are well below what is possible, even before you think about replacing the trees. Better crop management and judicious use of fertilizer can double yields in one or two years. So why hasn't it happened?

The biggest problem seems to be that most farmers can't get credit. Banks are unwilling to lend to farmers, for good reasons: repayment rates are low and there is little chance of seizing the farms to use as collateral, since most farmers don't have formal title to it. Microcredit isn't much help: the interest rates are too high and loan periods too short for agriculture.

West Africa still dominates the world market for cocoa, but Asian producers are making inroads with newer trees and much higher yields. Could cocoa go the way of coffee and oil palm, in which prices are set by cheap, high-volume production in Vietnam and Indonesia? The solution seems to be, at least in Ghana, in a flight to quality. The best soil and climate conditions, apparently. I predict that in 10 or 20 years, chocolate buyers will pay as much attention to questions of origin as wine and coffee buyers do now.