Dear Minister Wieczorek-Zeul,
Your Excellency Ms Migiro,
President Wolfowitz,
Mr Van de Geer,
Commissioner Michel,
Your Excellencies,
Ministers and Deputy Ministers,
Thank you very much, Minister Wieczorek-Zeul, for these kind words, and for making us all feel so welcome.
Ladies and Gentlemen,
following Mr. Wolfowitz’s clear outline of the cornerstones for a positive investment climate in Africa, I would like to focus on the personal experience with Africa I have as a businessman, mostly with an emphasis on the recent project Cotton made in Africa, that my company, the Otto Group, is driving together with the German Ministry for Economic Cooperation and others in a large private-public partnership project.
The joint forces of private sector know-how and investment combined with technical implementation skills and co-financing of three large projects involving more than 150.000 smallholder farmers in sub-Saharan Africa have already yielded exiting results. And I am happy to say that I am very impressed by the work that our partners from German Economic Cooperation are organizing on the ground in Africa.
In this project, we are well on the way to establishing a textile label for products made from Cotton made in Africa. Now, this is not just any cotton grown in Africa; production by smallholder farmers in the sub-Saharan countries has to comply with strict ecological, social and economic criteria. By promoting the sustainable production of cotton, our stated goal is to measurably improve the livelihoods and the living standards of African farmers and their families, and at the same time to create a thriving market specifically for African cotton. By putting a distinctive label on this cotton we intend to “positively differentiate” it from other anonymous cotton, produced for example in the United States with the help of large government subsidies. Moreover, by building a strong demand-side alliance with other major retailers, we wish to offset the ongoing discrimination resulting from US and EU cotton subsidies and create a dynamic communication link between consumers and smallholder farmers in Africa. Most importantly: this is not a fair trade initiative, but addresses the main market segment not currently accessible to fair trade or organic labels. Therefore, we are operating under ‘normal’ market conditions, avoiding extra costs and trying to achieve a more sustainable production - without increasing prices. In each of the three countries we are actively working in, we closely co-operate with a local private-sector cotton company that is also co-financing the work in that respective country. So far, the preliminary results are very encouraging, with significant improvements in the net profits of smallholder farmers and a marked reduction in pesticides used.
Based on the combined experience that our experts have gathered with this project and over many years of doing business in Africa, I would now like to derive some observations that may be useful to you as the leaders of your respective countries and institutions:
Privatization
When comparing the cotton sector in the three pilot countries where Cotton made in Africa operates, we have one country with a completely liberalized and privatized sector, one in which the sector was partly privatised, but not liberalized, and one with a mixed form in the process of liberalization. As you would expect, the business environment in each of the countries is quite different, as are the results for the farmers engaged in the project. The system seems to work very well and quite transparently in the liberalized and privatized system, even though there are no strong unions or farmers’ associations. In contrast, it works very badly in the system that was privatized but not liberalized. Even after more than a year, it is hard to understand the muddle of committees, responsibilities and closed groups meeting regularly. The result is clearly unsatisfactory for the farmers, who are not paid for the cotton they delivered even one year after the harvest. My first suggestion today would be: if one privatises it, one should do it right and do it all the way – and don’t forget to liberalize markets as one privatises. Market economies can work wonders, but not if one only privatises and transfers regional monopolies to private entrepreneurs, without opening a level playing field for competition providing a clear set of rules - and an independent referee.
Stick to Sustainable Values
I am sometimes asked how we selected the pilot countries and the pilot regions to participate in the Cotton made in Africa initiative. The answer is that we selected not so much regions or countries, but business partners. We were willing to work only with the most reliable business partners to be found, with a proven track record of good governance and a fair and reliable treatment of smallholder farmers.
Cotton is a good example for demonstrating the necessity of sustainable production: already, in many parts of Africa, soils are depleted of their natural minerals so badly and environment is being destroyed at a such a ferocious rate, that the future of any sort of agriculture on that land is highly questionable – leaving farmers the only option of migrating into the cities. Easily-earned money for commodities today will bear great costs for all parties involved in 10 or 15 years – the farmers lose their fertile land and maybe their livelihoods, the cotton companies lose the commodity they depend on and the textile industry loses availability of an economically-priced raw material. I strongly believe in upholding sustainable values in business – even if it may not be the easiest way to earn money at all times. Governments should do all they can to encourage private sector companies to practice a sustainable business model that takes into account the working conditions for every party involved in the value chain – that means their farm workers, smallholder farmers, the environment – and your grandchildren, Ladies and Gentlemen.
Make Use of Globalization
‘Globalization’ is one of the most popular buzzwords around, especially at conferences like this. The commodity boom we are experiencing right now bears witness to this and is a part of globalization. Africa and its people can profit from globalization, and also from the sale of agricultural commodities, if the money earned on world markets trickles through to smallholder farmers and if the commodities are meeting world market requirements. A number of projects facilitate access for African smallholder farmers to global markets by training them to meet strict quality and hygiene standards, set for example by the European Union, and to improve the environmental and social balance in producing countries at the same time. German economic co-operation put a focus on that task and, by the way, is doing a great job in opening a way to participate in world markets for smallholder farmers.
The downside of the commodity boom is the necessity of transport to Asia – for our cotton project one of the major challenges is shipment from African ports, which sometimes work painfully slowly and make precise planning nearly impossible. That is a very alarming state, as global sourcing markets are unforgiving with regard to punctuality, and prolonged or unreliable lead-times are absolute knockout criteria when doing business with international retailers. Here clearly lies a great potential for improvement for African governments that would directly benefit their countries’ businesses and their nations’ integration into the world market.
The Commodity Perspective
In the long run, Africa must do all it can to attract more of the higher-value links within global supply chains to Africa. Simply selling Africa’s commodities without any further processing means leaving it to other countries to earn most of the value added.
For the textile sector, I can add that I was deeply impressed by the spirit and the pride that African farmers in rural areas take in their products and in their work. They were tremendously proud to find the label Cotton made in Africa attached to garments produced from ‘their’ cotton. They appreciated that their cotton assumes a unique identity within an otherwise anonymous commodity marketplace. I hope that the rise of an African identity, the surge of pride across this great continent that one can observe in more and more places, will lead to a renaissance of African styles, a unique African fashion that can propel the resurrection of an African confection industry and market. Without any doubt the spirit of the continent is an intangible but a very important ingredient in shaping a successful future in the cotton business, and I am very pleased to see that the image of Africa as a major producer of quality cotton is slowly turning around for the better, not only in Europe, but also in Africa itself - and, Ladies and Gentlemen, dear friends, for African cotton farmers, textile workers and retailers, this might even be a great business opportunity!
In their name, I thank you for listening.
