How developing countries over-rate foreign currency

Many African developing countries have a deliberate bias towards exports in the hope that this can bring foreign currency that is expected to stimulate economic development. However, it seems foreign currency is a preserve of the elite who have developed a taste for foreign toys like large vehicles, expensive furniture, clothes, wine and other expressions of privilege. Smallholder farmers and ordinary people don’t give a damn about foreign currency. All they need is an ability to sell their commodities at a value that can enable them to meet household needs and pay school fees for their children. That does not require foreign currency but credible local means of exchange. No wonder barter deals are common in most remote agricultural communities.

how-developing-countries-overrate-foreign-currency

Single-minded pursuit of few commodities

A strong bias for foreign currency is seeing African national resources and energy being directed to a few agricultural commodities like cocoa, cotton, tobacco, flowers and, to some extent, beef. While West African countries like Ghana and Ivory Coast produce the bulk of the world’s cocoa (the main ingredient in producing chocolate), this commodity has failed to earn sufficient foreign currency that can ignite economic growth and reduce unemployment for the two countries and the continent. Kenya has a whole industry supporting the production of flowers for export. The situation was the same in Zimbabwe before the land reform, with the best resources going or flowers which meant completely nothing to local people. In spite of poor prices on the world market, Zambia, Malawi and Zimbabwe continue to put their faith in cotton and tobacco for export earnings. This is happening at enormous opportunity costs such as environmental degradation and destruction of ecosystems that support socio-economic insects like bees whose pollination activities are irreplaceable. Few commodities being prioritized are failing to address socio-economic challenges.

 The power of domestic markets

One of the key takeaways for developing countries from China and India is the power of strengthening domestic markets first before trying to please foreign markets. China has no doubt used its domestic market to globalize itself. That is why Chinese goods are found everywhere. Rather than exporting raw commodities, China is exporting finished commodities after meeting domestic needs.  On the other hand, behind India’s burgeoning medical tourism is a powerful domestic base through which diverse medical products and processes have been perfected before being globalized. The same can be said about the Chinese medical foray into the world. These two countries realized the fact that when your eyes are firmly on economic growth you should not be obsessed with foreign currency. It is when your domestic market is strengthened, that foreign currency will come on its own.

 Instead of putting all eggs in the export basket, African countries should leverage their broad natural resources base to produce products that cannot only satisfy domestic needs but lure foreign currency. It doesn’t help to continue chasing a few colonial commodities that have reached their ceiling in terms of demand and local productivity. The majority of African countries have hundreds of diverse agricultural commodities whose uniqueness is a selling point on the global market. Tons of local commodities are waiting to enter reliable commercial markets and environments. The current knowledge economy is about translating these resources into better lives for citizens and economic growth.

 Commodity aggregation as a starting point

With the right knowledge and attitude at policy level, African countries can aggregate a lot of their diverse commodities in ways that position them for earning foreign currency without sacrificing local environmental and human well-being. Aggregating commodities at local level will enable countries to fully understand domestic markets and exploit their resources in ways that enhance socio-economic justice and progressive outcomes. Unless you understand the market at a granular level you cannot link it with relevant commodities at the right time.

A sensible direction is harnessing the power of local markets to aggregate, control and allocate resources to different commodities. It is the local market that tells you what you can produce as a surplus. Therefore sustainable export mechanisms should be anchored on local markets. This will prevent the South African curse where an over-sized industrialization strategy has ended up producing commodities that are beyond the affordability of the majority of domestic consumers. The knowledge pathway from producers should pass through the domestic market on the way to negotiating with the export markets.

Local farmers and processors should master domestic standards first before dreaming about export standards. How can African smallholder farmers be expected to meet foreign standards when they barely understand standards in the domestic market?  The disjointed nature of most African interventions is seen in how individual companies want to get onto the export scene in isolation.  When things go wrong on the international market, these individuals dump commodities on the domestic market where they will not have created a relationship. For instance, Zimbabwean companies that have been pretending to have mastered foreign markets for peas have been found disruptively dumping peas on the informal market.

 Why not use parastatals to earn foreign currency?

Instead of dragging smallholder farmers, most of whom eke a living in precarious conditions, to produce cotton, tobacco and other commodities for export or manufacturing, African countries should assign   parastatals like Agricultural Rural Development Authorities to produce export commodities. Smallholder farmers should be left to deal with domestic markets until they understand them fully. If this approach is ignored, African countries and their smallholder farmers will continue to be slaves and labourers of foreign markets where price discrimination and other hidden barriers are beyond their control.  Building domestic markets will see these markets ultimately selecting commodities suitable for exports. Eventually the local market will enable farmers to slowly graduate into the export market without missing the most critical knowledge acquisition steps. Some farming communities will start willingly seeking knowledge and skills for venturing onto the export market rather than have this process foisted on them. Foreign is not a ticket out of poverty for the majority!

 

Charles@knowledgetransafrica.com  / charles@emkambo.co.zw / info@knowledgetransafrica.com

Website: www.emkambo.co.zw / www.knowledgetransafrica.com

eMkambo Call Centre: 0771 859000-5/ 0716 331140-5 / 0739 866 343-6

2 thoughts on “How developing countries over-rate foreign currency

  • Producing for foreign markets is also risky as it may put the economy at stake in case of sanctions or competition from other countries.
    Let us start by applying value chain and value addition to our agricultural production as it leads to improve the income obtained from agricultural commodities which in turn will result in boosting productivity hence surplus for export

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