Shea Industry Facing Serious Challenges –UNDP Report
By Joseph Ziem
A study commissioned in October 2010 by the United Nations Development Programme (UNDP) into how the shea industry in Ghana performed during the period of the global financial crisis has revealed that, with the exception of companies exporting shea nuts and butter, all other actors in the industry complained about poor markets.
The crisis brought with it negative effects on the local market for the shea industry manifesting itself in several ways, the report said. Adding: “Specifically, shea butter processors, nut pickers, local agents and manufacturers of shea nut roasting equipment faced a reduction in output and income”.
The 2008/2009 financial crisis is said to have had debilitating effects on small and medium enterprises (SMEs) globally. However, the extent to which the crisis generally affected SMEs in Ghana and its shea industry in particular is not well known. In October 2010, the UNDP, Accra office, commissioned a study to examine the impact of the global financial crisis on the shea industry in Ghana with emphasis on the channels of transmission and how small and medium scale enterprise owners responded to the crisis.
The study aimed at reviewing literature on the impact of global economic crisis on the performance of SMEs; identifying key players in Ghana’s shea industry with the aim of knowing the nature and extent of the impact of the crisis on each of them; critically analyzing the specific channels of transmission of the impact; investigating the crisis adjustment strategies adopted by the various key players in the industry; and providing policy recommendations.
Indeed, the shea industry in Ghana occupies an important place in the economic development agenda of the country, because of its role in job creation, industrial development and growth of national economy. Besides, the shea industry can promote regional development in Africa.
The report dubbed “The Impact Of The Economic Crisis On Local Small And Medium Industries: The Case of Shea Butter Industry In Ghana”, which was conducted by the Centre for Continuing Education and Inter-disciplinary Research (CCEIR) of the University for Development Studies (UDS) for UNDP, was presented recently at a workshop in Tamale for validation.
The study was conducted in 14 communities in Northern and Upper West regions of Ghana including four districts namely Tamale Metropolis and West Mamprusi District in Northern Region and Wa Municipal and Nadowli District in the Upper West region.
Dr. Seidu Al-hassan, Director of CCEIR of UDS who presented the report, said shea butter processors also complained about the increased unemployment due to poor market conditions coupled with a reduction in household purchasing power as a result of low domestic market for shea commodities amidst high inflation and cost of borrowing rates. “For instance, average quantity of shea butter produced fell by 49%;average price of shea nut reduced from GH¢0.90 per bowl to GH¢ 0.80 and about 5% of the women complained about the collapse of their working capital. Also, in Tamale the average number of bags sold during the crisis, were two and five bags after the crisis representing about 150% increase.”
“Besides, the Gurugu Tiehisuma women shea butter processing center collapsed because of local agents who had failed to pay for an amount of shea butter worth GH¢1,300 bought on credit. This led to 70% job losses, while 13 shea butter processors out of 43 belonging to Gumo Women shea butter processing group completely exited. Furthermore, 45 out of 75 individual shea butter processors of the Malshegu Women shea butter processing group also exited whereas over 80% of shea butter processors cut down production by way of coping,” he added.
The Director explained that the evidence surprisingly showed that companies that exported shea nut and butter did not suffer much partly due to the fact that they had enough stock to meet international market demand during the crisis period.
Credit institutions including rural banks and microfinance institutions, according to the report, suffered from declining loanable funds, high loan default rates, reduced outreach programmes and increased operational costs due to the crisis. This invariably affected the shea sector seriously, because the credit institutions became reluctant to provide credits to households and business enterprises for fear of default.
The report identified two major impact transmission channels through which the crisis hit the shea industry and they include low demand for shea products in the local market and limited credit facility availability to meet demand. The two factors, in turn, caused downward adjustment of price and downsizing or collapse of most small businesses.
Dr. Seidu Al-hassan said unlike other countries that have launched expansionary monetary and fiscal policies to support the SMEs, there has not been a significant policy shift to cushion SMEs operating in the Ghanaian economy. “The government of Ghana has not consciously provided any form of support to the shea butter sub-sector during and after the crisis. Instead, the government continued with its social safety programmes like cash transfer under the Livelihood Empowerment Against Poverty (LEAP), education allowance (Capitation Grant), School Feeding, National Health Insurance and Youth Employment Programmes perhaps with the hope that they will cushion the effects on the poor and the vulnerable and the youth”, he cited.
He said based on this, the actors in the shea sector had to adopt their own coping mechanisms which saw shea nut pickers and processors, local agents and manufacturers of roasting equipment resorted to cutting down production levels (77%) and promoting quality production.
Other measures the players also adopted included search for alternative jobs (diversification), change in consumption patterns (household expenditure adjustment), out-migration by young girls and increased borrowing of microloans from relatives, spouses and other financial institutions. Furthermore, local agents refused to sell on credit and exit from business was used as the last strategy because some small scale shea butter processors could not withstand the shock of the crisis,
“Credit institutions adopted many strategies in response to the economic meltdown such as injection of capital through borrowing, critical assessment of credit default risk, sanctioning of credit officers and selective credit assistance to ensure effective loan disbursement and recovery”, the Director added.
Meanwhile, the USDA in a report in 2009 has warned that the greatest impact of the economic crisis is likely to be experienced in 2011 implying that the crisis was not over yet. Thus, the report recommended that adequate lending should be provided to sheanut pickers, butter processors and other actors in the industry through state-owned development, commercial banks and non-governmental organizations. This is important because the September 2010 report by the Monetary Policy Committee of the Bank of Ghana warned that there could be a general net easing of credit conditions from enterprises, with a shift from SMEs to large enterprises. It is therefore important that credit should be well targeted to the needs of small firms in the industry, the report advised.
The report urged policy makers to focus on interventions that link small business owners in the shea industry to reliable markets rather than focusing on the supply side, adding that emphasis should be placed on strengthening existing markets while creating new ones. For instance, it said the market for shea butter in the African sub-region is low and this should be strengthened in order to encourage regional trade in shea commodities, stressing that “the government of Ghana can also support procurement by buying shea commodities from small enterprises”.
The report finally implored entrepreneurs in the shea butter sub-sector to be more aggressive and proactive in seeking out and exploiting new business opportunities. Aside value addition which is a strategy being adopted by some entrepreneurs, the report advocated that there was the need to develop their capacity further in key areas such as resource mobilization, efficiency of resource allocation, market opportunity identification, product quality promotion and business development.