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CANADA 2002 Saturday, Feb. 4, 2006

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Paul Knox PAUL

Hostage to the events of the week

It's a matter of interpretation

G8 a virtual affair

Silly season at the G8

A bizarre ambassador for African aid

The Irish in U.S. altruism

The wonderful world of globo-wonkery: It's all in the acronyms

It's the money, dummy

And this guy's on our side

The bumpy road out of poverty

By STEPHANIE NOLEN, The Globe and Mail

KAMPALA -- Steven Banya has a vision: thousands of roasted, glossy Ugandan coffee beans, packaged in tidy cinnamon-coloured bags, two stylized beans on the front beneath the word "Bancafé." Bags stacked in rows on the shelves of cafés in Nairobi, Cape Town and Toronto. Bags on supermarket shelves in Johannesburg and London.

Standing at the counter of his chic little Kampala café -- raw beans, roasted beans, ground beans, and steaming mugs of coffee arrayed around him -- he paints the picture in a booming baritone, no breath to waste on the doubters.

"I can take this coffee to the whole world," he says, inhaling the earthy scent from a small heap of freshly ground beans. "Everyone is going to want this coffee."

Mr. Banya is 48, a trained accountant who has never spent a day with a ledger. He grew up picking coffee. His father was a preacher in a small town near the border with Rwanda in the south. But like most Ugandans, the family had a few coffee trees on their small plot of land.

As a boy, Steven picked the coffee cherries, dried them and sold them to a local agent; the money paid his school fees.

"We thought of coffee trees like a bank," he says, remembering how all the rich people in his village had lots of coffee trees, and as prices went up, so did fine houses.

Despite the tedious, back-breaking work of picking coffee cherries, Mr. Banya never thought much about coffee the drink until 20 years later, on a trip with his wife to the Middle East. He tasted Bedouin coffee for the first time -- beans roasted right there over the fire. And that was the start of a consuming passion.

Since then, Mr. Banya has gone up into the mountains of Colombia to pick high-yield seedlings, and carefully carried them home across the world. He then spent his life savings on a roasting machine that he shipped home from Seattle. Two years ago, he started harvesting and roasting beans of his own, and opened a pair of cafés in Kampala. He put 40 people on the Bancafé payroll.

But for all this promise, Mr. Banya is still struggling in his plan to take Bancafé coffee to the world. Ugandans talk of the economic miracle in their country in the past decade, but Mr. Banya's business isn't growing.

He cannot get loans for new equipment or government support for more sophisticated exports than raw beans. And, perhaps most significantly, he cannot get access to the world's wealthiest markets: places like London and Toronto.

His frustrations are shared by many African entrepreneurs who want to do more than export raw commodities. Yet they may not get much attention at next week's talks among the world's eight most powerful countries. The G8 has said it wants to find a way to transform development in Africa, but so far has done little to open up trade channels.

Rich countries put tariffs on imports from poor countries that are an average of four times higher than those they impose on other rich countries. And the obstacles are being stacked higher -- a recent study of global trade by Oxfam found that during the 1990s, agricultural subsidies increased by 40 per cent in the European Union and 25 per cent in the United States.

On the surface, little of this seems to apply to Uganda, which foreign donors have long held up as the model for an African recovery.

At the centre of the country's comeback is coffee. Since President Yoweri Museveni seized power in 1986, the country has risen from the ruins, turning around two decades lost to war and dictatorship by the likes of Idi Amin.

Mr. Museveni was among a new generation of African leaders who embraced the Western message of liberalization, and he did it better than anyone. He curtailed government spending, threw open the doors to foreign investors and privatized almost anything he could, including the country's vast coffee estates and its coffee-export agency.

Most everyone in Uganda agrees that it worked. Foreign investment poured in, and over the past decade, the country has seen an average of 6.5-per-cent growth a year. Dozens of new industries, such as fish farming and agroprocessing, have opened. Per capita income rose by 3 per cent a year in the 1990s -- even after export prices collapsed for many commodities.

The country was also aided by a major international debt-relief program, starting in 1996, that stopped the outflow of interest payments on loans run up during the Amin and Milton Obote years, and channelled the money into social spending. As a result, a Universal Primary Education Program that abolished school fees saw enrollment shoot from 2.9 million to more than seven million students in its first year.

"You've gone from a situation where the majority of people had nothing to a situation where they have something," World Bank country manager Robert Blake said.

At the heart of the economic boom is the coffee bean. For thousands of years, it has had a central role in the political, economic and romantic relationships of the Baganda people, the main tribe in Uganda. They smoked the beans and chewed them while negotiating; they cut their navels, dipped a bean in the blood and swapped to seal a blood relationship.

The crop was central to the forced-labour plantations of colonial rule, and then the target of Mr. Amin's disastrous fit of nationalization. But now, most of the coffee trees are in private hands, in keeping with Africa's new mantra of liberalization. For farmers, who are fully a fifth of Uganda's population, the transition was welcome. Instead of making 15 per cent of the export price of their coffee, back when a state organization did all the buying, they make 70 per cent by selling directly to exporters.

Today, with better prices and more profits, farmers take better care of their coffee trees, spend more on fertilizer and have increased their yields. Between 1992 and 1995, the country's export production of coffee doubled, to four million 60-kilogram bags a year. In 1994, when bean prices hit a high of $6.50 a kilogram, four million people were lifted above the poverty line, according to the government -- perhaps the biggest collective leap from poverty that Africa had seen in two decades.

Then the price of coffee tanked, the result of better weather in South America and more coffee-growing almost everywhere. Today, the price is about 70 cents a kilogram.

Yet as brutal as it was to some farmers, much of rural Uganda has weathered the blow remarkably well, buffered by government efforts to encourage crop diversification and its own entrepreneurial spirit.

In Makono, a lush, hilly district about 110 kilometres east of Kampala, Ahmed Bwlyo walks a visitor through some of the 1,400 coffee trees that crowd his 1.5 hectares of land, and explains how he has coped.

Mr. Bwlyo and his work force -- his wife and eight children -- have just brought in the harvest, shiny red cherries that are dried in the sun on plastic sheets until black and hard. (Mr. Bwlyo bites them to make sure.) When the prices peaked five years ago, he built a house, sent all of his children to school and bought them new clothes.

Now that the price has dropped, he is suffering, of course. But Mr. Bwlyo did more than just build a house with his coffee profits: He built a small cement store, and a second small house, which he is about to start renting out. And he bought vanilla seedlings, which is easier to harvest and sells for more.

Mr. Bwlyo does not aspire to be any more than a supplier of raw materials in the global market. But Mr. Banya, the only coffee processor in Uganda, sees a bigger picture. Africa, he says, has got to get out of the commodity-exporting business.

It's not a trade-barrier problem, at least not a standard tariff problem. There are no tariffs on exports of processed coffee to Europe or North America, explains Henry Ngabirano, executive director of the Uganda Coffee Development Authority.

"There are no barriers, but there is a perception. That coffee processed here won't be good, that it has to be done in the producing countries."

Mr. Ngabirano, the most influential person in Uganda's coffee industry, says the huge multinational companies that control the business (Nestlé SA and Philip Morris Cos. Inc. have more than half the world market in processed coffee) are happy to have the perception persist that African-produced coffee is inferior.

"Once coffee is roasted, it becomes a perishable product, so the idea is that if you process it here it will not be able to reach the market in good condition. But packaging technology has solved that problem."

He gestured at his office bookshelf, laden with packages of Ugandan coffee sold everywhere in the world. "Coffees roasted in Canada are shipped back to us!"

Were the coffee roasted here, he said, the transportation and wage rates would be much lower, yielding a lower price to the consumer and more profit for the grower. None of that, of course, is particularly in Nestlé's interest. But until it happens, Mr. Ngabirano sees a limit to what can happen in Uganda.

There are no such worries on display at the Uganda Investment Authority. On the way up the stairs to its offices, a visitor is confronted with an extraordinary document: a Client Charter. It promises that the authority will respond to investor inquiries by e-mail within 15 minutes. They will give you a walk-in appointment with an adviser within 10 minutes. They will have your business licensed within two days, and have it connected to utilities in one day.

The charter wouldn't look amiss on the wall of a Canadian provincial investment office, except that this is Africa -- where the telephones, when they exist, can go down for days; where an investor can wait years for a licence; where a would-be employer has to visit 16 different government offices to get a form stamped.

The Investment Authority lays out on a straightforward page what Uganda's government is ready to do for you, the foreign investor: Price breaks on land; no import duties on equipment; a very congenial tax-incentive package; the right to bring in as much money as you like, in any currency you choose; the right to repatriate as much of your profit as you choose; a first-rate telecommunications sector, including eight local Internet service providers; a large, English-speaking population with a comparatively favourable 65-per-cent literacy rate. A climate so good you can grow anything at all, and harvest it three times a year.

(It doesn't mention this, but foreign investors may also be enticed by the lack of a minimum wage and loosely enforced labour laws).

Mr. Banya agrees that the government got the first step right -- the stable currency, the lower taxes -- all of those things prepared the ground for investment. But then, he says, Uganda's leaders stepped back and said, Okay, go to it -- and waited for international firms to come to develop the country.

The country has no major credit programs for farmers such as him, little infrastructure support and no overseas promotion for one of its biggest exports.

"The private sector is totally on its own in this country. The government doesn't realize it has a remedial role," he says.

Colombia spends at least $60-million, and even Kenya spends $3-million, a year on generic advertising to promote the quality of coffee from their countries, he says. Uganda spends nothing.

By Mr. Banya's account, he needs $400,000 to buy packaging machines and supplies, and promote his business. "The market is already there," he says.

This sort of business spirit was on display last month when Mr. Museveni took a delegation of Ugandan business owners to the United States to pitch the country. Olive Kigongo, president of the Kampala Chamber of Commerce, said that while the reception was warm, they had to talk their audiences through some confusion.

"People knew nothing about Uganda," she said with a bemused smile. "They didn't even know where it is. And the idea of doing business in Africa -- you could tell that was very new for them."

For Uganda, the rich American market has been looking a little more accessible in the two years since the U.S. Congress passed the Africa Growth Opportunity Act, a law that removed tariffs and quotas on a variety of manufactured products from the 39 poorest African countries. (It came with some heavy conditions, though, such as a requirement to use U.S. products in garment processing.)

The act gives some breaks to Ugandan producers, but Ms. Kigongo is more excited about the new industry it may bring. One foreign investor has already taken the plunge: Deshabandu Kumar Dewapura, a Sri Lankan textile titan who supplies Gap Inc., Wal-Mart Stores Inc. and Marks & Spencer PLC, will open a garment-processing factory in Kampala later this year, taking advantage of AGOA to export Ugandan-stitched khakis to the United States at better terms than he would get from Sri Lanka. Uganda stands to gain 1,000 factory jobs.

But what the country really hopes to capitalize on is its agriculture, especially its coffee, its dark, rich, three-harvests-a-year coffee.

In this area, the West has done little to help. Even poor Ugandan farmers such as Mr. Bwlyo know about another law passed by Congress a few weeks ago -- an agriculture bill that increases subsidies to farmers who grow corn, rice, cotton and other crops that are key in Africa. Meanwhile, African governments have eliminated subsidies to their farmers, as required by loan agreements with the World Bank and the International Monetary Fund.

And plenty of protectionist tariffs remain on virtually all processed products, such as tinned pineapple chunks and cotton T-shirts. Processed agricultural imports to Canada face three times higher import duties than unprocessed ones.

The irony in the G8's talk on the power of trade is not lost on anyone in Uganda, from Mr. Bwylo in his rubber boots and stained shirt to Mr. Ngabirano in his three-piece suit at the Coffee Development Authority.

Uganda still has a huge need for international aid money. Its crowded schools lack textbooks, its hospitals lack drugs, its farmers need vanilla seedlings. But Mr. Banya and his 40 employees are busy proof of what private business can achieve here. He would love the chance to address the G8 leaders. He would pour them some Bancafé coffee, tell them about his plans, maybe try to scout out a prime minister or president with some extra capital who would like to back an ambitious enterprise -- or better yet, open more trade channels. He would show them what business in Africa can do when it's given the chance.

"In the long run, I'll get there," he says, steely determination in his eyes, a dozen roasted beans cupped in his big hands. "We'll get there. But it will take a long time -- and we're losing time."

The economics of your morning coffee

A Ugandan farmer is paid 90 cents for a one-kilogram bag of green coffee beans, picked from her trees and dried in the sun. She sells them to the agent for an international exporter.

The exporter combines the harvests from thousands of small farmers, has the beans hulled and sorted for size in Kampala, and ships the green beans to a processing facility in Europe or North America, where they are roasted. Because beans shrink in the roasting process, it takes 1.25 kilograms of green beans to make 1 kilograms of roasted.

That kilogram of roasted beans sells for about $11 on the mass market.

(The equation for "specialty coffees"? The farmer gets $6 for the 1.25 kg of green beans that it takes to produce the kilogram of roasted coffee. The exporter sells the kilogram of roasted for $36.)

Your local Second Cup or Timothy's (Starbucks roasts its own) buys the beans in North America. They use seven grams of ground beans per cup of coffee, which sells for an average of $2. Thus, each kilogram of coffee is now worth $280 -- for which the farmer got 90 cents.

In 2001, coffee generated $10.5-billion for more than 50 coffee-producing countries. The total for the consuming countries was $86-billion.

Part Three: Vanishing grain yield trips up attempts at renewal



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