Tuesday, October 25, 2011

Shea Industry Facing Serious Challenges –UNDP Report

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 4 districts namely; Tamale Metropolis and West Mamprusi District in Northern Region and Wa Municipal and Nadowli District in the Upper West region.

According to Dr. Seidu Al-hassan, Director of CCEIR of UDS who presented the report, 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. Adding, “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 2 and 5 bags after the crisis representing about 150% increase.” Besides, the Gurugu Tiehisuma women shea butter processing centre 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, Dr. Seidu said disclosing further that “13 shea butter processors out of 43 belonging to Gumo Women shea butter processing group completely exited. 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 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 urged policymakers 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.

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