“Unfortunately the level of value addition is very low. It does depend on the commodity, and certainly when it comes to minerals there’s a lot more value being extracted, for example from gold or from aluminium or iron ore,” EcoBank head of soft commodities research Edward George told CNBC Africa.
“If you look at soft commodities, something like cocoa, West Africa produces 70 per cent of the world’s cocoa but only processes 25 per cent. [This] means in the average cost of a chocolate bar nowadays, only about six per cent ends up going to the farmer. 70 per cent ends with the manufacturer, because ultimately they put a lot of money into research and development and into marketing.
George added that a number of other commodities tend to be exported in their raw form, and processed outside of the continent before returning or being sold elsewhere as processed goods.
95 per cent of cashew nuts grown in West Africa are exported raw to India, where they’re shelled and then sent to markets in America and Europe.
Most of the raw cotton produced is also expoted to China, where it is turned into cotton thread and yarn. It is then sent back to the continent and turned into textiles.
This is a stark indication of the dire need for investment into the processing of raw materials. West Africa’s problem with electricity shortages is also an additional setback.
“Anyone who lives in West Africa knows the problem with power is something which holds back all of industry. It’s been estimated that just the costs of doing business would be reduced by 20 per cent if there was the proper power network,” George explained.
He added that the amount of power being used in West Africa’s power pool is only twice the level of the power being used in the East Africa power pool. The demand for electricity in Nigeria in particular is however more than double the level of that which is being produced in the country.
South Africa equally has electricity and infrastructure constraints despite its significant level of development. The setbacks have however not deterred local investors from investing in their countries and within the continent.
“The most interesting investment at the moment is the nine billion dollar investment by Dangote in a refinery and in a fertiliser plant, and transformation centre,” said George.
“I think this is really going to change the game. We should see that Nigeria has enough power for its industry and also possibly to export as well. This will really alter the balance of power.”