AFRICA INVESTMENT-Uganda coffee firm a pioneer in UK, US markets

JOHANNESBURG Fri Feb 22, 2013 9:33am EST

JOHANNESBURG Feb 22 (Reuters) - Africa's commodity-producing countries have historically exported raw materials to the rest of the world, but products manufactured on the continent are still a rare sight on Western supermarket shelves.

One man attempting to correct that imbalance is Andrew Rugasira, a Ugandan businessman who aims to build his coffee firm, Good African Coffee (GAC), into a multinational that can compete with giants such as Nestle and Kraft.

In a book published this month, Rugasira tells the story of how GAC, founded in 2003, became the first African-owned coffee brand to sell directly to British retailers such as J Sainsbury and Waitrose, overcoming significant hurdles along the way.

The brand is also available online in the United States, the world's biggest coffee consumer whose $30 billion market is bigger than Uganda's entire economy.

GAC works with around 14,000 farmers in Uganda, the continent's top coffee exporter, and trains them to produce quality arabica varieties. It also has a roasting and packaging facility in the capital, Kampala.

Rugasira said he wanted to shed light on why so little value addition takes place in commodity-producing nations such as Uganda and why it so difficult for these countries to penetrate Western markets with finished products.

Africa's share of global manufacturing value-added is around 1 percent, according to the United Nations.

Faced with barriers such as lack of access to capital, poor infrastructure, competition with heavily subsidised European producers and manufacturers, and tariff and non-tariff barriers in developed countries, most African entrepreneurs opt to become job seekers rather than job makers, Rugasira believes.

"I don't see too many African-owned coffee brands on the shelves," he said in an interview. "It's just too difficult. People probably have better things to do with their time and their capital."

MARKET FAILURE

In the book, "A Good African Story: How a Small Company Built a Global Coffee Brand," Rugasira writes that accessing affordable capital has been his biggest challenge since setting up GAC.

In his view, this is why the majority of small and medium enterprises in Africa fail to take off.

A 2010 survey by the Consultative Group to Assist the Poor found that only 28 per 1,000 people in sub-Saharan Africa had access to credit, compared with 245 in the developing world and more than 800 in high-income countries.

Rugasira says African governments need to address this by making long-term capital available and investing in areas where the private sector is unable or unwilling to invest.

"The biggest issue here is one of market failure," he said. "The markets are not entirely capable of allocating financial capital into the areas that will generate a lot of growth."

Poor infrastructure and high transport costs also prevent African exporters from competitively delivering their products and services to overseas markets.

Tariff and non-tariff barriers in developed markets, such as subsidies given to the agriculture sector, contribute to making international trade unequal, the book says.

Ultimately, Africa's failure to process most of its raw materials means "the developed countries that carry out the processing keep the lion's share of the added value", Rugasira writes, hindering job creation on the continent and growth in the domestic tax base.

He sees a role for Western donor nations, saying they should divert their funding to Africa's private sector rather than government coffers.

"They need to recognize that the engine for growth is the private sector," he said. "Their economies developed out of the entrepreneurship, innovation and creativity of their private sector, and when it comes to us, they pump most of the money into the government treasuries."

Rugasira realises he has chosen a difficult sector, but points out that agriculture provides a livelihood for 70 percent of sub-Saharan Africa's population and has huge potential to generate prosperity.

He has seen the impact on the communities he works with, where farmers have become more financially secure and have been able to escape the clutches of rural loan sharks.

Rugasira has big ambitions for his company, including diversifying into tea and chocolate, expanding into the rest of Africa and expanding its presence in Britain and United States.

"We're looking to address the issue of how we can scale up, how can Good African become a global brand," he said. "That's the question that keeps me up every night. I want to become a multinational like Nestle." (editing by Jane Baird)