The West African country of Ghana supplies roughly a quarter of the world’s cocoa beans, a critical input in the $100 billion global chocolate industry. But Ghana is missing out on most of the value created in the industry in part because its cocoa industry lacks the capacity to process harvested cocoa into higher-value cocoa products, like chocolates.
Recognizing this untapped potential, Ghana’s president, Nana Akufo-Addo, recently made it a top priority for his government to extract more value from the cocoa it produces. “We are looking to seeing more of the processing and value-enhancing aspects of the development of the cocoa industry here in Ghana,” he noted. To that end, the Ghanaian government plans to spend roughly $200 million on improving Ghana’s cocoa processing capabilities in the near future. In theory, this should increase how much value Ghana gets from the industry.
But our research suggests that in addition to improving Ghana’s cocoa processing capabilities, Ghanaian entrepreneurs should focus on developing chocolates for Ghanaians in Ghana. Currently the country exports the majority of its cocoa beans—a missed opportunity to create a market within Ghana. If Ghanaian entrepreneurs develop chocolates for Ghanaians in Ghana, the country stands to reap significantly more rewards, expand the size of the chocolate industry, and trigger vast economic development. Not to mention, Ghana’s new chocolate entrepreneurs will create immense wealth for themselves and their investors. Here’s how that works.
Market-creating innovations trigger economic development
Entrepreneurs can spur economic development in Ghana by making chocolate products so affordable and accessible that people who formerly could not obtain them—nonconsumers—are able to access them. Our research shows that innovations like these—what we call market-creating innovations since they create a new market targeted at nonconsumers—create jobs and revenue for the government in the form of taxes on their products. In order to bring their products to market these entrepreneurs also tend to invest in infrastructure and education. Together, these ripple effects result in robust, sustainable economic development, since everything is tied to a market that affordably satisfies a previously unmet need.
To see this process in action, consider the impact of Indomie instant noodles on the Nigerian economy. 30 years ago most Nigerians lacked access to affordable, convenient food. Where other companies might have been dissuaded by Nigeria’s unfavorable investment demographics, Tolaram, the makers of Indomie instant noodles in Nigeria, saw opportunity in this nonconsumption and set to create a market for noodles in the country.
Tolaram faced several challenges in creating a noodle market in Nigeria, including the fact that the average Nigerian confused noodles for worms, according to Deepak Singhal, CEO of Tolaram Africa. However, in the process of making noodles affordable and accessible to most Nigerians, the company became a staple in many Nigerians’ lives. Today, the company sells more than 4.5 billion packs of noodles annually in Nigeria and has now grown to other African countries, including South Africa, Ghana, and Kenya.
To accomplish this, Tolaram has invested close to half a billion dollars in the country, employed roughly 8,500 people directly (~50,000 indirectly), and built thirteen manufacturing factories. In addition, in order to get its products from the noodle manufacturing plant to the distribution warehouses and retail stores, Tolaram Africa has built the largest distribution and logistics company in Nigeria.
If Tolaram had instead decided to simply process wheat, a critical component for noodles, for export, the economic development in Nigeria would likely not have been as robust. The company would not have needed to invest in distribution, logistics, retail, packaging, after-sale service, advertising, marketing, sales, and several other activities in its value chain.
Ghanaian chocolates, sweetening the Ghanaian economy
Imagine a scenario where Ghanaian entrepreneurs begin processing their cocoa into chocolates, not primarily for export into the already crowded and highly competitive European and American markets where players such as, Cadbury, Hershey’s, and Mars have a strong foothold, but rather for the local Ghanaian market. In order to be successful, the entrepreneurs would not only have to process cocoa, but would have to invest in sales, marketing, distribution, advertising, logistics, packaging, retail, training, taste tests, and several other activities. In contrast to simply exporting cocoa, this would be a far more robust economic development strategy since many more jobs would be created in the process.
Understandably, some may raise concerns that nonconsumers are too poor to purchase new innovations like Ghanaian chocolates. That refrain is not new. It is the same thing Sudanese entrepreneur Mo Ibrahim was told when he decided to build a pan African telecommunications company to serve nonconsumers whom experts deemed too poor. 20 years have gone by since Ibrahim started his company and today, the telecommunications industry in Africa supports close to one billion mobile phone subscriptions.
There is little doubt that Ghana will be able to extract more value from the $100 billion chocolate industry by improving its cocoa processing capabilities. However, taking a page out of the Tolaram Africa playbook and from other entrepreneurs who have invested in market-creating innovations, the country is likely to do even better by expanding the chocolate market in Ghana, for Ghanaians, by Ghanaians.