EXPORTING COMMODITIES FROM AFRICAN COUNTRIES
Over last few years many traders , small and big have begun a trend to travel to West Africa during the Cashew season. Cashew nuts as we know them are largely exported out of Africa in shell and are referred to as RCN ( Raw Cashew Nut in shell) . Transformation to the edible/ usable form called as cashew kernel also happens in some places but trading of the Kernel of African origin hasn't gained steam.
In the late 90s and early 2000s the product that shipped most from Ghana , Togo , Benin , Cote d'ivoire was timber . Teak wood was the largest behind coffee and cocoa until governments changed policies to protect local forests as well as develop local industries. Today Teak gets shipped in semi transformed form or end product from all these countries but the volumes are low.
Cashew on the other hand picked up. Many products are available and look very interesting such as cashew nuts ( to Vietnam and India) Sesame Seeds ( to China) Sheanuts ( to Europe, China) Gum Arabic ( to India, China) Soybean ( India , China) Some small volumes of mixed cereal to Europe.
Just the way every country works differently , every product also has a very different intricicies.
Quality control of Cashew nuts that include drying before loading and loading with certain standard packing materials , Cleaning of Sesame seeds to remove impurities , Origin of Soya as non GMO etc are few of the known standards that people follow.
This business goes wrong largely due to 4 reasons :
Prefinance - Most local suppliers will ask for an advance to procure the goods and offer unrealistic price to bag the funds. However when and if the goods come they will either be sold to the highest bidder or you would be asked to increase the price to match the market. In effect your pre-financing means nothing to the local seller. It can only work if you create your own collection and stockage infrastructure locally and collect goods directly from the cooperatives or farmers. This practice is forbidden in most countries to protect the local businesses. Therefore partnering with a local and collecting and minimizing your risk is one way. Unless you trust the owner of the company or have an enforceable contract , your money is best in your own hands.
Logistics - Procurment of local commodities is only half the task. Ensuring shipment is another challenge. I know of a large company with 30 years of trade experience and 15 offices in African countries overlook this aspect in a new market and loose $ 300,000 worth of goods. The supplier promised to deliver goods from a landlocked country to the port of shipment. Took the money on loading the trucks and then sold the trucks to someone else . How can you protect yourself against these things ? By identifying transporters , verifying if shipping companies have dry ports and would allow inland shipments and calculating the risks.
Currency - Again as in Import , export calculations change due to currency fluctuations. Imagine you have to honor a sales contract where you have agreed to 1MT of Cashew at $1000 when your costs in FCFA are 560,000 assuming the rate is 560/$1. Suddenly the CFA gets stronger due to the Euro and becomes 530 to a $. Your cost becomes $ 1050 . This happens a lot and the way around is only to ensure you keep some margin or deal in euro to offset such losses. At times however the opposite also happens and you can gain from the faltering currency.
Buyer backout - Its not only the sellers who change terms in refinanced contracts , its very often that buyers backout from committed terms and to cut losses loose the deposit which is minimal compared to the price difference or losses.
Above mentioned reasons can take place in any country in the world but in some systems protect you. In West Africa , we protect our clients by assessing the buyers capability and acting as an auditor and guarantor for both sides. We have done this successfully since 2009 and have a large number of clients who trust our assessment to minimize the losses.