Cocobod, Ghana’s state-owned cocoa marketing organization, will not take out a foreign loan for the 2024/25 harvest season for the first time in more than three decades. This was announced by CEO Joseph Boahen Aidoo at a press conference on Tuesday. “The money will come from the region. We will finance ourselves,” said Aidoo.
He added that the move would save the country from paying high interest rates to foreign creditors and that financial gains from cocoa purchases would now go directly to Cocobod.
For the first time in 32+ years, COCOBOD won’t seek a syndicated loan for cocoa operations. Chief Executive Hon JB Aidoo reveals that starting in the 2024/2025 season, COCOBOD will self-finance all activities, marking a major step towards financial independence. #Cocoa #Ghana pic.twitter.com/swHXFbRvAT
— Ghana Cocoa Board (@ghcocobod) August 21, 2024
Ghana is the most important supplier of cocoa beans for the Swiss chocolate industry. Around 60 percent of the beans processed here come from the West African country. Cocobod controls the international trade in Ghanaian cocoa beans and sets fixed prices for its farmers every year.
Over the past 32 years, Cocobod has taken out a loan from several foreign banks every year, usually in August or September. Since 2007, the amount of the loans has ranged between one and two billion US dollars. Cocobod used the money to buy cocoa from Ghanaian farmers at a fixed price, thus protecting them from changes in world market prices.
The regular receipt of billions of dollars in foreign currency also enabled the government to stabilize its own currency, the Cedi.
An act of independence
But that is now over. The government is presenting this step as an act of independence. It expects that the new approach will significantly ease the burden on the Ghanaian economy, which has struggled with rising debt in recent years. For example, it had to pay interest of around eight percent on its loans. But not all observers are equally optimistic about the planned step towards independence.
For the current season, Cocobod has concluded international purchase contracts for around 820,000 tons of cocoa in advance. Cocobod deposits these so-called future contracts as security for international loans. However, drought, pests, informal gold mining and bean smuggling to neighboring countries have led to a huge crop failure of around 250,000 tons of cocoa this year. Cocobod has meanwhile been forced to renegotiate the supply contracts with the traders and postpone deliveries until the next harvest in October.
Creditworthiness in the basement
Critics therefore assume that it was not Cocobod that voluntarily declined to take out the next loan. Rather, they assume that the international banks assessed Ghana’s creditworthiness as too low due to the crop failure and the high national debt and therefore refused to grant the country loans.
So is Aidoo’s independence statement just a clever framing exercise? This would be supported by the fact that in June it was heard from government circles that Cocobod wanted to apply for a loan of 1.5 billion US dollars from foreign banks for next year.
Cassiel Ato Forson, parliamentarian for the opposition NDC party, announced in a press release on Wednesday: “In June 2024, Cocobod applied for a loan of US$1.5 billion to purchase up to 650,000 tonnes of cocoa for the 2024/2025 crop year. The banks apparently concluded that of the projected production of 650,000 tonnes of cocoa, 250,000 tonnes would be used to service existing contracts, leaving only 400,000 tonnes to meet Cocobod’s obligations for the 2024/2025 crop year. This raised the question of solvency for the banks, which is why they refused to participate.”
COCOBOD was chased away from the market due to the fact that COCOBOD is no longer credit worthy, lacks credibility and are unable to produce enough cocoa to meet their contractual obligations.
Please see the RFP below👇🏿 pic.twitter.com/FWNe38p1vs
— Cassiel Ato Forson(PhD) (@Cassielforson) August 22, 2024
Cocobod contradicted this representation in a Press release on Thursday:
“The claim that international banks rejected Cocobod’s application and ‘chased’ it out of the market is false. For the avoidance of doubt, the proposed decision to explore non-borrowing financing is part of a broader strategy aimed at diversifying our sources of funding and making the organisation self-financing and sustainable in the medium to long term, in order to create more value for farmers and retain more value in the Ghanaian economy.”
Higher interest rates than expected
A source from the EM (emerging markets) lending sector takes a similar view. In an interview with the industry platform Globalcapital The person said on Wednesday: “I am not surprised by Cocobod’s decision. I assume that, given the national debt, Cocobod would have had to pay a higher interest rate than expected for the loan and therefore decided against taking out the loan on its own initiative.”
In fact, securing financing for Cocobod had become more difficult due to Ghana’s economic problems and a government default in late 2022.
In 2022, Cocobod received $1.1 billion from a total of 19 banks. Last year, it received just $800 million from four banks. It was the first time since 2007 that the annual loan was less than a billion, and Cocobod was only able to secure the loan in November, later in the year than usual.
Third largest export product
Whether decided autonomously or imposed, this change in course in the financing of cocoa purchases will keep the most important supplier to the Swiss chocolate industry on its toes for some time to come.
The cocoa industry is crucial to the Ghanaian economy. According to the Ghana Bureau of Statistics, cocoa beans and products were Ghana’s third largest export product in 2023 after gold and mineral fuels. Cocoa exports were valued at US$1.3 billion.
Cocobod had not responded to a request for comment at the time of publication.
Topic-related interests of the author
No
_____________________
➔ Such articles are only possible thanks to your DONATIONS. Donations to our foundation are tax deductible.
_____________________
Opinions in articles on Infosperber reflect the personal assessments of the author.
