Ghana is breaking with a 32-year tradition by opting out of securing international loans to finance its cocoa crop for the upcoming season. The Ghana Cocoa Board (Cocobod) has announced its decision to rely on domestic sources for funding, marking a significant shift in its financing strategy.
Typically, Cocobod secures a syndicated loan from international banks in September, just before the cocoa season begins. However, this year, the board plans to finance its cocoa purchases from local farmers using domestic funds as the new season kicks off a month earlier, on September 1.
Joseph Boahen Aidoo, the Chief Executive Officer of Cocobod, stated that the board aims to “wean itself” off the annual syndicated loans. This decision follows reports that Ghana, the world’s second-largest cocoa producer, was negotiating a bridge loan with major cocoa traders like Barry Callebaut AG and Olam Group Ltd. after talks with foreign lenders for a $1.5 billion syndicated loan stalled.
In the past, Ghana has secured at least $1 billion annually to finance its cocoa industry, including seedlings, chemicals, fertilizers, and bean purchases. However, last year, due to the country’s debt restructuring and declining cocoa production, Cocobod could only secure $600 million, weakening its credit appeal.
For the upcoming 2024-25 season, Ghana has reduced its cocoa harvest target by 20% to 650,000 tons due to adverse weather conditions. This comes after a series of challenges, including unfavorable weather, disease, and fertilizer shortages, which have significantly impacted cocoa yields. Production dropped from 683,000 tons in the 2021-22 season to 654,000 tons in 2022-23, with a further decline expected to 501,000 tons by September’s end, according to the International Cocoa Organization.
With the shift away from foreign funding, the Bank of Ghana will now depend on revenue from the gradual sale of cocoa beans to build its foreign reserves. This change could have major implications for the central bank, which has historically relied on the substantial influx of foreign exchange from cocoa sales to manage exchange rate volatility.
Joseph Aidoo emphasized, “Whatever cocoa we sell is sold in dollars, and so the revenue from our cocoa will be paid in dollars. Our forward contracts will all be paid for in dollars when we deliver the cocoa, so the dollars will come in to shore up the cedi.”
