Cocoa is the most important commodity that brings revenue to the Ghanaian government as Ghana (along with Ivory Coast) is the largest producer of cocoa in the world.
The Ghana Cocoa Board, or Cocobod, the regulatory body overseeing the industry, is in discussion with traders such as Olam Group, Ltd. and Barry Callebaut AG to secure pre-financing for activities in the 2023-24 season. Thus, Ghana is seeking to borrow $400 million from its cocoa traders to financing to upcoming season. This move comes as the country faces difficulties securing loans from international banks due to its ongoing debt restructuring process.
The Ghana Cocoa Board (Cocobod) has traditionally relied on international syndicated loans to finance its operations. However, this year's loan process has been delayed due to concerns about Ghana's debt situation.
Cocobod has reportedly secured half of the targeted amount from the involved companies, according to individuals who requested anonymity due to a lack of authorization to discuss the deals publicly. According to Bloomberg, the financing is believed to come at a cost of around 5%.
As a result, Cocobod is turning to cocoa traders, such as Olam Group Ltd. and Barry Callebaut AG, for funding. These traders are involved in the entire cocoa supply chain, from harvesting to processing and export. By borrowing from them, Cocobod hopes to ensure a smooth and timely start to the cocoa season.
The reason why Cocobod needs to secure the funds from traders rather than from international institutions such as the IMF is that it is difficult to secure international loans, especially in the case of Ghana, which defaulted on its loan in late 2022. As we know, Cocobod typically relies on international syndicated loans to finance its operations, including pre-financing the purchase of cocoa beans from farmers, providing financing for the purchase of seedlings, fertilizers, and other agricultural inputs, and supporting cocoa value chain development initiatives. However, due to Ghana's ongoing debt restructuring process, international banks have been hesitant to provide Cocobod with the necessary financing.
By securing this loan from cocoa traders, Cocobod can address the immediate funding constraints and ensure a successful start to the cocoa season. However, it is essential to address the underlying issue of Ghana's debt situation to regain investor confidence and improve access to international finance. This will allow Cocobod to rely more on traditional financing sources in the long term and reduce its reliance on emergency loans.
The loan is expected to be repaid with proceeds from the sale of cocoa beans during the next cocoa season. However, it remains to be seen whether Cocobod will be able to secure the remaining $800 million in financing it needs from international banks. If it cannot, it may need to turn to other sources of funding, such as loans from domestic banks or the issuance of cocoa bonds.
The loan from cocoa traders is a temporary measure to address the current financing constraints facing Cocobod. In the longer term, the country needs to address its debt situation to restore investor confidence and improve its access to international finance.