The Ghana Cocoa Board (COCOBOD) has shifted its strategy this year, abandoning efforts to secure the traditional cocoa syndicated loan from international lenders. Instead, COCOBOD is turning to the domestic market to raise the necessary funds to purchase cocoa beans as the cocoa season begins in September.
Challenges with Syndicated Loan
For over three decades, COCOBOD has relied on the annual syndicated loan to finance its cocoa purchases. However, in recent years, the regulator has struggled to secure adequate funds at favourable rates. Last year, COCOBOD was able to raise only $600 million, far short of the $1.3 billion target, and this was secured just days before Christmas instead of the usual September timeline. The shortfall forced COCOBOD to seek additional funding from the domestic market.
Recent reports from Bloomberg indicated that COCOBOD faced difficulties in convincing international lenders to provide the $1.5 billion needed to purchase cocoa beans this year. The lenders expressed concerns about COCOBOD’s ability to repay the loan, citing low cocoa production volumes and previous defaults on cocoa bills—a short to medium-term instrument used by COCOBOD to raise funds. Talks with the lenders reportedly stalled, leading COCOBOD to reconsider its approach.
Shift to Domestic Borrowing
On Tuesday, COCOBOD’s Chief Executive announced that the regulator is no longer pursuing the syndicated loan from international lenders. Instead, COCOBOD aims to “wean itself” off the annual borrowing cycle and focus on raising funds domestically. This move aligns with earlier reports that COCOBOD was negotiating a bridge loan with cocoa traders like Barry Callebaut AG and Olam Group Ltd.
In the past, COCOBOD has supplemented the syndicated loan with domestic borrowing when international funds fell short. With cocoa production volumes currently low, COCOBOD may be able to secure enough domestic funding to purchase the beans, but this will not resolve the broader challenges the company faces.
Sources close to COCOBOD reveal that the company has struggled to meet outstanding supply commitments due to the low cocoa volumes, further complicating its financial position.
Impact on the Cedi
The annual cocoa syndicated loan has traditionally provided a significant inflow of foreign currency, which supports the cedi and helps prevent rapid depreciation. Earlier this year, Finance Minister Dr. Mohammed Amin Adam mentioned the cocoa syndicated loan as a key source of foreign exchange expected in the second half of the year to stabilize the cedi.
Without this inflow, the government may lack sufficient foreign exchange to shore up the cedi, which has already lost over 21% of its value this year. The absence of the syndicated loan could impact the forex market, potentially driving up the dollar and ending the recent relative stability of the cedi.
Consequences of Low Cocoa Volumes
Ghana has recorded one of its lowest cocoa production volumes this year, attributed to factors such as inadequate care of cocoa trees, disease outbreaks, climate change, loss of farms to illegal mining, and the smuggling of cocoa beans to neighboring countries offering better prices.
The drop in production volumes has denied Ghana the benefits of a global cocoa price surge, leading to a 50% decline in export revenue. This has also caused a shortage of beans for domestic processing, forcing many processing companies to shut down intermittently and, in some cases, lay off staff. The price of chocolate and other cocoa products has soared, reducing accessibility for consumers and affecting the livelihoods of retailers who have seen a significant drop in sales.
In response to these challenges, COCOBOD recently announced that it had invested nearly GH¢943 million over the past year to revitalize old and diseased cocoa farms. The goal is to boost cocoa production to over 800,000 metric tonnes in the 2024/2025 crop season.
