Economist at the University of Ghana Business School, Professor Patrick Asuming has justified an earlier announcement by COCOBOD to end the about 3 decades of cocoa-syndicated loans used to buy cocoa from Ghanaian farmers.
The Chief Executive Officer of COCOBOD, Joseph Boahen Aidoo last week in an interaction with the media announced a bold move by the regulator to end the annual cocoa syndicated loan facility. In place, the CEO revealed there will be domestic funding sources to fund the purchase of cocoa.
But in a counterclaim this week, Minister of Finance, Dr. Mohammed Amin Adam revealed that COCOBOD is not abandoning the syndicated loan.
“Cocobod is not abandoning the cocoa syndication,” Dr. Amin Adam noted adding that the regulator is rather negotiating for US$600 million instead of US$1.5 billion initial target.
But Prof. Assuming in an interview with The High Street Journal admitted that COCOBOD’s earlier decision is the best option. According to the economist, the cocoa-syndicated loan does not ensure the real value of the country’s cocoa since part of the money earned is lost in financing the interest on the loans.
“I am supportive of COCOBOD’s position. Every time we do this foreign funding, we lose part of the value of the cocoa because we will have to pay interest. Whichever way we look at this that is part of the cocoa money going away. We have been doing this for 30 years, how is it that after 30 years we can’t mobilize funds to buy our own cocoa and every year we have to go through this annual ritual?” the UGBS economist noted.
Commenting on the feasibility of raising the purchasing amount domestically, Prof. Asuming is optimistic that the needed funds won’t be much of a problem for the local financial market. He was however quick to add that the only issue will be the willingness of investors to invest in COCOBOD given the earlier haircut to cocoa bondholders and the operational excesses in the company.
“I don’t think the financial market in Ghana will struggle to provide that. I think the financial system should be in a position to provide that. The question is whether they will be willing to do that given the problems COCOBOD has had managing its finances. The fact that it has had to give haircuts to people who are holding cocoa bills and persistent problem with bringing its operation cost under control,” the economist explained.
He stressed that, “I don’t think it’s so much of being able it is more like whether they will be willing. COCOBOD will have a long way to go to convince them.”
He therefore indicated that the differences in positions between COCOBOD and the Ministry of Finance on the issue is a clear indication of the government’s confusion about which direction to take.
“This simply tells us that the government appears to be a little confused on which direction to go. Clearly, we can also get the sense that there is differences in opinion between what COCOBOD wants to do and what the Finance Ministry wants to do. Something does not sound right,” he contended.
The ability of COCOBOD to shift to domestic funding will amount to numerous benefits to the country. This could possibly reduce outflows in the form of interest payments on the syndicated loans paid to the foreign creditors.
It could also help the country’s balance of payment position and minimize the pressure on the country’s foreign reserves. Moreover, reducing reliance on external financing is a step toward economic sovereignty. With these, the country’s economy in the long term will be insulated from external shocks and vulnerabilities.
