For over three decades, the annual ritual of securing a multi-billion dollar pre-export syndicated loan from international banks has been as integral to Ghana’s cocoa season as the rains. However, for the second year in 32 years, the Ghana Cocoa Board (COCOBOD) has foregone the massive offshore loan for two consecutive seasons. This break, interpreted by some critics as a sign of crippling financial distress and a rejection by international lenders due to concerns over declining cocoa production, is being championed by COCOBOD as a strategic opportunity to move toward self-financing.
The question now facing the nation is profound: Can this forced pivot be turned into a lasting blessing, allowing Ghana to permanently finance its cocoa purchases domestically and capture greater value from its prized commodity?
The Cost of the Convenience
Since the 1992/1993 season, the annual syndicated loan has been the primary vehicle for financing cocoa bean purchases, ensuring a steady flow of funds to Licensed Buying Companies (LBCs) and farmers. This system, however, came at a significant cost. COCOBOD has historically paid substantial interest, with rates climbing above 8% in recent years. For the $1.5 billion sought, the interest payment alone could exceed $150 million, funds that could otherwise be used for productivity enhancement programmes or farmer welfare initiatives. Crucially, the syndicated loan requires Ghana to secure forward contracts—selling a large portion of the crop ahead of time to collateralize the loan. While providing financial security, this locks the country into fixed, often lower prices, preventing Ghana from fully benefitting from sudden surges in global cocoa prices, such as the market rally that saw prices soar to over $10,000 per tonne recently. Although the lump sum foreign exchange (FX) inflow from the loan provided a temporary boost to the Cedi, the effect was often short-lived—a “bulk-and-burst” scenario—with the currency depreciating soon after the funds were deployed.
The Bold New Funding Model
COCOBOD’s strategy to move away from the loan, whether by choice or necessity, is centred on a new self-financing model. This involves engaging directly with global cocoa traders and processors, requiring them to pre-finance cocoa purchases through a system where a significant percentage (reportedly 60%) of the value of forward contracts is deposited upfront.
The stated benefits of this approach are clear: the move is projected to save COCOBOD over US$150 million annually in interest payments alone. With less of the crop committed as collateral, the Cocoa Marketing Company (CMC) has more flexibility to sell a higher percentage of the beans closer to the spot market price, allowing the country to capture higher international prices during market upticks. The new model prioritizes the timely payment of Cocoa Taken-Over Receipts (CTORs) to LBCs, which, in turn, ensures prompt payments to farmers, addressing a long-standing point of friction in the cocoa value chain. The FX from bean sales is also expected to flow into the country more steadily and consistently, potentially aiding Cedi stability.
The Elephant in the Room: COCOBOD’s Financial Health
The ambitious shift, however, is clouded by COCOBOD’s precarious financial situation. Critics, particularly the Minority in Parliament, argue that the abandonment of the syndicated loan is not a strategic choice but a sign of declining creditworthiness following years of reported losses and the inability to meet debt obligations due to drastically falling production figures, exacerbated by disease, illegal mining, and adverse weather.
COCOBOD’s ability to sustain this self-financing model permanently hinges on two critical factors: Successful implementation of Productivity Enhancement Programmes (PEPs), such as farm rehabilitation and mass spraying, is essential to reverse the declining output and secure enough beans to meet the commitments of the new financing model. COCOBOD must continue to reduce operational costs, ensure strict fiscal discipline, and reportedly withdraw from quasi-fiscal activities to focus on its core mandate and restore its financial balance sheet.
While the current circumstances are fraught with risk, the forced departure from the syndicated loan offers Ghana a once-in-a-generation opportunity to rewrite the financial rules of its cocoa sector, potentially unlocking greater value for the farmer and the nation, provided the internal financial and production challenges can be decisively overcome.
