Ghana Cocoa Board (COCOBOD) is exploring a significant change in its financing strategy. The board intends to move away from its long-standing reliance on international syndicated loans. This shift aims to increase domestic processing of cocoa beans.
COCOBOD believes that greater use of domestic financing could allow Ghana to retain up to 50% of its cocoa production for local processing. This would reduce the country's exposure to foreign currency fluctuations. It would also provide more flexibility for value addition within Ghana.
For decades, Ghana has depended on annual syndicated loans from international banks. These loans fund cocoa purchases at the start of each crop season. While providing large upfront foreign exchange, this model also commits future cocoa receivables and exportable beans for repayment. This structure has limited Ghana's ability to process more cocoa locally.
Jerome Kweku Sam, Head of Public Affairs at COCOBOD, explained the rationale. He stated that domestic borrowing means funds are not denominated in hard currency, like the American dollar. This reduces foreign exchange risk for the country.
The current system often pre-commits cocoa beans to service these international facilities. This leaves less flexibility to direct larger volumes to local factories. Mr. Sam emphasized that domestic financing could allow Ghana to retain as much as 50% of its production. This would enable local processing, creating value addition, jobs, and additional tax revenue.
Ghana is a major producer of raw cocoa beans. However, most higher-value activities, such as chocolate and confectionery production, happen outside the country. Increasing domestic processing could keep more value within Ghana's economy. This includes manufacturing, packaging, transport, and logistics. It could also expand the tax base through increased employment and profits from local processing companies.
However, financing changes alone will not guarantee a 50% processing rate. Domestic processors need sufficient working capital, reliable power, and consistent access to beans. They also require internationally competitive operating costs. Ghana would also need strong demand for processed cocoa products, such as liquor, butter, and powder, to ensure sustainable operations.
There is also a financial trade-off to consider. Borrowing in Ghana cedis (GHS) reduces direct exposure to dollar-denominated debt. However, domestic funding is not automatically cheaper. The final cost will depend on local interest rates, loan maturities, and the depth of Ghana's capital market. A large domestic borrowing program by COCOBOD could also compete with other borrowers for available funds.
The strength of this strategy will depend on whether the reduction in foreign exchange risk outweighs the cost of raising capital locally. Mr. Sam indicated that COCOBOD's financial position has improved. He cited the payment of about GHS 2.5 billion in Cocoa bonds raised in 2017. He also mentioned the release of another GHS 164 million to investors. These actions aim to rebuild confidence in COCOBOD's ability to meet its obligations.
This financing debate occurs alongside a political discussion about new cocoa legislation. This legislation has passed Parliament and awaits presidential approval. Critics have raised concerns about the consultation process with farmers and other industry stakeholders. Mr. Sam countered these criticisms. He argued that engagement should be judged by consulting representative groups. It is not feasible to consult each of the over 800,000 cocoa farmers individually. He confirmed that farmer groups, licensed buying companies, and local processors were engaged. COCOBOD also participated in meetings with the Ministries of Trade and Finance during the drafting process.