For decades, cocoa exports have been the bedrock of Ghana’s economy, underpinning its agricultural sector and providing livelihoods for millions of farmers.
The Ghana Cocoa Board (Cocobod) has consistently relied on syndicated loans from foreign banks to purchase cocoa beans for export. However, this trend of external borrowing raises questions about sustainability and the long-term health of the nation’s balance sheet. A notable concern is that these loans, denominated in dollars, result in significant foreign exchange outflows that deprive Ghana of the full benefits from its cocoa sales.
Typically, when Cocobod borrows funds to finance cocoa purchases, the repayment — including interest — must also be made in dollars, creating a financial strain on the national economy. This cycle continues, with loan repayments occurring shortly after the cocoa is sold abroad, often within a year. What if, instead, Ghana could tap into local resources to finance its cocoa purchases, breaking free from the cycle of foreign debt?
There have been discussions about whether Ghana’s banking sector could collectively finance the amount needed — ranging from $800 million to $1.5 billion — through local sources.
Many assert that this isn’t feasible, yet a powerful alternative lies within the country’s own financial framework: the second and third-tier pension funds managed by private entities. For example, the Ghana National Association of Teachers (GNAT), Civil and Local Government Staff Association of Ghana (CLOGSAG), Ghana Medical Association (GMA), and the Ghana Registered Nurses’ and Midwives’ Association (GRNMA) collectively hold pension assets worth over $1 billion.
This vast pool of funds presents an innovative opportunity for Ghana to finance its cocoa purchases without resorting to foreign borrowing. The National Pensions Regulatory Authority (NPRA) could facilitate the syndication of these pension funds to provide the capital needed for Cocoa purchases, subject to minor legal adjustments that would allow for such arrangements if required. Over the course of two cocoa seasons — less than a year — these loans could be repaid quickly, presenting an effective financial cycle without the drag of foreign currency debt.
Another alternative funding source is to raise local bonds. Unlike previous bonds, this particular one for funding cocoa purchase will be limited to one year.
The benefits of these local sourcing of funds are manifold. First, by borrowing in Ghanaian cedis, Cocobod would mitigate the impact of foreign currency fluctuations, protecting the nation from the volatility of the dollar.
Second, local pension funds and bonds would yield guaranteed interest payments, providing a secure investment opportunity for these institutions and bondholders while simultaneously bolstering domestic finance.
Third, and importantly, Ghana would retain the full foreign exchange benefits derived from cocoa exports, enhancing the country’s economic position.
These methods would also alleviate pressure on the demand for dollars in the upstream cocoa business, decreasing the currency’s overall demand and potentially stabilising the local currency in the process.
In conclusion, as Ghana looks to the future, considering innovative solutions for financing its thriving cocoa sector is imperative. Utilising local pension funds and bonds for cocoa purchases not only ensures the sustainability of Cocobod’s operations but also strengthens the local economy.
By creatively tapping into domestic financial resources, Ghana can shift its reliance from foreign lenders and position itself for a more stable economic future. Embracing this approach could be a transformative step to reset the nation’s cocoa industry and the broader economy.