The regulator of Ghana’s cocoa industry, the Ghana Cocoa Board (COCOBOD), has announced its decision to source funding domestically for the upcoming cocoa season, which begins a month early on September 1, 2024, breaking a 32-year old tradition by the regulator.
The move comes after reports emerged that negotiations for a $500 million bridge loan from cocoa traders such as Barry Callebaut AG and Olam Group Ltd. had stalled.
This is also after the COCOBOD failed to secure the aforementioned amount from the syndicate of international banks as is the norm every year.
COCOBOD’s inability to secure the needed funding is due to consistent declines in cocoa production.
Ghana’s cocoa harvests have consistently missed targets, with production dropping from 683,000 tons in 2021-22 to 654,000 tons in 2022-23, and an anticipated further decline to 501,000 tons by the end of this season – 2023/24.
Additionally, the country is struggling to fulfill at least 250,000 tons of forward sales contracts, some dating back three years.
The failure of COCOBOD to secure the $1.5bn from international banks and subsequently $500m from cocoa traders, has implications for the local currency – the Cedi.
The Bank of Ghana has traditionally relied on the lump sum of foreign currency (dollars) that accompanies the annual syndicated loan to manage the exchange rate volatility of the Cedi.
The Cedi has shed approximately 23% of its value against the U.S. dollar this year, making it the fifth-worst-performing currency tracked by Bloomberg in 2024.
The local currency according to Oyinkansola Samuel, an analyst at FirstRand Ltd.’s RMB Nigeria unit, is projected to close the year at GHS 15.97 per dollar due to slowed cedi depreciation supported by improved market sentiment, ongoing debt restructuring efforts, and the anticipated $1.5bn syndicated loan.
Should COCOBOD have secured the $1.5bn loan, the cedi would have witnessed some level of appreciation against the greenback (dollar) contributing to the disinflation trend witnessed since January this year.
But given that the COCOBOD has failed to secure the said amount, market experts anticipate a depreciation of the cedi against the dollar with the cedi very likely to at least cross the GHS 16/$1 mark by the end of the year with potential ramifications of slowing the country’s disinflation trend.
The marginal depreciation of the cedi against the dollar which market experts anticipate, is in view of the further dollar inflows into the economy from the IMF and World Bank, coupled with targeted cedi-depreciation mitigation measures put in place by the Bank of Ghana and the Finance Ministry.
The Finance Minister Dr. Mohammed Amin Adam has stated that his outfit is working with the Bank of Ghana to implement measures to address the depreciation of the local currency.
These measures, he posited, include fast-tracking the fiscal consolidation process through rationalizing spending and enhancing revenue mobilization; intensification of the gold-for-oil programme, and the appropriate foreign exchange interventions by the Bank of Ghana.
Others include the intensification of the gold for reserve programme; the disbursement of the 3rd tranche under the 2nd Review of the International Monetary Fund-supported PC-PEG after the IMF Executive Board approval in June 2024; the disbursement from other ongoing projects including the $150 million World Bank loan and the expected disbursement of $300 million under the World Bank DPO2.
Overall, without the anticipated syndicated loan, the Cedi is likely to experience increased volatility and depreciation unless alternative measures are swiftly implemented by both the fiscal and monetary authorities to shore up Ghana’s foreign exchange reserves and manage the potential economic fallout.