How an African Government Manages its Hottest Commodity

Try and work your mind around this.

1. The Government of Ghana (acting through its Ministry of Finance parastatal, Cocobod) goes to the international market and promises dealers of cocoa that it will produce x number of tons of the crop the following year. They forward-sell 70% of this quantity to the dealers at an agreed price.
2. The government then goes to a number of local and international banks and borrow between $1 billion and $2 billion to fund the buying of cocoa from various farmers across the country.
3. The government buys on average 35% of the cocoa grown by the farmers directly through its own subsidiary.
4. The government has licensed several private companies to also buy the remaining 65% of the cocoa from the farmers.
5. On the strength of bank guarantees issued by local banks, the Government distributes some of the dollars it borrowed (in cedi equivalent) to these private companies (let’s call them LBCs from now on) to go and buy cocoa from the farmers in Cedis.
6. The LBCs may sometimes have to borrow ahead of the disbursement because the government money can delay. So the same banks that have issued them the guarantees also lend them part of the required amount in anticipation of the inflow from government.
7. The LBCs take the money from the government or their banks, in various sequences, and go and buy the cocoa.
8. The LBCs bring the cocoa to district offices where there are graded and sealed. Delays here can upset financial plans.
9. Once graded and sealed, the LBCs transport the cocoa to one of three ports and hand it over to the government (acting through its CMC).
10. Due to poor scheduling, the dealers (offtakers), having experienced erratic delays in the course of the process, also take their time before paying for the cocoa. Hence, tons of the crop can languish at the ports for months. In fact, these days, the government consistently fails to deliver the quantity it promised forward-buyers, and the wariness means that the government struggles to sell cocoa not sold forward. Which partly accounts for our reducing share of world cocoa supply year after year, especially in the last three years.
11. LBCs wait to be paid for delivering the cocoa at a profit margin that some analysts believe is already below 10%.
12. By the time LBCs are paid however, inflation means that they are often staring at actual losses.
13. Cocobod now expects its credit facility to be paid, and starts threatening the banks that issued the guarantees.
14. With this lungulungu system, would it surprise you to learn that Cocobod now has hundreds of millions of dollars stuck in the system? Money that it can’t squeeze out of the banking system without causing panic?
15. Question is: what do you get when you add these millions to the plenty money also owed Cocobod by the local processors who take about 25% of all the cocoa produced, and who have so far not been able to clear the debt?
16. Is Cocobod racking up more than half a billion dollars of debt that it is seeking to offload unto the government to add to the fast mounting national debt? Has that contributed in anyway to the fall in price paid to farmers relative to the ICE price?
17. To what extent has inefficiency and mismanagement of logistics, finance, process control, and other functions contributed to this state of affairs?
18. What is Cocobod hiding?

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