Interview: Financing cocoa in Ghana

Stanbic Bank Ghana this week confirmed that a record number of commitments have been secured for Ghana Cocoa Board’s 17th annual pre-export finance facility. Standard Bank was one of the joint mandated lead arrangers (MLAs) for the US$1.2 billion transaction along with Crédit Agricole, ICBC, Ghana International Bank and SMBC.

Cocoa farmer

Ghana's cocoa industry consists of thousands of small-scale farmers.

The transaction was oversubscribed at US$1.834 billion, and the borrower increased the facility size to US$1.5 billion. A total of 28 banks, including the MLAs, confirmed participation, with ticket sizes following scale-backs ranging from US$5 million to US$100 million.

The structure of this deal remains unchanged, with the facility used to purchase cocoa beans for the 2010/11 season, and secured by the assignment of export contracts from overseas buyers.

How we made it in Africa spoke to Anne-Marie Woolley, Head of Structured Trade & Commodity Finance: Africa at Stanbic Bank, about the transaction and West Africa’s cocoa industry in general.

What does the deal mean for Ghana and West Africa’s cocoa producing countries?

This deal has been important for Ghana and its cocoa industry and it provides cash to enable timely payment to farmers at harvest time. This works in Ghana as there remains a central role by government in the marketing of cocoa, even though it is typically farmed by thousands of small scale farmers. It has not been replicated in other West African countries in this way as they have liberalised to the extent that there is not a single point of export entity.

What were some of the challenges when structuring the deal?

When structuring any deal of this sort the challenges are to ensure an acceptable level of crop risk, production risk, performance risk, price risk and the usual corporate and political risks aspects.

What measures are put in place to make sure that the money raised year-on-year benefit the cocoa farmers?

There is an established modus operandi of the way in which the market works, which enables farmers to be paid in cash at harvest time. Any deviation would be very quickly evident.

Are cocoa farmers receiving sufficient financial assistance, if not, what is lacking and what needs to be done to support them?

There is always a need for finance to assist farmers, and cocoa farmers are no different. In Ghana, significant assistance is given by the Ghana Cocoa Board in the provision of fertilisers, insecticides, etc. Standard Bank also works with a number of organisations to find ways to promote primary agriculture and finance farmers.

Which areas of West Africa’s cocoa industry hold the most potential for further investment?

Further growth in area under cultivation, improvement of yields, etc, as well as bringing the value added business to origin, like the cocoa processing now being done in Cote d’Ivoire and Ghana.

What is your perception of the Ghanaian cocoa market versus the Ivorian one?

There are a number of differences. Cocoa is grown in Ghana by thousands of small scale farmers (two hectares or less), and they derive benefit from the single export vehicle that is Ghana Cocoa Board. Cote d’Ivoire has larger commercial sized cocoa farms with a completely liberalised export market and thus it raises its finance through individual corporate loans.