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NewsCedi weakens amid $500m drop in cocoa export revenue


Cedi weakens amid $500m drop in cocoa export revenue


Galamsey, climate challenges, diseases, and smuggling activities have led to a drop in cocoa export revenue by over $500 million in the first quarter of 2024 as Ghana’s annual production numbers continue to decline.

The decrease, highlighted in the Bank of Ghana’s Summary of Macroeconomic and Financial Data for May 2024, comes as the cedi struggles against major trading currencies, losing more than 20% of its value against the dollar since the beginning of the year.

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The Bank of Ghana data revealed a significant decline in cocoa export revenue, falling from over $1 billion in the first quarter of last year to approximately $496 million this year, marking the lowest level in nearly nine years.

According to a Bloomberg report, “the currency of the world’s second-biggest cocoa producer depreciated 0.2% to 14.9335 per dollar by the close of trading in Accra [yesterday], the lowest level since at least 1994 when Bloomberg began compiling the data.”

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The report also indicated that the current freefall of the cedi against the US dollar makes it “the fourth-worst performer among roughly 150 currencies tracked by Bloomberg worldwide, after the Egyptian Pound, Nigerian Naira, and the Lebanese Pound.”

Cocoa in decline, cedi struggles

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Cocoa is a strategic commodity in Ghana and has been the backbone of its economy since the colonial period. When cocoa “coughs,” the Ghanaian economy catches a cold, especially its local currency, the cedi.

Ghana’s smaller cocoa harvest in the 2023/24 season has impacted the country’s external payments position, as its trade surplus fell by more than half in the first two months, posing a risk to the exchange strength of the cedi, which has lost more than 20% against the US dollar.

Recent data from the Bank of Ghana indicates that the West African nation’s trade surplus narrowed by 54% from a year earlier to $392.8 million for January–February 2024, and revenue from cocoa exports fell significantly.

Ghana’s cocoa harvest in the 2023-2024 season, ending in September, is expected to be 650,000 to 700,000 tons versus an initial forecast of 850,000 tons, according to the Ghana Cocoa Board. However, industry insiders say adverse weather, disease, fertilizer shortages, and illegal mining activities in cocoa-growing areas could lead to yields falling below 500,000 tons.

Additionally, increasing cases of bean smuggling to neighboring countries for higher prices could result in the world’s second-largest cocoa producer losing about 200,000 tons, impacting its ability to secure larger loans from the cocoa syndication program.

The industry regulator, Ghana Cocoa Board (COCOBOD), recognizes that smuggling is significantly reducing its share of global cocoa production, dropping from 20% to 13%.

The upcoming crop season looks challenging for Ghana, as illegal mining activities continue to threaten its projected yields. The sale of cocoa farmland to illegal miners, coupled with pollution and land destruction, jeopardizes Ghana’s cocoa yield for the 2024-25 season, potentially dropping below 400,000 tons.

To secure its next cocoa syndicated loan, COCOBOD must assure investors of its ability to produce sufficient beans to match the target loan figure of $1.5 billion.

This year, the regulator’s target was reduced from $1.2 billion to $800 million, providing beans for only $600 million—the remaining $200 million was canceled as COCOBOD couldn’t supply the beans to support it.

For Ghana to secure more from next year’s syndication exercise than it did this year, it must demonstrate to investors that it can produce more beans in the upcoming season.

Ensuring the necessary bean production will be challenging, and a reliable way to prevent the smuggling of an additional 200,000 tons next season is to increase the farm gate price. However, this would impose a significant fiscal burden on COCOBOD, which is already struggling to meet its current debt obligations.

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