Is PBC too big to fail?

Once ranked Number One on the Ghana Club 100, controlling over 30 per cent of the cocoa purchasing market in Ghana, listed on the Ghana Stock Exchange and profitable, PBC Limited (Produce Buying Company Limited) has collapsed.

Its auditors, Adom Boafo & Associates, issued a qualified audit opinion on their 2022 financial statements and raised significant concerns about the ability of the company to be a going concern because of huge liquidity challenges.

Earlier this year, an Accra High Court led by Justice Sheila Minta awarded judgment in favour of six commercial bank creditors to PBC, namely: Agriculture Development Bank (ADB), Bank of Africa Ghana (BOA), CalBank PLC, GCB Bank PLC, Universal Merchant Bank (UMB) and United Bank for Africa (UBA), Ghana to identify and sell immovable properties of PBC Limited to defray a debt of running 297 million Ghana Cedis. Worrying enough, about 80 per cent of the company’s long-term debt of GHS392 million is owed to Ghanaian companies, with GCB Bank alone holding over GHS100 million of these loans while Cocoa Board holds 70 million.

The downfall: How did we get here?

Characterised with several other state-owned enterprises, PBC Limited is poorly managed, both in terms of corporate governance and financial management.

The company has made poor investments over the last few years. For instance, it took a $10 million loan from the Cocoa Board to establish PBC Shea Limited to purchase shea nuts. PBC Shea has so far been unsuccessful and it has failed to pay back the loan to Cocobod since 2019.

The financial meltdown means the company is unable to secure funding to purchase cocoa beans. Hence, operations have come to a halt. Several haulage vehicles have been grounded, cocoa sheds closed and employees disengaged.

Worrying of all is the fate of the company’s employees. PBC Limited is a group of companies comprising PBC Limited, PBC Haulage, PBC Shea Limited and Golden Bean Hotel.

Together, it employs over 1,000 Ghanaians. Should the company collapse, what happens to these Ghanaians? Already, according to the General Secretary of the Ghana Agricultural Workers Union, Edward Kareweh, employees of the company are owed 11 months’ salary.

The fallout: Economic and social ramifications

The collapse of PBC Limited would result in over 1,000 employees losing their jobs, significantly increasing the unemployment rate in Ghana.

This sudden job loss would not only lead to financial instability for these individuals and their dependents but also contribute to psychological stress and a reduced quality of life.

Also, the financial woes of PBC Limited likely mean delayed or halted contributions to employees’ pension funds.

For employees nearing retirement, this could result in significant shortfalls in their expected pension benefits, jeopardising their long-term financial security.

An increase in retirees with insufficient pensions would put additional pressure on government social security systems, especially the national health insurance scheme.

Furthermore, the failure of PBC Limited to repay its debts would increase the banks’ non-performing loans (NPLs), adversely affecting their balance sheets.

This rise in NPLs could lead to tighter lending conditions as banks become more cautious in their lending practices.

Already, the banks are grappling with the aftermaths of the debt exchange programme; hence a collapse of PBC Limited should not be entertained.

Though some of these loans are secured with landed properties of the company, the sale of these assets could be problematic and indeed not even adequate to settle all the debts owed.

The collapse of PBC Limited would also lead to a reduction in economic activity.

This downturn would result in job losses, decreased spending power and reduced demand for goods and services.

The knock-on effects would be felt across various sectors, including retail, transport and local businesses that depend on the patronage of PBC Limited’s employees and operations.

The way forward

The two largest shareholders of PBC Limited are SSNIT (38.10 per cent) and the Government of Ghana through the Ministry of Finance (36.69 per cent).

It could be concluded, therefore, that PBC Limited is state-owned. Judging from what is at stake, should PBC Limited collapse, it is suggested that the government, in collaboration with SSNIT, should consider a financial bailout package to address immediate liquidity needs.

This could involve direct cash injections or guaranteed loans to keep operations running. I recognise that Ghana is in an IMF programme and might find difficulty raising money for a bailout. However, the collapse of PBC Limited would only compound the economic challenges

Significantly, the government should probe how the company has been run over the last few years.

From the commentary of the Union members and the company’s annual report, it is evident that there are worrying corporate governance challenges.

The government should engage forensic auditors to scrutinise financial transactions, investments and decision-making processes.

The aim is to uncover any mismanagement, fraud or irregularities. Hold accountable any individuals who have engaged in misconduct, mismanagement or corruption.

Conclusion

PBC Limited’s collapse has significant implications for the Ghanaian economy and its employees.

Immediate government intervention, strategic restructuring, and improved governance are crucial to prevent further economic and social fallout.

The company’s size and importance to the cocoa industry make it “too big to fail”, necessitating decisive action to safeguard its future.

The Writer is an Accountant and Compliance Manager.