Martijn Bron: The biggest problem in Ghana’s Cocoa Sector

The biggest problem in Ghana’s cocoa sector is mismanagement from the government and its cocoa regulator. On the latter I wrote a lot already. Now let’s have a look at the government.

For obvious reasons, borrowing terms for Ghana aren’t great, neither from commercial banks, nor from the IMF, not like the terms German or Dutch governments get when they issue bonds.

Terms get worse when you default, because when you don’t pay back the #money you owe to lenders, that’s not good for your reputation, and scares away current and potential other lenders.

A default may feel like a relief, like a scammer or a cheater being relieved after being caught, so the lying can stop. The defaulter can stop making false promises that the #economy is recovering, the fiscal house is in order, and that the money will be paid back, including interest! But there are no free lunches. A default has dire consequences, but there are all kinds of nice words used to prevent incompetent officials and politicians losing face.

There are banks specialized in these operations. Like vultures they circle above economic carcasses and are happy to offer support by brokering a bond issuing. They get nice fees, and Ghana pays hefty interest on the loans. When they default on the loan, it needs to be sorted out with its lenders. Banks are again happy to offer support by soothing everyone, giving a fresh new haircut, for nice fees of course. Loan terms are adjusted, and the restructuring feels like a relief, but it isn’t on the long term. Borrowing costs will go up, and finding new lenders will be a challenge, and their terms will be even sh*ttier.

What could be the combined fees on the initial $13.1 billion bond deal, followed by the restructuring for the involved banks, compliance advisors, lawyers, that whole entourage in hand made suits that flies in and out business class? Tens of millions of dollars or am I too conservative? How much interest is Ghana paying on its loans? Billions of dollars.

Imagine instead of paying money on fees and interest, supporting Ghana’s cocoa farmers.

There is no cocoa sustainability program that can compensate for this mismanagement.

I see marketers from retailers in their warm, nicely carpeted meeting rooms chatting about what a great impact they have with their programs, designed in the comfort and context of Europe. Great slide deck!

But their impact is negated by the reality behind “DEAL ANNOUCEMENT”.

I know Lazard just does their job, otherwise someone else will do it. As an ad from a company renting out mobile toilets in Nigeria said: “there is no business like sh*t business”.