Cocoa firms reluctant to invest in Ghana

ACCRA (Reuters) - Cocoa firms are reluctant to invest in world No. 2 producer Ghana until it liberalises its market, but the government fears change would cut into foreign currency earnings, industry sources say.

Since 1993, the West African country has operated a partially-liberalised system. Licensed firms buy beans from farmers and sell them to regulator Cocobod, which exports them.

Officials are wary of tweaking a system which employs 800,000 farmers and brought in about $1.2 billion last year. They fear government revenues would shrink as multinational companies haul profits offshore and they point to Ghana's experience in deregulating its gold mining industry.

"You have to avoid a situation like in gold where you say you are earning but it doesn't hit you in foreign exchange," Robert Kwabena Poku Kyei, cocoa adviser to the Finance Ministry and a Cocobod board member, told Reuters.

But some industry players argue the time is right for a phased liberalisation. Current regulations are dissuading international commodities houses from entering Ghana because profit margins in the domestic market are slim, they say.

"If the market was fully liberalised, most if not all of the big players would come in. They would have all the resources, they would be trading, hedging and doing all kinds of things," one senior cocoa industry source said.

"We haven't developed our regulatory mechanisms to enable us to develop the market. At the end of the day, we have to start," he added.

Some local buyers, who acquire beans from farmers to sell to Cocobod, complain they are deprived of the opportunity to improve their slender profit margins through exports.

"They are doing the cocoa sector no favours: it requires infrastructure, it requires new thinking," one buyer said.

With foreign investment would come improvements to infrastructure -- including better roads, warehouses and port facilities -- which have been more developed in neighbouring Ivory Coast, which is fully liberalised, buyers say.

REFORM WAS MOOTED

In the late 1990s, Ghana mooted allowing some companies to export 30 percent of what they bought, but the idea was shelved when a new government swept to power at elections in 2000.

President John Kufuor, whose election victory ended two decades of rule by former pilot and coup leader Jerry Rawlings, went on to win re-election in 2004.

"It was an issue of not having been in government for a long time. They didn't have substantial confidence. They were scared about what they could possibly lose," the senior cocoa sector source said.

Underpinning Accra's caution is a fear that if Cocobod's control on quality is weakened, prices would fall -- leaving farmers worse off and international buyers less willing to buy cocoa in advance.

The experience of cocoa liberalisation in Nigeria, Cameroon and Ivory Coast -- where rapid change left businesses reeling and saw crop quality drop -- has left many cautious.

Pressure for reform from the World Bank, which urged cocoa liberalisation in the late 1990s, has also diminished.

"We are not trying to fix what is working," Mats Karlsson, World Bank country director said.

Arguably those with most to lose are Ghana's farmers, who are guaranteed 70 percent of the world market price. That is more than counterparts in Ivory Coast but less than the 85 percent obtained by growers in Nigeria, whose cocoa is not as sought after as Ghana's.

For Sona Ebai, secretary general of the Cocoa Producers' Alliance, liberalisation "is an economic process which should be done in a step by step fashion...not just suddenly stop and say you are on your own".

Another buyer went further, saying liberalisation would be the "wrong evolutionary step" for Ghana.