The African Development Bank (AfDB) Group and other partners will sign on September 25, 2009, in Paris, a USD 1.2 billion pre-export facility to support the Cocoa Board of Ghana (Cocobod). With a share of USD 100 million from its private sector window in this global syndicated trade finance operation, the AfDB has helped catalyzing private financing in favor of the primary intermediary for the export of Ghana's cocoa to the international markets. Cocobod supports more than 2 million Ghanaians involved in the cocoa industry.
"This operation is an important milestone in our response to the global financial crisis, said AfDB president, Donald Kaberuka. It is our first large-scale syndicated trade finance operation in the agriculture sector. Back in April when the financial crisis looked like it would severely hamper Cocobod's ability to mobilize adequate funding, the Bank came in early to signal its support to the markets. With market indications now suggesting substantial over-subscription, it appears that our role to catalyze private financing is done. The Bank is now looking at other operations where it can leverage its catalytic role."
Agriculture is the mainstay of the Ghanaian economy, with the cocoa industry playing a dominant role. Each year the export of Ghana's cocoa production is financed using a receivables-backed, short-term facility. However, due to the negative impact of the global crisis on the risk appetite of many international commercial lenders, a financing gap has emerged, threatening this crucial transaction.
The AfDB has consequently been asked exceptionally to participate in this syndicated trade finance operation for the 2009-10 cocoa harvest. The AfDB will provide financing to Cocobod (on common terms with other lenders) to close all or part of any financing gap, subject to its risk limits. The gap is currently estimated to be at least USD 100 million. This transaction is part of the Trade Finance Facility launched by the AfDB to mitigate the impacts of the economic crisis on Africa.
Explaining AfDB role in this operation, Bobby Pittman, Vice President, Infrastructure, Regional Integration and Private Sector, says: "Half of the facility approved by the AfDB Board of Directors will be on standby to back-stop the operation in case there is a shortfall. Given the importance we attach to demonstrating our additionality, we were ready to step aside from the main syndication and use our entire facility to back-stop the deal. However, when we discussed this option with the arrangers, the commercial bankers wanted to see the AfDB front and center to avoid any potential misperceptions in the market."
The AfDB support to the transaction is part of a USD 1 billion trade finance initiative launched in 2009 as one of its response to the global financial crisis. Other trade finance operations currently supported by the Bank include a USD 500 million facility for the Global Trade Liquidity Facility that is administered by the IFC and several trade finance lines of credit to African financial institutions financing trade
This facility will be used to finance the purchase of the main cocoa crop with a provision for redrawing in order to finance the light crop. The financing is under the following terms: a first tranche of an amount of USD 50,000,000 to be disbursed, pro rata with other investors, in line with commercial practice; and a second tranche of an amount of up to USD 50,000,000 to be disbursed subject to the submission of clear evidence of a financing gap under the Trade Finance Facility.
The COCOBOD operation is at the center of Ghana's priorities, as outlined in the Country Strategy Paper 2005-09. Ghana's Poverty Reduction Strategy (GPRS) focuses on maintaining macroeconomic stability, increasing production and employment, and promoting human resource development. Two important development outcomes that are being measured are establishment of a business-friendly environment and performance of the agriculture sector, to which COCOBOD is a meaningful contributor. The agriculture sector, led by cocoa, contributes 35% of GDP and is considered one of the priority sectors of the Ghanaian economy.
This transaction aligns well with the Bank's priorities which, as outlined in the Medium-Term Strategy 2008-12, seek to contribute to broader human resource development objectives and to agriculture and rural development: By supporting directly more than two million farmers and agencies involved in this industry, COCOBOD clearly supports these objectives. In light of the global economic crisis, the Bank, jointly with other multilateral lenders, have formulated a coordinated response for Africa by pledging USD 15 billion to promote trade, strengthen the financial sector, and increase lending for infrastructure, agriculture and SMEs in the regions worst affected by the economic slowdown.
The COCOBOD transaction is also consistent with the Bank's Private Sector Operations strategy: The Bank's participation in the syndication of the COCOBOD transaction will contribute to stimulate a stagnating investment climate and support a vital sector of the Ghanaian economy.
Furthermore, COCOBOD is the largest trade transaction in Africa. The Bank's participation thus seeks to provide a strong demonstration effect in view of bringing needed additional financial institutions into the syndication.
