Poor liquidity within Ivory Coast’s banking system caused by the collapse of the top cocoa producer’s largest domestic exporter risks hindering exports at the start of the upcoming main crop, exporters and bank officials said.
A sharp drop in world prices in the middle of the 2016/17 season left many local exporters, who had speculated prices would rise, unable to execute their contracts and pay back bank loans.
It was reported in June that Ivorian banks were struggling to secure repayment of some 200 billion CFA francs ($349 million) in outstanding loans from the 2016/17 season.
And then in July, a court ordered the liquidation of SAF-Cacao, Ivory Coast’s largest domestic exporter, which owed over 150 billion CFA francs to the banks.
Ivory Coast’s marketing board, the Coffee and Cocoa Council (CCC), and SAF’s employees are meant to be the first beneficiaries of the sale of the company’s assets.
“It’s 150 billion CFA francs that’s gone up in smoke because the lenders are third in line in the administrator’s order of priorities,” said an official from a bank owed money by SAF.
The CCC reacted to last season’s crisis with tightened regulations that have pushed many smaller local exporters out of the sector and undermined the government’s declared goal of fostering domestic participation in the sector.
The CCC expects to issue 30 to 40 export licenses for the 2018/19 season – most of them to large multinationals – down from around 100 for the current season, one marketing board official said.
“I don’t know if we need to speak of a cartel, but we’re not far off at this point,” the CCC official said. “We can do nothing about it. It’s just natural selection.”
While traders said the measures have shored up the sector by lowering the risk of another raft of export contract defaults, they have done little to help the banks already hit hard by last season’s crisis.
“The lack of liquidity in our banking system is rapidly approaching and it will be at its worst at the start of the new cocoa season in October,” said one Abidjan-based banker.
Normally, banks would over the next month be releasing funds exporters could use to pre-finance the middlemen who purchase Ivory Coast’s cocoa production directly from farmers. However, exporters said they are already seeing that some banks are struggling.
“What we’re hearing since the collapse of SAF is that some banks don’t have the necessary cash to finance bean purchases, so we expect problems,” one Abidjan-based exporter told Reuters.
Once the season opens, exporters estimated that the local banking system needs to have 40 to 50 billion CFA francs in cash available per week.
The early months of Ivory Coast’s cocoa season produce both the highest volumes and best quality of beans. This season arrivals at ports hit nearly 220,000 tonnes in the month of October alone.
“If the lack of liquidity … slows the evacuation of the crop, maybe you’re getting less cocoa being shipped in October/November than normal and that puts tension on the December futures contract,” one European industry source said.