By Felix Larry ESSILFIE
Ghana’s economy, historically reliant on cocoa as a leading foreign exchange earner, is facing an alarming downturn in cocoa export revenues. In 2024, cocoa export earnings have fallen to $1.7 billion—the lowest in 15 years—marking a 25.4% decline in just a year.
This contraction, primarily driven by dwindling cocoa production, has deep implications for Ghana’s fiscal stability, external sector performance, and overall economic resilience. The downturn could not have come at a worse time, as Ghana remains under an International Monetary Fund (IMF) Extended Credit Facility (ECF) program, which imposes stringent fiscal and macroeconomic stabilization targets.
The magnitude of this revenue decline signals a critical test for Ghana’s economic policymakers, requiring urgent interventions to prevent further deterioration of the nation’s macroeconomic framework.
Cocoa has historically been a cornerstone of Ghana’s export sector, contributing significantly to foreign exchange inflows and government revenue. With a sharp revenue drop of nearly $600 million compared to the previous year, the fiscal repercussions are far-reaching.
The government derives substantial revenue from cocoa export duties, corporate taxes from processing firms, and levies collected through the Ghana Cocoa Board (COCOBOD). A decline of this scale threatens to widen Ghana’s budget deficit, as lower cocoa earnings translate into weaker public revenue performance.
This is particularly concerning given the fiscal consolidation commitments under the IMF program, which require Ghana to enhance domestic revenue mobilization while reducing excessive government borrowing.
The fall in cocoa revenue also raises concerns over Ghana’s debt sustainability and external sector stability. The IMF program mandates that Ghana maintain a sustainable debt trajectory and improve external debt servicing capacity, largely through robust export earnings. Cocoa, as one of Ghana’s key hard currency earners, plays a crucial role in meeting external debt repayment obligations.
A steep decline in earnings may increase the government’s reliance on external financing, further elevating debt levels and creating vulnerabilities in the country’s balance of payments position. With Ghana’s external debt already exceeding 100% of GDP, any additional strain on revenue sources could lead to heightened debt distress risks, making it more difficult for the country to meet its international debt obligations.
Foreign exchange market pressures are another critical concern arising from the decline in cocoa revenues. Ghana’s cedi has been under considerable depreciation pressure, and cocoa revenue shortfalls will likely exacerbate this situation. Cocoa exports are a vital source of dollar inflows, and any reduction in foreign exchange supply heightens currency depreciation risks.
A weaker cedi has ripple effects across the economy, increasing import costs, raising inflation, and eroding the purchasing power of households. For cocoa farmers and processors, the depreciation of the cedi raises the cost of essential inputs, such as fertilizers, agrochemicals, and processing machinery, which are predominantly imported. This further weakens productivity and discourages long-term investment in the cocoa sector, creating a vicious cycle of declining production and falling revenues.
A major contributing factor to the decline in cocoa export revenues is the contraction in production, which has shrunk by over 11% within the same period. This reduction can largely be attributed to climate change effects, pest and disease infestations, input shortages, and illegal mining (galamsey) activities that have destroyed cocoa farmlands.
Ghana’s cocoa sector is increasingly vulnerable to unfavorable weather conditions, including erratic rainfall patterns and prolonged dry spells, which have significantly affected yields. Furthermore, widespread pest and disease outbreaks, such as swollen shoot disease and black pod disease, have led to severe crop losses, reducing overall production capacity. The inability of cocoa farmers to access affordable fertilizers and pesticides, exacerbated by rising global input prices and currency depreciation, has further compounded the problem.
The depletion of cocoa farmlands due to illegal mining is another pressing issue. Many cocoa farms have been converted into galamsey sites, as smallholder farmers struggling with declining profitability resort to selling their land for short-term financial gains. This practice not only shrinks cocoa production capacity but also degrades soil fertility and pollutes water sources, creating long-term environmental and economic risks for Ghana’s cocoa sector. Unless stringent regulatory measures are enforced to curb illegal mining and protect cocoa farmlands, Ghana risks losing its competitive advantage in the global cocoa market.
Given the severity of the revenue decline and its far-reaching implications, a comprehensive policy response is urgently needed to stabilize Ghana’s cocoa sector and safeguard macroeconomic stability. A fundamental aspect of this response should involve boosting productivity through targeted sectoral interventions. The government, through COCOBOD, must prioritize cocoa farm rehabilitation, expand access to improved seedlings, and increase fertilizer subsidies to ensure that farmers can sustainably enhance yields.
Immediate pest and disease control programs should be scaled up, with investments in early-warning systems and rapid response mechanisms to contain future outbreaks. Additionally, the adoption of climate-resilient cocoa farming techniques, including irrigation systems and improved soil management practices, must be promoted on a large scale to mitigate the impact of erratic weather conditions.
The pricing structure of cocoa must also be re-evaluated to provide stronger incentives for farmers. Ghana’s farmgate cocoa prices must remain competitive, ensuring that farmers receive fair compensation for their produce. Enhancing local cocoa processing capacity should also be a priority, as value-added cocoa products fetch higher prices on the global market than raw cocoa beans. Expanding domestic processing would not only increase foreign exchange earnings but also create jobs and enhance industrialization efforts, reducing Ghana’s over-reliance on volatile global commodity markets.
Beyond immediate sectoral interventions, Ghana must adopt broader macroeconomic and fiscal measures to mitigate the impact of falling cocoa revenues. A crucial component of this strategy should be strengthening foreign exchange reserves through export diversification. Over-reliance on cocoa as a primary foreign exchange earner increases external sector vulnerabilities, and the government must aggressively promote non-traditional exports such as horticultural products, cashew, and processed agricultural goods. Additionally, stabilizing the exchange rate through effective forex market interventions and prudent monetary policies will be key to preventing further macroeconomic deterioration.
From a fiscal standpoint, Ghana must adjust its budgetary planning to reflect the new cocoa revenue realities. Overestimating cocoa export earnings in fiscal projections could lead to revenue shortfalls and excessive borrowing, which would undermine fiscal sustainability targets under the IMF program. Instead, the government should enhance domestic revenue mobilization through more efficient tax collection, broadening the tax base, and reducing leakages in public financial management. Greater fiscal discipline and expenditure rationalization will be required to prevent a widening budget deficit.
The decline in cocoa revenues is a critical stress test for Ghana’s macroeconomic resilience and governance framework. It underscores the urgent need for policy reforms, institutional strengthening, and forward-thinking economic planning. While cocoa remains a vital pillar of Ghana’s economy, policymakers must recognize that sustainable economic growth cannot be achieved through dependence on a single commodity. Strategic investments in agriculture modernization, industrialization, and economic diversification will be required to build resilience against future external shocks.
Ultimately, the sharp drop in cocoa export earnings should serve as a wake-up call for policymakers. The failure to act swiftly and decisively could further strain public finances, exacerbate exchange rate instability, and derail Ghana’s economic recovery under the IMF program.
However, with prudent policy measures, strategic sectoral interventions, and strong governance reforms, Ghana has an opportunity to stabilize its cocoa sector, strengthen fiscal sustainability, and lay the foundation for long-term economic transformation. The coming months will be pivotal in determining whether Ghana can navigate this crisis effectively or whether the economy will remain trapped in a cycle of revenue shocks, fiscal imbalances, and external vulnerabilities.
Felix is a Development Economist and Executive Director, IDER
Email: [email protected]
