, regulatory issues hindered progress, and the critical mass for its launch was never reached. CCH decided there will be a need for an effective delivery system (a warehouse receipt system) before an exchange can work. They therefore decided to set up a subsidiary company to explore a money market-traded repo system based on a regulated warehouse receipt system that can guarantee delivery of the underlying and also help aggregate commodities into standardized storage systems. The large number of workshops organized around the above activities strengthened the awareness of commodity exchange issues; and towards the end of the 2000s the official attitude towards the idea of setting up an exchange improved. Both the Ministry of Agriculture and the Ministry of Finance became interested in having a commodity exchange for “everything but cocoa”. In 2008, the World Bank provided funding, and further studies were undertaken, including studies on the legal and regulatory framework for a viable exchange and warehouse receipt system. These studies conclude that it was feasible to establish a Ghana Commodity Exchange (GCX) and warehouse receipt system (Onumah, 2010). In the short run, the exchange can offer spot trading facilities, as well as trade in commodity repos (i.e., repurchase instruments backed by warehouse receipts) and transport-related instruments. A futures market will be developed afterwards. It was intended that the exchange eventually becomes an integral part of a regional or pan-African network. In April 2012, work on a draft legal and regulatory framework was completed. Press reports in early 2012 referred to plans of the Ministry of Trade and Industry and the Securities and Exchange Commission to jointly establish the GCX “by December 2012”. This expectation was based on the premise that funds will be available from development partners and the Ethiopia Commodities Exchange will be contracted to undertake a turnkey project delivery of an exchange in Ghana. However, there was no support from the development partners for such a venture led by the government, and the initiative stalled. On the other hand, work to introduce commodity warrants, which can lay the basis for the development of a private-sector led exchange, progressed. The focus for piloting the CCH strategy, mentioned earlier, had shifted to commodity financing and aggregation through a regulated warehouse receipt and warrantage system. The commodity asset-backed warrant scheme was designed in consonance with the local demand profiles of both the commodity trade financing requirements and the financial investment, market yield and distribution curves. It aimed to move agriculture from the current atomistic, nonindustrial production and storage centres into accredited warehouses and silos, in standardized lots, graded; shelf-life certificated, insured with no loss guarantees, and financed sight unseen. In 2012, CCH arranged lines of credit for repo contracts totaled about US$16 million to finance grains, coffee, and sheanuts from local banks. The first repo was on the basis of the first issued regulated warehouse receipts of the Ghana Grains Council, to the tune of cedi equivalence of US$1.2 million of white maize in early 2013. In addition to this novel contract, CCH has a repo trade book value of about 8,000 metric tonnes of white maize and about 5,000 metric tonnes of sheanuts. The repo system for grains makes use of a manual/electronic warehouse receipt system developed and operated by the Ghana Grains Council, which also licenses and supervises the warehouses involved.
(repos). The repo process will eventually develop its own secondary market, with forward trading of physicals via the repos, then the trading of the repos (through commodity backed warrants) and related regulated services on a cash exchange. To facilitate this, CCH was hooked into the Ghana Inter-bank Payment and Settlement System of the Bank of Ghana. Like all market instruments in Ghana and other developing markets, it takes time to build credibility, which can support volumes of trade, which then create its own secondary markets by bringing along other institutional investors into the market. CCH is pioneering the trading of repos in the money market. It is expected that the exchange that will eventually emerge from this process will be a completely independent private stakeholder led project based on both the CCH’s business model and the Grains Council warehouse receipt system. The development of an exchange in Ghana is not expected to follow the patterns of development in other African countries, where the governments become the owner of the exchange and map out its development pathway, with the private sector just coming in as users/members. Farm production dynamics, post-harvest economics, history of failures of public institutions, traditional and industrial market demands, financing requirements, etc., would dictate that government only provides the necessary support for the development of such an exchange by stakeholder private sector interests. The massive growth of the Ghana Grains Council over a short period of its establishment, with membership extending to the leading banks and financial institutions, insurance companies, commodity aggregators, warehousemen, processors and traders, etc., point to the inevitability of this process (AfDB, 2013). With Ghana’s population estimated at over 24 million, about 50 percent of which live in urban areas. The country’s rapid rate of urbanization, which is estimated at 3.5 percent per annum (GSS, 2013), creates market potential for industrial processing of agricultural produce including the major staple grains and root crops. Though agriculture is Ghana's most important economic sector, employing over half the population, smallholder farm productivity is low due to the following issues: reliance on rain-fed agriculture, low level of mechanization in production and processing, high post-harvest losses, weak finance for agriculture, poor extension services, and market linkages. However, this potential is yet to be significantly exploited as a result of bottlenecks in the agricultural value chains. Ghana has enjoyed a long period of political stability, particularly since 1992 when constitutional rule was instituted. Its media is relatively free and respect for the independence of the judiciary has been growing since 1992. These conditions have contributed to make Ghana an attractive location for investment in the West African region. However, the commodity sectors have not been able to attract the required volumes of investment and the country remains well-endowed with natural resources but poor and heavily dependent on international financial and technical assistance. The Ghanaian economy has been experiencing accelerated growth in the last decade, rising from 5.2 percent in 2003 and reaching 6.3 percent in 2007 (Revised GDP estimates for 2013 showed a growth of 7.1 percent over the 2012 final estimates of 8.8 percent, (GSS, 2014). Though this sustained GDP growth rate is historically high and impressive by Sub-Saharan African standards; and agriculture remains the dominant sector (representing close to 40 percent of GDP), its performance will impact on the achievement of the country’s accelerated growth objectives. Ghana has a diverse and competitive financial sector comprising 22 registered universal banks, 137 rural and community banks, and 58 Non-bank Financial Institutions (NBFI) operating in the country as of December 31, 2013 (available: http://www.bog.gov.gh/index). However, credit to the commodityrelated sectors, especially the agriculture sector, remains very low largely because banks perceive the sector as highly risky. The cost of borrowing is also high, with average nominal base lending rates offered in 2014 by the commercial banks averaging 24 percent. Most medium-scale enterprises in the commodity sector obtain credit from NBFIs at interest rates of between 8 and 10 percent per month (i.e. 96 to 120 percent per annum).
2008. Growth in the export of processed products is partly due to increasing domestic processing of cocoa beans into cocoa paste and cocoa butter, which is exported. Raising farm productivity will require not only adoption of improved production technology such as planting high-yielding varieties as well as improved access to farm extension and finance but also measures to modernize and improve efficiency in the country’s agricultural marketing systems. The Agriculture sector doubled its growth rate of 2.3 percent in 2012 to 5.2 percent in 2013. This was mainly on account of growth in the Crop subsector (5.9%), Livestock subsector (5.3%) and the Fishing subsector (5.8%) (MOFEP, 2014). The considerable time and related cost in assembling small volumes of produce from widely dispersed smallholder farmers, uncertainty about available supplies and poor contract enforcement tend to increase transaction costs in the agricultural trade in Ghana. Lack of formal grading standards makes it difficult for impersonal trade to occur, thereby limiting farmers’ marketing options to few traders and weakening their bargaining position. Within the trade, farmers, traders and processors are fully exposed to price risks with little or no hedging opportunities. The uncertainty created discourages investment in productivity enhancement by farmers. It acts as a disincentive to traders and processors in undertaking investments likely to lead to improved efficiency in the trade. Most of the trade in agricultural commodities in regional markets such as Burkina Faso and Togo is informal and face similar constraints as those in the domestic trade. (AfDB, 2013). Recent research has established that the uncertainty generated from commodity price fluctuations hampers growth and is associated with increases in poverty. Inability to manage uncertainty makes it difficult for farmers to plan their crops, allocate their resources, obtain credit for inputs, and even simply recover costs. It also weakens the ability of governments to maintain a conducive and stable environment for domestic business and to implement policies and programs to reduce poverty (Varangis, 2003). “Given that commodity prices are generally volatile, producers in poorer countries face individual price and possibly income risk, while the country as a whole might face export earnings risk, which in turn might affect growth. One possible solution offered has been to encourage the establishment and use of commodity futures markets as a mechanism for spreading these risks.” (Morgan, 2000, p. 1). Price volatility is perhaps the most pressing issue facing producers of primary commodities. While these producers are not exclusively in least developed countries (LDCs) (see Sapsford and Morgan, 1994) the impact of volatility on producers then is much greater than it is for those in developed market economies (DME