Cocoa in Ghana, the ‘Political Crop’: Does State Control Shield the Cocoa Sector from Exposure to Capital Flight?

Abstract

Since its introduction into Ghana in the 19^th century, cocoa has been considered a strategic crop, over which the post-independence governments have maintained substantial control. Cocoa is indeed referred to as a ‘political crop.’  The cocoa sector is closely regulated by the government through the Ghana Cocoa Board (COCOBOD).

This paper aims to investigate whether this special industrial organization structure and the strict regulation help minimize the sector’s exposure to capital flight that would otherwise occur through export misinvoicing and leakage of foreign exchange earnings from cocoa exports. Indeed, compared to the gold sector in Ghana and the cocoa sector in neighboring Côte d’Ivoire, both of which are fully liberalized and dominated by foreign corporations, the cocoa sector in Ghana exhibits relatively little evidence of export misinvoicing. Moreover, cocoa export earnings are fully repatriated as they are in the hands of COCOBOD. The analysis, however, indicates that the gains from the cocoa sector in terms of contributions to GDP, tax revenue, and poverty reduction remain sub-optimal. This suggests that there is substantial room for improvement of these outcomes through targeted reforms and policy interventions at the sectoral level.