[CONTRADICTIONS] How the Ghana freezones policy contradicts the rhetoric of encouraging Local Consumption of Cocoa and Chocolate

Contradiction of Policy and Practice of the Ghana Freezones Policy in the Ghanaian Cocoa sector

Continued from Part One

Contradiction in Encouraging Local Consumption

One of the most evident contradictions in the Free Zones policy is the limitation on local sales of processed cocoa. Companies like Barry Callebaut can only sell up to 30% of their processed cocoa locally, and even then, these sales are treated as imports, subject to duties. This policy undermines efforts to promote local consumption of cocoa products and has several far-reaching implications.

You remember when cocoa producing countries were told to add value locally and encourage local consumption? How do you do that in this case when you competitors produce in your country tax free but you cant produce chocolate locally tax free for consumption locally?

The policy that restricts local sales semi-processed cocoa products like (Cocoa Liquor, Cocoa Butter, Cocoa Cake, Cocoa Powder) to 30% and treats them as imports creates a paradox where locally produced cocoa products are more expensive for Ghanaians than for foreign consumers. i am sure someone will say, then why dont the local chocolatiers set up thier own cocoa processing factory to have a piece of mind? Well the question will be, should the local chocolatiers establish the processing factory in the freezones or not? Because if they do, in the freezones, they can’t even use their own products, until they purchase their own products as an import imported product. Which brings them back to square one of their chocolate being very expensive, hence a poor country like Ghana, chocolate will continue to be the luxury of the rich.

On the other hand, if they choose not the establish in the freezones, so as to enjoy the liberty of not being charged import tax for using their output to manufacturer chocolate, they will now have to pay the full corporate tax, import duties on all the machines imported needed to set up their factory and to manufacture chocolate for local consumption. So again we come back to square one, where operations cost becomes costly just to serve locals who are already economically not strong. This approach is counterproductive to the goal of encouraging local consumption and supporting the local economy.

Local Sales as Imports:

• Import Duties: When freezones processed cocoa products are sold locally, they are subjected to import duties, even though they are produced within the country. This increases the cost of these products for local consumers, making them less affordable. Offcourse we understand that the freezones idea was to ensure that freezones companies do not have an unfair cost competitive advantage over local competition. However, we do not have local cocoa processing companies for that principle to apply. Hence locals who want to buy semi processed cocoa products from eg. Barry Callebaut and other processors to manufacture chocolate for local consumption becomes impossible cost wise. Let’s not forget that the local cocoa processor who  wants to process for local consumption wouldn’t be given the import exemption freezones companies get when importing the requisite machines and consultants to assist their manufacturing.

Possible Question: Why treat locally produced goods as imports?

Counter Argument: Treating locally produced goods as imports under the Free Zones policy might be intended to prevent market distortions and protect local industries. However, this approach ends up penalising local consumers and undermines efforts to foster local consumption and economic self-sufficiency.

Broader Implications for Local Consumption

The high cost of locally produced chocolate due to import duties makes it more accessible to foreign markets than to local consumers. This situation is particularly ironic given that Ghanaian resources, including labour, taxes, and cocoa, are used to produce chocolate at a lower cost for consumers in countries like Switzerland, while locals face higher prices.

Impact on Local Consumers:

• High Prices: Local consumers, including cocoa farmers, cannot afford the high prices of chocolate products that are produced within their own country. Obviously we are not economically sufficient to funding daily feeding left alone chocolate and further an expensive chocolate. This restricts their access to products made from the cocoa they produce.

• Reduced Local Consumption: High prices lead to reduced local consumption of cocoa products, which limits the potential market for these goods within Ghana. This reduction in local demand stifles the growth of local cocoa-based industries and entrepreneurship. This exposes the disparity between Rhetoric and practice where you encourage local consumption but put policies in place to make it impossible.

Possible Question: Isn’t the goal to increase exports and bring in foreign currency?

Counter Argument: While increasing exports is important for earning foreign currency, fostering local consumption is equally vital for building a resilient domestic market. A balanced approach that encourages both exports and local consumption would support sustainable economic growth and provide broader benefits to the local population.

Consider a Ghanaian cocoa farmer’s child who sees chocolate as a luxury item, too expensive to buy regularly, while Swiss consumers enjoy it at a price not commensurate of the hard work that went in yet paid less. This scenario highlights the absurdity of a system where locally produced goods are cheaper abroad than at home, undermining local consumption and economic benefits. Offourse we all know that the chocolatiers do not allow that cheaper price at which they obtain cocoa from Ghana to reflect in their chocolate prices. Lets leave it here for now.

Economic and Stakeholder Benefits

While the local population struggles with high prices, the benefits are again seen abroad and among foreign stakeholders.

Foreign Consumers and Economies:

• Affordable Products: The lower cost of production in Ghana enables companies like Barry Callebaut to offer competitive prices abroad, benefiting their bottom line, foreign consumers with affordable high-quality chocolate products and be able to create an enabling environment for their workers to work in.

• Economic Gains: Foreign economies benefit from the associated revenue and employment generated by the sales of these products, bolstering their economic health.

Barry Callebaut and Shareholders:

• Cost Efficiency: By leveraging the lower production costs in Ghana, Barry Callebaut can maximise its profits. The company benefits from a favourable production environment while still maintaining high product prices in international markets.

• Profit Repatriation: As a foreign investor, Barry Callebaut can repatriate its profits, ensuring that the economic benefits of its operations in Ghana are enjoyed primarily by its shareholders and stakeholders abroad.

Possible Question: Isn’t it necessary for Barry Callebaut to remain competitive globally?

Counter Argument: While maintaining global competitiveness is essential, this should not come at the expense of local economic development and fairness. Policies that balance export incentives with support for local consumption can help create a more equitable economic environment that benefits both the company and the local population. Chocolatiers cant on one hand talk about how concerned they are with the livelihoods of cocoa farmers, and on another hand be the perpetrators of the very thing they claim to be concerned with. Consistency and good faith commitment is imperative.

A policy that limits local sales of processed cocoa products and treats them as imports creates a significant contradiction in Ghana’s Free Zones programme. This approach undermines the goal of encouraging local consumption and supporting the local economy, making locally produced goods more expensive for Ghanaians than for foreign consumers. Addressing this paradox is crucial for ensuring that the benefits of the Free Zones programme are more evenly distributed, promoting both export growth and local economic development. The Ghana Freezones policy. needs to be flexible to cater for the nuance of the Cocoa sector to ensure that our rhetoric of encouraging local value addition and consumption can be realised with ease.

Next article, we will discuss the illusion that Ghana’s Free Zones programme significantly contribute to economic growth, especially via cocoa chocolate sector.