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Opinions of Monday, 27 September 2021

Columnist: Ismail M. Kailani

The realities and dynamics of sugar (commodity) transaction in Ghana

Most commodity dealers (traders) in Ghana shy away from placing instruments and it is a huge challenge and bottleneck that destabilises commodity transactions in Ghana, especially sugar trading.

Cost, Insurance, and Freight(CIF) is the popular mode of sugar commodity transaction in Ghana and the most often used in West African countries. In line with CIF, is an industry practice referred to as “high sea or Ghana waters transaction or sales.”

CIF is the most standardised mode of commodity trading in Ghana and most West African countries, however “high sea or Ghana waters transaction or sales” is the widely desired and preferred mode of transaction for off-taker buyers.

The dynamics of the sugar commodity transaction in Ghana is such that, all players (seller, buyer, intermediary, and others) have to be up to date and to be in the know on the transaction at hand, for the simple reason that any disgruntled player can pull off the plug to unmake a business transaction or not to ensure a transaction materialises.

The reason why you need all players (comprising: seller, buyer, facilitators, financiers, and other market players) to work efficiently and effectively as a team to ensure no unexpected surprises occur. 

Generally, the realities and dynamics in the practice (industry) of sugar (commodity) transaction in Ghana is described below:

• Seller to meet buyer halfway in the sense of seller doing due diligence, background checks, and profiling on the buyer. Also, the buyer should show and submit commitment from its banks as surety, assurance and guarantee on its ability to perform and pay upon receipt of goods at the requested destination. 

• Again, seller meets buyer halfway with seller issuing BL (direct or third party BL) to the buyer. Buyer upon receipt of BL blocks fund against banking coordinates of seller. In other arrangements, the buyer pays outrightly to the seller to take control of the vessel upon receipt of BL. The buyer can readily redirect the vessel to its intended destination. 

3• Cash Against Documents: With this arrangement, the buyer agrees, enters an agreement, and signs a contract with the seller to submit BL to the buyer, then the seller sails the product (commodity) to the required destination for which the buyer pays off the seller after Q&Q within stipulated banking days. Cash against documents in other arrangements is similar to point 2 above. Such that, once the buyer gets hold of documents be it electronic or via mail or via courier, the buyer will instantly block funds against the banking coordinates of the seller as captured in SPA, FCO, NCNDA, IMFPA and others. 

4• Instrument & Other Forms of Commitment/Guarantee: Indeed some buyers can place an instrument of LC from local banks in Ghana (Africa). Some Buyers as well can issue other forms of commitment or guarantees to mitigate the risks (loss/concerns/fears) of the seller. Such buyers can go extra to release details of their off-takers and share classified information with the seller. Correspondingly, most LC from the local banks have their intermediary banks amongst the prime global banks in the world for swift confirmation, e.g. is Citibank and others.


INSIGHT AND FORESIGHT ON SUGAR COMMODITY TRANSACTION IN GHANA (AFRICA)

In furtherance to countless receipts of soft corporate offers (comprising mostly the procedure, specifications, price quotations, and prerequisite conditions on the Brazilian Incumsa 45 Sugar CIF transaction) from potential sellers and suppliers as a guide and insight on their willingness, readiness, and ability to ship sugar (export/import) into Ghana.

Consequently, after an in-depth analysis of the proposition (soft corporate offer) from the potential sellers and suppliers overseas, below are some preliminary observations we clearly and easily highlight as a response:

• Procedure: We are of the opinion that the procedure of most sellers/suppliers is a bit of the international standard and best practice around the globe on commodity transaction. The procedures somehow are highly technical and robust, generally in line with the best practices of western systems (countries). In other words, such procedure is strict, stern, and difficult to fly in our part of the world, West Africa and Ghana especially.

It is my hope that, sugar commodity sellers/suppliers overseas will accept and welcome counter procedure from any prospective buyer(s) to ease trade constraints and failures. The business environment and terrain in both parts of the world is unparalleled and hence, considerable considerations should be factored in drafting procedures for commodity transaction or international trade into Africa. The procedures should be relaxed and made flexible to reflect the bottlenecks and peculiarities persistent in our business terrain and part of the world.

• Financial Instrument: Secondly, we observed that sellers/suppliers make it a prerequisite condition or requirement that an instrument is placed. Instruments such as SBLC, LC, BG, RWA, ESCROW ACCOUNT, and others, make business prospects of sugar (commodity) transaction of high volumes and huge targets (quantities) almost impossible or if not extremely difficult. 

We anticipate and recommend to sellers/suppliers to have the interest in furthering their long term business prospects, to penetrate seamlessly in the sugar (commodity) industry, and to as well capture a sizable market segment/customer base to relax their instrument requirements. We advise sellers/suppliers to accept LC (for a number of days or LC) from local banks in Ghana with the established prime intermediaries and corresponding banks overseas. Also, sellers/suppliers should establish all business transactions with prospective buyers from start to end through their banks, referred to as Bank to Bank transaction. 

• Price Quotation: The price quotations for both Spot and Revolving (12 months) is quite volatile. The price variation seems keenly competitive, the competitive prices prevailing in the industry range from $250.00/MT onwards or less. So, if the price quotations of a seller/supplier are highly competitive, it’s more of a plus to the seller/supplier. Also, the specifications for the Brazilian Incumsa 45 sugar should meet the international standard, because such standards are the same for the sugar industry in Ghana. 

• Long Term Mutual and Beneficial Business Transaction: Kindly it should be known to sellers/suppliers that, they rather should target a long-term business transaction with their potential buyers to be mutual and beneficial for both parties and intermediaries. Once the seller, buyer, financiers, and intermediaries are satisfied, then the transaction at hand will flourish and will be successfully closed.

All business dealings and commodity transactions should be based on mutual respect, confidence, trust, integrity, credibility, professionalism, timely correspondences and delivery on timelines/schedules. 
Africa has the market for the commodity of sellers/suppliers, however, some overseas sellers/suppliers see Africans as unworthy, to be exploited, and outsmart often. A caution for sellers/suppliers to transact their dealings in Africa (Ghana) with mutual respect and intended benefits for all. 

• Resident Team: It is smart, strategic and decisive for sellers/suppliers of sugar commodities to put in place a resident team of diverse backgrounds, expertise, experience, integrity, and competence. Ensure you entice and motivate the resident team in writing, signed and sealed.

The team represents you the seller/supplier. Be open to them and build their capacity on your operations and capabilities. They become you here in Ghana (Africa). Ensure the team's interest is protected and secured. Then, the team will ensure the seller/supplier penetrates into the Ghanaian (African) market seamlessly. They will facilitate and ensure sellers/suppliers capture an appreciable market base and maintain their dominance.


CONCLUSION & RECOMMENDATION

Potential Buyers of sugar commodities in Ghana (West Africa) continuously reaffirm their willingness, readiness, and ability to perform. Furthermore, commodity transaction (international trade) has three key players (components): the Seller, the Buyer and the Financier(s). In view of the above, most buyers seem not able to meet the seller’s prerequisite conditions and procedure solely on placing instruments of any kind. In line with this, we make these two grand Propositions: 

1. A possibility of the Seller:
a). Interfacing as Seller and Financier at additional costs to be borne by the buyer? 
b). Secure a neutral Financier to finance the placement of instrument to the satisfaction of the Seller and at an additional costs to be borne by the Buyer. 

2. Seller to redirect any stray loaded vessel with sugar (product) immediately directed to buyers. 

To conclude, we advise sellers/suppliers to carefully consider the dynamics of the sugar (commodity) industry in Ghana (Africa) to make prudent decisions. However, we will advise sellers/suppliers to consider and make decisions case by case (client to client bases or buyer to buyer basis). Consider each potential buyer distinct from the other and take it as a case with peculiarities for a sound decision and ultimate judgment.

Furthermore, sellers/suppliers should consider thoroughly offers of buyers that will be revolving for a year and over a long period of time, to buyers that meet all prerequisite requirements yet are in for spot transactions.

Hence, we recommend sellers/suppliers to relax their strict or robust standards and best practices to rather factor (thoroughly consider) the terrain of business dealings in Ghana/Africa. Our business terrain will prosper with sellers/suppliers who partner with prospective buyers to enter into a long term beneficial transaction or business dealings by easing technicalities and strict requirements.