J E Yeboa
Furthermore anybody who has read Act 286 will immediately realize that that Act was specially crafted as a catalyst for the development of food and agriculture in Ghana. Profitability was NOT a prime requirement for ADB. The Bank is exempted from income tax and section 29 specifically excludes the application of any of the provisions of the Companies Code 1963 (Act 179) to the ADB. Any amendment or even the liquidation of the Bank can be done only by another Act of Parliament.At the last regular meeting of the Agricultural Development Bank (ADB) Ex-Staff Association held on Saturday 11th August 2007, the issue of the alleged sale of the Bank of Ghana's interest in the ADB was discussed at length. At the meeting were some of the staff of the ADB who were around at the Bank of Ghana, where the foundation 'stone' of the proposed bank was laid in 1965.
The Association's general opinion after the discussion was that the proposed sale of the Bank of Ghana"s interest to any private organisation would not be in the best interests of the nation. Here is why, but first a few historical facts:
Unlike other private banking institutions in this country, the ADBank is the only bank set up by Parliament under The Agricultural Development Bank Act (#286), 1965. That alone should suggest to the discerning public that the ADB was incorporated for a special purpose. All the other banks in this country are incorporated under the Companies Code (#179), 1963.
The ADB’s functions, governing body, management as well as its legal and operational relations are governed and controlled by the ADP Act. In other words the ADB is completely insulated from the laissez-faire provisions of the Companies Code. This means that the shares or stock held by the Bank of Ghana and the Government of Ghana are controlled exclusively by Act 286. Until then legislature chooses to amend it, the President of the country is obliged enforce and protect the provisions of the ADB Act.
During the early stages of Ghana’s attempt at industrialisation, the government needed an institution to provide a ready source of credit to support the provision of industrial raw materials as well as certain key food crops, mainly grain, oil palm, fishing and livestock. The objective was food security for the nation and raw materials for our factories. The Bank of Ghana was accordingly charged with responsibility for the establishment of appropriate credit agencies in support of that programme.
Two proposals eventually emerged at the Bank in 1965. One was for Rural Banks and the other for an Agricultural Bank. Both were approved by the Board of Governors and the government.
The Rural Banks, masterminded by J.S Addo, were to be privately owned and funded. It was intended that they would provide short and medium term funding for rural businesses and cottage industries and even for short term expenses for personal needs of the farmers and small businesses. That objective has now been realized: the Rural Banks are clearly a success story for this country.
On the other hand, responsibility for the planning and preparation for the new bank was given to the Rural Credit Department of the Bank of Ghana at the time. In due course that department was incorporated by Act 286 as the ADB. With no precedent as a guide the new bank started work gingerly testing one risk at a time – fishing, rice, cotton etc. Eventually an aggressive programme comprising the integration in small doses of credit, for production, processing, marketing and for loan recovery was established.
Naturally there were many debilitating problems, including bad debts, but these were strictly controlled. They were considered as occupational hazard that would be eventually overcome. The Bank of Ghana wisely established a Credit Insurance Scheme to cover certain risks in order to encourage the new bank find its feet.
It is precisely because of these inherent risks which make agricultural lending unattractive to the other banks. However, if this nation is to have food security and regular employment in the countryside, it must tackle the credit function head on because we cannot have development without risks. This is not to say that credit alone is the panacea for the solution of the country’s agricultural problems.
It was and I believe it still is the ADB’s policy to take the risks as part of its development function. It does not abandon risky projects or penalize borrowers when their projects stutter or even fail. The rule is perseverance rather than abandonment. Development, particularly in agriculture, is a continuous activity even in the developed economies. There they provide subsidies for their farmers.
The USA, for instance, provides substantial financial support through its Farmers Home Administration. The Europeans have similar support programmes for their farmers.The French in particular appear even ready to go to "war" if their farm subsidies are threatened by the E.U. Also in the UK they have the Agricultural Mortgage Corporation and the Scottish Agricultural Securities.
That is how and why their farmers have prospered and are now dumping their surplus goods on our markets. Even chicken feet and other unwholesome food products are sometimes imported into this country, thanks to the WTO. That organisation is systematically and steadily pricing our farmers out of business.
Finally the ADB is the only financial institution in this specialized area of farm credit. It has within its walls specialists who have been trained for specific tasks in the supply and control of credit in the agricultural economy. Ghana’s challenges are unique and can effectively be tackled only by us through ADB.
If the Bank of Ghana , a shareholder in ADB, is embarrassed by the apparent conflict of interest (of being central bank/industry regulator as well as ADB shareholder) it should divest its interest to the government or at the Ghana Stock Market. There is a general perception that the foreign bank, the strategic investor is bringing a lot of money to be shared among the farmers; this creates a subtle credibility or even mass hysteria. No bank ever shares money, not even when there is a run on the bank.
Where is the evidence that the strategic investor will ignore profits in order to assist the village cotton farmer? What guarantee do we have that the strategic investor will risk putting in any money at all?
Strategic investors will go to great lengths to maximize their profits! That is their calling and nobody can blame them for becoming strategic investors. The reason is that traditionally the High Street banks employ their depositor’s funds to make advances and loans and would never venture into high risk areas in agriculture such as we have in this country. That would result in losses and their shareholders would immediately fire the Boards of Directors.
Hon. J.H Mensah holds the view that the interests of Ghanaian farmers can be well protected without ownership of ADB. He did not elaborate on how that protection is to be secured for the farmer. He has in his article clearly excluded and discounted the traditional banks from participating in any programme to provide credit to our farmers. If the only source of funding for farmers, the ADB, is to be sold out to a profit-seeking investor, where then should the farmer go for help?
The question is what stops any investor from establishing his own agricultural bank in this country? Unfortunately Hon. J.H Mensah in his article has created the impression that the ADB should be divested without indicating what happens to the small Ghanaian farmer after the divestiture.
A lot can and should be said for maintaining the ADB in its pristine character. The dramatic improvement in the supply of palm oil for the manufacture of soap and other detergents can be traced to ADB’s investment activities in the oil palm sector. Similar successes were achieved in cotton and rice.
The improvement in the poultry and fishing sectors can similarly be traced to ADB. Over the past 25 years or so the Government has never directly funded the ADB to enable it expand its investment programmes. The bank is nevertheless showing stability, resilience and growth to a level where even profits are being recorded. Development in agriculture is a slow but continuing process and the ADB should be supported in its effort to assist farmers as it has been doing over the past forty two years.
The government should play its part in this effort. Massive investments were made by the government over the past seven years through Cocoa Board in support of the cocoa industry. The phenomenal results show what financial support can achieve. Cocoa continues to break all previous records! There was no strategic investor in that effort. What stops the government from launching a similar investment programme for rice and maize, for instance?
The ADB is waiting for such a challenge and is ready to be employed as a tool for the government in that exercise. Herein lies Ghana’s food security! ADB should not be judged by the level of profits it makes. Rather the yardstick is whether it can make a significant impact on the food situation in Ghana in fulfillment of the objectives of the Agricultural Development Bank Act of 1965 (Act 286).
That, Sir, is our submission. Please do not dilute or change the ADB equation in Ghana’s development aspirations. You may unwittingly hurt our farmers.
* Chairman of ADB ex-staff Association
