Revitalizing the natural rubber sector for economic growth: GIRSAL’s contribution to the sector

The rubber sector is a key component of Ghana’s economy and contributes significantly to the country’s export earnings. According to data from the Ghana Export Promotion Authority, in 2022 alone, exports of specified technical rubber (processed natural rubber graded to meet specific quality standards for industrial use) and natural rubber sheets generated approximately $131.3 million.

This impressive figure highlights the sector’s key role in driving economic growth and highlights its enormous potential.

Thanks to the versatile latex, the natural rubber factory is irreplaceable in many industries. From car tires and gloves to swimming caps, mattresses, catheters, rubber bands, balloons, tennis shoes and sporting goods, rubber is an essential raw material for the production of various products.

Rubber cultivation in Ghana thrives in the “rubber belt”, an equatorial zone extending from about 15°N to 15°S from the equator. Known for its favorable climatic conditions and fertile soils, this region includes significant rubber-producing areas such as the Amazon basin in Latin America, Southeast Asia, the South Pacific, and West and Central Africa. Countries such as Brazil, Malaysia, Indonesia, Thailand, Cote d’Ivoire, Nigeria and Ghana lead the production of rubber in these regions.

Global market trends and prospects

According to a report by Research & Markets (cited by Yahoo Finance), global natural rubber production is expected to grow at a rate of 4.3% annually between 2021 and 2026. By 2027, the market value is expected to reach $51.21 billion. , with an annual growth rate of 5.3% during this period (source: Fortune Business Insights report). This growth is primarily driven by the growing demand for natural rubber due to its insulating properties in the automotive industry, which is the main catalyst for market expansion.

According to the International Rubber Study Group (IRSG), the Asian market is the largest consumer of natural rubber, with China, India and Thailand consuming a combined 8 million tonnes annually. The automotive and tire industries are primarily responsible for the high demand in these countries. As a result, the Asian market continues to drive growth in global rubber demand.

Ghana’s natural rubber sector

Ghana’s natural rubber sector currently has four active processing plants in the Western, Central and Eastern regions. The largest processor, Ghana Rubber Estate Limited (GREL), has two factories in the Western Region with a combined capacity of 20 tonnes per hour. Other processing plants include NARUBIZ Ltd (1 tonne per hour), Rubber Plantations Ghana Ltd (RPGL) (0.8 tonne per hour), APEX Rubber Processing (1 tonne per hour). Additionally, Yaeric Company Limited will become the fifth factory with a processing capacity of 1 tonne per hour.

Sector growth and export results

Before 2012, the rubber industry struggled with production downtime resulting from price dynamics on the global market and low investments. However, between 2012 and 2021, there was a clear change in the sector. The area devoted to rubber has increased significantly, from 25,000 hectares to 62,558 hectares. Productivity also increased slightly, with natural rubber yields per hectare increasing from 780 kg (0.78 tonnes) per hectare in 2012 to 880 kg (0.88 tonnes) per hectare in 2021.

In terms of exports, Ghana has experienced rapid growth, with rubber export revenues increasing from $69 million in 2012 to $131 million in 2022, an increase of approximately 90%. In 2021, rubber became Ghana’s 13th most exported product and 8th^vol A non-traditional export commodity, the export value of which will amount to USD 135 million, and in 2022 USD 131 million, which emphasizes its growing importance on the country’s export market.

Challenges in the rubber industry

The natural rubber sector has historically struggled to secure financing from banks due to several factors. The long development period of rubber cultivation requires significant, long-term financial resources, which many banks are reluctant to provide. This reluctance is exacerbated by banks’ dependence on donor-funded rubber projects, the perceived risks in the sector and the lack of appropriate financial structures and flexible instruments in Ghana. Although some government-owned banks provided financing, this was mainly due to donor interventions. Additionally, Ghana’s land tenure system complicates land ownership and access, making it difficult to develop rubber farming.

High-quality rubber planting materials are both rare and expensive, adding to the burden on farmers. The seven-year maturation period of rubber plants and vulnerability to climate risk discourages financial institutions from lending to this sector. Price volatility in the international rubber market and limited competition among buyers further increase the financial uncertainty of rubber producers, making the sector less attractive to investors and lenders. As such, the sector has relied heavily on donor funds to ensure sustainable development.

GIRSAL’s contribution to the rubber sector

State-owned rubber companies such as GREL and Rubber Plantation Ghana initially led the sector, but eventually transitioned to international ownership, transforming the industry. However, there was an urgent need to establish local, indigenous processing plants with appropriate protocols to further develop the sector.

Recognizing the untapped potential in the rubber sector, GIRSAL stepped in to facilitate the entry of domestic processors into the market. By providing the necessary financial incentives in the form of credit risk guarantees, technical assistance and advisory services, the GIRSAL project aimed to reduce perceived risk and increase the attractiveness of the sector for banks. This support has enabled financial institutions to offer lending facilities to rubber value chain actors such as producers and processors, thereby attracting local participation and growth in the sector.

In 2020, GIRSAL spearheaded the creation of the first domestic natural rubber processing factory in cooperation with a financial institution. By providing technical consulting services and issuing a Credit Risk Guarantee, GIRSAL enabled the bank to finance the project. From October 2021 to December 2023, the plant produced and processed 8,500 tonnes of technical specification rubber (TSR) for export, generating a turnover of over USD 10.8 million. By the end of 2024, production is expected to increase to 9,200 metric tons, resulting in an estimated annual turnover of USD 10.8 million.

The establishment of this plant has created over 60 permanent jobs and sustainable employment for 2,700 workers, including latex threaders, farm maintenance workers and carriers in the operational region. Additionally, the factory sources its cup nuggets from over 451 local farmers.

Building on this success, GIRSAL is collaborating with other banks to establish new rubber processing plants and renovate existing facilities experiencing downtime. This initiative aims to increase the availability of raw materials for processing and increase the production capacity of factories to support exports.

Value addition prospects in the rubber sector

Ghana imports a wide range of rubber products including car tires, car parts, medical equipment and devices, industrial products, kitchenware, condoms and other value-added items made from natural rubber exported from Ghana.

Adding value to locally produced rubber creates significant economic growth opportunities. By producing natural rubber-based goods such as automotive bushings and fan belts domestically, Ghana can reduce its dependence on imports. These efforts are part of the country’s import substitution program, especially as car companies such as Toyota and Volkswagen begin to assemble vehicles locally.

One of the key objectives of the GIRSAL 5-year plan is to contribute to the import substitution program in Ghana. To this end, GIRSAL collaborated with other consultants in the rubber sector to conduct a feasibility study on potential products that could be obtained from Technical Specification Rubber (TSR). The aim is to increase TSR, expand the product portfolio in the rubber industry, create more jobs, generate additional income for processors, increase exports and increase Ghana’s foreign exchange earnings. These efforts are expected to prevent the depreciation of the Ghanaian cedi and improve the balance of payments.

Conclusion: a call to increase the cultivation, processing and financing of rubber plantations

Through established protocols for sustainability and financing of the rubber sector, Ghanaians are encouraged to invest in the rubber value chain. There is a growing demand for natural rubber pieces from local processing plants, which increases local competitiveness. This creates opportunities to invest in rubber plantations to meet the estimated annual demand gap of 26,000 metric tons. Potential investors should be aware that processing plants must control at least 60% of their raw materials to ensure a consistent supply for TSR production.

Furthermore, increasing the value of TSR through the production of currently imported derivatives can reduce import dependence and increase TSR exports, thereby stabilizing the domestic market and increasing export potential. This, in turn, will improve Ghana’s balance of payments and help mitigate the depreciation of the cedi.