Part 2 of A Strategy Co-operative Development in Africa 184.108.40.206 Cost reductions: Cost consciousness has hardly been promoted in the co-operative movements under the era of government control as was discussed in Chapter I. Furthermore, cost structures are often unfavourable (a high degree of fixed costs) and cost levels are high. Loss&of market shares resulting in reduced volumes of trade and processing as well as the pressure on prices following from increasing competition will necessitate cost reductions, and often very substantial cost reductions. It should be stressed that this will be required from all co-operative organizations, including the strong ones, when they loose a monopoly position. Not even very efficient co-operatives will be able to retain a 100% market share enjoyed during a period of monopoly position. If a 50-60% share of the market can be retained after say five years, this should be regarded as quite an achievement. This reduction in market share will only exceptionally be compensated by an expanding total market. Therefore, virtually all co-operatives will have to adjust their capacity and costs to lower volumes of trade. Cost reduction is a must. Co-operative organizations are often characterized by high overhead costs. Investments in fixed assets such as office buildings, storage facilities, landed property and processing facilities have often been substantial. Staff establishments are excessive, vehicle fleets are too large, fringe benefits to staff and to board members are costly, and so on. Such costs simply have to be drastically reduced as volumes of business shrink and competition puts pressure on trading margins. Cosmetic adjustments characteristic of many cost adjustment schemes at present will simply not do. A structural problem of many co-operative movements is that they have developed organizations at intermediary and apex levels which constitute serious overheads to the base, the primary societies. Donors have often contributed very substantially to this unfortunate state of affairs. The excessive costs referred to in the previous paragraph are generally found at these levels. Whereas cost reductions will be required at all levels, including the primary society level, they will have to be particularly big at intermediary and apex levels. As a way of reducing costs, co-operatives will often have to take a rather different view on whether to undertake an activity by themselves or whether to commission the activity outside the organizations. For instance, a primary society may require transport capacity in order to bring produce to the market (to a union, for instance). The society can either purchase a truck or hire a truck to solve its transport problem. Or, a co- operative union requires office space. The union can construct its own office building or the union may be in a position to rent office space. It is probably fair to suggest that many co-operative organizations in an area of government and donor support and with limited incentives to be cost conscious tended to favour do-it-ourselves- solutions, buying the truck, constructing the office building, and so on. It is true that underdeveloped markets at times failed to provide an alternative to do-it-yourself. However, this is also changing as a result of a general restructuring of the economies and will no longer be an equally valid argument. A qualified and cost conscious management will certainly see the point; it is no end in itself to undertake an activity by the organization. It should be done only if it makes strategically good sense and reduces costs with due consideration of risk. 220.127.116.11 Improving the capital structure: Many co-operative organizations are at a serious disadvantage with highly unfavourable capital structures with low or insignificant share capital and an extremely high share of loan capital. As we have discussed in Chapter I, this situation tends to create a vicious circle of a declining volume of business, declining profitability, loss of member interest and further loss of credit-worthiness, further loss of business, and so on. The problem is how to break such a vicious circle. Generally there is no easy answer to this question. The following options could be considered. As far as possible the co-operative movements should prepare and make their case against their governments and press for debt relief and debt cancellation. As a matter of fact a considerable part of the debts of many co-operative organizations was incurred on government direction or outright instruction rather than as a result of mismanagement. This is the most decisive way by which many co-operatives can make something substantive to improve their capital and debt situation. Sometimes governments are willing to take reason. An example is the Tanzanian government which has decided to write off 87 % of the debts of the co-operative unions. to the government. Much concern and interest have been directed at possibilities to increase member share capital. Again the arguments are caught by the vicious circle in which so many co-operative organizations find themselves. Members can hardly be enthusiastic about paying up additional and perhaps even substantial share capital, which would be required to make a difference, when the services they get are poor and alternatives (private traders) offer themselves. Therefore, in most situations it would be unrealistic to expect an increase in member share capital to be a serious option for radically improving the capital situation of co-operative organizations. It is even more unrealistic to expect donor capital to be forth-coming for this purpose. If the capital situation cannot be substantially improved by any of these means, there are only two options left. Firstly, the capital requirement can be reduced or the co-operative organizations in question have to adjust rather than to hope for a miracle. Adjustment will mean a reduction of activities to a level permitted by the available operating capital and a reduction of costs to make the operations at that level competitive and profitable. It is true that debt service obligations, if imposed, will make any adjustment effort inadequate in many cases. In these situations there is nothing left to do but to declare the organization bankrupt and have it de-registered. A reduction of capital needs, which is the other option, can be achieved by taking a credit from the members by simply deferring payments. This is indeed an option which many co-operative organizations in the past have used, or been forced to use by circumstances. Deferred payments is also one of the most frequent complaints among members. Large-scale use of this option is certainly highly dubious in the present situation when co- operatives badly need to improve member services and improve their image. More than that, it may be fatal in a situation of competition. One of the most important means of competition is payment of farmers in cash on delivery. The drastic loss of market share on the coffee market in Uganda by the coffee co- operatives is explained in large part by the fact that traders often have been able to pay cash on delivery which the co- operatives have not. Deferred payments in such a market situation obviously is suicidal. A co-operative development strategy focusing on the primary society level, limiting the activities of primary societies (generally) to trading in one or a few crops and de-linking the primary societies from secondary level co-operative organizations (giving them freedom to trade with whoever they want as proposed in section 3.2.6 opens up interesting perspectives and possibilities on a competitive market. A primary society which is paid cash on delivery will hardly require any capital for its trading operation. Produce is gathered from the members, weighed, recorded, negotiated and sold. The proceeds are then distributed among the members. Admittedly this situation is not at hand on all markets and trading with newly established private traders may entail risks. We will have more to say on these matters further below. 18.104.22.168 Organizational structure: The development of co-operative movements in the past, at least in Anglophone Africa, has always aimed at a multi-tier (generally three tier) organizational structure where the secondary level has been expected to perform important wholesale and processing functions. The primary level has been linked to this level by implied or explicit inter-trade obligations. In many instances the link has been even stronger when the secondary level has taken over accounting functions and payment to farmers from the primary societies, for instance. In some cases society managers have been appointed, recruited and paid for by secondary level organizations. At the same time we have noted that secondary level co-operatives often cannot provide the primary societies and their members with competitive services and cannot be expected to do so in the foreseeable future. Under these circumstances it is necessary to have an open mind with regard to the organizational structure of a co-operative movement. More specifically, when secondary (or tertiary) level organizations cannot be made to serve the primary societies adequately, they have no longer right to claim the loyalty of these societies and they have no longer a justification for their existence. A profoundly important conclusion following from this line of argument is that primary societies should be de-linked from secondary level organizations. In particular primary societies have to be given the right to trade with whoever they prefer. The primary societies should be under no formal or informal obligations to market produce through intermediary level co- operatives. Furthermore, any other link between primary societies and secondary level organizations such as accounting and appointment of managers should be broken unless a primary society explicitly chooses to retain them. The secondary level co-operatives should be forced to prove themselves. If the primary societies turn their backs on them and the loss of business means their ruin, so be it. They should then be closed down and de-registered. Efforts should not necessarily be made to reconstitute such defunct units assigning them the same role as their predecessors, unless it is clear beyond any doubt that preconditions for competitive performance is at hand with the new organization. This should never be taken for granted. Furthermore, the initiative to form a secondary level co-operative should come from primary societies as a reflection of their felt needs and not from an apex organization. Secondary level organizations with a different role from the one we know today should be considered. Rather than performing business functions, such secondary level organizations can be made into support and development units for primary society development. In this regard an apex organization can play an important role by advising primary societies to consider such a different role. (See further the section on support programmes for primary society development below). Apex organizations often need to revise their orientation and internal structure. In the past much of their efforts have been directed to assist and develop the intermediary level organizations. This should no longer be their priority. Their priority should be primary society development with a focus on improving business efficiency. This will most likely mean a re-definition of tasks, a new manning plan and modified organizational structure in many apex organizations. 22.214.171.124 The organizational structure at primary society level: The organizational structure is of particular importance in a development strategy which gives priority to one of the levels in this structure. In many co-operative movements there has been a trend to enlarge small primary societies. Small units have been regarded unviable. More specifically it has been argued that a society needs to be of such a size that it can bear the cost of an employed manager, and maybe other staff. At times the argument has also referred to the ability to bear costs for storage facilities, processing facilities or transport equipment. A range of (diversified) activities have also demanded more overhead arrangements which a small primary society has had difficulties to support. The strategy for co-operative development proposed here leads to a different conclusion. The conclusion is that primary societies (generally) can be and should be smaller and not larger at this stage. It should be recalled that a concentration of activities on trading in one or a few cro~s is advocated. It should also be recalled that trading is highly divisible and is characterized by limited economies of scale. The managerial task is considerably reduced when the activities are limited to trading. Many primary societies, assisted through training, will be capable of handling these tasks. In situations where the task exceeds the capacity of a small primary society with limited numerical skills, for instance, ad hoc, temporary (paid) arrangements can then be made with a local school teacher to assist. Such arrangements would also be justified since trading isa highly seasonal activity for most crops. It would hardly make sense to have a full-time paid manager to do trading during one or two months. Finally, in a cost reducing strategy where transport is hired rather than acquired and where heavy concrete stores are replaced by simple sheds, for instance, there will be less overheads to carry. Such a strategy will permit smaller primary societies. The formation of small primary societies is no end in itself but it serves other purposes of importance for success. Problems with transparency and accountability are endemic in co-operative organizations, including primary societies. The implications of such problems on member interest and member commitment are well-known. Such problems are invariably larger in larger organizations and they are larger in organizations whose membership is constituted with little regard to the social organization of local communities. In the past, co-operative primary societies have been formed with only limited attention paid to social realities. Economic considerations and co- operative principles have been permitted to supersede social considerations. Looking at the cohesion and viability of many self-help groups, a characteristic they share is that the membership is based on an already existing social relationships and social organization. To a much greater extent than in the past, primary societies can be formed on grounds of social affiliation when their business strategy permits smaller units. This will make the primary societies more cohesive and increase internal social control and mutual loyalty. Therefore, an important element of this strategy is to reconsider the organizational structure at primary society level with the view to reduce rather than increase the size of these societies and as far as possible base their membership on existing social formations in local communities. While this is the general prescription, there are situations where existing primary societies are strong and have an activity profile which hardly would suggest a reduction in size. The tea and coffee co-operatives in Kenya are a case in point. 2.3.3 Co-operative principles: The present strategy places business efficiency at the forefront. This may give the impression that all what matters is business efficiency. In the extreme case a co-operative could then be run by a manager as a private company. Whereas this strategy gives top priority to business efficiency, it also stresses the significance of co-operative principles. There is no contradiction between the two. It is true that the interpretation of member control may have to be changed to give a manager a larger freedom to act in a businesslike manner. This, however, does not contradict the principle of member control. The strategy which focuses on the primary society level and which advocates small primary societies offers particular potential for reviving co-operative principles. The smallness of a society makes its operations close and visible. In a more immediate way the activities tend to become a matter for all. Participation can become direct rather than through representatives and participation is the base on which the co-operative principles rest. We therefore conclude that this strategy is not only "compatible" with the co-operative principles but a superior way to promote them. 2.3.4 Gender: Since considerable time there is now full recognition and acceptance of the significance of gender both as a matter of principle (of equality) and as a matter of relevance for economic development. This consensus is indeed not confined to the co-operative movements. The issue has been brought to the forefront in numerous ways and figures in almost all deliberations on development issues, in policy statements, in sector analyses and in project documents. Specific development activities have been implemented in large numbers in order to promote a change in roles and relationships from a gender perspective. Despite these efforts and the prominence given to gender issues, it is a fact that the process of change is disturbingly slow. (So it is not only Africa but also in the North for that matter). This should hardly be surprising (although it may be frustrating) bearing in mind that gender relations reflect deep-rooted cultural and social values which by their nature are hard to influence. The resistance to change in the North despite radical economic transformation, equality in education and record high participation of women in the labour market bears witness to this. All concerned with the gender issue grapple for practical ways to promote the process. The principles are easy to state. The difficulty is to find the practical means. In this regard co- operatives are certainly no exception. We all look for good ideas. We all would like to see a much higher participation of women in co-operatives. The problem is how this is to be achieved when the root cause is related to deeply held values by women as well as men who are not easily affected by awareness campaigns, education and information and hardly served by imposition and force (quotas in positions etc.). The gender issue should also in the future be held at the forefront in the co-operative movement. Co-operative development strategies should explicitly recognize the issue and take a clear stand in principle. Continued efforts should be made to seek practical means to influence the underlying values while accepting that this is a difficult and time consuming process. In the discussion of co-operative development outside the formal (registered) co-operative structures in section 4, we note that a majority of these informal activities are undertaken by women. Our strong emphasis on substantially increased support to such non-formal ventures (on a co-operative basis) represents the most important operational aspect of this strategy to promote gender issues. 2.3.5 Influencing the relationship to the State: We have already noted that a continued Government intervention and interference with the co-operative movements will severely constrain their possibilities to adjust to the demands of a competitive market economy. Rapid economic liberalization and a slow and lagging change in the relationship between the co-operative movements and the State can prove fatal. Therefore, the co-operative movements have a crucial role to play in influencing this relationship. Independence from the State is not necessarily given on the initiative of the State. Further more, the co-operative movements are likely to demand more freedom than most States are willing to give, at least initially. Independence has to be demanded and often fought for. As spokesmen for the movements, apex organizations have a key role to play in claiming and lobbying for this independence. A concrete objective should be to have the co-operative legislation revised and to influence its formulation. Most apex organizations do see this as a crucial task and are already involved in this process. An example of a successful involvement is the achievement made by the apex organization of the co- operative movement in Uganda. 2.3.6 The probability of adoption: In the foregoing sections a range of measures have been proposed in order make present co-operative organizations competitive on liberalized markets and thereby attractive and useful for their members. In light of the diagnosis in Chapter I it could also be argued that these measures will be required in large degree merely to secure the survival of many co-operatives. The list of measures is long and many of them are demanding indeed. What are then the prospects that such measures will meet with wide approval and be adopted with the vigour and firmness that the seriousness of the situation demands? We have argued that a far-reaching disengagement from the State is likely to be a precondition if co-operatives will stand a fair chance to adjust and become competitive business organizations. This precondition alone casts a long and dark shadow over the prospect for successful adjustment. Despite much rhetoric, few governments in Africa seem to be willing to give the co- operatives the autonomy they require. Other reform measures are either unlikely to be considered with continued government involvement or, if attempted, will prove to be of limited significance. In other words, continued government involvement with the co-operatives is a serious threat to their future. In a worst case scenario co-operatives will then loose most of their business and their members. They will continue to exist only in statistical tables, speeches and government plans. For all practical purposes scores of co-operatives will be dead but they will appear to "exist". (Sadly enough this is the situation with a fair number of co-operatives already). In Chapter I an attempt was made to assess the capacity of co- operative organizations to adjust and the factors which determine this capacity were reviewed. While pointing out that this capacity indeed varies and that many organizations certainly have the capacity it takes, the general conclusion was different. When the list of measures outlined above is related to a limited capacity to change, a rather pessimistic conclusion is inescapable. The prospects for intermediary co-operative organizations in Anglophone Africa seem to be particularly gloomy. Many of them are unlikely to survive. Any attempt to salvage them would be a waste of resources and time and delay the emergence of something more useful in their place. The prospects are considerably brighter at the primary society level. The reason is primarily that the measures required in order to put them into business often are considerably less dramatic and less demanding. This is not to say that re-vitalizing scores of dormant and semi-dormant primary societies will be easy. It will take time, resources and hard work but it is feasible. 2.4 Co-operative development outside the established formal co-operative structures ************************************************************ Up to this very point the discussion has exclusively been confined to the problems and prospects of formal co-operative organizations. This focus is hardly surprising given the origin of this study. However, a discussion of co-operative development in Africa would indeed be seriously flawed unless co-operative development outside the formal structures was not recognized. As a matter of fact, it could be argued that co-operative development in Africa worth this label with some notable exceptions often takes place outside the formal co-operative structures. It is also a paradox that co-operative donor agencies for decades have upheld a facade and supported organizations claiming to be co-operatives while only remotely resembling true co-operatives, and largely ignored the existence of large numbers, albeit small, of informal co-operative ventures fulfilling most characteristics of genuine co-operatives. Such spontaneous self-help organizations which are formed on the initiative of the members themselves as a means to solve common problems, governed by rules set by the members, managed by their members and indeed "owned" by the members have always been there. They have been formed to cater to cultural, social and economic needs and they have taken a great variety of forms, addressed diverse context and group specific needs and affiliated diverse constellations of members. An interesting observation is that such self-help groups often are formed by women. The African crisis discussed in Chapter I has enhanced the significance of self-help efforts. Under the hardship of the crisis reflected in the inability of governments to assist people in need and maintain basic services, people have had to take things in their own hands. In many instances they have joined hands to solve their problems through co-operative efforts. Self-help groups have also been "discovered" by development planners and donor agencies who see the potential of this phenomenon as a leverage to development. Governments and donor agencies alike advocate self-help approaches and the promotion of self-help groups and organizations. NGOs in particular have often made "self-help" the characteristic of their approaches and informal self-help groups their counterparts in development. The formal co-operative organizations have generally seen self-help groups as a pre-stage to "real" co-operatives. The term pre-co-operatives has also frequently been used to denote such informal organizations. (In some countries, such as Senegal and Ivory Coast, "pre-co-operative" has a legal meaning since legislation has been enacted to set the rules for their existence). The implied idea has been that pre-co-operatives eventually would graduate and become formal co-operatives. Typically, many or perhaps most informal co-operatives or self-help groups seem to have shown little interest or outright resistance to the idea to become formal registered co-operatives. Casual evidence suggests that they might be unwilling to come under the heavy hand of a government controlled co-operative movement. If there are phenomena which can be termed genuine co-operatives (formed on local initiative in response to a shared need, managed by its members, etc) outside the formal co-operative structures, whose "responsibility" is it to promote and support such co- operative development? Clearly the government has a responsibility to provide a legal and regulatory framework which promotes their formation, facilitates their existence and ensures that they can ret}in their popular character. Part of this responsibility is to provide a framework which permits different forms of co-operative organizations. An important step in this direction would be if governments in Anglophone Africa introduced a legal alternative to present co-operatives and companies limited similar to "groupments d'intrt conomique" (GIE) in Francophone Africa. An important question is how existing formal co-operatives should relate to co-operative activities on a self-help basis outside their own structures. In principles there are no reasons why formal co-operatives cannot promote and support such co-operative activities (presumably with the implicit view that one day they will become formal co-operatives). In practice however, it is highly questionable whether formal co-operatives can make promotion of (informal) co-operatives a high priority. Bearing in mind the very considerable task which the formal co-operative organizations face to transform themselves and fight for survival, it would probably seem odd from their perspective to give priority to tasks outside their own organizational framework. In conclusion it does not seem as a particularly convincing argument that existing formal co-operatives could become important actors in promoting co-operative activities outside their own organizational framework. They will have enough to do cleaning up their own house. How donors may relate to non-formal co-operative development will be discussed in Chapter III of this report which is an attempt to outline some principles for a donor assistance strategy for co-operative development. We now turn to this task.