A Strategy for Co-operative Development in Africa (1994) - Part 2

Part 2 of  A Strategy Co-operative Development in Africa

2.3.2.4   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.

2.3.2.5   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.

2.3.2.6   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.

2.3.2.7   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.