A Strategy for Co-operative Development in Africa (1994) - Part 1

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    This document has been made available in electronic format
         by the International Co-operative Alliance ICA 
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                         September, 1994


          (Source:  Report of a Study Commissioned by ICA
          Europe - Co-operative Adjustment in a Changing
          Environment in Sub-Saharan Africa - pp.42-60)

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          A Strategy for Co-operative Development in Africa
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2.1  Introduction
*****************  

Co-operative development in the future cannot and should not be
the same as co-operative development in the past. As we have
discussed at length in Chapter I, major changes take place in the
external environments of co-operative organizations demanding
major changes in their modes of operations, organizational
structure and relationship to the State. At the same time these
changes also bring with them the opportunity to promote co-
operative development closer to the principles on which
co-operatives ought to be based (member ownership, member control
and member management).

It is also critically important that any programme for
co-operative development is based on a recognition that a co-
operative is a specific form of business enterprise,
which basically is justified only to the extent that it provides
its members with economic benefits. Market liberalization makes
it imperative to fully accept this view, if the right adjustment
measures are to be considered.

Several actors have important roles to play in this
re-orientation and adjustment process. Governments have a key
role to play in formulating a co-operative development policy
which enables co-operative movements to adjust. Indeed the most
important role has to be played by the co-operative movements
themselves by re-formulating policies, rationalizing
organizational structures and by initiating a wide range of
measures with the view to improve business efficiency. Lastly,
donors have a role to play by reconsidering their strategies and
operational programmes in support of co-operative development.

Co-operative development cannot be successful unless the
different actors base their efforts for co-operative development
on the same principles and notions. For the remaining discussion
in this report it is therefore essential to explicitly state what
these principles and notions are.

A co-operative is a specific form of  business venture formed
with the purpose of providing economic benefits to its members.
The existence of co-operative organizations and their activities
should be assessed and judged from the sole perspective of member
interests and member benefits. Co-operative development should
be based on the notion of a popular movement governed by the
principles of member ownership, member management and member
control. In a reformed market economy it is also justified to
make it a principle for co-operative development that co-
operative organizations in their business operations should be
treated equal to other actors on the market not to be favoured
and not to be discriminated against.

In the following sections we will discuss what measures that seem
to be necessary and what roles the different key actors have to
play in order to make co-operative development as defined above
a reality. 

A major concern in the following discussion is what adjustments
that will be required in order to make co-operative organizations
a viable business proposition in a liberalized economy. The
analysis and the prescriptions are based on the diagnosis made
in Chapter I.


2.2  The role of the State
***************************

The State has a decisive role to play in promoting co-operative
development as defined in section 1 above. However, the role of
the State has to be profoundly re-defined. The arguments for such
a re-definition are well-known and hardly need lengthy
elaboration here. In summary they are as follows.

The co-operative movements have to be permitted to disengage
themselves from the State for at least three reasons. Firstly,
the co-operative movements cannot become member-governed and
member-controlled popular movements unless the State withdraws
its present level of involvement. This is an ideological argument
pertaining to the political organization of society. Democratic
development presupposes the formation of popular organizations
permitted to set their own rules and to operate on their own
terms within a regulatory framework provided by the State.

In line with this argument the State should refrain from any
responsibility for the "promotion of co-operative development".
This should be the sole responsibility of the co-operative
movements themselves. 

Secondly, a disengagement has to involve a withdrawal of State
intervention and influence on factors which directly or
indirectly may affect the business operation of co-operative
organizations. Among other things this means that |he State
should refrain from influencing the election of board members and
the hiring and firing of managers. Furthermore, the State should
have no influence on decisions such as the selection of business
activities, whom to serve, pricing policies, sales of fixed
assets, investments, mobilization of member capital, staff
reductions and staff remuneration.

Thirdly, the State should no longer see the co-operative
movements as a means or an instrument of the State which can be
used to implement its general development policies and various
rural development programmes. The activities of the co-operative
organizations are to be chosen by the co-operative organizations
themselves. The State may request the co-operatives to undertake
certain functions such as being the buyer of last resort for
agricultural produce as long as the State compensates the co-
operatives on commercial terms.

The withdrawal of state intervention on issues and factors which
directly or indirectly have a bearing on the business performance
of a co-operative organization is of particular importance. In
order to survive, co-operative organizations will have to operate
as business organizations without the constraining effects of
bureaucratic interventions and without the burden of non-business
like tasks given to them by the State.

The remaining role of the State is still an important one. The
State would have the responsibility to register and cancel
registrations of co-operative societies, ensure that laws under
which co-operatives operate are followed,particularly with regard
to auditing, publication of annual reports and protection of
creditors. (This does not mean that the auditing has to be
carried out by government institutions).

In this capacity the State has a particularly important role to
play in rationalizing the co-operative structure by
de-registering insolvent co-operative organizations.

Co-operatives  in this situation are already many at different
levels and their number will increase. As they are unable to
provide their members competitive services, they may prevent co-
operative activities in their areas if new co-operatives cannot
be registered without de-registering the existing ones. Farmers
may then be pushed to other alternatives such as private traders.
As the elimination of such co-operatives is a prerequisite for
co-operative development, the Government Registrar of co-
operatives can play a key role in supporting co-operative
development by clearing the co-operative movements from dead
wood.

A re-defined role of the State should be manifested in a revised
co-operative legislation. Such legislation should be followed by
the consequential changes in the administrative set up and in
task allocation. Scores of staff in Co-operative Departments in
the Anglophone areas will no longer be needed. The staff in
different ministries over-seeing and directing co-operative
development in Francophone Africa will have to be given other
duties.

This is to say that legislation alone is not sufficient. It is
equally important that the bureaucratic structures which
traditionally have been assigned a role of direction and
intervention vis-a-vis the co-operative movement are made to
understand and to accept the change of roles. In part this is a
matter of law enforcement.

The same applies to the need to temper political interference
with the co-operative movements. Local MPs should no longer have
any influence over the co-operatives in his (or her) area, for
instance; a change which to many would seem as somewhat of a
revolution.

What are then the prospects that governments will resume such a
modified role for co-operative development?

The history of the past unfortunately raises doubts. As we noted
in section 8.2, only a few governments have enacted new co-
operative legislation resembling the role for the Government as
that outlined above. A majority of the African Governments
have either not changed a legislation which effectively prevents
co-operative development, or they have only proven willing to
consider modifications which are inadequate.

A serious concern is also the pace at which governments appear
prepared to re-define their role in co-operative development.
Market liberalization seems to out-pace a re-definition of this
role by a wide margin. This can severely constrain the
possibilities for co-operative organizations to adjust to a
different market situation which is necessary in order to
survive. Pressure will have to be put on governments to
reconsider their role in co-operative development. To this we
will return in subsequent sections.


2.3  The co-operative movements:
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Co-operative development is the concern of the co-operative
movements themselves to a much greater extent than it is a
concern of anyone else. The impetus for change and adjustment
will primarily have to come from within the co-operative
movements in Africa. The formulation and the implementation of
specific strategies and operational plans for co-operative
adjustment have to be the responsibility of the co-operative
movements themselves. This means that the prospect for successful
change will be determined by the nature and the scope of the
changes which are needed, the ability and the capacity of co-
operative organizations to change and the factors constraining
good intentions and ambitions to change and to adjust.

External analyses and suggestions can only serve as an input and
a stimulus to strategy and programme formulation within the
movements themselves. For whatever it is worth, the discussion
in the following sections should only be seen as such a
contribution.

In the following sections we will discuss what a process of
change and adjustment for successful co-operative development may
entail.

2.3.1     The basic orientation of the proposed strategy:

The basic orientation of the proposed strategy for co-operative
development can be summarized under two headings.

2.3.1.1   Top priority to improvement of business efficiency:

The diagnosis,of the situation of the co-operative movements in
Africa in Part I of this report clearly points to the need to
give top priority to measures which will improve the business
efficiency of co-operative organizations. The task is urgent, it
was concluded, as market liberalization can result in co-
operative organizations rapidly losing much of the market share
they held under privileged monopoly conditions prior to
liberalization. Warning examples are already history.

These observations strongly suggest that a strategy for
co-operative development in the short to medium-term should focus
on the improvement of the performance of co-operative
organizations as business ventures. Furthermore, the seriousness
and the urgency of the situation strongly suggests that measures
which are expected to have a direct (rather than indirect) effect
on business efficiency should be considered at this stage.

2.3.1.2   A primary level focus:

The services of direct importance to members are provided at the
primary society level. The primary society level is the base
without which intermediary and apex level organizations cannot
exist and have no justification. Put differently, intermediary
and apex organizations  have a raison d'tre only to the extent
that they are of use for the primary societies and their members.
It should be no end in itself to form higher level co-operative
organizations.

In the diagnostic part of this study it was concluded that many
intermediary co-operative organizations (in Anglophone Africa)
presently constitute a stumbling block to co-operative
development. Their economic position is weak, their business
efficiency is low, their perception of their problems is
inadequate and their capacity to change is in doubt.

In such situations there are several reasons to make the primary
level the focus of co-operative development. The most compelling
reason is that the key task is to improve service provision at
primary level which in a liberalized market economy does not
necessarily presuppose business services (secondary marketing and
processing) from intermediary level organizations. This argument
has three elements.

Firstly, members have to experience that their primary societies
can provide relevant services which are competitive in comparison
with the alternatives open to them. Given the orientation of most
co-operatives in Africa, this means that the primary societies
must be able to provide a competitive market outlet for
agricultural produce. 

Secondly, in a liberalized market economy there will be other
actors at different levels of the marketing chain. This is to say
that there will be private operators performing wholesale
marketing functions as well as different stages of processing.
The entrance of such actors after abolishing State monopolies
will vary and the resulting competitiveness of the market will
indeed vary. There will be situations where private operators
will provide poor services, pay low prices, cheat on weights
or even simply not appear, particularly in marginal and remote
areas. 

However, the services provided by co-operative wholesale and
processing organizations are often no better than the services
of their private competitors and far too often may be even
poorer. (The substantial loss of market share on the coffee
market in Uganda and the cotton market in Kenya for the co-
operatives after
liberalization are telling examples). In other words, private
wholesalers and processors often provide an alternative, and
often a superior alternative, to existing intermediary level co-
operative organizations.

Thirdly, the task to improve business efficiency of many
intermediary level organizations in order to make them
competitive is very demanding indeed. The truth of the matter is
that many of them may be lost cases; it is hard to see what
measures apart from total reconstruction that would make them
viable and competitive. In these situations it would hardly be
an advisable strategy to give priority to the intermediary level.

This does not mean that the intermediary level in all situations
is of no interest and should be ignored in favour of the primary
level. There are indeed cases when intermediary level
organizations are strong and competitive or when the task to
make them competitive is feasible. While support and interest
should be directed to the intermediary level in these situations,
the prime focus and first priority should still be to make the
primary societies viable.

A conceivable more general objection to a relative downgrading
of the intermediary level in a strategy for co-operative
development could be that in the long-run primary societies and
their members will benefit from the existence of a complete chain
for marketing and processing in order to avoid that market
concentration develops leaving primary societies at the mercy of
cartels or monopolistic buyers. This is a substantive argument
to be taken seriously. The weakness of the argument, however,
lies in the question of sequencing. 

A basic argument is this regard is that the development of
successful intermediary co-operative business organizations
presupposes strong primary societies whereas the development of
primary societies in a situation of market liberalization does
not necessarily presuppose strong co-operative intermediary
organizations as there will be alternatives to them. Furthermore,
there will be limited financial and human resources to support
an adjustment and development process. The task to make
intermediary level organizations competitive is daunting and so
is the task to
re-vitalize large numbers of primary societies. Choices of
priorities will have to be made.

Taken together these observations strongly suggest that major
efforts to develop intermediary level organizations are generally
deferred and seen as a long-term task in a strategy for co-
operative development.

The discussion so far presupposes the existence of intermediary
level organizations as is the case in Anglophone Africa. In
Francophone Africa governments have often prevented the
federation of primary societies at intermediary and
apex levels. As a consequence the formation of such organizations
has been seen as an important task in the wake of economic and
political liberalization. The advantage in this situation is that
new organizations are to be formed rather than reforming run-down
inefficient existing ones. Hence, the task would seem to be
easier and the chances of success greater. This does not mean
that the task is easy. Considerable development resources, human
and financial, will be required and it will take time
until viable units with any substantial operating business
capacity have been established. In the meantime primary societies
will be under mounting pressure from competition following
liberalization. Therefore, despite a somewhat more favourable
situation to develop efficient and competitive intermediary co-
operative business organizations in Francophone Africa, the
conclusion is still the same - co-operative development efforts
should be concentrated to the primary level in a short to medium
term perspective.

However, federation of primary societies at intermediate and apex
levels may be justified in order to create structures for policy
formulation,lobbying and negotiation with the government as well
as for provision of support services and implementation of
programmes for primary society development (see below).

We will now proceed to discuss what key measures that are needed
in order to achieve a badly needed improvement of business
efficiency.

2.3.2     Key measures focusing on improving business
          efficiency:

Whereas the following normative discussion is claimed to have
general validity, it still suffers from problems of
generalization. The prescriptions have general validity
in the sense that they are likely to be applicable to most
situations and to most co-operative organizations. Still the
problem is that the particular blend of measures and their
relative significance will vary from situation to situation.

For instance, in most cases measures will be different in
substance between a (small) primary society and a (large,
relative to a primary society) intermediary organization such as
a union. We will attempt to point out these differences.


2.3.2.1   Improving the management function

In Chapter I, we concluded that far too many co-operative
organizations are run as (government) bureaucracies by managers
and boards with little or no business acumen. Such organizations
cannot succeed in a competitive market situation. The management
function has to be radically improved in order to improve
business efficiency. One can probably go as far as to say that
unless the management function can be improved in malfunctioning
co-operative organizations, they will perish. Other necessary
measures under the control of the co-operative organizations will
hardly be considered and introduced unless the management
function is improved.

Training is then often advanced as the solution to the problem.
We have serious reservations to this "solution". Only
academicians and bureaucrats seem to believe that almost anyone
can be trained to become an entrepreneur. There is preciously
little to prove this.

Our view is that training alone is not a feasible strategy to
solve the management problems of co-operative organizations.
Training can be useful in providing skills in book-keeping,
financial management etc but training can never compensate for
the absence of a business talent.

A telling example could be cited where a formally highly
qualified team of consultants and university professors (in
business administration) had prepared a business development plan
for a co-operative union. The plan was a thick volume containing
all the conceivable analyses prescribed by business
administration text books. Yet, it was quite clear that these
analyses were made by persons who were not entrepreneurs. Perhaps
the most disturbing proof of this was that the plan with all its
prescriptions was expected to result in progressively increasing
operational losses and in uncontrollable cash flow problems
within a couple a years. All this was documented by meticulously
well prepared forecasts and tables. Yet, this was offered as a
development plan for the union concerned.

A business talent is based on a drive to make money. It is
manifested in a mind which spontaneously assesses opportunities
in terms of their profit potential. A mind which thinks in terms
of margins, stocks, cash position and risk. This is the mind of
a trading woman selling vegetables in a market-place. This is
what makes her survive in a highly competitive context in a
difficult
management situation with a narrow capital base, dealing in
perishable products subject to wide price fluctuations.

Such business talent has to be there. There is no evidence that
it can be instilled in people who do not possess it. As a
consequence we reject the idea of training only, as the solution
to the management problems of co-operatives. Non-entrepreneurial
managers simply have to be replaced with managers who prove
themselves as businessmen. For a primary society this could very
well be a woman trader from a market place! At the same time a
performance related remuneration system for the managers should
be introduced. This should not only be a token system but a
system which gives the manager a strong incentive. 

For those with a business talent training can be useful. In the
past, co-operative training gave altogether inadequate priority
to entrepreneurial training and this needs to be rectified in the
future. 

Successful management in a competitive (agricultural produce)
market presupposes flexibility, constant adjustment and often
quick decision making. It is absolutely essential that a manager
has sufficient discretion and authority to perform his/her
role accordingly. One problematic characteristic of many
co-operative organizations of the past is that managers lack such
discretion and authority.

A change in the relationship between boards and managers is
therefore generally required whereby the boards devolve
considerable authority to their managers. This would involve a
major change in many organizations.

The composition of boards will often have to altered as well. It
will not be possible to meet the challenges on a liberalized
market with boards which gladly bring their organizations into
debt by installing new processing capacity tenfold the volume
they presently process, which fail to consider the disposal of
continuous loss-making operations, which refuse to consider cost
reducing measures including dismissal of staff despite the fact
that their organizations are bleeding to death. Recruitment of
talented managers will hardly make much difference in such
situations.

This does not mean that boards have to be composed exclusively
of businessmen. However, it is essential that sufficient business
talent is represented on the boards so that they see the merit
of entrepreneurial managers and the merit of giving them
sufficient authority.

The managerial task becomes increasingly difficult with the
growth in size and complexity of an organization. Given that many
co-operative organizations will find it difficult to find
entrepreneurial and experienced managers, it is also important
to see if and how the managerial task can be reduced. One way to
achieve this is to reconsider the activity profile of the co-
operative organizations which we will discuss in the following
section.

2.3.2.2   The activity profile of co-operative organizations:

The managerial task is highly dependent upon the activity profile
of the organization concerned. The activity profile has other
important consequences as well in terms of capital requirement,
the structure of assets and hence financial flexibility and risk,
just to mention a few. The consequences of the activity profile
in these dimensions will also be discussed below.

However, let us first see how different activity profiles make
a difference to the managerial task by looking at the
implications of diversification and the choice between trading
and processing.

2.3.2.3   Diversification:

Diversification is here somewhat carelessly used to mean adding
activities which are more or less strongly related to existing
activities (i.e. to include vertical and horizontal integration
and diversification). In Chapter I we observed that many co-
operative organizations at primary and intermediary level have
diversified their activities. Diversification increases the
management task. 

The more apart the activities are in nature, the more demanding
the management task becomes (at least as long as the smallness
of the activities does not justify separate managements for each
of them). For instance, it is rather different to run a coffee
processing plant than to do cattle ranching or to operate a hotel
business. It is obviously difficult to find a manager who is
conversant in all three fields and who has the capacity to be
successful in all three. Furthermore, administrative routines and
accounting systems become far more complex if reasonable
information systems related to each of the activities are to be
developed.

The idea that diversification is an effective way to meet the
challenges from competition in the field of the core activity
(agricultural marketing) is generally misconceived. If the co-
operatives cannot meet the competition in the field in which
they have decades of experience and where they have acquired
considerable competence, albeit limited entrepreneurial skills,
what reasons are there to expect them to be more successful in
fields which are new to them? On the contrary, one would expect
the chances to be even slimmer in these new fields. Furthermore,
the old (core) activity is generally catering to the most
important need of the members (marketing of a major crop or
crops).

Some activities add more to complexity and become more demanding
from a management point of view than others. Of particular
importance is to consider the difference between trading and
processing/production. The step to go from trading to processing
or production is generally very big indeed adding new dimensions
and complexity to the activities and the management of an
organization. Collecting and trading in cotton is an altogether
different and simpler task than ginning cotton, for example.

Trading in agricultural produce is highly divisible. Only a few
bags can be traded or trading can amount to thousands of tons.
Economies of scale are small or non-existent. Processing
activities on the other hand are generally far less divisible
and are characterized by economies of scale.

Many co-operative organizations have entered into processing as
a well intended way to achieve value added. Why let someone else
reap the benefits from processing, has been the sensible
argument. However, more often than not has the decision to
go into processing been taken with limited understanding of the
demands on the organization following from such a decision. The
result has often been discouraging.

"Production" here stands for a broad category of activities such
as poultry farming, fish farming, cattle ranching, tree
plantation,  carpentry, etc which involve the production of a
product (egg, beef cattle, furniture, etc). Again, such
activities are of an altogether different nature than trading
activities and they are generally more demanding for the same
reasons that processing (of agricultural produce) is demanding. 

Many such activities are also often questionable from a members
service point of view.

Given these considerations and experiences, how should we look
upon diversification in a strategy for co-operative development?

Two basic criteria should be used in choosing activities for a
co-operative. First and foremost an activity should respond to
a priority need of the members. Secondly, the co-operative must
have the capacity and capability to carry out the activity in
such a manner that the members are provided with a competitive
and reliable service. Far more activities of co-operative
organizations pass in relation to the first criterion than in
relation to the second.

An overwhelming majority of the co-operatives in Africa are
agricultural co-operatives with produce marketing as their core
activity in response to a priority need of the members. The
problem is that the marketing services provided by many
co-operatives are not efficient enough to meet a competition
following from market liberalization. 

In this situation the basic strategy with respect to activities
should be to concentrate on the core activity and make sure that
it becomes a lasting success before additional activities are
considered.

In practical terms this means that most primary societies should
concentrate on trading in one or a few crops and make sure that
this trading operation is successful. In turn this means that a
co-operative should not add new activities until the core
activity is successfully established. Before entering into new
activities, co-operatives operating in an environment where
liberalization has yet to come should be careful to anticipate
how they will defend their core activities and manage additional
activities before diversifying. A recommended strategy would be
to prepare for the oncoming situation for the core activities
rather than diversifying.

Many co-operatives facing competition and hence problems with
their core activity (agricultural marketing) are also engaged in
a range of non-core activities. The strategy is to defend these
activities by adjusting and make them competitive and viable. In
line with this strategy the non- core activities should be
terminated unless they provide a priority member service and
provided that they are competitive and economically viable.

This is not an argument against diversification. It is an
argument against premature diversification. Diversification is
an importnt means to satisfy different member needs and it is
also potentially a means to add member benefits, for instance
through processing. The argument is that undertaking many
activities inefficiently will prove fatal in a competitive
environment. Therefore, co-operatives should concentrate on the
core activity and make it successful thereby gaining the
confidence of the members, and then, but not until then, add
activities step by step as the organization can expand its
capacity and capability to ensure efficiency and success.

Situations are conceivable when a co-operative looses its core
activity to competitors in such a way that it may be gone for
good. In such a situation the co-operative may choose to
establish another core activity responding to another important
member need. For instance, cutthroat competition in produce
marketing may become overwhelming and make a co-operative loose
its members who find the alternatives superior. 

However, provision of inputs may be far less developed or ignored
by other actors. A co-operative can then make provision of inputs
its core activity. The same arguments and criteria for the
selection of activities apply to co-operatives at all levels. 

Given the weakness of most co-operatives at all levels and given
the exposure to competition the general strategy should be to
concentrate on core activities and not to diversify until the
core activities are made a lasting success.