Summary (1994) - Part 1

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


          (Source:  Report of a Study Commissioned by ICA
          Europe - Co-operative Adjustment in a Changing
          Environment in Sub-Saharan Africa - pp.2-15)
                              ----------

                         **************
                             SUMMARY
                         **************

1.  ICA-Europe has commissioned a study on co-operative
adjustment in Africa with the view to elaborate a perspective on
co-operative development and a development assistance strategy,
based on a review of the present transformation of African
economies, and its impact on co-operative organizations. The
study is largely concerned with the situation of agricultural co-
operatives.


The Situation of Co-operatives in Africa
****************************************

I.   Far-reaching economic transformation with profound impact
     on co-operative organizations:

2.   In the wake of the economic crisis in Africa, more than
     thirty countries are presently implementing structural
     adjustment programmes often imposed on them by external
     forces. In the context of this study there are no reasons
     to enter into the debate on these programmes. Suffice it to
     note that the programmes are there and that they have
     far-reaching implications for most co-operative
     organizations. The pace of adjustment differs from country
     to country but the trend is clear and irreversible: the
     economies are to be transformed into liberalized market
     economies.

3.   Of outstanding significance for the co-operatives are the
     effects of the market liberalization, particularly in the
     agricultural sector, which is an important element in the
     structural adjustment programmes. Co-operative
     organizations which hitherto have enjoyed monopoly
     positions as instruments for government agricultural
     marketing policies will be exposed to competition. From a
     monopoly position all co-operatives, including the
     efficient ones, will loose market shares with concurrent
     needs for adjustment.

4.   Monetary policy reforms involving imposition of credit
     ceilings and increased interest rates are other elements of
     the structural adjustment programmes affecting most co-
     operative organizations. Given a high degree of
     indebtedness and a low cost bearing capacity, these
     measures will negatively affect the ability of many co-
     operatives to maintain their level of operations.


II   Political transformation:

5.   Most African countries are also in the midst of a process
     of political transformation characterized by increased
     pluralism and democratization. Combined with economic
     reforms which reduce the role of the State, these changes
     open the possibility for a disengagement of the co-
     operative movements from the State permitting them to
     become truly popular organizations. A democratization of
     the society at large also facilitates successful
     democratization of the co-operative movements as well.


III  Economic reforms strike at the base of the co-operative
     organizations - their business activities:

6.   Co-operative organizations are characterized by ideological
     principles. They concern themselves with member services
     rather than profit. They foster democratic values and hold
     principles of equality in high esteem. Yet, it should not
     be forgotten that  co-operatives are basically business
     ventures with the prime objective to provide their members
     with economic benefits.

7.   Competition, increased capital costs and inadequate access
     to credit following from structural adjustment measures,
     hit at the very foundation of co-operative organizations
     namely their business operations. Of the three, competition
     is particularly threatening. If the co-operatives fail as
     businesses, they will fail in all other respects as well.
     They will simply disappear. The outlook is harsh indeed -
     adjust and succeed or fail and disappear.


IV   Ill prepared to meet the challenges:

8.   In different combinations and to a varying degree, many co-
     operative organizations in Africa bear characteristics
     which limit their ability to meet the challenges arising
     from a rapidly changing environment.

9.   Low business efficiency tends to be the rule rather than
     the exception. A weak capital base, heavy indebtedness and
     limited credit-worthiness constrain the ability of many co-
     operatives to compete with private traders who are paying
     farmers cash on d}livery. Limited credit-worthiness also
     tends to reduce the volume of business leading to a vicious
     circle of further deterioration of profit and loss
     statements, credit-worthiness, still further reduction of
     business volumes, and so on. To a large extent, the low
     level of business efficiency is explained by the limited
     entrepreneurial capability among managers and board members
     at different levels.

10.  Attempts to diversify activities have more often than not
     been unsuccessful, tying up scarce capital, incurred losses
     and have quite often been questionable from a member
     service point of view. 

11.  Co-operative development efforts have generally been
     oriented more towards intermediary and apex levels than
     towards the primary society level. This has resulted in
     unbalanced organizational structures and excessive
     over-head costs for the movements.

12.  Co-operatives have generally been established from above.
     Government assignment of monopoly functions in crop
     marketing to co-operatives made co-operative membership
     compulsory and a precondition for growing certain crops for
     the market. In other instances, co-operatives were
     compelled to provide services, such as the provision of
     credit, to members and non-members alike. Government
     failure to deliver inputs in time, to pay rewarding prices
     and to pay on time were seen as shortcomings of the co-
     operatives.

13.  With this experience far too many members have little
     regard and affiliation to their co-operatives. When better
     services are offered by private operators entering a
     liberalized market, members will easily turn their backs to
     the co-operatives. The base stands the risk to
     disintegrate.

14.  Many of these shortcomings can be explained by the
     historical relationship between the State and the co-
     operative movements. Government intervention and control
     thwarted co-operative development and prevented co-
     operatives from becoming efficient, member-oriented,
     member-owned and member-managed organizations. However,
     this offers little consolation. The resulting problems are
     the same and as damaging.


V    The capacity of co-operative organizations to change:

15.  A number of factors affect the capacity and the capability
     of co-operative organizations to adequately adjust in
     response to changes in their external environment.

16.  The scope and the scale of changes which are required are
     such factors. All organizations have some capacity to
     change. The question is whether this capacity is
     sufficient. Given the seriousness of the problems that many
     co-operative organizations face, the capacity may not be
     adequate.

17.  The perception of a crisis will also influence the capacity
     to adjust. If the crisis is considered serious, it is more
     likely that an organization will act decisively.

18.  The perception of the crisis seems to be insufficient in
     many co-operative organizations which is demonstrated by a
     low level of preparedness and a slow and inadequate
     response. The failure to see what needs to be done and to
     take the right steps reflects a limited entrepreneurial
     capability.

19.  The economic insolvency characterizing many co-operative
     organizations is generally a serious constraint to
     adjustment preventing even a good management to make
     necessary changes.

20.  The market will indeed put pressure on co-operative
     organizations to adjust. However, pressure will have to
     come from within the movements as well. It is often not
     clear from where such internal pressure will come.
     Disillusioned and uncommitted members are more likely to
     turn their backs to the co-operatives than to pressure for
     change.

21.  Continued interference from government staff and
     politicians can more or less severely constrain efforts to
     turn co-operatives into efficient business enterprises for
     the benefit of the members.

22.  Finally, in any reform process there are interests which
     will resist change. Change will introduce uncertainty,
     demand re-thinking, re-orientation of minds and will create
     losers. The larger the changes are, the more significant
     are these implications and the stronger will resistance to
     change be.

23.  The diagnosis above clearly is a generalization which does
     not always apply. There are strong co-operative
     organizations, at all levels, which only to a limited
     extent are characterized by what is outlined above. They
     will be able to adjust and withstand competition. Yet,
     whereas these are encouraging examples to be studied and
     learnt from, they are not representative of co-operative
     organizations in general.

A Modified Strategy for Co-operative Development
************************************************

24.  In view of the diagnosis of the situation of many co-
     operative organizations in times of rapid environmental
     change, a modified strategy for co-operative development is
     called for. In the following, the main elements of such a
     strategy are proposed.

VI   The basic orientation of the strategy:

25.  The short to medium-term top priority task is to improve
     business efficiency of co-operative organizations in order
     to secure their survival. Efforts should be concentrated on
     measures which are expected to have direct effects in this
     direction. A viable business operation means attractive
     services to members resulting in member satisfaction and
     commitment.

26.  The services of direct importance to members are provided
     by the primary society level. The primary society level is
     the base without which intermediary and apex level
     organizations cannot exist and have no justification.
     However, in a liberalized market primary societies can
     often flourish without the existence of an intermediary
     (trading and processing) level. Intermediary co-operative
     organizations are often a stumbling block to co-operative
     development due to their operational and financial
     inefficiency.

27.  For these reasons development efforts should be
     concentrated on the primary level.

VII  Improving business efficiency:

28.  Improving business efficiency of co-operative organizations
     is the outstanding task in a short to medium-term
     perspective. The specific blend of the measures suggested
     below will vary from situation to situation.

29.  In many instances it is critically important to improve
     management. Managers without a business talent should be
     replaced and new managers should be offered substantial
     performance related rewards. The composition of boards at
     different levels often has to be changed whereby persons
     with business experience are made board members. Boards
     have to devolve considerable authority to managers to
     permit speed and flexibility in decision making. Training
     can be important in improving managerial capability but
     cannot replace entrepreneurial talent.

30.  Weak co-operative organizations have strong reasons to
     simplify the management task. This is particularly
     important at the primary society level given the
     significance attached to improvement of performance at this
     level. Simplification can be achieved by concentrating on
     a limited set of core activities (normally trading in one
     or a few agricultural crops). Processing or diversification
     into other activities, including provision of credit,
     should not be considered until the trading activity has
     been made a lasting success. Weak co-operative
     organizations with non-viable processing and non-core
     activities should in many cases close these down.

31.  All co-operative organizations will have to reduce their
     costs to meet competition on a liberalized market. The loss
     of a monopoly position is bound to mean a considerable loss
     of market share also for efficient co-operative
     organizations calling for considerable cost reductions.
     Weak organizations will have to make even larger cost
     reductions.

32.  A modification of cost structures reducing fixed costs as
     far as possible will be imperative. Scarce capital should
     be used for trading and not tied up in brick and mortar.
     Office space can be rented rather than built. Transport
     services may be purchased rather than fleets of vehicles.
     And so on.

33.  All possible ways to improve the capital structure and
     access to credit must be explored. At the same time as this
     is a critical factor, it is unfortunately one of the most
     difficult ones to find solutions for. A substantial
     increase in member capital is unrealistic as long as a co-
     operative does not provide a competitive service. Direct
     capital assistance from donors is probably even more
     unrealistic save the provision of conditioned guarantee
     fund capital (see below). Co-operatives have often become
     indebted as a result of government policies and directives.
     In these cases the co-operatives should prepare their case
     and press their governments for debt relief or debt
     cancellation. Failing to secure capital, a co-operative
     organization has no alternative but to adjust its operation
     (and hence costs) to a level compatible to its access to
     capital.

34.  Primary co-operative societies should be relieved of any
     formal or informal obligation to trade with intermediary
     co-operative organizations. Their right to deal with
     whoever they prefer in business matters should be
     irreversibly established. Intermediary co-operative
     organizations should be forced to prove themselves in
     competition with other (private) organizations. If they
     cannot provide competitive services preferred by the
     primary societies, they have no right to claim the loyalty
     of the primaries. If they can, they will get their loyalty.

35.  One further measure, which simplifies the management task,
     is a reduction in the size of the operations which can be
     achieved by reducing the size of primary societies. This is
     compatible with a strategy for weak primary societies which
     are expected to concentrate on divisible trading activities
     and which are expected to reduce fixed costs and overheads
     to a minimum. Another advantage with a small primary
     society is that problems of transparency and accountability
     are reduced. Finally, a small society would permit
     formation closer to existing lines of social affiliation in
     local communities thereby increasing social coherence,
     member inter-dependence and loyalty and reducing problems
     with accountability and internal control.

36.  The diversity in situations and needs among co-operative
     organizations should be  emphasized once more. There are
     strong co-operative organizations, including strong and
     large primary societies, with diverse and integrated
     activities. Whereas also these organizations will have to
     adjust in response to competition following market
     liberalization, some of the far-reaching measures suggested
     above will not apply. However, these organizations are not
     representative of the co-operative movements in Africa for
     which the generalized suggestions above are offered.

VIII Gender:

37.  Since long there is 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. Despite many efforts and the prominence given
     to gender issues, it is a fact that the process of change
     is disturbingly slow. However, this should hardly be
     surprising (although frustrating) bearing in mind that
     gender relations reflect deep-rooted cultural and social
     values which by their nature are hard to influence.

38.  All concerned with gender issues grapple for practical ways
     to promote the process of change. The principles are easy
     to state. The difficulty is to find the practical means.

39.  While acknowledging these difficulties the gender issue
     should even stronger than in the past 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.

40.  The recommendation for substantially increased support to
     non-formal co-operative ventures which are dominated by
     women, represents the most important operational aspect of
     this strategy to promote gender issues. 

IX   The role of the State:

41.  A precondition for successful adjustment to a competitive
     market situation is a disengagement from the State which
     gives co-operative organizations flexibility and freedom
     from government interference. It is particularly important
     that any influence on factors affecting the business
     performance is eliminated. Furthermore, in a changed
     relationship, the co-operative movement should no more be
     seen as an instrument for implementation of government
     policies and government rural development activities.
     Likewise, the co-operative movement and not the government
     should have the sole responsibility for promoting co-
     operative development including training.

42.  The remaining role of the State is limited but important.
     The State should have the responsibility to register and
     cancel registrations of co-operative societies, and ensure
     that laws under which co-operatives operate are followed,
     particularly with regard to auditing, publication of annual
     reports and protection of creditors. The State has a
     particularly important role to play in rationalizing the
     co-operative structure by liquidating insolvent co-
     operative organizations.

43.  A changed relationship between the State and the co-
     operatives has to be manifested in a revised co-operative
     legislation.

44.  There are reasons to expect that a disengagement from the
     State will be a long process. Market liberalization often
     seems to out-pace the disengagement from the State with a
     wide margin. To the extent that continued State control
     relates to aspects of significance for the business
     efficiency of co-operatives, this relationship is likely to
     be a serious impediment to adjustment.

X    Co-operative development outside formal structures:

45.  Some would argue that co-operative development in Africa
     worth this label, with some notable exceptions, takes place
     outside the formal (registered) co-operative structures in
     the form of self-help groups catering to a variety of
     economic, social and cultural needs. Such self-help
     organizations are formed on the initiative of the members
     themselves as a means to solve common problems. They are
     governed by rules set by the members, managed by the
     members and indeed "owned" by the members. By all standards
     they are what is often referred to as genuine co-
     operatives. An interesting observation is that such
     self-help groups are predominantly formed by women.

46.  Self-help organizations are generally small, scattered and
     not related (federated) to other similar organizations.

47.  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 principle there are
     no reasons why formal co-operatives cannot promote and
     support such co-operative activities (presumably with the
     implicit objective that one day they will become formal co-
     operatives). In practice, however, it is highly
     questionable whether formal co-operatives will make
     promotion of informal co-operatives (self-help groups) a
     high priority. Bearing in mind the very considerable task
     which the formal co-operative organizations face to
     transform themselves, it would probably seem odd from their
     perspective to give priority to tasks outside their own
     organizational framework.

48.  The conclusion for a donor may be different as will be
     discussed below.