Thursday, January 2, 2014

UGANDA COOPERATIVES NEED HELP! BUT THE RIGHT KIND OF HELP

The cooperative movement while undergoing a resurgence in recent years is staggering along for lack of proper management compromising the movement's poverty alleviation potential, a report out last week said.

The report, "The cooperative movement and the challenge of development", singled out defunct boards, poor leadership, riddled with corruption and poor foundation as the main problems bedeviling the movement.

The cooperative movement used to be a force for good in the  1960s and early 1970s. Bringing farmers, businessmen and savers together to pool their resources and benefit from economies of scale in accessing markets and credit.

The dismantling of the produce marketing boards in the 1990s dealt a body blow to some of the cooperative societies whose inefficiencies were exposed when they came up against private sector competition.

Under the marketing boards government was the sole buyer of produce, setting prices -- often a miserable fraction of world prices, and paying farmers at leisure.

Once this monopoly was broken and farmers were free to sell their produce to anyone, the cooperatives, to whom government inefficiencies had been transmitted, didn't have a chance.

The recent study however shows that some of the bigger more credible cooperatives continue to thrive or at least exist, despite the tribulations of the last three decades.

About 3000 cooperatives exist according to the trade ministry.

In fact the savings cooperatives are experiencing a comeback with savings up to sh280b. They still have a way to go when compared to collections of sh2.3b in the 1960s, about sh500b in today's prices.

The Kenyan savings cooperatives, which have suffered relatively little upheavals, have at least $2b in savings.

As part of the recommendations the reports authors suggest that government should intervene in the cooperatives to set interest rates and oversee governance issues so as to prevent the coops takeover by powerful individuals.

The researchers are right and wrong.

Right that government should, must, is obligated to strengthen its regulatory function, ensuring that the cooperatives are run according to the act and therefore preventing the capture of these groups by greedy individuals.

In addition government will do well to help these cooperatives improve their capacity to manage themselves -- proper book keeping has to be top of the agenda.

The high interest rates some of the cooperatives are offering are more a function of poor business acumen than outright extortion, but the way to bring them under control is not via government control.

Interest rates should be left to the devices of the market, governments are not sensitive to these forces and by controlling them would only serve to accentuate the inefficiencies in the movement.

For example during the recent inflationary spike for political reasons government may have kept interest rates low. This would have been disastrous because the likely reaction of the market would be to borrow more, increasing money in circulation and making an already bad inflationary situation worse. And that is only one probable negative effect of politically set interest rates.

Maybe as a way to prompt the market to lower interest rates is to find a way to encourage better managed cooperatives to set up or to expand into areas where mismanaged cooperatives exists. The competition will do the needful.

The importance of a robust cooperative movement can not be overemphasized. 

As a mechanism for growing productivity in the rural areas a well run cooperative that will provide, inputs on credit, a ready market and the benefit of a collective bargaining power, there is little around to match it.

In addition it can provide a spring board for the greater commercialisation of agriculture, raising agriculture's share in the economic output of the country and by extension raise rural incomes.

Yes government should be involved in the cooperative movement but only as far as creating an enabling environment for the movement to thrive.

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