Monday, July 18, 2016

REVIVING COOPERATIVES IS GOOD BUT LET US DO IT PROPERLY

The collapse of cooperatives in the 1980s has stunted rural development and killed an emerging saving culture, moves to revive them are good but we are best advised to do it properly if we are to reap the long term benefits.

The collapse of the produce cooperatives was a result of bad management, which was exposed with liberalisation of produce trade. A lot of ills in a company can be papered over when it is a monopoly but when competition comes they catch up.

The savings cooperatives suffered a loss of confidence with the high inflation of the 1980s.

Cooperatives are tailor made for underdeveloped countries like Uganda, whose mechanisms for aggregating resources are underdeveloped or none existent.

"We are not poor for lack of resources but for our inability to marshal these resources and leverage them to our benefit...

The new found determination to revive them, though at least 20 years late, is welcome for the above reasons and many more. However how this is done can end up ruining them.

Already we are hearing stories of Savings &Credit Cooperative Societies (SACCOS) collapsing after promising starts a few years years ago. In several cases the seeds of their destruction were sown by the handouts they got from government to start up. Others buckled under the weight of the loans they contracted from government.

If we really want to support cooperatives we would best advised not to throw money at them.

The best thing government can do is offer sensitisation to those not yet involved in cooperatives on how to set them up and the governance issues that come with them. And for those already up and running, offer advisory services on how to be more effective and efficient.

"Cooperatives build up self sufficiency in communities, government charity short circuits the process or worse, attracts nefarious types who do not have the community's well-being at heart...

The cooperative is a powerful tool for societal transformation.

It's most obvious benefit is the mobilisation of resources allowing members to take advantage of economies of scale.

Across the border in Kenya the Mwalimu savings cooperative is the biggest in the country by membership and deposits. With more than 50,000 members and more than $200m (sh700trillion) in savings the sacco that was started in 1974 has developed so far it now offers 15 year mortgages to its members, the teachers of Kenya.

At the height of its powers the Kenya Cooperative Creameries, which was supplied by thousands of small holder farmers, was processing about a million liters of milk daily. By providing ready market for farmers' milk it helped develop the dairy industry to the point that Kenya is a leading dairy producer on the continent.

"Beyond aggregating resources and also because of that cooperatives can serve as powerful attractors of investment. Often working in places out of reach of conventional investors, they serve to stimulate new production and open up markets where there were none before...

In addition they can serve as credible partners for investors looking to spread their risk of entry into markets. Say for instance a coffee roaster wants to enter the market, he may find Bugisu Coffee Union a useful partner as a provider of his raw material. It would be a lot easier buying from BCU than investing millions to build his own supply chain.

And the potential of cooperatives is virtually unlimited.

The French Credit Agricola Group, is listed as the largest cooperative in the world. A banking Union, it was founded at the end of the 19th century by farmers who wanted access to credit tailor made for them. In 2013 the group reported a net income of 31 billion Euros (sh100trillion) or greater than the size of Uganda economy.

The challenge for cooperatives in rising to their full potential for the benefit of their members is that they are often hijacked by politicians or connected individuals who run them into the ground.

The importance of a vibrant cooperative movement can not be overstated but how we pursue this project can set us on the real path to development or leave a bad taste in the months of potential benefactors and set us back many years, again.


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