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Editor: Ali B. Ali-Dinar
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In the wake of liberalisation

Options available to Cocoa farmers

M
EMBERS OF THE International Cocoa Organisation ICCO met recently in London for the Council's 52nd regular session. In an interview with Chris Ejimofor, the Chairman of Council, Sona Ebai, expressed his views on a wide range of issues on cocoa production, consumption and development.
What is the main thrust of the 52nd regular session of the Council?

Generally at the Council's regular sessions, we draw up new orientations and confirm former orientations that have been in the works. The two other important issues which take place during this event are the deliberation on the budget for the new cocoa se ason and the holding of an election.

After the Eight Advisory Meeting which took place in Yaounde, Cameroun we came to London with some recommendations for the Council to look into, give specific directions and take resolutions after a careful study.

How do you see your performance in office as you approach the end of your term and what were your problems?

As I approach the end of my tenure it's difficult to say what the performance has been. That is a judgement for my other colleagues to make. But I think during my tenure as the chairman of ICCO, we instilled a bit more discipline in the way we work and t he time meetings begin and end.

We also made the work a bit more palatable than hitherto was the case. One of our problems, however, was getting the 19 93 International Cocoa Agreement into full execution, 19 months after it came into force. These of course are teething problems and once both parties- producers and consumers realise we are in the Cocoa Board together, we could then take the business at h and more seriously- that is the medium and long term solutions to problems of demand and supply.

As you mentioned earlier, the September Session of Council confirms or sets up new orientations for the coming year. What are your expectations?

The entire cocoa market situation is going to be reviewed during this session. This in effect means production and consumption figures- what we have in terms of stocks and free stocks in order to determine the stocks grinding ratio and what type of crisis we may ex pect to find in the market place during the coming season. Such information is very important to both producers and consumers to ensure we keep in line with the 1993 Cocoa Agreement which seeks solutions to the problems of demand and supply in the medium a nd long term. Producers use these reports to determine what efforts they may have to make as far as product management plan is concerned. And in terms of new orientation, if the figures or the price level revealed give a comfortable picture to producers, t hen we maintain them and stay on course.

How far has the ICCO gone with the strengthening of international cooperation among member states?

I think based on the attendance at the opening session, ICCO is a balanced group of producers and consumers. The major order of business is cocoa- a product that brings together both consumers and producers. But it does not only bring them together as experts of a commodity, it also brings them together in terms of nations, groups of nations and different interest gr oups.

It is indeed a forum for international cooperation judging from the number of expert working groups that have been put in place for the benefit of members. Most delegates are concerned with both production and consumption issues which affect all face ts of the cocoa market.

Definitely, ICCO cannot be too smooth sailing. What are the obstacles to the 1993 International Cocoa Agreement?

I think that the new cocoa agreement is a very fair economic agreement. A lot of people erroneously called it an administrative agreement which it is not. It does tend to arrive at an equilibrium in the medium and long term as far as demand and supply are concerned and provide economic tools for analysis. The areas that are under consideration touch on the very basic wa y the trade was conducted for several years. There is no precise obstacle as far as the new agreement is concerned. It is just, I think the new way of doing things that will take sometime to get used to.

Can you compare in terms of benefits or disadvantages the buffer stock system with the new way of doing things?

The Buffer stock system was a punctual measure to mechanically influence price variation either by buying up cocoa to dry up the supply and thereby increase the price or release cocoa into the market, flood it a bit and bring the prices to levels that are remunerative to producers and acceptable by consumers. The disadvantage of the buffer stock system, however is that cocoa that was pulled away from the market when there was bountiful harvest did not go away. As you know we have just started liquidating cocoa stock that were stored for several years.

The snag here is that both consumers and producers know that this stock of cocoa was available even though not in the market at a particular time and this affects prices. But what the new agreement tends to instill is a more rational way of managing our production to be in line with our consumption.

What's the future for farmers with liberalization. Do you think they will fall victim to middle men?

Liberalisation is the order of the day and ofcourse the liberal market is a more performance market. I should say that what the future holds for farmers would better left to be seen because some of these concepts are very new with implications that are far- reaching and very difficult to determine right now. I think the main thing farmers need to do is to form cooperatives - farmers groups - where they can get a bargain with middle men and get a good price for their labour.

I think through such bodies, they will be able to purchase inputs and command a generally higher price from the middle men for a variety of reasons. But also I think, that the processing of cocoa will help maximise profits. Its always better to add value t o products before they are taken to the market and besides, prices of finished or semi- finished products have been generally more stable over the years than the prices of beans or maize.

What are your options towards improving cocoa consumption in the world?

Here again we think that consumption of cocoa in certain areas of the world is saturated. Therefore new markets are needed. We are looking at stepping up consumption in producing countries and in this respect we need to explore the Asian market.

So there are various options including - increasing publicity and advertisement to show different uses of cocoa that could increase consumption, not only at the traditional areas where chocolates are being consumed but also in cocoa producing countries.

The EU's directives on the use of other substances other than cocoa in the manufacture of chocolate bars appear unpopular among producing countries. So far what is the position?

This is an issue that is being watched closely by international corporate organisations because we do belie ve that it does have far reaching implications for consumers and for the products. Since Europe is forging a common market situation there is need to harmonise the standard by which several things are made.

The problem is that by accepting certain percentage of substances other than cocoa, there is a displacement of cocoa which would have been used for the same purpose and step up consumption.

This affects producers, especially in a situation where you have around 200,000 to a million tons of free stock in the world market. We are therefore considering several types of action plans, for instance political pressure on European Union to review or reconsider the directive in the light of its implications, not only for producers but for consumers as well. Produc ers will feel uncomfortable calling a substance that has things other than cocoa, chocolate.

How do you see the trend in the liberalisation of the cocoa market prescribed by international organizations?

This is one of the issues very well highlighted i n the Yaounde meeting of the Advisory meeting and many recommendations were made. The Council is reviewing these recommendations and how best it can be channelled into specific instructions for the Council to institute.

Here again it is a difficult issue because developing countries of West and Central Africa were into a lot of pressure from international organisations led by the world bank to liberalise the cocoa sector or the cocoa economy. The Council, both producers a nd consumers feel there would be pro blems with the process if taken too far without the necessary precautions or adequate preparations. This is by no means saying liberalisation should be stopped especially after collectively negotiating the Uruguay round.
I think cocoa experts are a bit concerned about the outcome of rapid and unsupervised changes that will take place in the zone that produces 55 per cent of the world's cocoa. Any unfavourable outcome will greatly perturb the cocoa market.

This is why recommendations were made that certain local realities be taken into consideration, constant reviews made and care taken to maintain the quality of product.



Editor: Ali B. Ali-Dinar
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The Politics of Privatisation

F
OR ALMOST A decade now, the majority of sub-Sahara African countries have been embarking on some tough structural adjustment measures backed or devised by the World Bank, the IMF and other financial institutions in their quest to revamp the state of their respective economies, and achieve greater economic growth and prosperity.

However this process has not been an easy task to undertake, and many Africans are beginnin g to question the appropriateness of some of these measures, arguing that despite all the enthusiastic pronouncements by the IMF and the World Bank on how well African countries are fairing the populace in these countries are yet to see any significant cha nge or improvement in their economic well being, especially in terms of employment.

One of the most contentious of these measures, is the issue of privatisation, which entails the sale of state-owned enterprises (SOE) to private investors both foreign or d omestic. Many Africans, it seems are sceptical about the idea, as they see it as getting rid of their countries national jewels. Quite a lot has been said or written about the issue, some favourable and some not so favourable. To understand the furore it i s important to look at what the principle of privatisation entails, and the benefits associated with such a process.

According to the International Finance Corporation(IFC), privatisation could be defined in generous terms as the transfer of ownership or control from the public to the private sector.

Transfer techniques can take the form of trade sales to strategic investors, public offer, closed subscription, joint ventures, liquidation, concessions, auctions, voucher or certificate based transfers, employee or management buyouts or a combination of a ny of these factors.

Economic Benefits

The economic benefits of privatisation according to the IFC and proponents of free markets and monetarist are self-evident, and can include:

l improving enterprise efficiency and performance;
l developing competitive industry which serve consumers well;
l accessing the capital, know-how and markets which permit growth;
l achieving effective corporate governance;
l broadening and deepening capital markets; and
l securing the best price possible for the sale.

Despite the inherent economic benefits that privatisation can bring about and its popularity among economists, the IFC noted, that there are "myriad political fears" on which it can founder, which include "selling the fam ily silver" to foreigners, enterprise closures, layoffs, orpha-ning of social assets, and concentration of economic power.
It is true that privatisation does not benefit all people equally. "There are often losers, at least in the short run, particularly when redundancies or hiving off social assets are the key to improving efficiency and competitiveness. The short run social and political cost are often clearer than the long run overall economic benefits to the country, so many governments still hesitate to privatise".

The reluctance of most African governments to embark on privatisation of SOE's, is not a unique one at all. Most developed countries have at one stage or another gone through the same process, and have had the same reservations about the political conseque nces of privatisation.

Making it work

Each phase of privatisation involves balancing economic and political goals. What is possible is shaped by the specific of the business involved, and other country economic circumstances especially those relating to the stage of development of domestic finance markets.

But if African governments are really concerned about encouraging investments from abroad, and improving their balance of payment positions while reducing their huge budget deficit and eradicating most of their debt obligations, then it is necessary to see privatisation as a way of raising funds for the government, both in terms of the purchase price it would get from the sales, and the fact that the privatised companies would be a good source of tax revenue for the government(corporation tax).

This would have the added advantage of relieving the governments of the cumbersome bureaucracy that it embroils itself in, reduce government spending in these areas, and free much needed funds for other sectors of the economy such as health and education.
Africa cannot afford to take a short term outlook, and deprive itself of the capability to compete effectively in a continuously expanding global market.

Privatisation is always political, but it is imp ortant to note that the economic benefit in many cases can far outweigh the political impediments. For a country to progress in its quest for economic prosperity, gaining access to improved technology, and creating a climate conducive to investors is an im portant ingredient, and deregulation and privatisation are useful tools in achieving these goals.
Kayode Okunola



Editor: Ali B. Ali-Dinar
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