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Cooperatives for Poverty Reduction and Economic Growth

They are stable in times of crisis, they encourage collaborative entrepreneurship and obtain high returns for members, and here is why the government needs to encourage the development more of them.

Osman M. Osman

A 2009 paper, African cooperatives and the financial crisis- Working Paper No. 3, commissioned by the International Labour Organization (ILO) offers what might be the biggest motivator for African governments, and in this case, the government of Somalia, to encourage the growth and development of more and better run cooperatives.

According to the paper, in times of financial and economic downturn and strife, cooperatives offer a stronger and better cushion to members than outright banks or labour unions- in the case of cooperatives based on production or professional attachments like a farmer’s cooperatives as opposed to a farmers union.

“Research from the IMF (Hesse & Cihak, 2007) found that cooperative financial institutions tend to be more stable in times of crisis, as their investment patterns use the capital of members in ways that best serve their long term needs and interests. They have a lesser tendency to invest in high-risk financial markets when compared to other forms of commercial banks. It is therefore thought that their comparative stability, under both average and extraordinary conditions, can help to mitigate crisis impact for members and clientele, especially in the short-term.” the document reads.

They are stable

While they may not be vibrant or as active as they should be, there are existing cooperatives in Somalia by their thousands. At the moment, the most active cooperatives in the country are agricultural cooperatives that bring farmers together and financial cooperatives that offer savings and credit facilities. Across the country, farmers are coming together to buy tractors through their cooperatives, they are getting access to better farming equipment, better market negotiation powers and they are pooling their produce to access larger external markets.

The paper goes on to say; “Farmers in the agricultural sector can use cooperatives and other member-based organizations to achieve greater economies of scale, in order to mitigate the impact of fluctuations in export prices and input costs. These functions are important, especially given the recent volatility in commodity prices and falling demand.”

Need for more

The government should encourage the development of cooperatives and Saccos in various sectors of the economy. There is a need for cooperatives in the wholesaling and retail sectors for instance. The tourism industry in Somalia at the moment has negligible cooperative movements, and the same applies to childcare and housing. This is actually the time to build strong cooperatives within the housing sector for example, especially with the growth that is being experienced in the real estate sector. 

Of course, there are other sectors of the Somali economy that can benefit from the growth of cooperatives. These include utilities, transport, health care, and schools.

What is needed now are the right regulatory frameworks to guide the sector and this is where the government comes in: Provision of oversight, regulation as well as protecting the interest of cooperative members.  

The Federal government can do this as part of the on-going reforms.  As the economy and the country enter this new phase, cooperatives will play a very major role in reducing the poverty levels in the country, boosting trade, and in the end, for individual members directly; cooperatives will be their ticket to self-sufficiency and self-reliance.

The point of cooperatives

Cooperative societies are very instrumental when a group of people or a community with common interests want to overcome a challenge, especially poverty.  When most people think of cooperatives, what often comes to their mind is credit. It is a common assumption and one that is true, except for the fact it represents part of the truth and not the whole truth.

The one thing about cooperatives that cannot be misconstrued is what they are for: Cooperatives help the public (whatever group of people) solve problems that they all share but can’t solve individually. Dairy farmers for instance, if they have a problem with the price of milk as demanded by milk processors, can come together and negotiate better prices as a group instead of approaching the milk processing factories as individual farmers.

Numbers and common problems are at the center of all cooperatives across the world. Cooperatives have been there for years and often represent a unit of people who have agreed to abide by a common set of rules and have certain expectations with regard to a wide range of issues. For instance, there are food producer’s cooperatives, consumer cooperatives, hybrid cooperatives, and of course credit cooperatives.

As far back as 1973 Somalia

In the 1973 administrative and legislative acts of Somalia, the government enshrined in the constitution certain rules to govern the creation, development and running of cooperatives. Even back then, the government understood that cooperatives are vital for poverty reduction and economic growth of the nation. In fact, within the same years, the Somalia Union Cooperative Movement (UDHIS), an umbrella organization for all cooperatives in Somalia was established.

The 1973 legislative document reads: “The foundation of Cooperatives as outlined within this Law will be an essential condition for economic, social and cultural progress and for the establishment of cooperatives based on justice, equality and better life. By the formation of cooperatives the farmers, craftsmen, fishers, and small traders of Somalia will combine their efforts and their resources to boost up products and services and to modernize production.”

It further explained that national self-sufficiency, import-substitution, expansion of exports, and improvement of domestic supply. These expected outcomes, and principles behind the cooperatives and the Sacco remain true to date. 

It’s imperative that the FGS renew its commitments in the development and organization of cooperatives in Somalia to boost its economic development efforts. A new and comprehensive Cooperative Development Act might be the beginning of such commitments.

Cooperatives and Poverty Reduction

  • Cooperatives are known to directly answer community needs and adjust to local concerns in a way that larger corporate institutions can’t. 
  • Cooperatives help build cohesive and peaceful societies. 
  •  In the case of farmers, cooperatives enable farmers to obtain higher returns. 
  •  For workers, worker cooperatives promote collaborative entrepreneurship and economic growth through collective bargaining. 
  • Cooperatives create and enhance competition within local markets. This often stirs growth.
  •  Loans and savings offered by multi-purpose and credit cooperatives to their members are sometimes the sources of business capital and other growth projects like university fees for the kids. 
  •  Industrial and craft cooperatives help members produce marketable products through training and access to better machinery/ equipment.

Osman M. Osman is the Senior External Advisor of SOMINVEST with an interest in Economic Leadership and Security.

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