Cooperatives as Engines of Transformation

18/01/202131/03/2022

Martin Agaya

By Anthea Paelo

Cooperatives continue to be an important engine for economic productivity and growth in countries like Uganda. They play a critical role in mobilizing savings, increasing access to credit, and facilitate various activities along production value chains, including procurement, storage and distribution. Where, for example, a farmer might find it challenging to access a tractor to plough his fields, or credit to purchase seeds, as a part of a cooperative he can access these inputs more readily and at much better terms. It is perhaps for this reason that as of January 2020, agricultural cooperatives numbered over 9,000, double the number just twelve years ago¹.

Number of registered Cooperatives in Uganda

Type of Cooperative	August 2012	January 2020	% Share in 2020	% Growth
Agriculture marketing	4,504	9,432	45.1	109.4
SACCOs	5,228	9,189	43.9	75.8
Multipurpose	711	989	4.7	39.1
Transport	318	406	1.9	27.7
Dairy	238	331	1.6	39.1
Housing	26	80	0.4	207.7
Fishing	95	80	0.4	15.8
Others	2,059	664	3.22	67.7
Total	13,179	20,916	100

Source: Department of Cooperatives, MTIC

Despite the rapid growth in the number of registered cooperatives, their performance remains dismal, and the expected benefits for productivity are yet to be realized across the country. As of early 2020, more than half the registered cooperatives were still under probation, and only 12% of the cooperatives registered in 2017 had received their permanent status within the two-year probation period. The poor performance of Cooperatives has been attributed to, among other things, political interference, poor governance and market misconduct.

In June 2020, FSD Uganda commissioned a diagnostic study on the cooperatives sector that sought to understand supervisory challenges and identify international best practice that could be applied locally. Recommendations from the study, which include a reorganizing services rendered to cooperatives, digitalization, and self-regulation, among others, are expected to provide some guidance on how cooperatives in Uganda can be revived.

Decentralization of services

Decentralizing the Cooperative Department by creating regional offices would increase access to registration, supervision and inspection services by cooperatives. At present, most of these administrative services are only available from the Cooperative Registrar’s office at the Ministry of Trade, Industry and Cooperatives. This has contributed to significant delays accessing services or support, increasing inefficiencies and resulting in poor enforcement of regulations. For instance, registration of a cooperatives takes an average of 60 days, and only 32% of registered cooperatives file their annual reports with the registrar as required by law. Bringing services closer to the people would significantly increase the support cooperatives receive, reduce resolution time, and reduce costs associated with travel to and from the office. In Thailand, where the cooperative sector has been thriving, the Cooperatives Department is decentralized – each province has a cooperative office responsible for the supervision and promotion of cooperatives and farmer groups. As of 2017, cooperatives contributed up to 13% of Thailand’s GDP².

Digitalization of services

The cooperative office can also streamline supervision of cooperatives by digitizing various processes including registration, document submission and record management. Inefficient manual processes that require physical submission of documents extend resolution time, drive up associated costs and increase the likelihood of errors. Additionally, without the benefit of an online management system, it is challenging to provide cooperatives with the tailored support they need. Outdated physical repositories are also vulnerable to displacement and security risks. Digitalization of the Cooperatives Department would also enable the use of digital supervisory tools for tasks such as auditing.

The merger of smaller cooperatives

Policy makers should encourage smaller cooperatives to merge and create larger entities. While the number of registered cooperatives continues to grow rapidly, only a small proportion of them have successfully gained permanent status. Lack of the necessary leadership and knowledge to run a cooperative effectively contributes to this. Rather than having an increasing number of new cooperatives that are unable to operate effectively, international experience has demonstrated the benefits of merging to share resources, knowledge and expertise more adequately.

Self-regulation

The use of self-regulatory frameworks can encourage compliance and good governance. Cooperatives operate under an apex body that provides various services including technical advice, training, mentorship, and coaching. It also subscribes to a self-regulatory framework that requires each cooperative to uphold the principles of good governance. The use of such a framework reduces the administrative burden on the government and associated costs of regulation, while providing the necessary checks and balances for stable and sustainable cooperatives.

Based on international best practice, there are three actionable areas in which policymakers and development partners can invest time and resources to facilitate the growth of cooperatives in Uganda.

The creation of strategic partnerships

Policymakers in the Cooperatives sector should make use of partnerships with relevant institutions in the market to streamline services provided to cooperatives. In April 2019, the Uganda Bankers Association (UBA) launched the International Centre for Arbitration & Mediation in Kampala (ICAMEK) in April 2019 to settle the growing number of commercial disputes³. Partnering with such an institution, for example, would be essential to manage and resolve conflicts that develop in cooperatives and which often contribute to their reduced performance. Another strategic partnership could be between the Cooperatives Department of Ministry of Trade Industry and Cooperatives (MTIC) and the Association of Microfinance Institutions of Uganda (AMFIU) to provide training to the cooperatives. Such an agreement could have the added benefit of creating a revenue stream for the Department as members and trainers take up the courses.

The harmonization of regulation

There needs to be an alignment between the Cooperative Department and the recently created Uganda Microfinance Regulatory Authority (UMRA), which also has the mandate to regulate SACCOs. Policymakers and development partners can conduct a review of the regulatory scope of these institutions to clarify the role each of them should play in supporting SACCOs. This is essential to minimize resource duplication and ease the supervision of cooperatives.

The development of shared infrastructure

MTIC and UMRA can further collaborate by developing shared digital infrastructure for use in the registration and supervision of cooperatives. As mentioned earlier, digitalization would substantially improve supervisory capacity, increase efficiencies and minimize costs associated with regulation. Such a collaborative approach would reduce the project resources required and streamline administrative processes.

Cooperatives can transform economies by opening access to affordable finance and inputs, increasing productivity and creating employment. However, policymakers and development partners need to invest in building strategic partnerships, harmonizing existing regulation and developing digital infrastructure to improve the supervisory capacity in the sector, reduce the current inefficiencies and support the stronger performance of cooperatives.