Organization and Performance of Cotton Sectors in Africa ... - infoDev

The report concludes that problems of cost inefficiency and managerial dysfunctionin national monopolies are serious enough, and the politics of improvingperformance under such monopolies is complicated enough, that most ofthem need to move toward a different sectoral structure. But this conclusionshould not be applied dogmatically. Cameroon, with relatively good performanceto date, may be able to maintain its national monopoly to good effect, as long asit reforms its price-setting process and continues to promote productivity.If national monopolies do choose to change, the direction of change is likelyto be toward local monopolies or concentrated, market-based systems. Thereport concludes that moving in WCA to fully privatized markets allowing competitionamong companies, even if the market is initially very concentrated, isrisky because of the possible instability of concentrated sectors. If, instead, thesesectors can use the local monopoly approach to develop sound regulatorymechanisms and build the operational capacity of farmer organizations, concentratedand eventually competitive systems could perform well. During thelocal monopoly phase, care must be taken to ensure that private companies playa greater role in price setting and other decision making than they have so farplayed in Burkina Faso; price setting must also be done in a way that providesreasonable assurance to companies that, if they operate efficiently according tointernational standards, they will be able to earn a reasonable return on theirinvestment. Clear rules for evaluating and retendering concession areas are alsoneeded, as this approach has been a clear failure in Mozambique.The key challenge in Mozambique’s local monopoly sector is how to createincentives for good company performance. In the absence of strong farmerassociations, these incentives have to come from improved rules governing tenderingand retendering of concessions, procedures for monitoring performanceof concessionaires, and careful selection of companies.The key challenge for concentrated sectors is to develop a regulatoryapproach with three characteristics:■■■Clear and transparent licensing rules must be developed to strictly specifythe capabilities and conduct of firms wishing to participate in the sector,and to defend the ability of firms to coordinate on input supply, extension,and quality control.These rules must be strictly enforced, but they must allow enough prospectof entry that incumbents have an incentive to maintain attractive seed cottonprices.Given the problems of relying entirely on the threat of entry to disciplineincumbent firms, it may also be desirable to develop price-setting mechanismsthat are more formalized than the price leadership that has prevailedin concentrated systems so far.Competitive sectors perform poorly on coordination for service provision.The book concludes that such coordination as does occur must come from aEXECUTIVE SUMMARYxxxiii