WB Group Support to the Cotton Sector in Selected African Countries

1
WB Group Support to the Cotton Sector in Selected
African Countries

• EU-Africa Cotton Forum,
• Paris, July 5th and 6th, 2004

2
Forms of WBG support (1)

• Purpose is to assist efforts of cotton producers
  to enhance efficiency and to restructure at their
  request
• WBG aid to cotton and rural sector flows through
  productive investments, social funds and budget
  support
• New element is to fund safety nets for vulnerable
  groups in cotton areas that suffer most from low
  prices.
• Another is development of mechanisms to mitigate
  price risk

3
Forms of WBG support (2)

• In multilateral trade negotiations, WBG advocates
  reducing support for cotton, and other highly
  distorted commodities, in rich countries
• WBG also seeks to ensure that residual support
  does not distort trade.
• In bilateral trade negotiations, WBG supports
  reducing barriers to African imports into high
  and middle-income countries.

4
What does WBG support in general (1) ?

• IDA finances projects on subsidized terms (70
  grant element on 2.9 billion in 2004 and 100
  grant on 1.3 billion)
• IFC assists private investments without public
  guarantees (debt and equity on commercial terms)

5
What does WBG support in general (2) ?

• MIGA equity guarantees to private foreign
  investment (for example, SONATEL in Mali)
• IDA partial risk guarantees (for example, energy
  in Senegal and CIV)
• ICSID mediation (e.g., cotton privatization in
  Cote dIvoire decided for CIV against CFDT)
• Capacity building (e.g., price risk management
  course)
• TA within ITF CRM

6
Benin

• Cotton Sector Support Project
• 2002, 18 million, 16.8 undisbursed, closes 2006
• Support to private sector operations and new
  institutions after partial divestiture of SONAPRA
  ginning
• TA and advisory services in management, audit,
  capacity building and agricultural services.
• Divestiture of SONAPRA addresses social issues
  and the financial needs of the government's
  conversion program.

7
Burkina Faso

• Burkina Agricultural Diversification (FY05/06,
  35 million, depending on IDA funding)
• PRSC 3 (future, US50 million budget support with
  objectives in cotton sector)

8
Chad

• SAC V (2003, 40 million) supports cotton sector
  reforms.
• Chad - Institutional Reform Support Credit
  (proposed for September 2004)
• Ex-ante and ex-post poverty/social analysis done
  to design reforms.

9
Mali

• SAC III (2001, 70 million) supports (i)
  restructuring of cotton sector to restore growth
  and (ii) public expenditure reforms to advance
  poverty reduction objectives.
• Agricultural Services and Producer Organizations
  Project (2001, 43.5 million).
• Agricultural Diversification (2005, 35 million)
• SAC IV (future)

10
Studies

• FY04
• Textile and garment sector
• Trading mechanisms for cotton
• Technology generation and transfer
• Poverty and social effects of cotton
• FY06
• Downstream development of cotton
• Trade facilitation

11
Price risk management (PRM)

• PRM should be done by private sector (ginners and
  producers) as much as possible
• Must be financially sustainable given long-term
  decline in commodity prices
• Should use donor resources mainly for initial TA
  and not for long-term funding of losses of
  stabilization fund
• Options schemes compatible with self-insurance
  schemes

12
Question of compensation (1)

• Bank has compensated African countries during
  periods of low commodity prices and public
  company losses with adjustment credits
• Bank has also supported cotton through credits
  for investment and for institutional
  restructuring
• This is partial (IDA credits have only 70 grant
  element)
• Not well targeted to producers (it is general
  budget support)

13
Question of compensation (2)

• Future compensation depends on
• Extent and nature of loss
• Other compensation available
• Quality of internal reforms
• Consistency with available IDA resources for each
  country
• Targeting of compensation to real losers
  (farmers, not general budget support)