The Role of Multi-Purpose Cooperatives in the Economic Development

The case of Lalo-Assabi District in West Wollega Zone, Ethiopia

Case Study , 2019 , 87 Pages

Business economics - General

The objective of this study is to show the overall development trends and the challenges encountering the multi-purpose cooperatives (MPCs). To do so, research methodology employed was descriptive, which involved both qualitative and quantitative methods. Data were collected from both primary and secondary sources. Data were collected from the sample through cross-sectional survey from 210 respondents. Besides, 16 key informants and three FGDs were considered in the assessment. The instruments used were questionnaires, FGDs, in depth interviews, observation and document review. Both probability and non-probability sampling techniques were applied. Data analyses were done using descriptive statistics. The result of the study shows that the average rate of growth of members in sample MPCs is 19% as calculated from 2016-2018 and 79.3% from their formation period.

The capital of the sample MPCs increased from 305,081 to 9.3 million and their profit was nearly 1.5 million ETB. Of the multifaceted services they provide, marketing agricultural inputs accounts for the great proportions. In general, the sample MPCs are contributing somewhat to the economic development of the MPCs. However, their performance is not as expected due to major problems identified: lack of professional managers, devoted management committees, limited capital base; weak horizontal and vertical linkages, low members’ participation, insufficient dividend, lack of diversified activities; limited awareness, inadequate infrastructure, low stakeholders’ participation, lack of adequate credit facilities and other necessary technical supports are among hitches to be tackled.

TABLE OF CONTENTS

CONTENT PAGE

DECLARATION

ABSTRACT

ACKNOWLEDGMENTS

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

LIST OF ACRONYMS

CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.5 Significance of the Study
1.6 Scope and Limitation of the Study
1.7 Description of the Study Area
1.8 Organization of the Paper

CHAPTER TWO: LITERATURE REVIEW
2.1. Conceptual Frameworks
2.2 Concept of Cooperatives
2.3 Definition of Cooperatives
2.4 Types of Cooperatives
2.5 Principles of Cooperative
2.6 The Cooperative Movement in Ethiopia
2.6.2 The Formation of Formal Cooperatives in Ethiopia
2.7 Major Contributions of the Cooperatives
2.8 Challenges of Cooperatives

CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design
3.2 Types of Data and Sources
3.3 Sampling Design Process and Sample Size
3.4 Data Collection Methods
3.5 Method of Data Analysis

CHAPTER FOUR: RESULTS, INTERPRETATION AND DISCUSSION
4.0 Introduction
4.1 Socio-Economic Profile of Sample Respondents
4.2 The Overall Status of the Multi-Purpose Cooperatives in the Study Area
4.2.1 Welfare Status of Sample Respondents
4.2.2 Membership Status of Study MPCs
4.2.3 Types of Services Provided by MPCs in the Study Area
4.3 Contribution of MPCs in the Economic Development in the Study Area
4.3.1 Resource Mobilization and Capital Formation by the Sample MPCs
4.3.1.1 Profit Status of the Sample MPCs
4.3.2 Investment Trends among the Sample MPCs
4.3.3 Employment Creation and Livelihood Diversification by Sample MPCs
4.3.3.1 Direct Employment Creation
4.3.3.2 Self-Employment and Income Diversification Roles of Sample MPCs
4.4 Major Problems of the Study Multi-Purpose Cooperatives

CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS
5.1 Conclusion
5.2 Recommendations

REFERENCES

APPENDICES

DECLARATION

I declare that “The Role of Multi-Purpose Cooperatives in the Economic Development the case of Lalo-Assabi District in West Wollega Zone, Oromia Regional State, Ethiopia” is my own original work and that it has not been submitted partially or in full by any other person for an award of a degree or for the fulfillment of the requirement for any other programme of study in any University or institution. All the sources that I have used and quoted have been indicated and acknowledged by means of complete references.

The paper is produced with the motivation of guiding other sectors to conduct the same thing by acquiring experience from this document so as to find solutions for the problems prevailing in the communities.

Desalegn Fekadu Etefa

ABSTRACT

To alleviate the socio-economic problems of the people, cooperatives have been encouraged in many developing countries including Ethiopia. Its role to economic advancement in developed, developing and under developed countries is very immense. Cooperation among people has existed since history has been record. However, formal cooperatives began in Ethiopia in 1960. The objective of this study is to show the overall development trends and the challenges encountering the multi-purpose cooperatives (MPCs). To do so, research methodology employed was descriptive, which involved both qualitative and quantitative methods. Data were collected from both primary and secondary sources. Data were collected from the sample through cross-sectional survey from 210 respondents. Besides, 16 key informants and three FGDs were considered in the assessment. The instruments used were questionnaires, FGDs, in depth interviews, observation and document review. Both probability and non-probability sampling techniques were applied. Data analyses were done using descriptive statistics. The result of the study shows that the average rate of growth of members in sample MPCs is 19% as calculated from 2016-2018 and 79.3% from their formation period. The capital of the sample MPCs increased from 305,081 to 9.3 million and their profit was nearly 1.5 million ETB. Of the multifaceted services they provide, marketing agricultural inputs accounts for the great proportions. In general, the sample MPCs are contributing somewhat to the economic development of the MPCs. However, their performance is not as expected due to major problems identified: lack of professional managers, devoted management committees, limited capital base; weak horizontal and vertical linkages, low members’ participation, insufficient dividend, lack of diversified activities; limited awareness, inadequate infrastructure, low stakeholders’ participation, lack of adequate credit facilities and other necessary technical supports are among hitches to be tackled. Hence, to unleash and sustain their development potential, proposed interventions to be taken are: Building the capacity of the management committees and their staff, hiring professional staffs, providing credit services, promoting members participation, establishing strong linkage, providing infrastructural facilities, providing technical support and etc. to mitigate the problems.

Keywords: Cooperatives; Economic Contribution; Local Development; Multi-purpose Cooperatives.

ACKNOWLEDGMENTS

This study has been accomplished because of the direct and indirect support and encouragement of many individuals. First and foremost, I would like to thank the Almighty God for this wonderful opportunity he has given me to write this research paper. Hence, I owe special thanks to the Almighty God for his forgiveness, kindness and blessings that gave me life to this date and made my entire journey successful.

Next to this, I would like to extend my sincere thanks and gratitude to my beloved wife sr. Lelise Firisa Duguma for her usual encouragement and practical assistance in every activity I was performing to overcome the struggle of life. With great pleasure and deep sense of indebtedness, I express my gratitude to my beloved sons Kotim Desalegn, Succoth Desalegn and Tolif Desalegn for their tolerance and encouragement to enable me finish this paper without worrying about their interest.

I am thankful to the West Wollega Zone cooperative office specifically Mr. Ababe Tsegaye senior expert of the office for his commitment to provide me necessary information. My gratitude also goes to west Wollega zone planning and development office experts and the zonal administration to collaborate me to conduct this research. I give this chance and also appreciate Lalo-Assabi cooperative office head and all experts for their cooperation in providing me important data, their participation on the interview questions and above all, arranging me the sample cooperatives while I was contacting the sample respondents from the time of preliminary pilot test to the actual conduction of data collection period. Last, but not least, I would like to appreciate all the sample cooperatives to allow me to observe their activities, filling the questionnaires and their voluntarism to take part in all the invitation made for them to collect all data to accomplish this study.

I would like to pass my sincere gratitude to all concerned individuals and organizations, especially those collaborators who provided me the necessary information concerning the stated objectives of my research. May God bless you all!

LIST OF TABLES

Table 4.1 Livelihood Activities of Respondents

Table 4.2 Sample Cooperatives, Members, Year of Establishment (GC) and Capital in ETB

Table 4.3: Cooperatives’ Members in the Three Consecutive Years (2016 to 2018) (in GC)

Table 4.4 Rationale of Membership

Table 4.5 Criteria for Getting Membership of the Cooperatives

Table 4:6 Types of Service Provided to the Study MPCs

Table 4.7 Capital of the Sample Cooperatives (in ETB)

Table 4.8 Profit Status of Sample Cooperatives (in ETB)

Table 4.9: The Area of Investment by the Sample Respondent of the MPCs

Table 4.10 Direct Employment Created by the Sample Cooperatives

Table 4.11 Major Areas of Employment Opportunities Created

Table 4.12 Amount of Salary Paid for Employee by Sample MPCs

Table 4.13 Job Created by Self-Employment to the Sample Respondent of the MPCs

LIST OF FIGURES

Figure 2.2: Conceptual Frameworks of Factors Affecting Multi-Purpose Cooperatives

Figure 4.1: Gender of Respondents

Figure 4.2: Marital Status of the Respondents

Figure 4.3: Age of the Sample Respondents

Figure 4.4: Educational Level of Respondents

Figure 4.5: Land Ownership of the Sample Respondent

Figure 4.6: Family Size of Respondents

Figure 4.7: Duration of Joining the MPCs by Sample Respondents

Figure 4.8: Major Problems of the Study MPCs

LIST OF APPENDICES

Annex 1: Questionnaire for Sample Respondents in the Study Area xi

Annex 2: Questions for Selected Officials and Professionals (Interview) xx

Annex 3: Check List for Interview and Focus Group Discussions xxiii

LIST OF ACRONYMS

Abbildung in dieser Leseprobe nicht enthalten

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

In the contemporary period, poverty is abolishing the lives of billions of the people around the world. As a result, many people sense incapable to change their lives. In this hardship situation where alleviation of poverty has become the biggest challenge to the human society, cooperatives appeared to be one of the alternatives to economic opportunity. Cooperatives are formed to meet peoples’ mutual needs. They are originated on the leading idea that together, a group of people can achieve goals that none of them could attain alone (Ruhul & Mohammed, 2014).

Cooperatives are established and are being working in many part of the world aiming to ensure the wellbeing of people. Cooperatives enable members to pool resources together; reduce costs, strengthening their abilities and thereby supporting each other at the moment of great challenges (Bolton, 2019). Now days, poverty reduction is not only the concern of the government, but also a big issue to all the concerned including nongovernmental organizations and the society itself. There is consensus among many actors of development, comprising the United Nations (UN), United Nations Development Programme (UNDP), the International Cooperative Alliance (ICA) and the International Labour Organization (ILO), that cooperative enterprise is one of the new forms of organization that target for the reduction of poverty and exclusion (Alemu, 2011).

Evidence from various sources reveals that cooperatives are contributing great share to the country’s economic and social development. For instance, report of the ICA (2016) stated that about one billion people are involved in cooperatives, either as members or, as employees or both. The same source further indicated that nearly 280 million people get employment opportunities from cooperatives at global level. The livelihoods of almost half of the world„s population are safeguarded by cooperative enterprises. This is particularly true in the rural areas where it provides an important potential for income generation and equity for the dwellers.

As historical evidence indicates, in Ethiopia, cooperation as a way of life has been and continues to be a tradition to find solutions to the socio-economic problems of the people. Modern forms of cooperatives were first introduced in Ethiopia in 1960 during the imperial Hailesillasie regime. Following this, the Derge regime established an extensive network of socialist agricultural cooperatives throughout Ethiopia by organizing the peasants. There was virtually no member participation. Instead, Party Agents and political activists largely ran these cooperative systems (Dessalegn, 1994). During this time, corruptions and mismanagements were so prevalent in the service cooperatives, which handled the purchase of consumer goods for rural communities.

As indicated in the work of Kifle (2015), the present government of Ethiopia provided a legal framework which incorporates universally accepted principles of cooperatives including voluntary membership (Proclamation No. 147/1998 and 402/2004). Due to increased government support, cooperative movement has shown growth in Ethiopia (Islam et al., 2015). Moreover, the government abolished command economy, and introduced liberalization of economy. Thus, cooperatives are promoted as part of Ethiopian rural and agricultural development strategies, within the national macro-economic policy framework of agricultural development led industrialization (ADLI). Following this, some improvements have been seen in cooperative societies in the country.

In line with these realities, in this paper, the area of study is on multi-purpose cooperatives those who undertake diversified activities unlike the single purpose one. Accordingly, the research attempted to assess the role of multi-purpose cooperatives in the economic development of Lalo-Assabi District (Oromia region) through analyzing the overall conditions of cooperatives, to analyze the contributions of cooperatives to the economic development, to identify problems hindering the performance of cooperatives in the study. Besides, in the research, an attempt was made to find out issues which require further research and investigations so that other researchers can easily come up with the outstanding recommendations and also policy makers fill the gaps found out to enhance cooperatives’ contribution in the economic development of the study area.

1.2 Statement of the Problem

Many scholars have argued that cooperatives could play crucial roles in the socio-economic developments of the country if they are formed voluntarily and managed democratically. As to Adugna (2013), cooperatives are considered as an appropriate tool for rural development.

In spite of such potential roles, since they were controlled and manipulated by the state, their roles and functions were misunderstood. Hence, there is still a doubt that whether they effectively support communities’ livelihood improvement and local economic development. For instance, in the study of Nuradin (2015), problems hindering the role of cooperatives in the economic development identified were: backward attitude, lack of committed leadership, lack of good governance, lack of working capital, attitude and practice of corruption, lack of knowledge and skill, lack of provision and utilization of improved technology, weak vertical and horizontal linkage within and among cooperatives and inappropriate support from government and other stakeholders.

In the study area, the contribution of multi-purpose cooperatives to the economic development, challenges they are facing and intervening strategies to be adopted have not been researched. Hence, the rationale of the study aims at assessing the issue and to fill the gaps by finding out the root causes of the problems as well as to investigate means of solutions for the existing problems.

1.3 Research Objectives

1.3.1 General Objective

The general objective of the study is to assess the role of multi-purpose cooperatives in the economic development of Lalo-Assabi District (West Wollega zone, Oromia Regional State).

1.3.2 Specific Objectives

- To assess the trends and status of multi-purpose cooperatives in the study area
- To analyze the contributions of multi-purpose cooperatives in the economic development.
- To identify problems hindering the performance of multi-purpose cooperatives from undertaking the aforementioned roles
- To suggest strategies and measures to be adopted for the good performance of multi-purpose cooperatives.

1.4 Research Questions

1. What are the trends and status of multi-purpose cooperatives in the study area?
2. What are the contributions of multi-purpose cooperatives in economic development of the study area?
3. What are the major problems hindering the performance of multi-purpose cooperatives in the study area?
4. What strategies and measures to be adopted for the good achievement of multi-purpose cooperatives?

1.5 Significance of the Study

As to ICA, cooperatives are sovereign organization of people, who voluntarily organized to fulfill their common economic, social and cultural needs and demands through the controlled and democratic business. Cooperatives have played a significant role towards achieving the growth and poverty reduction strategy by promoting income generating activities and improving accesses to various services. Thus, the study tries to examine if these are practical in the study area, and ultimately attempts to indicate corrective measures to be adopted. To this end, the study helps other researchers and policy makers to formulate and implement plan and policy in the future to work on the problems of cooperatives in general and multi-purpose cooperatives in particular.

1.6 Scope and Limitation of the Study

Geographically, the study touched only Lalo-Assabi District whose main objective was to assess the role of multi-purpose cooperatives to economic development. Even though there are several types of cooperatives in the district, this study is limited itself to multi-purpose cooperatives. This means, the study is confined to multi-purpose cooperatives and did not cover other types of cooperatives. Thus, due to the purpose of the study, not all the primary cooperatives were involved in the study.

On the other hand, data were collected from the portion of the population. That means, sampling design is utilized to achieve the aim of the research. Consequently, the sample constituted 62.5% and 73% in terms of number of MPCs and number of members respectively.

1.7 Description of the Study Area

As obviously raised, the study was conducted in the western part of Oromia Regional State particularly in Lalo-Assabi district. The study area is one of the 20 districts found in West Wollega Zone. It is located in the western part of west wollega zone at a distance of 23 km away from the zonal capital (Ghimbi town). It shares common boundaries with Gimbi, Guliso, Bodji and Yubdo districts and Benishangul-Gumuz Regional State. So, in terms of relative location, it is bounded by Ghimbi town in the east, Guliso district in the west, Boji Cokorsa and Boji Dirmaji districts in the north, Ganji district in the south, Homa district in the south-east and Benishangul-Gumuz Regional State in the north-east. Enango town is the capital of the district. Astronomically the district extends roughly from 90 08’33”N and 350 83’33” E.

The district has 31 administrative sub-divisions out of which 27 are peasant associations and the remaining 4 are urban centers. It has a total area of 43,355 hectares (433.55 Km ) and total population of 96,068 of which 45,068 are males and 51,000 are females as of 2018. In terms of topography, it is characterized by ups and down train. The district generally lies with in an altitudinal range of 1500 to 1900 meters above sea level.

The district totally lies within “Woina Dega” agro climatic condition. Its average annual temperature is about 24.50C while average annual rainfall is 1737.5 mm. As far as the natural vegetation of the district is concerned, about 1893.07 hectares of the total area is covered by natural vegetation out of which wood land covers about 577.2 hectares while reverie covers about 12.8; shrubs and bushes cover about 456.1 hectares. Moreover, 847 hectares of manmade forest is protected by the community.

Agriculture is the main economic activities of the district. As data from west Wollega zone finance and economic development office shows, the district had 17 different types of cooperatives having 7,200 males and 3,522 Female members. Of these, there are eight multi-purpose cooperatives consisting 4,375 members. The major services delivered by the cooperatives for their members include provision of supply of agricultural inputs and market for their members by purchasing their products. With regard to the distribution of agricultural inputs, 10,330.675 quintals of fertilizers, 642.875 quintals of improved seeds, 550 litters of herbicides and 85 kg of pesticides were distributed to farmers in the year 2018.

1.8 Organization of the Paper

This thesis comprises five chapters. Chapter one constitutes the introductory part. In this chapter, background of the study, statement of the problem, objectives of the research, research questions, significance of the study, scope and limitation of the study and description of the study area are included. The second chapter presents literature review that provides theoretical and empirical framework to the research. Chapter three is devoted to the discussion of the research methodology of the study. The fourth chapter is the main body of the research that comprised data analysis and interpretation and findings. Finally, in the fifth chapter, conclusion and recommendations were presented.

CHAPTER TWO: LITERATURE REVIEW

2.1. Conceptual Frameworks

2.1 Conceptual Frameworks of Factors Affecting Multi-Purpose Cooperatives

Abbildung in dieser Leseprobe nicht enthalten

Source: Own construct

As indicated in the schematic diagram above, the presence of all those placed at the base of the tree can lead to the success of the multi-purpose cooperatives. According to Banaszak (2008), the key factors that contributed to cooperatives success, such as leadership strength, number and members’ participation, sufficient resources and above all, government supports are among the major ones listed.

The internal factors that would have an effect on a cooperative’s success are the ones that arise internally and these include members’ commitment, members’ participation, structural and communication and managerial factors.

The external factors, considered essential in the success of cooperative, include assistance that act as motivation for members in a cooperative, external assistance, government policies, regulatory frameworks and market factors. Those key factors indicated at the bottom of the diagram are independent variables while the one placed at the top is dependent variable. There are multi-interactions among these variables. That means, in case the interaction goes in the way contributing to its progress, the consequence would be positive, and the reverse might occur otherwise. In short, these factors can affect the competitiveness of cooperatives, especially in developing countries, where cooperatives are still underdeveloped. From these, it can be deduced that the vise-versa would take place in the absence of the above mentioned components.

2.2 Concept of Cooperatives

Cooperative is a non-profit based service organization owned and operated by its members. In many ways it is like any other business, but in several important ways it is unique and different. It has been the very basis of human civilization. The inter-dependent and the mutual help among human beings have been the basis of social life. It is the lesson of universal social history that man cannot live by himself and for himself alone. Since the beginning of human society, individuals have found advantage in working together and helping one another in all over the world (Krishna, 1992 cited in Jemal, 2008).

A cooperative operates for the benefit of its members. These member-owners share equally in the control of their cooperative. The members elect directors which, in turn, hire management to manage the day-to-day affairs of the cooperative in a way that serves the members' interests. It is based on the idea people working together for a common goal and common good (Ahmad, 2005).

This indicates cooperatives as economic enterprises and as self-help organizations, play a meaningful role in uplifting the socio-economic conditions of their members and their local communities. Over the many years back, cooperative enterprises have successfully operated locally owned people centered businesses while also serving as catalysts for social organization and cohesion. With their concern for their members and communities, they represent a model of economic enterprise that places high regard for democratic and human values and respect for the environment.

As the world today faces unstable financial systems, increased insecurity of food supply, growing inequality, rapid climate change and increased environmental degradation; it is increasingly compelling to consider the model of economic enterprise that cooperatives offer (David, 2008). The current financial crisis characterized by the massive public bail-out of investor-owned banks worldwide has underlined the virtues of a customer-owned cooperative banking system. Cooperative banks in the form of credit unions, building societies and cooperative banks, by focusing primarily on the needs of their members, have displayed prudence and avoided the excessive risk-taking that plagued many large global financial institutions. As cooperative banks continue to operate and provide loans to their clients; they play an even more critical role as consumers and businesses face a credit crunch. This shows members and depositors trust and relay on the bank confidently.

Genuine cooperatives are democratic institutions that have a high potential of mobilizing people to participate in national affairs and of ensuring good governance at all levels. By applying democratic principles at grassroots level, they can prepare the people for local and general elections; by organizing those, whose voices remain usually unheard, they can influence national policies towards the poor; and by creating vertical structures, they can participate in national decision-making. There are many examples where this actually happened (Jürgen Schwettmann, 1994).

Unfortunately, many cooperatives in Africa are not (or were not until recently) “genuine”, because they served the state, a political party or individuals instead of their members. When the state “incorporates” cooperatives, they can become instruments of oppression instead of participation. An example is the (now dissolved) peasant associations of Ethiopia which forced farmers into collective production against their will (ibid).

2.3 Definition of Cooperatives

As the definition given by the International Cooperative Alliance (ICA) connotes, cooperatives are autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations. They are people centered enterprises jointly owned and controlled by and for their members to realize their common socio-economic needs and aspirations. As enterprises; they are based on values and principles, they put fairness and equality first following people to create sustainable enterprises that generate long-term jobs and prosperity (Zeuli & CROOP, 2004). This shows cooperatives are voluntary associations geared towards the realization of the members’ needs. The other definition is given by Kimberly, Z. (2002) cited in Ruhul & Mohammed (2014). As to them, cooperatives is defined as a registered voluntary association of persons with membership not less than ten persons, with a common interest formed and operated along democratic principles, for the purpose of economic and social interests at least costs, to its members who contribute the capital and manage the business so established by delegating some powers to elected management.

2.4 Types of Cooperatives

Cooperatives can be classified from several angles including: groups served, size, areas served, functions performed, types of membership, legal status and financial structure. In terms of groups served, cooperatives may be classified as producer cooperatives and consumer cooperatives. While agricultural cooperatives are best examples of producer cooperatives, credit cooperatives, consumer good cooperatives and health care cooperatives are of consumer cooperatives (Williamson, 2000).

From the view point of the same author, cooperatives can also be classified as local cooperatives and regional cooperatives based on the areas served. While generally local cooperatives operate from a trading center and have individuals as their members, regional cooperatives have their territories ranging from several countries to several states. As far as the functions of cooperatives are concerned, agricultural cooperatives perform one or a combination of the various functions for farmer-members including marketing purchasing services and bargaining.

As it is indicated in the work of Chambo (2009), the main categories of farmer cooperatives fall into mainstream activities of agricultural undertaking. These include supply of agricultural inputs, joint production and agricultural marketing. The input supply includes the distribution of seeds and fertilizers to farmers. Cooperatives in joint agricultural production assume that members operate the cooperative on jointly owned agricultural plots, which is not common in the case of Ethiopia. The third category of cooperative consists of joint agricultural marketing of producer crops, where farmers pool resources for the transformation, packaging, distribution and marketing of an identified agricultural commodity.

With regard to the type of cooperatives operating in Ethiopia, Bezabih (2009) put further classification based on the types of activities in which they engage. Consequently, cooperatives could engage in a single activity, such as production and marketing; or could be involved in multiple activities simultaneously. In general, the types of cooperatives that operate in Ethiopia are Producers’ cooperatives, marketing cooperatives, SACCOS, consumer cooperatives, handcrafts cooperatives, mining cooperatives, housing cooperatives, construction cooperatives, multipurpose cooperatives and services cooperatives. Additional clarification given by Chukwu (1990) indicates that those who undertake diversified activities unlike single purpose cooperatives are multipurpose cooperatives. Multipurpose cooperatives, which functions on the basis of a fully integrated framework of activities, planned according to member’s requirements identified at the grass root level, taking the socio-economic life of the farmer members in its totality.

In short, the number of operation in which the cooperative engaged is another classification criterion of cooperatives. There are single purpose cooperatives, which have only one field of activity (one purpose e.g. marketing). There are also multi-purpose cooperatives, which have more than one field of activity (two or more purpose e.g. credit and marketing).

2.5 Principles of Cooperative

As everything has a principle that guides what to do, for whom to do and how to do its duty, cooperatives has its own principles from the time of its formation. These principles are the cornerstones upon which cooperatives were built. These principles are known as the “Rochdale Principles”, which date back to nineteenth century England (Tesfaye, 1995). These principles are guidelines for how to put ideals and values into practice. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others (ICA, 2003). They rest on a distinct philosophy and view of society that helps us judge our accomplishments and make decisions. They are the settled rules of action and are identified as the coordinates that go to make a cooperative society and as such are indispensable. They were evolved out of experiments and practices, and represent the cooperative’s philosophy, evolved by cooperative enterprise pioneers, improved and embellished by movement and are recognized by the ICA congress. Cooperatives operate under seven principles which are formulated by the ICA in 1995 (Baarda, 2006). These are: Voluntary and Open Membership, Democratic Member Control, Member Economic Participation, Autonomy and Independence, Provision of Education, Training and Information, Cooperation among Cooperatives and Concern for the Community.

As to the view of Ferguson (2012), the above seven principles of cooperatives distinguishes cooperatives from the other forms of enterprise or community groups. The principles are universal and throughout the word, enabling common language and basic perspective among cooperative organizations worldwide. The very mandate of these principles also places cooperatives in a unique position to ensure and promote gender equality (ILO, 2012). Cooperatives are democratically owned and governed enterprises; guided by the values of self-help, self-responsibility, democracy, equality, equity and solidarity. They put people at the heart of their activities and allow members to participate in the decision-making (Kimberly & Robert, 2004, cited in Aregawi & Hailesellasie, 2013).

2.6 The Cooperative Movement in Ethiopia

A free market economy posed many challenges, particularly for small holder farmers and youth entrepreneurs that have limited bargaining power, skills and capacity. Thus, collective efforts through cooperative organization have been chosen by many disadvantaged groups as a means for accessing the benefits associated with a liberalized market system. As a result, different types of cooperatives have been formed to meet different objectives over the years. Though there is a dearth of uneven time runs in the country, registered cooperatives in Ethiopia have generally increased overtime. There are also several non-registered groups or associations that provide functions similar to the cooperative model. The number of registered primary cooperatives has increased from 7,366 in 1991 to 82,089 at the beginning of 2019 showing 1,014% rate of growth (Desalegn, 2019).

2.6.1 The Formation of Traditional Cooperatives in Ethiopia

In Ethiopia, there are indigenous organizations which exist in diverse forms in different cultural, religious and socio-economic contexts. The first organizations in Ethiopia were self-help systems. They existed in the country for centuries before they started to develop some sort of structure. Certain amounts of informal cooperation between farms described mostly involved in lending or borrowing of farm implements. Working for a neighbor or lending a hand for special jobs (labor mobilization in agriculture and construction), and livestock sharing, saving and credit (in monetary or in material form such as oxen) are some of the features (Dejene, 1993; Woldu, 2007).

The spirit of self-help and cooperation has long been a part of the farming community in Ethiopia. There have been mutual organizations in urban areas, too. When communities face problems, they devise ways of addressing these problems based on their values, culture and beliefs. In Ethiopia various self-help cooperatives still exist. They are very common across different cultures, but different names are given in different languages. In fact, their objective and functions are almost similar. Among the many others, some of the common ones are mentioned as follows:

a) “Debo”- It refers to mutual assistance in farming and house building. This mobilizes community labor in the form of work groups. It is obviously known in different parts of the region whose name may vary depending on the languages used by people. In Oromo language, the name is the same and this happens when one farmer needs his friends, neighbor or relative to help him work in his farm either in ploughing, weeding, threshing, etc. or to construct his house. This informal cooperative does not have permanent members.
b) “Mahber”- It is an association for mutual aid based on attachment to religion. It provides members with spiritual satisfaction as they fulfill religious functions, and enables members to get together and develop social interaction among the members. It also supports members in difficulty.
c) “Iddir”- It is a society for mutual help and burial. It is established by the mutual agreement of community members to collaborate each other whenever any member or their family members face adverse situations. Unlike others, it has diverse functions and benefits to its members. For instance, it provides financial, material, labor and psychological support at the time of mourning. Furthermore, some of them have been involving in infrastructure development and provision of social services such as schools and health services, and some are engaged in income generating activities such as consumer goods shop, renting halls and equipment. These diversified functions mainly prevail in urban areas.
d) “Iqub”- It is a rotating credit association. It promotes saving habits among members and provides credit to members. It is rare in the rural areas. Some of the characteristics of self-help organizations (informal cooperatives) include promotion of mutual benefits, more or less democratic and egalitarian structure, voluntary formation, organization leadership, more or less transparent decision making and flexibility of rules and operational modalities (Redie and Hinrichsen, 2002, as cited in Haileselassie, 2003). Furthermore, they show that voluntary associations complement the formal sector by providing spiritual, social and economic services at significantly reduced transaction costs.

2.6.2 The Formation of Formal Cooperatives in Ethiopia

Ethiopia has introduced modern types of cooperatives in various areas of endeavor later than the majority of African countries. In fact, the first consumer cooperative was established in Adds Ababa in 1945 (ILO, 1975) cited in (Haileselassie, 2003). However, it was after decree No. 44 of 1960 that modern cooperatives were officially introduced.

The modern Farm Workers Cooperatives was formed in Ethiopia during the imperial government as a result of the declaration of the first decree No. 44/ 1960. This cooperative legislation was enacted three years later than the creation of the Ministry of National Community Development in January 1957, in order to achieve the objectives of Community Development, Cooperative, Social Welfare and Labor (Alemayehu, 2002).

The decree No. 44/1960 was replaced by “Cooperative Society Proclamation No. 241 of 1966”. The main objective of this proclamation was improving the standard of living of the farmers, better business performance and improving methods of production. In reality, this proclamation benefited the wealthy commercial farmers who resided in the most potential areas. The cooperatives were not easily accessible to the ordinary and poor peasants.

Despite its limitations, proclamation No. 241/1966 created a favorable situation for the expansion and development of cooperatives in Ethiopia. At the end of the 3 five-year Development Plan, 50 agricultural cooperatives were set up with about 11, 000 members and capital of 6 million Birr (Haileselassie, 2003).

In the same way, evidence provided by McCarthy (2001) shows that the cooperative society proclamation formed the legal corner stone for the promotion of modern agricultural cooperatives. As to him, the formation of cooperatives in this period was slow and their performance was weak. Until the revolution of the 1974, only 165 agricultural cooperatives with a total membership of 33,400 were established. He asserts that the first Ethiopian cooperatives faced serious obstacles in the land tenure system, banks’ collateral requirements, inadequate trained manpower, lack of access to market facilities, absence of membership training program and inadequate agricultural services.

In 1974, the Ethiopian Revolution erupted and the military regime (known as the Derge) came into power. After a while, the Derge enacted Proclamation No. 71 of 1975 to nationalize all land, which provided for the formation of Peasant Association, Agricultural Producer Cooperatives and Agricultural Service Cooperatives.

Meanwhile after; that is, in 1978, “Cooperative Societies Proclamation” No. 138/1978 replaced the proclamation of 1966. The crisis of cooperative identity began at the time when the Derge abolished all cooperatives except the housing and saving and credit cooperatives which were organized under Proclamation 241/1966. The cooperatives were not autonomous organizations, but had purely political character. This was clearly reflected in the proclamation of 137/1978 Article 3.5 i.e. “Cooperative shall be organized to conduct political agitation.” Besides, Article 3.6 says: cooperative is organized to participate in the building of the socialist economy.”

It is pointed out by ILO (as cited in Haileselassie, 2003) that many cooperatives in Africa are not (were not until recently) “genuine”, because they served the state, a political party or individuals instead of their members. When the state ‘incorporates’ cooperatives, they can become instruments of oppression instead of participation. An example (though now dissolved) is the peasants' associations of Ethiopia, which forced farmers into collective production against their will. Therefore, the proclamation was enacted on the basis of socialist ideology. They were considered as the extension of state institutions, and almost all lost their cooperative identity.

In general, cooperatives in the Derge were characterized by corruption and mismanagement, and served as a vehicle for the government mass collectivization policy as well as a forced recruiting ground for fighting for Mengistu’s escalating internal conflicts (McCarthy, 2001).

Forced by the internal instability and economic crisis along with the world economic situation, the Derge declared the “mixed economy policy” in 1990. This gave an opportunity to the cooperative members to decide on their future. As they were organized without their will and interest, the majority of cooperatives collapsed. Due to unnecessary government interference and compulsion on membership and leadership, people throughout the country have developed a negative view about the cooperative movement and reduced their age-old self-help tradition. At this time, the institutional suspicion mentality is widely reflected in the existing cooperative members.

In 1991, the old military regime was defeated in the civil war. The new government embarked on major political and economic reforms. The new constitution provided for decentralization in which substantial political, economic, and social policy power has been devolved to the nine regions and two city council administrations. By abolishing the more centralized economic policy and planning, the new market liberalization policy, which is democratic and decentralized policy, launched the formation of new “Agricultural Cooperative Societies Proclamation No. 85/1994.” This proclamation restricts the government from negative interference in the internal affairs of cooperatives and initiates the organization of free, autonomous and independent cooperatives.

For establishment of different types of cooperatives in the country, “Cooperative Societies Proclamation No. 147/1998” replaced the proclamation No. 85/1994. This proclamation shall in particular include the following: Agricultural, Consumer, Housing, Industrial and Artisan Producers’, saving and Credit, Fishing and Mining Cooperative Societies. Under this proclamation, cooperatives are organized to solve problems collectively, to achieve a better result by coordinating their knowledge, wealth and labor to promote self-reliance, to improve the living standard of members and so on.

The Ethiopian government is trying to promote cooperatives with the objectives of developing them into autonomous self-help institutions. This was the main reason for setting up the Cooperative Promotion Department in Prime Minister’s office, Cooperative Promotion Bureaus in regions and in line administrative units (zones and woredas) and later Cooperative Commission at federal level, which is now called Cooperative Agency. In the proclamation No. 147 of 1998, the autonomy of cooperatives is clearly stated. The role of the government is limited and only focused on offering guidance and supervision, registration and capacity building.

In accordance to the new proclamation, new cooperatives have been established and cooperatives in the past equally got an opportunity to reorganize them. Thus, this clearly indicates that in the history of Ethiopian cooperative movement, it is observed that cooperatives disappeared with the change of the government. They had exactly the life of the government. They existed as long as the government was in power. However, in the new government, this problem has come into an end. This is demonstrated by the fact that some cooperatives from the Derge era are able to exist at present.

In summary, the number of cooperatives significantly increased during the Derge regime, which is from 1974-1991, with approximately 10,524 primary cooperatives having 4,529,259 members recorded. Cooperative organization was highly political during this time and many cooperatives were dismantled following the downfall of the Derge regime. Cooperatives became a path to socio-economic and social empowerment in Ethiopia in 1991. According to the FCA (2009), the number of cooperatives in Ethiopia declined from 10,524 during the Derge regime to 7,366 cooperatives in 1991 (Bezabih, 2009). As a result of a Policy support, especially the favorable condition created by proclamation No. 147/ 1998, the numbers of cooperatives started to increase.

As of May 2014, according to the Federal Cooperative Agency (FCA), there were 32 different kinds of cooperatives with 56,044 primary cooperatives operating in all regional states of Ethiopia with the aggregate membership size of 9,165,267 (6,949,589 males and 2,215,678 females) having capital amounting to ETB 8.8 billion. The regional distribution of primary cooperatives shows that Oromia 29.3 %, Addis Ababa 21.6%, SNNP 20.9%, Amhara 13% and Tigrai 8%. The remaining five regions (Somalia, Afar, Gambella, Beneshangul and Harare) and Dire Dawa city collectively accounted for 6.8% of the number of cooperatives in the country (FCA, 2014).

Furthermore, the new proclamation has helped the cooperatives to organize themselves into unions by pooling their resources together. As a result, 22 grain marketing unions, and 2 coffee marketing unions have been established in Amhara, Tigrai, Oromia and Southern Regions.

2.7 Major Contributions of the Cooperatives

Cooperatives are community-based, rooted in democracy, flexible, and have participatory involvement, which makes them well suited for economic development (Gertler, 2001, cited in Ahmad, D. B., 2005). From this, it can be concluded that cooperatives play an increasingly important role in poverty reduction, facilitating job creation, economic growth and social development.

In a number of ways, cooperatives play important role in global and national economic and social development. With regard to economic and social development, cooperatives promote the “fullest participation of all people” and facilitate a more equitable distribution of the benefits of globalization. They contribute to sustainable human development and have an important role to play in combating social exclusion (Levin, 2002). Thus, the promotion of cooperatives should be considered as one of the pillars of national and international economic and social development.

In addition to the direct benefits they provide to members, cooperatives strengthen the communities in which they operate. A number of studies (Chukwu, 1990; Somavia, 2002; Elena, 2008) found that cooperatives are specifically seen as significant tools for the creation of decent jobs and for the mobilization of resources for income generation. Many cooperatives provide jobs and pay local taxes because they operate in specific geographical regions. According to ICA (2016), the 3 million cooperatives on earth contribute to sustainable economic growth and stable quality employment. The top 300 cooperatives generate 2.1 trillion USD and is estimated that cooperatives employ about 280 million men and women worldwide. Moreover, other than economic and social benefits, cooperative gives farmers a means to organize for effective political action. Farmers can meet to develop priorities and strategies. They can send representatives to meet with legislators and regulators.

As a result of special attention given to the development of cooperatives, the role they played in the socio-economy is showing growing trend. The number of registered primary cooperatives has increased from 7,366 in 1991 to 82,089 at the beginning of 2019 showing 1,014% rate of growth (Desalegn, 2019).

In this regard, the research findings of numerous scholars confirm that cooperatives play an increasingly important role in economic growth, poverty reduction and democratization, if they are democratically organized and managed. The justification provided by Emana & Nigussie (2011) presumed that through distributing agricultural inputs, providing improved technologies, and encouraging farmers to produce high value crops, cooperatives in Ethiopia have been creating immense socio-economic benefits to both members and outsiders.

Besides, cooperatives are taking part in the distribution of improved seeds, farm implements (such as water pumps), pesticides and herbicides, modern beehives and other agricultural inputs. Evidence verifies that in the cropping period 2012/13, about 110,578.4 tons of improved seeds of different types were distributed by cooperatives (FCA, 2014a). Moreover, they also involve in distributing both quality and quantity nonagricultural input supplies such as construction materials, and consumable goods and also agricultural products at reasonable prices.

In serving as a market channel, cooperatives are also involved in output marketing and creating market opportunities. In doing so, they are achieving good results in the areas of coffee, sesame, grains, animal products, milk and milk products which they have effectively marketed. With this regard, empirical evidence provided by FCA (2014a) reveals that in the year 2007, seven coffee cooperative unions exported about 6,967 tons of coffee and generated revenue of about 24 million USD. This has elevated the export of coffee to 11,532 tons, which has enabled to generate about 76 million USD in 2013. Similarly, over the period of 2009 to 2013, on average cooperatives supplied about 2.5 million tons of grain; 11.7 million liters of milk; 124,404 live animals; 17,356 quintals of fish; and 21,141 quintals of honey per year to the market and improved members’ income.

Even though there are all the potential advantages explained, all members are not equally utilizing the said benefits. Farmers in developing countries face a number of problems in marketing. The first group of constraint is a physical condition such as insufficient means of transportation, bad roads, and small and underdeveloped markets. Lack of storage facilities also prevents the farmers from storing their farm produce until the season when the prices rise. This results in loss of income to the majority of the small scale farmers. In overall situations, farmers in developing countries have very small bargaining power, and are exploited by middle men and private traders (Elena, 2008).

The direct and indirect employment opportunities created for many individuals is also the other important economic benefits of cooperatives. Cooperatives are the second largest employer in many African countries and some countries around the world, being surpassed only by the government (Schwettmann (ILO COOP), 1994). This could also be considered as a social benefit. As evidence indicated in FCA (2013), to above 623,950 members and to 181,133 non-members about 12,902 direct employment opportunities were created by cooperatives. This implies in the stated period of time, throughout the country cooperatives have generated more than 805,053 jobs. Now a days, report from FCA shows the number increased to 1.4 million.

Nevertheless, the role of cooperatives in employment creation has been neglected by employment planners, cooperative promotion agencies, social partners and donor organizations alike. In this regard, as to the evidence indicated by ILO (2000), “in many African countries, cooperatives were considered primarily as tools to execute certain economic or political functions on behalf of the government, not as autonomous, member-based organizations that create and consolidate self­employment.”

In addition to the primary cooperatives, cooperative unions have also been engaged in product processing and value addition, thereby economically benefiting their members. A good example in this case includes Liche Hadiya and Lume Adama cooperative unions that have been involved in value addition through processing (FCA, 2014a). This infers cooperatives have been playing important roles in economic benefits, ensuring a fair share of resources, and reducing income disparity.

The economic benefits of cooperatives discussed earlier have also their share in contributing to social benefits, as the income earned from cooperatives could be invested in children’s education and cover health expenses. Furthermore, as service provision being one of the objectives of cooperatives, both primary cooperatives and cooperative unions should spend about 5% of their profits as investment in social services (EPRDF, 1998, cited in Mojo et.al, 2017). This has also long-term economic benefits to the cooperatives, since it can help to increase the social capital of the community. Some empirical studies also indicate that cooperatives have significantly positive impact in creating social and human capital (ibid). In spite of their potentials, only a few cooperative unions are currently undertaking such activities of contributing to the social wellbeing.

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• Course: Business
• Author: Desalegn Fekadu Etefa (Author)
• Publication Year: 2019
• Pages: 87
• Catalog Number: V506803
• ISBN (eBook): 9783346083326
• ISBN (Book): 9783346083333
• Language: English
• Tags: role, zone, wollega, west, district, lalo-assabi, development, economic, cooperatives, multi-purpose, ethiopia