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 d’Ivoire 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, US$50 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)