Kichking the habit. (3) The case of Mali.

The Case of Mali
Mali is an extremely poor country. It has the highest percentage of people living below the poverty line of any country in the world. Ninety per cent of Malians survive on less than two dollars a day(37). Twenty per cent of children will not live beyond five years old(38) and one in eight cannot read or write.(39)

The challenges facing Mali in fighting poverty are daunting. Yet, Mali has a democratically elected government which cares about poverty and has developed a national poverty plan. It also has good systems of financial accountability relative to other low-income countries and is macro-economically stable. In an assessment carried out by the World Bank and the IMF, Mali scored the highest out of all the Heavily Indebted Poor Countries (HIPCs) on the soundness of its public financial management systems.40

If aid were given on the basis of need and financial accountability and governance alone, then Mali should be near the top of the list in terms of aid flows to developing countries. It is not. Mali is actually under-aided. According to the last figures available from the OECD’s Development Assistance Committee (DAC), it receives $48 per person, in comparison to Senegal, which receives $100 per person. Although both countries have democratic governance structures and macro-economic stability, Senegal is less poor and scores lower on public finance management than Mali.41 World Bank conditionality in Mali Given the above climate, donors should be fighting amongst each other to provide aid for Mali. But before providing the much-needed funds, the World Bank and the IMF (and other donors) have required Mali to implement a number of controversial and counter-productive economic conditions: privatisation of the electricity supply, ending government support to cotton farmers by privatising the sector, and liberalising the price of cotton.

These conditions have undermined country ownership, actively delayed Mali from receiving greater aid flows, and generally worsened poverty rather than making the situation better. Electricity privatisation was undertaken between 1998 and 2000, during the period when the World Bank and the IMF were in the process of reforming their lending practices. The privatisation and price liberalisation of the cotton sector have been pushed from 1998 to today, with privatisation a continued condition for finance from the World Bank and the IMF.

It is bad enough that the World Bank and the IMF should have pushed approaches that they had already acknowledged as problematic and needing to be changed, but it is even more worrying that they continue to do so long after they are supposed to have stopped the practice.

The case of electricity privatisation
Access to basic services like electricity, which the developed world takes for granted, is rare in Mali. Less than one per cent of rural Mali has access to electricity. In 1998 the World Bank and the IMF made the privatisation of the Malian electricity company a condition for Mali to reach ‘decision point’ and therefore be entitled to receive debt relief under the HIPC initiative.42 Energie du Mali (EdM) was in financial trouble and needed massive maintenance and extension works. However, the World Bank and the IMF only proposed one
solution and pushed it through at breakneck speed: privatisation of the company. The adoption of a privatisation law for EdM had to be made by October 1998 and EdM was privatised in November 2000. The state retained 40 per cent control and 60 per cent went into private hands, with the largest slice going to a French company, SAUR. In 2005 however, SAUR pulled out, following disputes with the government and a failure to meet the terms of its contract, leaving the state to renationalise the company.

This brief period of private ownership was characterised by some increased coverage in relatively affluent areas but no increase in much of the country, particularly in rural areas, and also by substantial price increases in spite of continued state subsidies to the company in the form of tax rebates.

Country-owned?
The privatisation of the electricity company took place when the World Bank and the IMF where in the process of re-thinking the way they delivered aid. Although there had been no formal acknowledgement of the need for country ownership, the World Bank and the IMF were clearly aware of the problem. However, even with their supposed change of heart imminent, privatisation was pushed through even though ownership of the reform was clearly lacking. This is openly acknowledged in a World Bank study of 2001: ’Malian authorities were strongly opposed to privatisation of the EdM‘. 43

The World Bank and the IMF in their negotiations with the Malian government asked for the ’expansion of the privatisation programme to include…the power and water utility (EdM), and the airport authority (AdM)’44 in order to ensure the programme of privatisation continued.

Impact on poverty?
The World Bank and the IMF pushed these reforms in the belief that private ownership would not only enhance efficiency of the sector, but that it would also ensure vital expansion of electricity coverage through investment. It was envisaged that the state would also be released from providing finance to the sector. However, the results could not have been more different. The privatised electricity company failed to expand the coverage of electricity into new areas sufficiently, despite a contractual obligation to hook up an agreed number of new localities, investing 141.2bn CFA Francs between 2001 and 2005. Not only did the company fail to achieve these contractual obligations, but there were also delays in the investment programme.45

Although an OECD study shows that the customer base of the EdM electricity branch grew from 80,000 in 2000 to 131,000 in 2003, this occurred predominately in the area around the capital, Bamako, and did not result in a significant expansion into new areas. Two years after the date of privatisation, electricity coverage in Mali remained extremely low at 13 per cent.46 Privatisation also resulted in massive price increases to the point that Malian electricity became the most expensive in the region.47 A study by CAD Mali (a Malian civil society organisation) examined the impact of price increases on poor people and showed how those few Malians who had been able to access electricity in the first place (for example teachers in urban areas) either had to stop using electricity or had to reduce other basic consumptions to meet the price increases.48

Box 1: Impact of electricity price rises in Mali
I am living in a council flat in Bamako with my wife and my two kids. People are really poor around but I have a good job and I cannot complain. Work brings me around 60,000 CFA Francs. Nevertheless I have to pay 25,000 CFA for my flat and can only put by 6,000 CFA for electricity and water. Energy prices increased so much with privatisation, that we now often use gaslight. I am one of the better off in Mali, if I cannot pay, who can? This situation is distressing, especially for the majority of the population who simply cannot afford access to water and electricity. Boubacar, Bamako, October 2006

Even when the company was in private hands, the state also continued to subsidise the company in an attempt to curb price increases, providing tax breaks and subsidising fuel used by the company. For example, in 2001 the company would have increased water rates by 16 per cent and electricity rates by 27 per cent, had the state not intervened, providing subsidies in the region of 10.7bn CFA Francs to the company. In 2003 the electricity and water regulatory authority, the Commission de Régulation de l’Eléctricité et de l’Eau
(CREE), created in 2000 at the time of the privatisation to regulate prices according to the contract, accused SAUR of falsifying its books. SAUR was claiming a 7.2bn CFA Francs deficit, while the CREE calculated a 3bn surplus.49 In 2005, following this disagreement between the company and the state, the company departed and the water and electricity were renationalised.

Aid money to help Mali fight poverty should never have been tied to this inappropriate, non-country-owned, and ideologically-driven reform. The fact that it failed to deliver just adds insult to injury. Sadly, far from learning from this experience, the World Bank and the IMF have gone on to pursue exactly the same tactics in relation to the production of cotton.

Cotton conditionality
Since 1998 the World Bank and the IMF have also made all their budget aid and debt relief to Mali conditional on the country privatising its cotton sector and liberalising the price of cotton so that it better reflects world market prices. These conditions have been attached to all subsequent lending from the World Bank and the IMF and remain in place today, demonstrating that they have not really changed their ways on conditionality. Cotton production is integral to the economic and social fabric of Mali. It is the second biggest cotton producer in sub-Saharan Africa and a quarter of all Malians earn their living through cotton. Up until 2004 cotton was Mali’s leading export. The sector was part stateowned and part privately owned, and provided farmers not only with a minimum guaranteed price for their cotton at the beginning of the season, but access to credit, fertilizers, tools, and services like rural health and education facilities.

Cotton crises
Since 1998, Malian cotton has faced several severe financial crises. Though there are other factors that have contributed to these,50 the main one behind them all has been a sharp decline in world cotton prices; a direct result of the trade-distorting subsidies paid by rich countries to their own cotton farmers.51 According to the World Bank’s Country Assistance Strategy in 2003, ’Subsidies to agricultural producers in the United States and Europe are the single biggest force driving down world prices and sub-Saharan Africa is most deeply affected.’52 If rich countries did not subsidise their own farmers so heavily, Mali would be reaping far greater developmental rewards from its cotton production than it currently does. Cotton farmers of western and central Africa are among the lowest-cost producers in the world. Mali has increased the amount of cotton it cultivates from 5000 tons in the 1960s to over 500,000 tons today.53 Yet, despite these comparative advantages, the cotton industry in Mali and Africa as a whole has suffered, missing out on returns in recent years in the face of unfair subsidies. According to analysis conducted jointly by the World Bank, the IMF and the International Cotton Advisory Committee, cotton producers in developing countries face annual losses of about $9.5bn as a result of such subsidies.54 It is against this backdrop that the World Bank and the IMF attached conditions to their aid, that would prevent Mali from supporting its own farmers, thus exposing them to the low world market price distorted by subsidies to farmers in rich nations.

In 1998 reform of the cotton sector become a condition for Mali receiving debt relief. In 2001, unhappy with progress, the World Bank made a further $70m of its aid conditional on the Malian government agreeing to the privatisation and liberalisation of the cotton sector.55 The IMF also took part, making the privatisation and liberalisation of cotton prices a prior action condition for gaining access to its 2002 Poverty Reduction and Growth Facility (PRGF) loan.56 This is the strongest form of conditionality possible. The government agreed to the conditions, and approved a Cotton Sector Development Policy, drafted in consultation with the World Bank and the National Assembly. The plan focused on reform, over a three to four year period, with privatisation and liberalisation. However, due in part to the politically contentious nature of the reforms and the difficulties the government had in finding buyers for the cotton company and its subsidiaries, the government delayed implementation. In 2004, the Malian government postponed privatisation of the cotton
sector until 2008. The World Bank resorted to strong-arm tactics, forcing the Malian government to adjust the producer price of its cotton so that it was in line with artificially low market prices. It did this by withholding $50m in aid until the Malian government agreed to an official new pricing mechanism in January 2005. The World Bank loan, initially scheduled for December 2004, was released shortly afterwards in February 2005.57 The price of cotton was adjusted in 2005. The immediate impact was a 20 per cent drop in the cotton price that three million Malians receive for cotton farming.

Country-owned?
The President of Mali has spoken on record about the problems of ownership of cotton reform. At an opening speech of the Carter Centre’s Development Cooperation Forum in 2005, President Amadou Toumani Touré noted: ‘True partnership supposes autonomy of beneficiary countries in requesting aid and in determining its objectives… Often programmes are imposed on us, and we are told it is our programme… People who have never seen cotton come to give us lessons on cotton… No one can respect the conditionalities of certain donors. They are so complicated that they themselves have difficulty getting us to understand them. This is not a partnership. This is a master relating to his student’.58

The case of cotton reform has dragged on for over eight years, perhaps itself a useful indicator of just how country-owned the reforms really were. In 1998, an HIPC condition called for implementation of what appeared to be a government-owned rehabilitation plan for the cotton sector, which sets the sector up for private participation. However, the plan was written in consultation with the World Bank and was heavily influenced by a World Bank financed technical audit, which rather than looking at alternative policies, was commissioned by the World Bank to ‘help the government define its position on private sector participation in the industry’.59 There is no doubt that since 2000 there have been several dialogues between the government and other stakeholders including farmer groups, on how to move forward with cotton reform.

This is an improvement on past World Bank and IMF behaviour and these discussions have produced some agreements in favour of privatisation and liberalisation. The PRSP clearly expresses a desire to privatise and liberalise the cotton sector60 but there are questions about the participative nature of the PRSP, as in many other countries. It would also be naïve to expect that the government of Mali would not be influenced by the millions of dollars of World Bank and IMF (and de facto other donors’) finance, dangled in front of them ahead
of the two key national dialogues on cotton in Mali in 2001 and between 2004 and 2005. On both occasions the donor finance was conditional on the government coming to a specific set of policy outcomes in the dialogues, limiting their national policy space.61

In 2005 the World Bank openly acknowledged that government ownership of the reform was weak: ’Government’s current commitment to the continued reforms, including privatisation and liberalisation program (banking, cotton, transport, telecommunications) could be insufficient’.62 The IMF, which is still lending to Mali despite acknowledging that the country is macro-economically stable, also identified ‘waning
commitment to privatisation’63 in its analysis at the time. Both bodies continue to make privatisation of the cotton sector a condition of their lending to Mali today.64

Box 2: Manufacturing ownership? Mali’s PRSP process Mali’s first PRSP was produced in 2002, itself a condition of receiving debt relief. Donors and civil-society groups in Mali recognise that the first PRSP in Mali
was not very participatory. ‘Civil society participation in the production of the first PRSP was extremely weak. It was limited to the government giving civil society information rather than any genuine two-way participative process, with civil society inputting into the strategy’ said Sekou Sangarem from the Conseil National de la Societé Civile du Mali.

Questions are also emerging around the second PRSP. Written this year by a private consulting firm CEPIA,(Centre d'Expertises Politiques et Institutionnelles en Afrique)65 it has yet to be made public. More problematic is the intervention of donors at each stage of the process. In early 2006, six thematic groups were created by the government to give inputs to the PRSP but already at this stage the World Bank and the IMF have intervened: ‘The donors should not interfere at this point’ admits a senior UNDP official. Even, parliamentarians have not yet had the opportunity to read the new PRSP 2, despite it being approved by the
government in October 2006. According to MP Boubacar Touré, ‘the Parliament hasn’t been involved in the elaboration of the PRSP 2 in any way so far’. The PRSP process in Mali, as in other countries, has opened up some space for civil society in national policy-making, but it can in no way be seen as proof of ownership, given the undue donor influence and inadequate national consultation.

Delaying aid
Mali’s faltering steps to liberalise and privatise its cotton sector have come at a price. The World Bank deliberately withheld its fourth structural adjustment loan of $50m in 2004 in order to push through cotton liberalisation, and when in 2005 it finally did release it to the Malian government, only half that amount was lent. The loan agreement notes that ’due to slow progress in the cotton sector…SAC IV has been reduced to a US$25 million, single-tranche operation, potentially to be followed by another US$25 million single’.66 Interestingly, in 2005 the European Commission and the Dutch government increased their budgetary aid to Mali, in recognition that the government was facing a larger deficit than normal due to the cotton crisis.67 The Commission, unlike the World Bank, did not punish the government for supporting the cotton sector and instead tried to help. However, the Commission, along with most other donors, continues to tie its budget support for Mali to the IMF programme and its conditions.

In addition and despite Mali’s severe poverty, the World Bank has prevented the Malian government from accessing a greater volume of aid to date, on the grounds of its failure to privatise cotton. Every three years the World Bank determines an overall assistance strategy for a low-income country. This strategy places that country into a lending category, which permits access to a maximum volume of lending based on performance. Mali is currently in a base-case lending scenario, which means it is only entitled to $390m. It should be in a high-case lending scenario where it would be entitled to $462m (this does not just apply to budgetary aid but also project or investment aid). The reason it is not in the high-case scenario is its failure to reform its cotton sector. The World Bank’s Fourth Structural Adjustment Credit states ’slow progress with cotton sector reform has held the country from accessing[a] larger volume of Bank support’.68 This is a difference of $72m. This could have paid the salaries of 5,000 teachers for the next ten years in Mali, helping them towards ensuring that every child gets access to education.

The Malian government has tried to privatise Mali’s cotton sector, but has faced a number of obstacles. In 2005, it managed to sell its cottonseed processing plant, HUICOMA, but to date has not managed to sell the main cotton company, the CMDT. One of the reasons behind the failure to privatise the sector fully has been
limited interest from companies. Back in 2002, only two international bidders came forward, and later one pulled out, leaving only the US company Dunavant S.A. The bid received was considered too low, and when the government asked for a new bid, the company withdrew.69

Reducing poverty?
’The World Bank and the IMF never realised when they pushed these reforms that three million Malian lives depended on cotton.’70 Mr. Djibrina Barry, Senior Economist, UNDP, Mali The immediate impact of the new liberalised pricing mechanism signed in 2005 has been a 20 per cent drop in the price of cotton for three million Malians who depend directly on cotton production for their livelihoods. Even the World Bank’s own study, a copy of which was seen by Oxfam, showed that the likely impact of a 20 per cent price drop is an increase in overall poverty of 4.6 per cent in Mali.71

Initial observations on the immediate impact of this price drop support this finding, showing growing food insecurity, rising debts and poverty amongst cotton farmers. A field study of cotton farms in the Kita and Fana regions of Mali showed that declining household incomes, due to the fall in cotton prices, means that farmers do not have sufficient income to feed their families. Household purchasing power is declining, making it difficult for households to meet expenses such as school fees and health-related expenditures.72 The difficulties faced in the last two seasons are confirmed by women such as Niama Foumba and Many Mariko, at Kola Bamanan, a village in the District of Djoila, who have difficulty accessing funds for their trading activities: ‘When our husbands’ incomes increase, the whole household benefits. Previously our husbands used to ask us to help with the cotton harvest. And they gave us funds during the dry season to enable us to cover household expenses. Today, we are forced to sell our goats to repay the credit on input for the cotton and in order to feed ourselves’. 73

The new pricing mechanism significantly lowers the price farmers will receive for their cotton. It also puts into question the existence of a guaranteed minimum price, as it allows for downward adjustment during the growing season, in what it terms extreme cases. This means not just lower prices but more uncertainty and increased risk. The impact on the overall economy does not look any better, according to local research.74 The lower price for cotton means a reduction in household income, and as a result a reduction in consumer spending, which could add up to a loss of 1.9 per cent of GDP. And if farmers produce less – which is likely when prices are falling - the loss to GDP could be as big as four per cent.

The World Bank and the IMF’s rationale for prescribing these reforms is that in the face of trade distortions and resulting falling world prices, liberalisation and privatisation of the sector would enhance the competitiveness and efficiency of the sector.75 More importantly, they would also reduce the risks to finite state resources, freeing up finance which could be used either to invest in future productive areas or be spent on health and education. But as this paper shows, the purported benefits to Mali’s economy have not materialised. This is because these prescriptions were made without prior analysis of the impact of these policies on poor people in Mali, or on the Malian economy overall. The World Bank finally initiated a PSIA on
cotton reform in 2004, despite talking about undertaking one as far back as 2002. The analysis fails to look at alternative policy options around price liberalisation and to date, the full final PSIA has not been made publicly available despite many requests for its publication.

BOX 3: Neglecting alternative policies: the case for support fund in Mali
In the World Bank and IMF’s rush for cotton privatisation and liberalisation, other possibilities for reforming the cotton sector have been overlooked, to poor peoples’ cost. In particular, the idea of a cotton Support Fund, which would ensure a minimum guaranteed price for farmers and reduce their exposure to price fluctuations, has not been fully considered. Support Funds are used in other West African countries like Burkina Faso and Cameroon and essentially redistribute revenue between surplus and deficit years. Since 2004, due to the ongoing sharp decline in prices, these countries have had to rely on additional financing from their own governments to maintain the Support Funds. As a result, many west and central African states are requesting external donor support to replenish or constitute Support Funds, especially in light of the fact that their financial hardships are a result of rich-country trade distortions.

Since June 2005, the Malian government has been undertaking a process of national consultation on setting up a similar Support Fund. At a recent workshop, Malian farmer representatives declared their support. The World Bank and the IMF, however, have never been interested in Support Funds: they see global market distortions as a given and fear Support Funds would be an unsustainable drain on the state. Despite this, other donors are coming round to the idea of Support Funds as an important element of poverty-reduction strategies. In Burkina Faso the French government, via Agence Française de Développement (AFD) has agreed to pilot a price-smoothing fund. In Mali itself, the European Union has also declared its willingness to help finance a Support Fund. ‘The European Commission is ready to support a stabilisation fund. The only condition is that an independent system of control and administration of the Support Fund is first implemented’ said Franco Tranquilli, Conseiller Principal, European Commission, Mali in 2006.76 For a full analysis of the potential benefits of a Support Fund in Mali see Oxfam International’s forthcoming briefing paper Pricing Farmers out of Cotton.

The case of cotton conditionality in Mali shows, despite claiming to have changed, that the World Bank and the IMF are continuing to use their aid to leverage economic policy reform, thereby undermining country ownership. They are also pushing controversial reforms, in this case one that affects the livelihoods of a quarter of all Malians, without sufficient prior analysis of the ramifications of these reforms on poor people or the overall economy. Finally, these conditions are holding up much needed aid to Mali, which could be used in the fight against poverty. Given this, it is not at all clear that the IMF should continue to play a role in low-income countries that are macro-economically stable, such as Mali.