Senegal
Troubled liberalisation of Senegalese groundnut sector

afrol News, 15 April - A far-ranging liberalisation of the key rural sector of Senegal, the groundnut production, is not going as planned. External pushes to liberalise rapidly probably caused some of the errors, which the government now meets with more care. Now, the reforms are going to be done at the government's own speed. For so long.

The groundnut sector employs the bulk of the Senegalese rural population in some way. It has been the main cash crop for several centuries and has therefore been carefully regulated since early colonial days. Senegal has stuck to a policy of state intervention in the sector for longer time than its neighbours, which embarked on privatisation, liberalisation and cut subsidies already early in the 1990s. 

Being heavily involved in the poverty reduction programmes of the World Bank and the International Monetary Fund (IMF), Senegal has however been pushed into liberalisation of a sector that in any way was lagging behind the development in society at large. 

Groundnut sector reforms have centred on three aspects. Firstly, it aimed at aligning groundnut producer prices with international price trends by reducing the cost of collection and transport and introduce market-based pricing. To this aim, the government in November 2001 dissolved the state company involved in Collecting and transporting groundnuts, Sonagraines. 

Second, the groundnut/oil processing company SONACOS, which has several plants throughout the country, was to be better prepared for privatisation (something the Senegalese government has tried to achieve since 1995) by improving the state company's financial management. Thirdly, a new framework agreement for the sector's stakeholders was to be set, securing foreign financing. Senegal still does not meet with measures specified by the World Bank and the EU to have the framework approved.

One of the main reasons for the reform to fail was the sudden dissolution of Sonagraines, a state company that might have inflated transport and collections costs, but had been a reliable and calculable partner for the groundnut producers. New, private transporters failed to establish themselves quickly enough, sometimes resulting in speculative pricing. Even the IMF concludes that "it appears that the envisaged gains in efficiency and competition in the sector have not yet been achieved, as evidenced by the minimal change displayed in marketing margins."

When the new system was finally launched, private operators faced logistical difficulties in securing bank financing - the government was not to give loans - and organising factory-gate deliveries of groundnuts. SONACOS, usually buying a lion's share of the groundnut harvest, was already suspicious in reformers' eyes and received financing to buy up groundnuts at a late stage. 

The result of this year's harvest was that while groundnuts production generally had been good, revenues for the farmers were marginal. Farmers were confused on how to market their products, and there were reports of transport operators exploiting the situation by buying up groundnut stocks at discount prices. Both farmers and the opposition have loudly criticised the decision to close down Sonagraines. President Abdoulaye Wade has been forced to say he acted on orders from the World Bank and IMF.

Now, the government has "decided not to allow full market determination of collection and transport costs for the time being," according to a paper released by the IMF today. President Wade's pressured government on the other hand had "assigned specific zones for the operations of private intermediaries and instructed them to collect seed credits from farmers on behalf of SONACOS." The government believed that these measures "were necessary to ensure the success of the first crop year under the new factory-gate delivery system," according to a letter by the Senegalese government to IMF.

Of course, the IMF regretted this and "stressed the importance of consolidating and deepening the liberalisation of the sector in the period ahead, so as to fully reap the envisaged efficiency, distributional and fiscal gains." The World Bank and the EU further demand that Senegal goes ahead with the privatisation of SONACOS and the activities previously conducted by Sonagraines before any lending to the sector could start. Pressure remains high on the Senegalese government. 

In its recently presented economic and financial program for 2002-04, the Senegalese government thus fully gives in to the IMF's demands. "The government will continue to pursue its policy of liberalising the groundnut sector." The groundnut collection and transport is to be fully liberalised. SONACOS is to be sold off "before the 2003 plantings." 

The government also suddenly agrees with the IMF that SONACOS' buying share of the harvest should be reduced to 40 percent. "At any rate, the government will not guarantee any SONACOS loans and will not place any further security deposits in favour of SONACOS," the program clearly states - opening the possibility for a bankruptcy of the company if it fails to privatise another time. 

Sources: Based on press reports, IMF, Senegalese govt and afrol archives