WB Group Support to the Cotton Sector in Selected African Countries EU-Africa Cotton Forum, Paris, July 5 th and 6 th, 2004

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

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.

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)

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

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.

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)

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.

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)

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

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

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)

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)