Working Capital Management for Sustainable Cooperatives
Introduction Ethiopia (Horn of Africa) is predominantly an agricultural country with the vast majority of its population directly involved in the production of crops and livestock. The agricultural sector accounts for nearly 46.7 percent of the GDP and provides employment for 85 percent of the population (CSA, 2006) It also accounts for highest proportion of the export revenue and supplying of raw materials requirements of the country's industries. However, for various reasons Ethiopia's agriculture is characterized by very low productivity. The development of the agricultural sector calls for among others, the introduction of modern technologies as well as education and training of farmers. However, with the introduction of new production technologies and utilization of trained manpower, the financial needs of farmers increase through time and heavy investment cannot be made by the farmers out of their own funds due to their low income. Here comes the role of government and other development agents' support in providing required capital for the agricultural sector. The government of Ethiopia is playing the major role to bridge the gap between the owned and required capital. In the year 2006, of the total lending Birr 9,295,462,000 reported by the Commercial Bank of Ethiopia (CBE) the agriculture sector's share accounted for 17.1 percent of which the Agricultural Cooperatives' share was 15.6 percent (CSA, 2006) Different development agents exert their efforts to promote Cooperatives as a means of poverty alleviation device. In Ethiopia, there are 19,147 primary Cooperatives serving directly and indirectly for about 35 percent of the total population. About 30.8 percent of the primary Cooperatives are engaged directly in agriculture. During the year 2006 there were 112 Cooperative Unions, 93.8 percent were agricultural based, constituted from 2, 203 members at primary level with a total capital of ETB 154,238,011 (Federal Cooperatives Agency, 2006/07) Report of Regional Cooperative Promotion Office (2006) reveled that there were 1,304 primary level Cooperatives in Tigrary Regional State (Northern state of Ehiopia) with a total capital of Birr 24,980,051 and serving for about 393,528 members of which 90,729 are females. This is a huge resource which requires strong management team in all aspects. However, the Unions' management may lack the required knowledge and training in managing this working capital. Hence, designing an appropriate working capital management policy, the procedures of using these resources, and sufficient information factors which influence the level of working capital is necessary. Therefore, this study has been carried out to answer the following questions; what are the major sources of working capital for the Cooperative Unions? How these sources are supplied and managed? What was the Unions performance during the study period? How they exist in the competing market environment? How the government and other non profit entities support these Unions? As a preliminary of the research work, available literature on the management of working capital in different forms of business firms has been reviewed. Though many valuable studies have been conducted in the region on Cooperative Unions, dearth of studies related to working capital management has been identified. Hence, this paper may serve as a beginning to fill the gap. Objectives of the Study General objective is to investigate how Cooperative Unions in Tigray Regional State are managing their working capital components; and the specific objectives are: To explore the sources of funds for the Cooperative Unions To assess the selected Unions' working capital policy and its adoption. To analyze the outcome of working capital management on growth and expansion of the Unions. To evaluate the financial performance of the selected Unions using ratio analysis techniques.