Thanks Jaiteh. You also raised a point that I frankly did not think through
thoroughly or else I would have mentioned it myself. You are right that the
activities of commercial banks back home (and even in the US) are limited to
'banking business'. The rationale behind that I think is governments are
very jealous of depositors' funds especially in societies where government
has an insurance scheme that protect the deposits in commercial banks; like
the Federal Deposit Insurance Corporation in the US. As a result, government
would not want to allow commercial banks to engage in what the government
might term a 'risky non-bank' activity.

Another reason the government might have to limit investments commercial
banks can make, is that government would not want commercial banks to give
the companies they invest in unfair advantages against their competitors.
For example, government will not want Standard Bank to invest in Julbrew
because Standard Bank will then bankroll Julbrew perhaps to the detriment of
Coca Cola (Gambia). These are all valid reasons for curtailing the
activities of commercial banks.

Had I thought about this earlier on, I would have spelt out in my piece that
to my knowledge, Central Bank has a discretion here. The laws do NOT totally
prohibit the involvement of commercial banks in non-bank activities. As you
say, banks can engage in non-bank businesses in order to bail out a business
and recover their loans. Also,  if these banks want to engage in such
activities on a continuous basis, they can apply to the Central Bank for
permission. This might be a situation where the Central Bank might just
grant that permission. Since we have a de facto monopoly, the banks would
not be giving our corporation an advantage over competitors that do not
exist. Since also we have solid government backing and guarantees and we do
not have a comprehensive deposit insurance scheme in the country, our
government should not be overly concerned about the 'risks' the commercial
banks are taking if they want to buy shares in this corporation.

In any case, you raise a valid point that if looked at deeply might convince
the next government to prevent commercial banks from owning shares in the
marketing corporation. However, I hope you realize that there is nothing
stopping these banks from buying debt instruments with the depositors'
funds. Banks everywhere do that. The bonds are the major thing here. The
excess funds (apart from their mandatory reserves) the banks invest in
government bills, can be invested in these bonds.

Thanks again for your contributions. I look forward to many more where you
help us fill in the blanks in our efforts to move our country forward.
KB



>From: "Malanding S. Jaiteh" <[log in to unmask]>
>Reply-To: The Gambia and related-issues mailing list
><[log in to unmask]>
>To: [log in to unmask]
>Subject: Re: Moving Forward ---- We WILL BUY the Groundnuts
>Date: Thu, 28 Jun 2001 11:33:25 -0400
>
>Kebba,
>I might be wrong on this but my understanding is that the Commercial Banks
>are not allowed by the Central Bank to venture outside Banking. That is
>they
>can not invest in things like real estate, insurance or any other major
>investments. They can rescue failing corporations at the request of the
>government but must divest as soon as those are up and running. I do not
>know why this continues to be the case but it can be a major obstacle to
>your
>plan.
>
>Malanding
>
>
>----- Original Message -----
>From: "Dampha Kebba" <[log in to unmask]>
>To: <[log in to unmask]>
>Sent: Thursday, June 28, 2001 10:40 AM
>Subject: Moving Forward ---- We WILL BUY the Groundnuts
>
>
> > It is obvious that Yaya and his cohorts have woefully failed the Gambian
> > people. Gambians today are poorer than they were seven years ago when
>Yaya
> > and his gang of bandits stole power from a democratically elected
> > government. They promised to improve the lot of Gambians. That promise
>never
> > materialized. Instead, Gambia has declined over the years.
> >
> > It is also a known fact that the government of the day cannot employ the
> > bulk of Gambians in high-paying government jobs. We cannot have a
> > comprehensive social security system that can be used as a safety net
>for
> > the poor and vulnerable in our society. But what the government CAN and
> > SHOULD do, is at least provide a conducive environment where hardworking
> > Gambians (mostly self-employed farmers) can thrive. The next government
>MUST
> > ensure that our farmers sell their groundnuts (major export product) at
> > competitive rates.
> >
> > How do we do that? My humble suggestion is to first of all form a
> > corporation that would be in charge of the marketing of groundnuts. The
> > Gambia government would be the major shareholder in the corporation. I
>will
> > explain why. Other shareholders can include cooperative unions I will
>also
> > talk about later. The general public (including commercial banks and
> > 'para-statals') will also be encouraged to become investors in this
> > corporation.
> >
> > The major objective of this corporation would be to raise funds to buy
>the
> > groundnuts from the farmers and then sell it in the international
>market.
>In
> > order to raise the desired funds, the corporation can depend on capital
> > contributions from shareholders and debt instruments such as bonds
>floated
> > both locally and internationally. There  has always been a lucrative
>market
> > in treasury bills in Gambia. Commercial Banks do not need to lend money
>to
> > the general public in Gambia. They can just deposit their money at the
> > Central Bank and lend the money to the government at exorbitant interest
> > rates. This requires no innovative thinking from the commercial banks.
>The
> > last time I checked, the banks can get money from their customers and
>pay
> > them 5% interest (0% for Sarahulehs that do not want 'ribar') and then
>give
> > the money to the government and get a 15% return. Every six months they
>go
> > to the Central Bank, get their interest payments and leave the principal
> > there. From their interest payments, they can declare hefty profits for
>the
> > bank and repatriate same to their foreign shareholders. Meanwhile their
> > principal is intact. Almost no risk of the government defaulting.
>Typical
> > 'Ponzy Scheme' in American parlance.
> >
> > The new government has to tackle this laziness and stagnation of our
> > economy. Apart from the commercial banks, institutions such as Social
> > Security also spend millions lending money to the government at
>exorbitant
> > interest rates. The government in turn does not use this money wisely.
>Civil
> > servants use the moneys for paying government salaries and financing
>bogus
> > overseas trips. In any case, this money is not reaching our farmers.
> >
> > Why can't we have a highly rated bond from our groundnut marketing
> > corporation that would take the place of the Treasury and Central Bank
>bills
> > that lazy commercial bankers and managing directors of 'para-statals'
>are
>so
> > fond of? The government can stand behind this bond offering and offer
> > lenders the same guarantees they get vis-a-vis the current government
>debt
> > instruments we have. This would also be an opportunity for the
>government
>to
> > at long last do something tangible with our high interest rates when it
> > comes to borrowing money from the banks. If the banks and 'para-statals'
>do
> > not see the high rates coming from the current bills, they will look up
>to
> > the next best thing.
> >
> > The bond from this corporation can also be marketed internationally. A
> > guaranteed 10% per annum return on investment is attractive in any
>market.
> > Rather than asking for hand-outs from certain donor countries, let us
>ask
> > them to stand behind our bonds in order to give the offering credibility
>in
> > the international market. United States has done that for the Mexicos of
> > this world.
> >
> > I am sure others can come up with other innovative ways of raising funds
>for
> > our groundnut marketing corporation. Once the funds are in, we can buy
>the
> > produce directly from the farmers at very good prices. We save our
>farmers
> > the anxiety of thinking about working the whole year round just to have
> > nothing to show for their sweat and toil. Another thing is that by
>buying
> > the groundnut directly from the farmers before the corporation markets
>it,
> > we also benefit from the economies of scale. We also benefit from the de
> > facto monopoly the corporation will have. I must hasten to add here that
>the
> > monopoly status should not be abused.
> >
> > The corporation would have studied the international groundnut market
> > thoroughly and be familiar with the players. That way, the corporation
>will
> > be able to use its inherent advantages (economies of scale, monopoly,
> > government backing etc.) in order to sell the groundnuts at competitive
> > rates in the international market. The stellar research done by the
> > corporation would help in fixing good prices for our farmers. Our
> > corporation should also be in a position to make modest profits for its
> > shareholders.
> >
> > I mentioned cooperative unions earlier on. I believe the local farmers
> > should be given a lot of say in shaping their destiny. To empower our
>poor,
> > we have to go to the grassroots and give them an environment and a
>vehicle
> > to contribute to their well-being. How do we do that? I suggest we group
> > farming communities to form unions with members ranging from 100 to 300
> > people. These cooperatives will be run under democratic ideals. The
>union
> > leaders will represent their members in a global body made up of all the
> > cooperatives in the country. This body can be a non-profit making
> > organization that looks after the welfare of the farming community. They
> > will liaise with government officials (Ministry of Agriculture), aid
> > agencies and other bodies in the country to ensure that they get the
>'raw'
> > material necessary to produce their groundnuts. It would also be wise
>for
> > the union to come together and purchase shares in the groundnut
>marketing
> > corporation envisioned above. That way, the union can look after the
>welfare
> > of the local farmers when our corporation is attempting to set prices
>for
> > the purchase of the groundnuts from the farmers. On the other hand, if
>the
> > corporation comes out better in this arrangement in any given year, the
> > farmers will also benefit from the profit sharing the union will get
>thanks
> > to its shares in the marketing outfit.
> >
> > Let us NOT have a government that will say to the most vulnerable in our
> > society (poor people) that: 'we cannot help you. We are not responsible
>for
> > buying your groundnut.' Let us be accountable for this vital sector of
>our
> > economy. Let us tell our farmers that we will INDEED buy their
>groundnuts
>at
> > very good rates. Our government should not give up on our people like
>Yaya
> > and his cohorts; bunch of High School drop-outs that do not have the
> > wherewithal to move the country forward. When they CANNOT ensure that
>the
> > groundnuts are bought, they cowardly and callously declare that it is
>NOT
> > their job. Well, it would be the job of our next government. We have to
>come
> > up with a way to help our farmers. We can't just give up on them like
>Yaya
> > and his cohorts.
> >
> > Again, I encourage people more conversant with this industry to help
> > brainstorm. Our Opposition Parties have been criticized on numerous
> > occasions for failing to articulate a plan for a post-Yaya government.
>Some
> > of the criticism might be justified. In order to have the moral
>authority
>to
> > further criticize the Opposition, I thought it would be better to give
>them
> > ideas and see what they are going to do with it. I hope by the time we
>are
> > done (hopefully before the end of July) people will be in no doubt that
>the
> > Opposition have a plan to move the country forward after Yaya. This is
>NOT
> > premature counting the chickens. This is to preempt a vicious lie told
>by
> > our opponents that the Opposition does not have a plan to move the
>country
> > forward.
> > KB
> >
> > _________________________________________________________________
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> >
> >
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