review of warehouse receipt system and inventory credit initiatives in ...

is an ‘in between case’; it could fit Approach 1.C since State has delegated regulatory
powers. However, the delegation is temporary in nature, lasting to 2011.
BOX 3: FUNDING A NATIONAL REGULATORY SERVICE
It is only worth establishing a regulatory service if it can be staffed with competent and well motivated people,
properly budgeted and free from unnecessary red tape. This will normally require it to be able to raise its own
income, out of fees for licensing and other services. Self-financing though user fees frees the regulatory service
from the vagaries of Government budgeting, and helps ensure its autonomy and accountability. The latter
reason was particularly emphasised by an American warehouse examiner (Ray Roy Boyd, pers. comm.) who
took the view that the ability to raise user fees had kept the Federal examination independent of political
largesse and had made examiners accountable to the warehouse operators who paid the user fees.
The annual cost of running a regulatory service is likely to be well in excess of US$ 100,000 per annum,
depending on local circumstances 28 . In addition some countries may wish to constitute an indemnity fund, on
the grounds that the local insurance industry cannot offer affordable or sufficiently comprehensive insurance
products to cover against the cost of warehouse failure. The State may constitute the fund, which is then topped
up by the licensed warehouses on pro-rata basis, according to licensed storage capacity. For example, in 1999,
the Bulgarian Government funded that country’s indemnity fund with an interest-free three year loan of $2.5
million.
Raising the required user fees requires licensing a lot of warehouse space. Let us assume for example that in a
certain country, warehouses are holding maize for an average of five months, and charging fees of US$ 3.00 per
tonne per month, and that they pay the regulatory agency US$ 0.20 per tonne per month or 6.7% of their gross
revenue. We also assume that the licensed warehouses will on average be two thirds full during this period, and
that the budget for the regulatory agency is US$ 200,000 per annum. To recover such a budget will require that
the warehouse operators have licensed capacity of 300,000 tonnes and store 200,000 tonnes of maize.
The latter volumes are miniscule for major grain producing countries in North and South America, the Former
Soviet Union and Europe; the cost of the service could be covered by licensing six 50,000 tonne elevators.
However these volumes are quite significant in an African country where the total maize harvest is only 2
million tonnes and half of this never leaves the farm: 200,000 tonnes is 20% of the marketed crop. So far no
African country has gone down the route of major grain-producing States in the USA, and insisted on
mandatory licensing of warehouses. This raises the question as to whether there will be sufficient demand to
pay for such a service?
It is in Tanzania where most has so far been achieved with this approach; combined annual
lending against raw cashew nuts and coffee is in excess of $50 million per annum. As noted
earlier, the Warehouse Licensing Board is fulfilling an important technical role, but it is at
present only registering (not licensing) warehouses, and it has yet to be seen whether it will
have the authority to take the necessary tough decisions such as revoking licenses of
politically-connected warehouse operators.
One approach to this issue is to delegate regulatory authority to a private entity that could
operate with reasonable autonomy, at arms length from political processes. This thinking
inspired the establishment of ZACA in Zambia and the delegation of the regulatory function
to UCE in Uganda. In practice this has proved difficult. In the case of Zambia, some
28 When the Zambian certification agency (ZACA) was set up in 2001, it was planned as a very lean operation
with two cross-trained staff and a total budget of just over US$ 100,000, but by 2006 the budget for staff (of
which there were now nine) was nearly US$ 160,000.
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