Development and Support Programmes for Cooperatives: Deputy Minister of Trade & Industry briefing

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Meeting Summary

In the presence of the Deputy Minister of Trade and Industry, the Department presented a report on the development and support programmes for cooperatives. Cooperatives had seen a failure rate of 88% and there were currently only 12% operational in the country. From 2007 to 2009, 22 030 cooperatives had registered; however only 2 644 were still functional today. New institutional mechanisms had been devised in order to assist cooperatives, which included the establishment of a cooperative development agency to provide increased financial support, establishment of a cooperative academy to provide increased education and training support services, a cooperative tribunal to assist with compliance and enforcement of the Cooperatives Act, judicious management, arbitration and conflict resolution. A cooperative council would also be established to advise the Minister, recommend policy improvement and lobby all spheres of Government on cooperatives development. The Cooperative Banks Act had built the foundation for establishment of the Cooperative Banks Agency, whose tasks were to regulate and support the development of cooperative banks. From 2006 - 2009 a total of R61 million rand was disbursed, which benefitted 311 cooperatives and created 1 555 jobs. 32 Financial Services Cooperatives had also benefited from the disbursement of R41.6million in 2006-2008; however 40  Financial Services Cooperatives had benefited from the disbursement of only R10 million. There were also many challenges facing cooperatives. These included funding, which was still too low to assist cooperatives or to make a substantial impact. Also few municipalities were supporting cooperatives and inadequate financial resources limited implementation.

All Members were concerned with the mortality rate of cooperatives and debated the suggested solutions of looking back at cooperatives during the apartheid era. They also questioned the feasibility of starting a new academy and investing in that academy while there were other existing institutions able to perform those tasks. Commercial banks and other financial institutions which failed to support cooperatives in the country were also of concern. A Member pointed out that the Mpumalanga Economic Growth Agency  was not reporting information as it really was in the region. While the mood was fairly light hearted, a heated debate nearly ensued between two members of the African National Congress and the Democratic Alliance on the subject of cooperatives in the apartheid area. The issue of turnaround times for cooperative applications as well as budget related questions certainly arose.

Meeting report

Ms Rushmi Ragaven, Director: Cooperatives, Department of Trade and Industry (the dti), outlined background information on cooperatives (coops) as well as the factors that contributed to the high coops registration during 2005 and 2009.These were the creation of an enabling environment through the  promulgation of the Cooperatives Act 2005 and policy, the provision of financial assistance such as grant funding and other types of funding to coops, and limited provision of procurement opportunities to coops in a few provinces such as KwaZulu-Natal (KZN) or Free State.

There were currently 22 030 cooperatives registered in South Africa, while only 2 644 of those were still operating. The highest mortality rate was in KZN; however the number of surviving coops were also the largest in KZN. The coop sector stretched across a wide variety of services from food and agriculture to financial services.

Ms Ragaven pointed out that coops had made a R12 164 967 479 contribution to the Gross Domestic Product (GDP) of the country in 2009.

Ms Ragaven gave a breakdown of how much was disbursed in the various provinces since coops were implemented. Between 2005 and 2010, R454 million had been disbursed in KZN to support coops, R4.5 million in Gauteng, R15.5 million in the North West, R19.6 million in the Eastern Cape, R6.5 million in the Free State, R90 million in Mpumalanga and R3.6 million in the Western Cape.

Ms Ragaven described the challenges facing coops, which included funding. This was still too low to assist coops or to make a substantial impact; few municipalities were supporting coops, and inadequate financial resources limited implementation.

The way forward included the establishment of a cooperative development agency to provide increased financial support, establishment of a cooperative academy to provide increased education and training support services, a cooperative tribunal to assist with compliance and enforcement of the Coops Act, judicious management, arbitration and conflict resolution. A cooperative council would also be established to advise the Minister, recommend policy improvement and lobby all spheres of Government on cooperatives development.The establishment of a cooperative banks agency would enable the regulation and support of the development of cooperative banks.

Mr B Mnguni, (ANC, Free State) expressed concern about the high mortality rate that coops wre experiencing and wanted clarity on the reasons for their failure.

The Hon. Ms Bongi Ntuli, Deputy Minister of Trade and Industry, explained that the mortality rate of Coops was indeed a big challenge. According to statistics the number of “deceased” coops was large. She said that this was because of the lack of training. In the past communities were told about incentives and were then assisted after registering a coop. She feared that now people were starting coops without the proper guidance and training.

Mr Mnguni said that another of his concerns was the challenges facing coops. According to the presentation there was not enough additional support to coops but on the other side much money was spent on Sector Education Training Authorities (SETAs). He suggested that less money should be pumped into these agencies but that instead their mindsets should be changed.

The Deputy Minister said that agencies such as SETAs could be transformed into what the Department wanted them to be. The Deputy Minister further stated that apprentices were needed; also graduates and  school leavers needed to be trained for entrepreneurship. And instead of accrediting fly-by-night training institutions, an academy should be created that would be structured in such a way that students would graduate with proper experience and certificates.

Mr Mnguni pointed out that Developmental Financial Institutions were lending coops money at a prime interest rate and wanted to know why this was happening and said that lenders should be lenient.

The Deputy Minister said that while there were plenty of financial institutions, very few of them dealt with cooperative or small business. She said that what needed was a financial institution that dealt with and understood cooperatives. The Deputy Minister suggested that it would be wise to look at the past when Afrikaners created coops such as OTK, Volkskas Bank or KWV during the apartheid years. They trained their people and they funded the coops. They created an agricultural credit board, which loaned money at a 4% interest rate at that time. This worked for them. She suggested that we learned from this and apply this to South Africa as a whole.

Mr A Nyambi, (ANC Mpumalanga) said that he agreed with Mr Mnguni, that the high mortality rate of coops were indeed alarming.

Mr Nyambi said that Mpumalanga was still lagging behind economically and while the Mpumalanga Economic Growth Agency (MEGA) and the website painted a pretty picture of the region it was not a reflection of what was really happening there economically and in terms of growth. Thus his question to the Deputy Minister was what could be done to affect the real situation in Mpumalanga and also how information provided by provinces can be verified to ensure that it was current and accurate.

The Deputy Minister responded that there were now Provincial Champions in place in each of the provinces, and through them the department would know if MEGA was being restructured.

Mr A Lees, (DA Western Cape) said that the Deputy Minister pointed out quite rightly the skewing of expenditure for overheads rather than service delivery. He added further to Mr Mnguni’s statement that the Department wanted to implement more institutions, which would consume even more funds and that there were existing institutions which were quite capable of performing those functions. The 88% failure rate should be an indication that coops do not work, because coops were ideological and did not fall in line with individuals who wanted to make a go for themselves as opposed to a group of people who had different levels of commitment. Thus even the 2 644 coops which were still operational might well be last year’s cooperatives, which in their turn would fail. Successful coops were the ones which were run by individuals for individuals.

The Deputy Minister agreed that the 88% failure rate was dire, but that this was due to lack of training and support. People needed to be trained, mentored and incubated. She explained that the Department was not suggesting the implementation of new institutions but rather a transformation of old ones. She said that there were always problems when people work together in cooperatives, whether it were with the law or taxes and thus a vehicle was needed to drive these coops within the Department rather than create many institutions. She pointed out the cooperatives were structured like a pyramid with the majority that were barely surviving at the bottom of the pyramid. She suggested that they be categorised into primary, secondary and tertiary cooperatives and pull on the resources, experience of representatives to help and guide them.

Mr Lees pointed out that according to the presentation 1 555 jobs were created at a cost of R386 000 each, just in terms of this particular financial contribution. He said that one was not told how muchwasput into those projects from provinces or municipalities, but questioned what the real costs were in creating those jobs, including overheads and salaries. Should that cash not be put into other economic programmes that could create long term, sustainable employment?

Mr Lees asked about taxation and what recommendation had been put to the National Treasury regarding taxation of cooperatives.

On taxation, the Deputy Minister said that the question of  how to tax coops was currently under review. With all the members’ help and suggestions a suitable arrangement could be made.

Mr Lees said that another area of concern was the impressive figure of R12.2 billion, according to the presentation, and asked how much of that money came out of Government, how much was in the open market and how much came from protected business from Government.

Ms Ragaven stated that the information on the R12.2 billon was received from CIPRO and it was about coops that had complied with their financial statements. For the purposes of the presentation, the Department had only given an aggregate of different sectors. It had realised that it needed to provide more information in this regard and was currently working on this.

The Chairperson raised the issue of turnaround time. Decisions within the Department took a long time to make and he suggested that turnaround times might be contributing to the failure of coops. When coops started out, they did so on a high note but the long turnaround times dampened their enthusiasm. Alternatively, the market for a product had changed. He asked what the turnaround times were for coops when they made an application.

The Deputy Minister said that this ranged from a three month period upward. She humorously said that the bureaucracy within the Department was quite intimidating, even for her. Her suggestion was to shorten the turnaround time, and cut down on lengthy application forms, but still to be accurate and effective.

The Chairperson said that, according to the presentation, there was no information provided for coops for the 2006/07 financial year. The Chairperson asked for an explanation for this.

Ms Ragaven explained that the Department was facing major challenges in obtaining accurate data from agencies and provinces.

The Chairperson was also confused about the use of a consultant as opposed to members within the Department. He said that the Department should have amassed enough experience within itself and not need the use of a consultant.

The Deputy Minister replied that the Department was cutting down on the use of consultants, although some provinces were still using consultants for special projects.

The Chairperson mentioned that, according to the presentation, 32 FSCs utilised R41million, while 40 FSCs used R10 million. What was the reason for the discrepancy?

Ms Ragaven replied that the R40 million was an allocated budget but out of the R40 million, R18.7 million was disbursed.

The Chairperson finally requested that information about the cooperative banks registration be obtained from the National Treasury. He wanted registration to be rolled out as soon as possible.

Mrs E van Lingen, (DA Eastern Cape) opposed the Deputy Minister’s point about imitating the Afrikaner model of starting coops. She said that the cooperatives started in those days, which had grown into the big cooperatives of today, employed qualified people.

The Deputy Minister replied that this was exactly what she wanted to do, but she needed an advisory council to assist and mentor unqualified people. This was precisely what she wanted in primary, secondary and tertiary cooperatives. This was where the academy would play a role as training. It  would start with them, and with those skills people could move forward into starting coops, supported and advised by skilled and experienced people from the advisory council who could give legal, financial guidance.

Mrs Van Lingen said that the presentation showed various types of cooperatives, the numbers in each province and the amount spent, as well as sources of funding; she was curious as to the total budget set out for the DM.

Mrs Van Lingen also asked how many of these coops were community cooperatives doing sustainable business and how many were paying value added tax (VAT).

Mrs van Lingen said that Ms Ragaven had stated that the Cooperative Bank Agency had already been established and would like to verify that.

Ms Ragaven replied that the Department of Cooperative Governance and Traditional Affairs (COGTA) had  had the vision to create ward-based cooperatives. COGTA now had a concept paper to look at the development of a cooperative strategy. There was no dedicated budget for this programme, as it was new.

The Deputy Minister added that it was in the review of the Act.

Mrs Van Lingen pointed out that according to the presentation the National Youth Development Agency was granted R10 million with which it financed 94 youth owned coops. She asked if those coops were from the previous financial year or April this year.

Mrs Van Lingen spoke of the challenges and said that, while the Deputy Minister asked not to be criticised, she, Ms Van Lingen, felt that she should mention that when the Department of Labour trained people in the late 80’s,  it had hammered them about seeking the right candidates for training. She asked whether the selection process here was the correct one and whether the due diligence test for each project was being done. She pointed out that she did not believe it to be the lack of training that caused coops to fail, as this was being done, but rather that there was a lack of financial guidance. She wanted to know whether there was a sustainable equation worked into the due diligence test.
Mrs Van Lingen agreed that more structures should not be created, as she believed that this would be to protect people who were not doing their work. Transforming SETA should fulfil the aspirations that the Deputy Minister had for the various other institutions which would have been set up. Instead of creating academy and trade schools, she asked why not also include in this category the youth centres that worked under the mandate of the Department of Education, where young people came from a criminal background and were placed into a technical school.

The Deputy Minister responded that she welcomed criticism as it would help her grow and see things from a different perspective. She believed constructive criticism to be important for her to change.

Mr Sinclair, (COPE Northern Cape) suggested that the statistics of 88% “dead” and 12% “alive” coops was a sad state. He wondered why these dead coops should still be reflected on the books and asked whether 60% of these coops could be revived. He believed that coops were the direction in which South Africa should be heading. He had seen this model applied in many developing countries as the model helped the economy. Coops were clean, functioning units and all that was needed was a product and a market.

The Deputy Minister was in agreement and said that the Department could not create coops which they did not support, but said that the Government should also procure from them, thus giving coops big business but reaping a certain percentage of the rewards. She added that the kind of products which coops produced were what destroyed them most of the time. The South African Bureau of Standards (SABS) should come to the fore and state the requirements needed to validate the products.

Mr Sinclair briefly touched on the issue of training and stated that entrepreneurship was one of the elements that should be focused on. While he had nothing against studying and obtaining degrees and certificates, entrepreneurship was lacking.

Mr Sinclair added that the Government should put pressure on commercial banks to support the goals of the Department and provide developmental finance.

The Deputy Minister said that the Department had contacted some commercial banks and that once input from Members had been received, the Department would take it up with the banks.

Ms M Dikgali, (ANC Limpopo) raised concern about Limpopo. She said that the Department should talk to agencies and give Limpopo funding as 18 000 people were currently out of work and poverty was still a big problem. There are no non-governmental organisations (NGOs) supporting them and the agencies were not funded by the Government.

The Deputy Minister said that municipalities had their own financial structures, that the Department had  provincial champions in place in all provinces and their job was to be the link between the Department and local government. It would be a stretch for the Department to talk to the agencies directly.

Mr Lees added that coops in history were never based on a group of individuals grouping themselves together and starting a coop but rather based on assisting a range of people to achieve their individual goals. He said that coops were not charitable organisations; they were economic entities and were there to ensure the economic wellbeing of everyone involved. While we might copy the coops of the past, it did not necessarily mean that they would work. Therefore before investing in them, perhaps some thought should be given to spending that money constructively.

The Deputy Minister said that we needed to learn from other experiences, not only the apartheid model. She said that she had seen coop models from other countries and these could be helpful in designing a South African model. Her Deputy Director-General was currently in Brazil looking at the coop funding model in Brazil and the Deputy Minister was hopeful that this could assist in creating a funding model in South Africa.

Mr F Adams, (ANC Western Cape) debated Mrs Van Lingen’s remark about cooperatives in the past that employed skilled people. He said that they were really there to help the unskilled people especially in 1930s and 40s and he did not foresee a problem should the Government wish to move forward and help unskilled people in coops.

Mr Adams stated that there has been a drop in budget from R 61million in 2006-2009 to R41million in 2010-2011, and asked why there had been a cut and whether the current budget would be enough for coops.

The budget was never enough, the Deputy Minister responded in jest.

Mr Adams agreed with Mr Sinclair that pressure should be put on commercial banks as they were moving money abroad and that they were not helping in the country.

Mr Adams added that engagement and support from municipalities were needed. He made an example of incidents in the Western Cape, where people applied for assistance, in terms of coops but were turned away and told to go to national Government. Municipalities in the Western Cape did not have the budget to help people.

The chairperson thanked everyone for their input.

The meeting was adjourned.


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