Integrated Strategy on the Promotion of Co-operatives: briefing by Deputy Minister & Department of Trade and Industry; Co-operatives Amendment Bills: briefing postponed

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Trade and Industry

04 June 2012
Chairperson: Ms J Fubbs (ANC
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Meeting Summary

The Hon Elizabeth Thabethe, Deputy Minister of Trade and Industry, said the Department was presenting its integrated strategy on the promotion of co-operatives and the amendments to the Co-operatives Bills.  It was necessary for the State and co-operatives to integrate, and the Amendment Bills were a step in that direction. She said 2012 was the Year of the Co-operatives, and South Africa needed to be part of the international arena of co-operatives.  Co-operatives were a form of business, and not a form of charity. The amendments to the Bills were meant to address the unintended consequences of the current legislation.

The Department said co-operatives had to be seen as a form of business enterprise. The objective of the Amendment Bills was to create the most conducive environment, through enabling legislation, for co-operatives to thrive as businesses. The Department had set up institutional arrangements which would support co-operatives in the form of the Co-operative Development Agency and the Co-operatives Tribunal. Worldwide.  

Co-operatives were successful where there was a dynamic partnership with the state.  South Africa had gone against the trend since 1994, with the withdrawal of the state from the co-operative movement. In 2003, the Growth and Development Summit in South Africa had agreed to the establishment of a co-operatives unit in the Department, and in 2010 a co-operatives strategy had been tabled to Cabinet.  This had been gazetted in 2011, with the strategy approved in March 2012.

Co-operatives formed part of a broader objective of Broad-Based Black participation, and co-operatives would be used as a tool for poverty alleviation and redressing regional disparities.  It would also be used to address the lack of skills and the lack of infrastructure which was the cause of the very low, long-term sustainability rate it was achieving currently.  

Co-operatives were a serious business model which had 800 million members worldwide and accounted for 440 000 jobs in Germany and 7 000 000 jobs in France.  In Kenya, co-operatives contributed 45% of the gross domestic product and 31% of the gross national savings.  It was clear that co-operatives formed part of the development of a nation, even for developed Western countries.   International best practice for co-operatives included having favourable legislation, strong intergovernmental co-ordination, a strong partnership with the co-operatives movement internationally, education and training at colleges and universities, the formation of secondary markets to advance sales and technology, financial and non-financial support, obtaining tax benefits and the development of a co-operatives bank. An analysis of co-operatives in South Africa showed that co-operatives had increased to a total of 50 000, but their long-term sustainability was very low.

The single biggest challenge currently, was conflict within collectives, so the establishment of a tribunal was important to ensure compliance.  Other challenges were undeveloped networks and value chains which led to higher input costs.  Co-operatives needed support from all spheres of government.

The co-operatives strategy would centre on four pillars: the Business Development Support Program; Export Marketing and Investment Assistance (EMIA); the Enterprise Network Program dealing with the Co-operatives Development Agency and the development of secondary co-operatives; and finance from the Small Enterprises Finance Agency, the Co-operatives Incentives Scheme and the Co-operatives Special Projects Fund. There would be monitoring and evaluation reviews annually and an Information and Computer Technology system would be established for the collection and dissemination of information.

Members were concerned at the lack of co-operation in co-operatives and asked how this would be resolved. They wanted corporate governance principles to be emphasized and asked if there were mentoring instruments and whether the Small Enterprises Development Agency (SEDA) was equipped to deal with co-operatives. They questioned whether co-operatives were only for non-mainstream business. Members asked if the Bill had been compared with that of other countries.

The Chairperson said that the briefing on the Co-operatives Amendment Bills would be postponed until there was a full Committee present, as many members were absent on other Committee business.

Meeting report

Presentation by the Department of Trade and Industry to the Portfolio Committee of Trade and Industry on the Integrated Strategy on the Promotion of Co-operatives
The Hon Elizabeth Thabethe, Deputy Minister of Trade and Industry, said the Department was presenting its integrated strategy on co-operatives and the amendments to the Co-operatives Bills. South Africa needed to be part of the international arena of co-operatives, and 2012 was the Year of the Co-operatives.  Co-operatives were a form of business and not a form of charity. The amendments to the Bills were to address the unintended consequences of the current legislation.

Mr Lionel October, the Director-General of the Department of Trade and Industry (dti), said co-operatives had to be seen as a form of business enterprise. The objective of the Amendment Bills was to create the most conducive environment, through enabling legislation, for co-operatives to thrive as businesses. The dti had set up institutional arrangements which would support co-operatives in the form of the Co-operative Development Agency and the Co-operatives Tribunal.  Currently, co-operatives were a subset of small business, and Government wanted a dedicated mechanism in the form of a co-operatives’ agency. Worldwide, co-operatives were successful where there was a dynamic partnership with the State.  South Africa had thus gone against the trend since1994, with the withdrawal of the State from the co-operative movement.

Mr Sipho Zikode, Deputy Director-General for Co-operatives in the dti, said that in December 2001, co-operatives had been transferred to the dti.  In 2002, South Africa had been a signatory to ILO Recommendation No. 193 promoting co-operatives.  In 2003 the Growth and Development Summit in South Arica had agreed to the establishment of a co-operatives unit in the dti and in 2010 a co-operatives strategy had been tabled to Cabinet and was then gazetted in 2011, with the strategy approved in March 2012.

Co-operatives formed part of a broader objective of Broad-Based Black participation, and co-operatives would be used as a tool for poverty alleviation and redressing regional disparities. It would also be used to address the lack of skills and the lack of infrastructure which was the cause of the very low, long-term sustainability rate it was achieving currently.

Mr Jeffrey Ndumo, Chief Director of Co-operatives in the dti, said that co-operatives were a serious business model which had 800 million members worldwide and accounted for 440 000 jobs in Germany and 7 000 000 jobs in France.  In Kenya, co-operatives contributed 45% of the gross domestic product and 31% of the gross national savings.  It was clear that co-operatives formed part of the development of a nation, even for developed Western countries.

International best practice for co-operatives included having favourable legislation, strong intergovernmental co-ordination, a strong partnership with the co-operative movement internationally, education and training at colleges and universities, the formation of secondary markets to advance sales and technology, financial and non-financial support, receiving tax benefits and the development of a co-operatives’ bank where the members of the bank were also the funders.  

An analysis of co-operatives in South Africa had shown that co-operatives had increased to a total of 50 000 co-operatives, but their long-term sustainability was very low. A provincial breakdown had shown that KwaZulu-Natal, at 29%, had the most co-operatives, followed by Gauteng, at 19%, the Eastern Cape, at 16% and Limpopo, at 11%, with the rest of the provinces in single digits.

The single biggest challenge currently, was conflict within collectives, so the establishment of a tribunal was important to ensure compliance.  Other challenges were undeveloped networks and value chains which led to higher input costs.  Co-operatives needed support from all spheres of government.  Co-operatives would focus on the youth, women, and the disabled, on special geographic areas as well as on social and enterprise co-operatives.

The co-operatives’ strategy would centre on four pillars.  The first was the Business Development Support Programme, which would cover compliance, education, training, inspection, conflict resolution, enforcement and registration. The second pillar was Export Marketing and Investment Assistance (EMIA), and would include trade agreements and the ten targeted products linked to government procurement needs. The third pillar was the Enterprise Network Programme, which would administer the co-operatives programme, the Co-operatives Development Agency and oversee the development of secondary co-operatives. It would include the support of business infrastructure and taxation. Currently, co-operatives were taxed similarly to companies, but the South African Revenue Services had accepted in principle that co-operatives were different and would realign its tax laws accordingly.  The fourth pillar was microfinance from the Small Enterprises Finance Agency, the Co-operatives Incentives Scheme and the Co-operatives Special Projects Fund.  It would also deal with research and monitoring and evaluation. There would be monitoring and evaluation reviews annually, a three-year review and a ten-year review.  An Information and Computer Technology system would be established for the collection and dissemination of information.

Discussion
Ms S Van der Merwe (ANC) asked what was meant by Apex co-operatives. She was concerned at the lack of co-operation among co-operatives and asked how this would be resolved. She questioned the use of the term “agglomeration” in the presentation.

Mr N Gcwabaza (ANC) wanted corporate governance principles to be emphasized. He wanted the focus of the Department to be centred on co-operatives only, and felt that if more aspects were included it would threaten the success of the programme.

Mr X Mabasa (ANC) said the language of the leaders and the language of the participants in co-operatives appeared to differ. There was a need to balance the profit motive with surpluses. He asked if there were mentoring instruments and whether the Small Enterprises Development Agency (SEDA) was equipped to deal with co-operatives. He questioned whether co-operatives were only for non-mainstream business.

Mr C Huang (COPE) asked if the Bill had been compared with that of other countries.

The Chairperson asked if trucks were being built by co-operatives.

Ms Thabethe replied that co-operatives had been in existence for years and had had resources, but that currently co-operatives were not sustainable as there was a skills mismatch, with people “forming co-operatives to get money”.  Government wanted a rule in place where all members of the co-operatives worked, not just one member.

Taxes were undermining co-operatives, as co-operatives were not like businesses. She said the ten products targeted for procurement by government through co-operatives were there to assist in the development of co-operatives, although some believed this to be unconstitutional. She said KwaZulu-Natal had the biggest percentage, because Ithala was assisting co-operatives with loans in the province, and Dr Zwele Mkhize, KZN Premier, had played a big role in promoting co-operatives in the province. She said that SEDA was equipped to give assistance.

Mr October said the business model of co-operatives was seen as poverty alleviation and as an alternative to capitalism. He said the Department had to be clear in its thinking, as there was a danger that it confined co-operatives to remain among the marginalised. The real model saw co-operatives as highly profitable and it could include the small farmers by helping them gain international market access. It wanted to bring co-operatives back into the co-operatives movement, although in South Africa it might need to be in the form of a hybrid model.

Mr Zikode said that big businesses were organised, while small businesses were not. Small businesses needed to mobilise to promote themselves. He likened the Apex co-operatives movement to Cosatu within the trade union movement.  On co-operatives’ corporate governance, he said South Africa subscribed to the International Co-operatives Alliance’s principles of governance.  Government had to provide financial and non-financial support. SEDA was there to support Small Medium and Micro Enterprises (SMME) but the support that co-operatives needed was not the same as that of SMME’s.

Mr Ndumo said the reference to “agglomeration” was to indicate that the Department wanted co-operatives to come together to benefit from economies of scale.  He said that the challenges to the sustainability of co-operatives were the people in the co-operatives movement and the lack of education of co-operatives members, with some of them being semi-literate. He believed that the education and training of members was important and an academy was being developed by the Department of Education. There was also a lack of management and technical skills, a lack of access to markets, high logistical costs, and tax, as well as conflict within co-operatives, caused when assets of the co-operatives was privatised by members.

Procurement in Italy focused on worker co-operatives within the manufacturing sector.  Government gave government procurement to these co-operatives, which thus created guaranteed markets. This was a form of non-financial support that Government could give.  In the South African model, the Department wanted the small co-operatives movement to grow in size, scope and depth to match the international model.  In the past South Africa had created marketing boards which had been owned by the State.  Moving forward, the State wanted marketing boards to be established and run by co-operatives, with the State playing only a supporting role.  South Africa should aim to surpass Kenya’s achievements. It was not about creating welfarism, but creating businesses with a social character which would be able to capture the social capital of its members.

Mr October said that only through education would the spirit of co-operatives grow.  The tribunal would be based at a head office and would be mobile, with visits to provinces on a monthly or bi-monthly basis and would have enforcement officers.

Mr Ndumo said that in the case of Italy, there had been no restrictions at the primary level.  In South Africa, the restrictions that had been placed on the amount of members a co-operative could have, had stunted co-operatives’ growth.  It was hoped that the Amendment Bills would change this situation. It was the duty of Government to create a conducive environment and not stunt growth.  Italy had had no need for a secondary level because there were no restrictions placed on them and growth could happen at the primary level. He said the Northern Cape and Free State were sparsely populated regions and faced logistical problems.

The Chairperson said that the briefing on the Co-operatives Amendment Bills would be postponed until there was a full Committee present, as many members were absent on other Committee business.


The meeting was adjourned.

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