Co-operatives Amendment Bills: briefing; National Measurement Standards upgrade to support IPAP2: National Metrology Institute of South Africa

Meeting report

Department of Trade and Industry (dti) First & Second Amendment Bills
Mr Sipho Zikode, Deputy Director-General for Co-operatives in the dti, provided the background to these two Bills. Previously, co-operatives had fallen under the Department of Agriculture. This mandate had then been given to the dti and thus the old Act was repealed and the new Co-operatives Act was passed in 2005 and promulgated in 2007. The Act was now being reviewed for three main reasons: to enhance the development character of co-operative legislation, to reduce the regulatory burden for co-operatives, to enhance the compliance, coordination, administration and sustainability of co-operatives. The State Law Advisors had divided the Bill into two: Section 75 matters (provisions not affecting provinces) were in the Co-operatives First Amendment Bill; and Section 76 matters (provisions affecting provinces) were in the Co-operatives Second Amendment Bill.

Mr Jeffrey Ndumo, dti Chief Director of Co-operatives, then outlined the core amendments to the Act:

Reserve Fund: (Co-operatives Amendment Bill [B17-2012] p5 line 25-29 and p13 line 26-39) There were no clear guidelines on the purpose, the reporting on and the use of reserve funds. All co-operatives needed to set aside 5% in a reserve fund. The legislation would stop short of saying how this money should be spent, as big co-operatives saw this as a tax. Thus the co-operative’s members would decide on how this money would be utilised. The Department would provide guidelines on what the money could be used for.

Voting Rights: Co-operatives established prior to Act 14 of 2005 were allowed to structure voting rights proportionally as per their constitution. While proportional voting was an established facet of co-operatives worldwide, in the South African context it had presented challenges and undermined the growth of co-operatives. The constitution of Category C co-operatives allowed members to have more than one vote, up to a maximum of 15% of the total vote.
 
Primary Co-operatives: A minimum of five members were required to establish a primary co-operatives. The 2005 Act only allowed for natural members to form a co-operative, while most farmers traded as trusts. The amendments would allow for juristic and natural persons or a combination to be members of co-operatives in line with international best practise. The provisions of the 2005 Act were also the reason co-operatives did not grow and consequently vulnerable.

Vertical Structure of Co-operatives: Secondary and tertiary (apex) co-operatives could be formed by operational primary co-operatives. The secondary co-operatives had to be formed on the basis of shared needs. The same would apply to apex structures, as in the past secondary and apex structures had been created solely to access government grants.

Name Reservation: Name clashes caused unnecessary delays in the registration of co-operatives and thus name reservation would ease the administrative burden on the Companies and Intellectual Property Commission (CIPC).

Name of Co-operative: Co-operatives had to have the word “co-operative” or “co-op” in their name and “ltd” if the co-operative was trading as a limited entity.

Minimum Requirements of Constitution of Co-operatives: The 2005 Act had only stipulated that the co-operatives have a constitution and directors but did not stipulate the term of office of directors. The amendments stipulated a reasonable term of office for the directors and the allowances for the reappointment and rotation of directors. It also allowed for the appointment of non-executive directors.

Constitution of Co-operatives: There had been no provision for co-operatives to be indicated as “open”, which allowed transactions with non-members or “closed”, which limited transactions to members only.

Associate Members: (Co-operatives Amendment Bill [B17-2012] p8 line 40-45) Clarified the rights, the role and the powers of associate members. Associate members were temporary members whose membership was valid for a period of twelve months and who could become full members or renew their associate status.

Categorisation of Co-operatives: (p9 line5-15) Co-operatives were categorised to target Government support to co-operatives and to allow differing sets of compliance requirements. Category A co-operatives were small co-operatives; Category B co-operatives were small to medium sized co-operatives; Category C co-operatives were medium to large co-operatives.

Liability of Members: (p10 line 30) A member’s liability was limited to the amount of money owed to the co-operatives in terms of the membership agreement.

Annual Submission of Information to CIPC: The purpose of which was to establish credible data as there was a lack of official and credible data on co-operatives as well as to raise fees for the CIPC to cover administrative costs.

Supervisory Committee: (p11 line 20-35) To supervise the board of directors as there was no structure to oversee the board of directors. Committee members could not be directors of the co-operatives.

Proxies: (p11 line 40-50) There was confusion on the appointment and limits to proxies. Proxies held by a member could not be more than 5% of the total membership.

Governance of Cooperatives: (p12 line 20-35) There was no clear provision for the dissolution of the board of directors. It would require a resolution supported by two thirds of the members at a special meeting convened by the Supervisory Committee or called by at least 25% of the members to dissolve the board of directors.

Flexible Auditing Regime: (p14 line 5-15) The cost of compliance with accounting requirements was high for small cooperatives, therefore a differentiated set of requirements would be implemented. Category A co-operatives would be required to present an Annual Accounting Report, Category B co-operatives would need to present an independent reviewer's Annual Accounting Report while category C, secondary and apex co-operatives would need to present fully audited set of accounts.

Accounting Practices: (p17 line 35) This repealed the auditing exemption of co-operatives in the 2005 Act.

Amalgamation, Division, Conversion or Transfer of Co-operatives: (p18 line 5-30) Fees would be payable as there was high administration costs for the CIPC to administer this.

Clarity of business format: If a co-operative changed to a company, it could not use the co-operative’s name.

Winding Up and Judicial Management: (p20) There had to be a clear detailed schedule for the winding up and judicial management of a co-operative. The Tribunal could assist in this regard.

Winding Up: (p21 line 10-15) Co-operatives could be wound up voluntarily if 60% of the membership passed a special resolution, or through an order of the Tribunal or Court.

Advisory Board: (p22 line 20-45) The connotation of the word “board” suggested that the structure had legal powers whereas it had an advisory purpose, thus the word “council” would be used in its place.

Co-operative Development Agency: (p23 line 20-25) The Agency would be established as the support currently available was not tailored to co-operatives. Satellite branches of the Agency could be established.

Objectives and Functions of the Co-operative Development Agency: (see p31-33 of the presentation).

Co-operative Tribunal: (p26 line 40-45) The functions were to enforce legislation, dispute resolution and judicial management and adjudication.

Worker co-operatives: (p36 line 15-30) Under the 2005 Act, worker co-operatives were exempted from the Labour Act while the Amendments would subject employees to the applicable labour legislation. Co-operatives could apply for exemption or a variation where compliance would create anomalies. Applications would be made to the Bargaining Council or the Minister of Labour. These would especially be applicable for small co-operatives.

Housing Co-operatives: (p35 line 45-50) This would allow exemption for co-operatives for compliance with share block requirements and to allow own arrangements for purchase of units on a collective basis while still having the sectional title registered into individual names (notwithstanding that it had been bought by a co-operative).

Social Co-operatives (p36) Social co-operatives had to provide social services to its members. It needed to comply with Section 10 of the Act. Co-operatives could set aside up to 100% of its surplus and could capitalise its donations and grants.

Discussion
Mr M Ambrosini-Oriani (IFP) asked if there had been enough abuse of the Labour Relations Act to justify changing the legislation. He asked what the financial implications of the amendments would be in establishing a new bureaucracy around the Agency and the Tribunal.

Adv A Alberts (FF+) requested the Risk Impact Assessment (RIA) report and an overview of the report from the Department. Would co-operatives be transparent? Would the directors of co-operatives be held as accountable as the directors of companies?

Mr N Gcwabaza (ANC) wanted a clearer understanding of worker co-operatives.

Mr X Mabasa (ANC) felt that proxies might be abused.

Mr G Hill-Lewis (DA) asked what the intended powers of the Supervisory Council would be. He said the limitations on proxies would render it meaningless as in certain cases where co-operatives for example had ten members, even one person could not vote by proxy. He asked what accounting costs small and micro co-operatives would incur.

Mr Jeffrey Ndumo replied that there were three categories of co-operatives, each had appropriate accounting requirements. Small co-operatives would require an annual accounting report which directors had to sign and send to the CIPC. No auditing was necessary. It wanted managers to be held accountable for the co-operatives. Category B co-operatives would require an independent review done by an accounting officer or bookkeeper which would be sent to the CIPC with the board’s approval. Category C co-operatives would require a full audit.  Rand revenue values would be used to delineate categories. Non-members could not be proxies. The stipulations on proxies were to prevent meetings being run by proxies making critical decisions on behalf of members. Worker co-operatives were formed voluntarily to use their expert or labour power to meet economic, social and production needs. There were two types of worker co-operatives, those that produced for themselves or to sell and those that sold their labour. Worker co-operatives could have extra employees working for them to meet production needs but these employees were limited to a total of 40 employees. In the past, companies had converted their employees to co-operatives to bypass the Labour Relations Act as co-operatives were exempted. He said the Department would make the RIA report available. He said co-operatives had to be transparent, with the directors having to fulfil fiduciary duties and all financial records had to be kept for five years. Directors had to adhere to corporate governance principles and had to submit account reports to the CIPC annually. There were 13 apex co-operatives and 200 secondary co-operatives, 70% of which were non-functional as they had been established to get a grant rather than to fulfil a clear cut need. Marketing co-operatives had to be established at the primary not secondary level.

National Metrology Institute of South Africa (NMISA) briefing
Mr Benjamin van der Merwe, NMISA Acting CEO, said the impact of metrology was to facilitate fair trade, underpin regulations and help meet the social needs of the country, improve its quality of life through health and safety and environmental law enforcement and food safety which was increasing in importance.

NMISA provided national measurement standards and with reference to the Industrial Policy Action Plan (IPAP), provided technical support for exports, increased improved trade competitiveness through more accurate measurement, provided certificates of analysis and advanced measurements to industry and developed measurement facilities if they were not available in South Africa.

NMISA was active in Information and Computer Technology (ICT), Manufacturing, Aerospace and Defence, Advanced Materials, Agriculture, Cultural industries and Tourism, Automotive Industry, Plastics and Pharmaceuticals, Health and Metal Fabrication.

NMISA undertook major interventions in the petroleum and mining industry, chemical industry, plastics and packaging, greenhouse gasses, pharmaceutical industry, air pollution, nanotechnology, automotive industry, the food sector and the environment.

NMISA was in the process of re-organising itself to align with its annual plan and five year strategic plan.
NMISA was in critical need to upgrade or have new National Measurement Standards (NMS) in the automotive components industry and agro-processing industry. In general, NMS needed to be upgraded to meet the future needs of IPAP.

Key IPAP related programs were in:
1  Green Energy/Energy Efficiency: To develop standards and measurement facilities and to upgrade power and energy measurement standards and emission monitoring.
2  Agro –Processing: Environmental compliance standards for organic pollutants, a monitoring facility for toxic chemicals substances in food and the environment and provide certified pesticide reference materials.
3  Metals Fabrication: Develop advanced measurement capabilities for minerals alloys and advanced materials and x-ray diffraction.
4  Other: Commissioning a co-ordinate measuring machine and a new x-ray NMS for dosimetry.

Mr van der Merwe reported on the improvements in National Measurement Standards it had achieved and were targeting for these four key IPAP areas (see document p15-21). The Square Kilometre Array (SKA) needed extreme accuracy in the measurement of time and NMISA had been involved in this project from the beginning.
 
Discussion
Mr W James (DA) asked how much of the testing was actually done by NMISA. Were foreign testing agencies operating in South Africa and challenging the validity of NMISA? Could clarification be provided on the chemistry testing for organic toxins in Lesotho?

Mr Mabasa asked how NMISA related to rural and informal settlements, as health was most affected in those areas.

Adv Alberts asked for comment on the agro processing toxins used at grain silos and how it affected workers. How involved was NMISA in the Acid Mine Drainage (AMD) water issue and more broadly in mining and fracking?

Mr van der Merwe replied that NMISA was not a testing facility but helped to set up test facilities. Foreign testing was big in the automotive and aircraft industries. They accepted NMISA’s findings but insisted on verification through independent tests. NMISA worked with the Maize and Wheat Boards on chemical testing. Worldwide, countries were struggling to implement the move to dynamic standards of testing and the methods used in testing became very important. In rural settlements, the lack of testing of materials on low cost housing led to 60% of them not being up to standard and 30% of them had to be rebuilt.

Mr Donald Masuku, Regional and International Manager, said NMISA tried to assist micro enterprises to understand the importance of quality and measurements.

Dr Tshenge Demana, dti Chief Director: Technical Infrastructure, said the key challenge was the accessibility of NMISA’s work to the public. It was getting more people to work in the unit as interns.

Mr van der Merwe said it helped the agro-processing industry with expertise, testing and the gaining of international acceptability. It sent AMD samples to municipalities to evaluate municipalities’ ability to test AMD water.

Challenges facing NMISA was that measurements at universities differed by a factor of a thousand. R105 million was needed to procure critical equipment. It was busy with a recapitalisation programme because of movements within metrology which necessitated changes and improvements. It was in the process of identifying new equipment and new buildings and was conducting feasibility studies.

The Chairperson asked that NMISA be more specific on the IPAP interventions they were involved in.

The meeting was adjourned.