Abalimi Cooperatives progress report by Department of Small Business Development

Small Business Development

31 May 2017
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Abalimi Cooperatives project is a pilot project of 12 agricultural cooperatives in KwaZulu-Natal, an initiative which will guide the future model of cooperatives in South Africa to develop communities with the aim of uplifting them from poverty.

The Department of Small Business Development (DSBD) outlined the tasks it had identified to set up the Abalimi Cooperatives project and reported on the progress of each one. It has achieved most of the tasks. Those that are not yet achieved were due to complicated processes involved, thus the deadlines were extended or due to other institutions involved not responding to the Department. The most unresponsive institutions were local government districts. The Committee stated that DSBD should have worked with the district municipalities before deciding on deadlines as complex processes are involved. These communities tend to have people who lack the skills needed for cooperatives. To address this challenge, DSBD in partnership with the Small Enterprise Development Agency and Kohwa Holdings, a specialist incubator to cooperatives, will provide technical skills to these cooperatives to make them thrive, and achieve sustainability. This was viewed as a perfect implementation model, as it involves the public and private sector, and communities. The project will be piloted as soon as the logistics are dealt with and approved by various departments, such as Treasury. It will be launched on 31 August 2017, during the harvest period, to popularise the project.

The Committee said there was a marked improvement since its March progress report.

Meeting report

Abalimi Cooperatives progress report by Department of Small Business Development
Mr Jeffrey Ndumo, DSBD Acting Deputy Director General: Cooperatives Development, gave the briefing on implementation plan progress for the Abalimi Cooperatives project. The report comprised of thirteen tasks that the Department had set out for 2017, and their implementation dates. 

Task 1
Appoint a Project Manager for the Abalimi Agricultural Cooperatives project for coordination and implementation. This was supposed to be implemented on 31 December 2016, but the Project Manager was appointed in January 2017.

Task 2
Write letters to relevant municipalities to make the project known. This was supposed to be done by 10 February 2017. This task was performed during the month of February and completed.

Task 3
Develop implementation plan for each of the Steering Committees. This was supposed to be done by April 29, 2017. Indeed, it was performed timeously.

Task 4
Ensure that Abalimi cooperatives are integrated into the Integrated Development Plan (IDP) of municipalities to invoke support from other stakeholders. This was set for March 31, 2017. All districts agreed, but only two have confirmed.

Task 5
Harmonise the working relationship between Kohwa and the Department on the rollout of Abalimi project. This was set out to be implemented by March 31, 2017. A letter to deviate from Cooperative Incentive Scheme guidelines will make it possible to harmonise relations.

Task 6
Establishment of Abalimi Steering Committee in each of the municipalities. This was set out to be implemented by Jan 31, 2017. The Steering Committee has been established in all districts.

Task 7
Seek approval from National Treasury to shift CIS funds towards investment in advancing a model which will promote the sustainability of funded cooperatives. This was set out to be implemented by March 31, 2017. A letter requesting deviation from the Minister of Small Business Development was sent to Treasury.

Task 8
Determine the exact business needs by undertaking due diligence to inform funding. This was set to be implemented by March 31, 2017. Assessments of the needs of the cooperatives have been undertaken.

Task 9
Unlock and provide working capital informed by the due diligence. This was set to be done by March 31, 2017. Once the CIS deviation has been approved by the Treasury, it will be possible to fund the working capital for cooperatives.

Task 10
Sign cooperation agreements coupled with implementation plans with municipalities. This was set for March 31, 2017. Three municipalities are still consulting in transversal agreements, and two cooperation agreements have been received from two districts, Ilembe and Ugu for the Department’s signature.

Task 11
Develop concept document to be approved and supported by the relevant national and provincial departments. This was set to be implemented by March 31, 2017.This document was finalised and approved.

Task 12
SEDA received an official request from the Department to provide management and technical training and access to market to Abalimi. This was set for April 31, 2017. SEDA committed to kick start training in the first week of June.

Task 13
Work with municipality to popularise the project by launching the project during the harvest project. This is set to be implemented on Aug 31, 2017. This task is still pending.

Ms N Mthembu (ANC) thanked DSBD for the presentation and noted that this is a work in progress. She asked DSBD to stick to the implementation schedule . She asked when the unsigned agreements will be signed. There needs to be a timeframe.

The Chairperson asked why the deadlines were not met according to the schedule.

Mr R Chance (DA) referred to page 7 and asked who sits on these steering committees and how these committee members are selected. He asked for clarification because he did not understand the request for deviation. How was it approved already by the DG and yet there is a letter from the Minister to Treasury? When is DSBD expecting a response from Treasury?  How did DSBD pick a figure of R500 000 for individual cooperatives whereas it does not know what the funding needs are? How was this figure determined? R500 000 x 12 = R6 million, and the remainder is R5 million (of the R11 million stated in the presentation). What happens to the remaining R5 million? Or is the stated R500 000 an additional amount to the R11 million? There needs to be a breakdown of this expenditure.

Has Kohwa or DSBD or SEDA worked on cash flow forecast for these? Will that form part of the training so that the cooperatives can develop their own financial plan for the businesses they are trying to build?

On page 10, where is the Coastal College? Will the training be at Coastal College? Will the college go to them or will they go to it? How long will the training be?

Page 11 talks about a secondary cooperative structure, what is that structure?

In terms of launching the project during the harvest period, will the cooperatives have crops to harvest? When is the harvest period? Kohwa wanted a three or five year agreement to enable sustainability, is this included in the sustainability plan?

Mr S Mncwabe (NFP) said that he was impressed with the progress report. It is evident that the concerns that had been raised in their March meeting have been addressed. He was pleased that DSBD took the initiative and approached municipalities to make the project known. This is an improvement.

Mr N Capa (ANC) appreciated the report given by DSBD. However, he referred to the harmonisation, and asked what the problem was with DSBD and Kohwa. What is it that had to be harmonised? At what level and extent did it need harmonisation? Now that Mr Ndumo was appointed as the Project Manager, how strong are the personnel, and what is the capacity needed for the project's effectiveness?

How soon will this activity be visible? Assuming the Project Manager appointment is for DSBD as a whole, not only for the Abalimi project, while having this, there is more needed to be done in other provinces too.

Lastly, what are the challenges DSBD is expecting during the process of implementation?

Mr S Bekwa (ANC) agreed with what Mr Ndumo said about what SEDA does. SEDA was here a few weeks ago and it spoke about the plans that Mr Ndumo has mentioned in the presentation. The intervention done by Mr Ndumo has played a big role. He raised a concern that at Ncebazakhe nothing has been done since the sector last visited, and that something should be done in this area.

Mr Ndumo replied on the deadlines of agreements, saying that DSBD initially informed participating districts that the agreements have to be concluded by March 31, 2017. However, there are many processes involved, as a result DSBD found the initial deadline to be unrealistic, and it had to be moved further.

The Chairperson held that if DSBD knew how local government works, it would have never put that as a deadline. It would know that there are processes to be followed, because there are different committees. Therefore, if DSBD was working closely with the local government it would have realised that the dates were not realistic. In this case it was important to work with the local government before putting up a deadline.

Mr Ndumo replied that about who constitutes the Steering Committee, saying the drivers of the committee are Local Economic Development (LED) managers in all districts but they vary from district to district. In some districts there are different departments, such as Department of Rural Development and Land Reform, Department of Water and Sanitation, Department of Transport, and then there are LED officers, these stakeholders have the power to oversee the whole process, that this goes according to plan. 

The Chairperson held that the Steering Committee is project driven, and in this matter it is agricultural cooperatives, and all departments that have a role to play in the development of this project. The Steering Committee should comprise of the various departments participating in the project, for instance for the 2010 Soccer World Cup, it was only departments that had a role to play in order for SA to achieve the event. In essence, departments should choose who will represent which department.

Mr Ndumo replied to the R500 000 funding question that an assessment of the needs was done with Kohwa. There is a fixed capital amount because funding applications requested different amounts, some larger than others, and some smaller than others. There will be houses that will be built to store their facilities. What DSBD has also realised is that there needs to be technical training support if these cooperatives are to succeed. Another need is transportation to take these cooperatives to the market. Other needs are access to land and markets.

Mr Ndumo replied about sustainability, saying DSBD needs to have long-term contracts that will go beyond three years. Furthermore, to sustain this project there will be training for these cooperatives to fully run the system independently. They will be moved too to bigger houses like greenhouses. On the greenhouses, the income will be quadrupled, they will be operating on a bigger scope, and they will be operating as a cluster to supply commodities in large quantities to retail stores that will be purchasing.

SEDA will be there for a long time, about three years to ensure sustainability.

Deviation is in threefold, entirely approved by the Minister of Trade and Industry. In this case, instead of it being approved by Treasury, DSBD looked at the document and found that the person who has the approval power is the Minister of Small Business Development. The Minister was asked to provide the deviation because she is the principal signatory of the document.

The capital, R11 million, is strictly for the clustering, to fund those aspects . The cooperatives apply for R350 000 and more at times, and DSBD decided to make it R500 000.

Mr Mzwanele Memani, DSBD Director: Cooperatives, replied that the Coastal College is in Durban, and the training will take place at cooperatives, the college will go to them.

Areas of training will be (1) governance, (2) conflict management, (3) compliance, and (4) financial management. This will be a 4 week training programme, but there will be flexibility because they will not be consecutive weeks, the weeks may be spread out, provided that there is consensus between the trainers and trainees. SEDA has appointed agriculturalists and deployed them to cooperatives for technical training.

Mr Ndumo replied that they will harvest cabbage, spinach, etc. He hopes this will be implemented soon so that these cooperatives can harvest.

As mentioned, there will be financial management training which will teach trainees how to budget and develop their own financial systems.

Harmonisation with Kohwa is twofold, they will provide technical skills and access to markets. DSBD will bring SEDA to work with Kohwa on access to markets.

The challenge that is faced is speed, this needs to be done timeously for harvesting period purposes, otherwise the cooperatives will find themselves out of season. Another challenge is that the sector is dealing with members of cooperatives that need attention, not in only terms of money, but time and guidance too. 

The Chairperson said that she was impressed with DSBD’s plans and work, and that there is a lot to learn. With regards to technical skills, she was pleased too by this, especially that SEDA will be coming on board and agriculturalists will be deployed in the cooperatives, this is a step in the right direction.

She put forward an idea, that the Project Manager should facilitate the meeting in harmonising, so that Kohwa, SEDA and agriculturalists can be on the same page on the farming model that will be used, this is capacity building. This is a perfect implementation because Kohwa is a private company, SEDA is a state owned entity, and cooperatives are part of communities.

Coastal College outsources to trainers who are probably not accredited, meaning that DSBD will have to engage with Department of Higher Education. DSBD must also engage with the University of Zululand because the university has a two year training course that produces cooperative managers. This would be an add-on to absorb graduates from the University of Zululand and have them deployed in these cooperatives for learnerships. DSBD would be reaching three targets simultaneously (1) providing graduates with experience and employment, (2) DSBD will not be paying them, the learnership will pay them, and (3) services that the cooperatives would not need to pay money for.

Mr Bekwa suggested that the Committee should invite the University of Zululand to present. The Committee needs to hear what they will be feeding people, so that they do not impart irrelevant information.

The Chairperson was pleased that the college will be travelling to the cooperatives.

On access to market, there is enormous opportunity around that. Doing an assessment would enable DSBD and steering committee to come up with a good model. DSBD needs to look at whether the cooperative members are dependent on social grants. This would have an indication on the model to use, this will help in developing a good model. When a project is piloted it must be done in such a way that is perfected, to make other countries want to adopt it.

Mr Capa commented that he was not impressed by DSBD. He asked about staff capacity because he was concerned about the ability to have such a project in other provinces. He did not want DSBD to be trapped in cooperatives and limit itself to agricultural cooperatives only. As soon as this work is done it is important to implement this in other areas and provinces, this is because a lot must be piloted by 2019 because the Committee will be gone by then. He said that he was jealous and excited because he felt that DSBD is capable of doing more.

Mr Chance asked that, since Mr Ndumo has been with DSBD and Department of Trade and Industry for 12 years, why is this intervention only taking place now? Why has DSBD not formed its own Steering Committee with Departments of Rural Development and Land Reform, Agriculture, and other departments who have a stake in this project? Within those departments, various expertise and experience can be found.

Mr Chance said that these cooperatives need to be independent, they cannot be supported forever, and there was no evidence of sustainability in the presentation.

He was still not clear on funding, he asked what the exact figure was that DSBD will invest in the project, because there were various figures mentioned. Also, what will the return be on this?

Mr Ndumo replied that the staff capacity had not been strong enough. The Cooperatives unit used to have three people in the branch before they constituted the Cooperatives unit in DSBD. However, now it is being built as a branch and demarcated. There will be three business units under the new branch: (1) Cooperatives Development Business Unit, (2) Design and Implementation, and (3) Competitiveness.

The Cooperative Development Business Unit consists of two managers dealing with reviewing the cooperative model and finalising the review and dealing with aspects of red tape. Design and implementation has one manager that deals with projects of this nature. Competitiveness has the Chief Director who is leading the branch.

DSBD has recognised the need for nine offices that will consist of two Project Managers and nine project officers who will all drive the project. This idea has been well received and will be implemented. This will also target unemployed graduates.

The Chairperson referred to Mr Capa’s question on capacity, as she felt that it was not adequately answered, she unpacked the question. She asked about the capacity and capabilities of personnel. What is the background of the personnel deployed? Are they trained in the development of cooperatives? Did they gain experience by working for the Department of Trade and Industry? What institutions has DSBD partnered with to build capacity? Which institution has DSBD formed a working relationship with? What programmes have been developed to capacitate the personnel in DSBD? What exchange programmes have been developed for people from outside SA to impart to South Africans? Has DSBD taken its personnel to countries outside of SA to capacitate them and to learn from other examples?

Mr T Mulaudzi (EFF) was impressed too by the work done by DSBD, and reminded Mr Capa that Rome was not built in one day, referring to Mr Capa’s sentiment towards DSBD.

The question asked was a fair question that needs a concrete response. The Committee can empower Mr Ndumo, but empowering him without his superiors present is futile because they will not listen to him. The sector is not serious when meetings like these are called and there are only two officials present - this has been going on since 2014.

Mr Mulaudzi said he was impressed by the PPP (public private partnership).

Only Ilembe and Ugu are always the ones moving and responsive. What strategies does DSBD have to make other districts move more quickly? Lastly, the Committee wants to know how expenditure goes in terms of increases and decreases for individual cooperatives.

The Chairperson noted that this is a continuation of the report presented to the Committee in March, therefore at present, the Committee would be dealing with the intervention and progress of the Abalimi project. Some questions were not answered for this reason. The Committee will look at its programme and try to find time for some of the unanswered questions.

Mr Ndumo replied that in terms of the Cooperative unit, it has trained cooperatives officials, where they are trained about development, but most people who have been trained have been deployed in other areas. With the changes taking place, new personnel are coming, but they have background in SMEs, and not cooperatives.

The Chairperson held that the term development is broad, there is community development, rural development, social development, economic development. These areas are all different. However, this question needs to be asked to the Director-General, Mr Ndumo would not be able to answer it.

Mr Chance disagreed, and held that Mr Ndumo has been with Department for a long time in a senior position and this should enable him to respond. The same applied to expenditure. He should have some understanding of how these both work.

The Chairperson replied that she did not say he must not answer that question, she was simply referring to the question of deployment of personnel. The Director-General does the deploying, not Mr Ndumo. The Director-General can answer what informed her to put Mr Ndumo and others in their positions. As much as he is in a senior position, it is the Director-General that deployed the personnel.

Mr Ndumo replied that he was clear on skills, but the issue of deployment was beyond his scope.

Mr Capa replied that he was impressed, he was simply misinterpreted and misunderstood when he said he was jealous; he is excited. He elaborated that DSBD has potential, and the creation of the unit and personnel that possess such skills was an indication of that. This means that the Committee should compliment this by saying as much as Mr Ndumo is not responsible for deployment, he should assist and take charge because the Committee cannot rely on the Director-General alone.

Mr Ndumo replied that most documents read on Department of Trade and Industry and analysis conducted was done by the Department. They have detailed the challenges and things needed to be sorted out for the cooperatives to thrive.

The Chairperson held that if the sector was serious about developing cooperatives in SA it would go to the taxi industry. They have associations, they have self-governance, demarcations, and laws governing them. If the sector would adopt this industry it would go far, because the taxi industry has its own taxis, it does not need loans from the government. They buy fuel every day, tyres, and they have insurance. This industry could have its own bank in one day. If the sector were to say, for one month only, each owner must put down R1000, the sector would have established cooperatives.

Mr Chance replied that last week there was an article about taxi violence and how a JSC listed company that lent money to taxi drivers, hundreds of millions of rands, from Transaction Capital, had not been returned by taxi drivers. Why have they not formed their own bank?

The Chairperson replied that the Cooperative Banks Development Agency, which has been focusing on regulation instead of developing the cooperative banks, should be asked this question. The taxi industry is structured as an association. This would have established its own cooperative bank, it would support the taxi industry.

Mr Chance replied that he was just saying there is a gap in the market which the company has exploited.

Mr Ndumo added that cooperatives in the past, particularly taxi owners, bought their vehicles individually. Before they would borrow money to purchase vehicles from the bank, but now what the taxi industry has done is to augment and create their own banks. They are coming together to have a cooperative bank to loan each other money. They are currently in talks.

If the sector would start sharing services to the Abalimi cooperatives they would grow and dominate the market. He is involved in the Ethekwini Steering Committee. SEDA provides loan funding, DSBD is targeting them to do phase two of the project.

The Chairperson thanked DSBD for the report. With regards to the question by Mr Chance, a breakdown in writing of expenditure or financials would be appreciated.

The meeting was adjourned.



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