Co-Operatives Bill: briefing; Department Budget Report: adoption

Meeting report

TRADE AND INDUSTRY AD HOC COMMITTEE
4 June 2004
CO-OPERATIVES BILL: BRIEFING; DEPARTMENT BUDGET REPORT: ADOPTION

Chairperson:

Legislative programme for 2004 - 2005
Draft Cooperatives Bill
Committee's report on the Budget Vote
Powerpoint presentation on Co-operatives Bill
Co-operatives Development Policy
Co-operatives Development Strategy 2004-2014

SUMMARY
The Committee's report on the Department of Trade and Industry's (DTI) budget vote was adopted. The DTI gave the Committee an initial briefing on the Co-operatives Bill. The Committee acknowledged that the legislation was necessary. Members, however, raised concerns that the process would create a bureaucracy which was unnecessary. Issues around registration, the language of the Bill and the rationale behind the Bill were also raised. Further the Committee felt it was important that the DTI present the Committee with a clear implementation plan for the Bill.

MINUTES
Adoption of Budget Report
The Chair presented the Committee's report on the budget vote and asked for comments.

Dr E Nkem-Abonta (DA) said the report was a good reflection of the way the Committee felt. He felt though that some more transparency was needed regarding personnel costs as he felt that the amounts were exaggerated.

The Chair said that these aspects had not been raised in the discussion and could possibly be raised in the debate. He asked whether the report could be adopted.

Professor B Turok (ANC) proposed that it be accepted and Mr M Stephens (UDM) seconded the motion. It was adopted unanimously.

Briefing on the Co-operatives Bill
Mr L October, Deputy Director General in the DTI, addressed the Committee and said that this was an initial briefing on the Bill and that the DTI wanted some guidelines from the Committee. They would then come back to the Committee. The DTI had a spent a year in consultation with various role players such as NGOs in drafting the Bill. The Bill was important for growth and equity. Growth was particularly important. The unit involved was keen to see the number of enterprises increased in order to expand the entrepreneurial base. It was important to get the informal co-operatives to register. The process of registration was being made simpler while keeping the integrity of co-operatives. The Bill and registration of co-operatives was shifted from the Department of Agriculture to the DTI. The National Empowerment Fund has loan and equity finance products for co-operatives.

Ms N Maluleke presented the framework of the Co-operatives Bill. Please see the attached Powerpoint document.

Discussion

Professor Turok (ANC) said he welcomed the development but that he had certain "anxieties". Many DTI initiatives had been mooted but had then stalled. He warned that the approach, which was comprehensive, had huge dangers. He suggested that it have a more modest beginning. The approach at present could lead to a huge bureaucracy. He urged that a phased process be accepted and that the DTI presented an implementation plan. He felt that the DTI should not start with an advisory board. Something should rather be established on the ground before an advisory board was established. Many co-operatives had failed internationally and this process should be done carefully.

The Chair said the Bill aimed to formalise co-operatives and it was unrealistic to think that it would have first world status. The aim should be to make co-operatives of service to the community and not focus on making it internationally competitive. The Bill was also not in plain language which was a concern as many of the people it was aimed at would not be able to understand it. The principle should rather be to give certain rights to members of co-operatives. The advantages of being in a co-operative should be spelt out.

Dr Nkem-Abonta (DA) asked whether it would not be better to have a unit dealing with small business development so that a huge bureaucracy is not formed.

Mr M Stephens (UDM) agreed with everything that had been mentioned by previous speakers but added that the process looked very complex. He also wanted to know what the tax regime would be for co-operatives.

Dr M Sefularo (ANC) said that he supported the general direction that was indicated. He felt though that that there were some incomplete proposals in the strategy documents which could ensure certain success. For example, the document said that government departments would be encouraged to target co-operatives in procurement. He felt that the word "encourage" was too soft whereas the procurement legislation compelled departments to target certain groups of businesses. The document also implied that village banks did not succeed. He felt that village banks were the best way to go and wanted to know what would be done in its place.

Ms September (ANC) said that this was a difficult sector to legislate for. This should be agreed on and then they could proceed from there. She felt everyone should be clear on the policy direction before the Bill is considered. She wanted to know what message was being sent economically. She noted that the Growth and Development Summit had given direction for co-operatives and suggested that this be revisited. International experience should also be examined.

Dr Nkem-Abonta (DA) said he felt that co-operatives belonged in the small business arena. He suggested that the DTI find out why SMMEs performed so poorly. The assumption was that all people wanted were finance which might not be correct.

Ms Chang (IFP) questioned whether the advisors who were helping small businesses had actual business experience.

Mr October said that he had taken note of all the concerns and that the Department would revert with an implementation plan. The impression gained from Members' comments was that there would be massive DTI intervention that would create a bureaucracy. There was existing co-operatives legalisation and a number of support mechanisms for other enterprises. The essence of the intervention however was to change the environment in which co-operatives was operating. The legislation therefore sought to give them access to legal protection and access to resources that other enterprises had. This would not be onerous, but would need a change to the legislation and carefully crafting the support measures for co-operatives. The suggestions raised will all be taken into account. He assured Members that there had been no cost to the department regarding this so far. It was correct to say that this was a variant of small business development. This was just another form of enterprise besides closed corporations and private companies. Co-operatives had been excluded from the legal framework and DTI was seeking to include them. They would try to use existing institutions to include co-operatives in their mandate so that no new structures would be created. The language of the Bill would be examined so that it was more accessible. Registration would be done by the Company Intellectual Property Registration Office (CIPRO) which registered companies. No new registering body would be formed. The tax incentives would be the same as for small and medium enterprises. The issue around procurement was noted. It was clear that in countries where co-operatives were successful, co-operatives were given access to certain markets.

Ms Maluleke added that they were working very closely with the Department of Agriculture, Treasury and the Reserve Bank on the issue of village banks. Village banks were not total failures, but some loopholes existed which was now being investigated. These were seen as important to provide access to finance for the poor. She pointed out that massive research had been done on co-operatives. It was felt that co-operatives had strong social and economic strength. The feeling was not to exclude them, but rather to include them like other enterprises.

Mr October said that they were looking at the international experience of co-operatives. There were clear examples where they had failed and where they had worked. Those who were successful had clear legal support, an institutional framework and where services were offered, they were offered by co-operatives. He emphasised that before the end of the year there would be one agency to support small businesses. This agency would include co-operatives.

The Chair reiterated that they did not want a large bureaucracy. This did not mean that co-operatives should be excluded. It was also not right to say that co-operatives were like other businesses as they were "special".

Professor Turok (ANC) said he was reassured by the responses from the DTI but did not see this in the document that appeared very ambitious. The objective however should be to address underdevelopment. Legislation must seek to overcome this, and this must be the clear focus. He suggested that the Committee should be pro-active and have discussions with other role players before hearings were held.

Mr Stephens (UDM) said that co-operatives have a special place. He referred to business trusts and suggested that this be looked at as it was a simple structure. He felt something like this could be incorporated in the co-operatives legislation.

Mr October said that they would take suggestions back to the DTI and would look at possibly creating a two-tier system in the co-operatives legislation. The two tiers would be one for very developed and well-established co-operatives and another for new co-operatives. The example of trusts would also be investigated.

The Chair referred to the process ahead and suggested that the Committee consults with people who have significant inputs on this issue.

Ms September (ANC) said that interested stakeholders should be targeted. She felt the Committee's newspaper advertisement strategy needed refining as advertisements needed to be placed in community newspapers and not just the big ones. Members should also try to raise awareness in their constituencies.

Professor Turok said that radio advertisements should also be used.

Mr October said the DTI would revert to the Committee with a revised document towards the end of July or early August.

The meeting was adjourned.