Co-operative Policy and Bill: briefing

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Meeting report

ECONOMIC AND FOREIGN AFFAIRS SELECT COMMITTEE
25 August 2004
CO-OPERATIVE POLICY AND BILL: BRIEFING

Chairperson:
Ms N Ntwanambi (ANC)

Documents handed out:
Co-operative Policy and Bill: presentation by Department of Trade and Industry
A Co-operative Development Policy for South Africa
Draft Co-operative Bill - as of 24 May 2004

SUMMARY
The Department of Trade and Industry presented a brief overview of the Co-operative Policy and Bill. They gave a background on the current state of co-operatives in South Africa and the legislation that had previously supported co-operatives, which in turn gave rise to the need for updated and wider legislation in the form of this new Bill. Ease of accessibility and simplification of the processes involved in setting up, financing and winding up co-operatives, were areas addressed by the bill. Other aspects in the policy include education and training, business advisory services and access to loans.

MINUTES
Department of Trade and Industry (DTI) presentation
Mr Lionel October (Deputy Director General) commented that this briefing was for background purposes only, as the Bill still needed to go to Cabinet for formal tabling. He said that until now South Africa did not have an explicit co-operatives policy. Co-operatives were confined mainly to the white agricultural sector, which was well supported logistically, legally and financially. Unfortunately there remained a large undeveloped co-op movement in need of support. The department had prioritised this area in order to increase economic growth. It had previously focussed on promoting small businesses and black economic empowerment. He said that co-operatives were really no different to any other business, except that they were collectively owned and managed. The department saw the promotion of co-operatives as a way of broadening collective ownership across all sectors of the economy, especially among emerging black co-operatives. He said co-operatives could provide people with the opportunity of joining the mainstream economy. He added that the department was determined to have the Bill and Policy in place by early next year.

Ms N Muleleki (DTI Director) said the Bill and Policy aimed at growing co-operatives throughout South Africa and at normalising and reviewing the Bill of 1981, which had only made provisions for the white agricultural sector of the economy. The Bill provided for decentralised registration of co-operatives, making the process simpler and more accessible. She said that co-operatives needed to become viable and competitive not only on a national level but eventually also on a global level and that the Bill hoped to be conducive to this process, by serving as a powerful tool in assisting people in the setting up of co-operatives. Ms Muleleki said that extensive consultation had been entered into in compiling this policy.

Ms Muleleki explained the difference between three types of co-operatives; primary, secondary and tertiary co-operatives. A primary co-operative was directly involved in production or the providing of a service, while a secondary co-operative was more of a support structure. Tertiary co-operatives referred to the APEX Fund and similar structures.

The definition of a primary co-operative was an autonomous association of persons that are united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. She said that the policy was broad enough to cover all sectors. The features that distinguished co-operatives from other enterprises was that it was an association of people who were united in ownership, decision-making and benefit derived from the product of such a co-operative. The instruments which would support the development of co-operatives and those already in existence, was the legislation itself, as well as the establishment of a fund to be possibly located in the Small Enterprises Development Agency (SEDA). This fund would be used in technical capacity building.

Various incentives and support measures would also be set up and made more accessible for small businesses. This included instruments such as the APEX Fund, which would provide micro financing. It had a component of financial co-operatives. Partnerships with the National Co-operative Association of South Africa would assist in the training of members and the setting up of co-operatives. Treasury also gave benefits to businesses registered as co-operatives, with turnovers under R5 million. The Co-operative Bill would provide for the formation and registration of co-operative enterprises, the establishment of an ad hoc advisory board, the winding up of co-operatives and for matters connected therewith. The DTI would be the central department for registration so that all businesses were under one umbrella. The Company and Intellectual Property Registration Office CIPRO unit would be responsible for this. Ms Nweti mentioned that attempts had been made to avoid over-regulation.

Mr October reiterated that it was the aim of this policy to mainstream co-operatives and to move them into the formal part of the economy. He emphasised the extent of the consultation that had occurred in the construction of this policy. Support had come from trade unions, the provinces, NEDLAC. Co-operatives had been high on the agenda at the Growth and Development Summit. He felt that there was great potential for growth of co-operatives. He noted that even in developed countries such as America and France there were strong co-operative movements.

Discussion
Ms Ntwanami (ANC) asked what was the relationship between the new co-operative Bill and the Companies Bill and what were the time frames for the enactment of the Bill.

Mr Kolweni (ANC) commented that this was an ambitious Bill and hoped that the regulations would be transparent enough for provincial leadership to apply them. He asked how this Bill would assist people who aspired to joining or forming a co-operative. He referred to the incubation programme and to NAFCOC and said that several of these initiatives had collapsed and needed co-ordination.

Mr D Gamede (ANC) said the Bill was long overdue. He asked for more clarity on the process of winding up co-operatives and the speeding up of the registration process. He questioned the need for 75% of members being required to wind up a co-operative, whereas 50% plus one or 67% were the norm. This requirement could delay the process unnecessarily. Mr Gamede suggested that co-operatives should be included in the curricula of our educational institutions, so that the present generation could become familiar with them even before they leave school.

Ms Terblanche (DA) asked how the DTI would ensure that co-operatives remain autonomous and without interference. She questioned whether the exclusion of certain sectors of society in this Bill was appropriate, even though it intended to correct the wrongs perpetuated by the previous Bill. Surely this Bill should be inclusive. She commented that white students were leaving the country in droves after completing their education.

An ANC member noted that presently certain co-operatives were unable to continue functioning, they were not capable of winding up the co-operative and in the meanwhile their facilities were being vandalized. How did the DTI intend dealing with such issues?

Ms Ntwanami asked how the provinces and municipalities would be capacitated by this policy to deal with such practical issues.

Mr October replied that the alignment of this Bill, with other pieces of legislation, was a massive undertaking and partly the responsibility of the Corporate Law Reform Process. It was initially intended for the co-operative Bill to become part of this and this would have been appropriate since a co-operative was also another form of enterprise, but due to the urgency of this policy, it could not wait for the completion of the Corporate Law Reform Process. Therefore it was decided to have a separate policy. He said the Bill should be enacted early next year. This Bill was in alignment with the principles of the reviewed legislation; for example, all new legislation aimed at easing the process of registration of any enterprise.

Mr October said that although the Bill aimed at rectifying the exclusions made in the 1981 Bill, it was non-racial and inclusive, presenting all with the same opportunities. He commented that just as with many other businesses, which did not always succeed, so also certain co-operatives were bound to fail. Such co-operatives should aim to be economically viable and not expect to be supported by the state.

Ms Nweti said she would seek legal advice on the classification of the Bill. The high percentage of members required for winding up a co-operative was to promote decision-making. This percentage had found support from stakeholders during the consultation process. She commented that this policy was there to formalise informal enterprise and thereby capacitate them. It still implied that they be run as businesses. The Bill was not intended for the establishment of co-operatives, which were dependent on donors. The Bill provided support in that it gave co-operatives legal standing. The DTI was looking at ways of incorporating co-operatives into the curricula of schools and tertiary institutions. Local Economic Developments managers would be used to implement the policy at local levels.

Mr October commented that there was a whole range of emerging co-ops. The DTI wished to build support measures in the form of capacity building.

Mr D Mkono (ANC) asked for comment on the issue of loans, since in practice he had found that small groups requesting loans were expected to borrow a minimum of R1 million. This was impractical and not enabling. What were the prospects of paying back such a loan. He asked in what practical ways would the gap between urban and rural society be reduced through this policy.

Mr Kolweni (ANC) encouraged the DTI to focus also on social projects and not just on the economic viability of co-operatives.

Mr October admitted that some of the department's support had been weak, especially in the rural areas. They had only really been able to assist those businesses, which were already fairly established and which needed funds in excess of R1 million. Two vehicles that would rectify this gap to some extent were the APEX Fund and the National Empowerment Fund (NEF), which provided loans from R250 000 to R1 million. The APEX Fund would be launched in December and would provide loans from R250 to R10 000. The gap left between R10 000 and R250 000 would be filled by another financial instrument.

Mr October commented that developing co-operatives would always be a challenge and all attempts would be made to provide dedicated and focussed support to turn struggling enterprises around by capacitating them and providing financial assistance. He took the point that economic viability could not be the deciding factor for the existence of every co-operative or project. He did not expect every o-operative to become a profit maximiser and he pointed out that the co-operative movements in other countries had only survived where there had been strong government support. In the long run, however, one had to distinguish between enterprises and social welfare projects, which needed to be managed separately. Enterprises needed to be economically viable in the long term.

Mr October assured members that the next briefing would provide greater detail and information on all these issues.

The meeting was adjourned.

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