Department Co-Operatives Policy and Establishment of Small Enterprise Development Agency: briefing

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
13 October 2004
DEPARTMENT CO-OPERATIVES POLICY AND ESTABLISHMENT OF SMALL ENTERPRISE DEVELOPMENT AGENCY: BRIEFING

Chairperson:

Department PowerPoint presentation on Co-operatives Policy and Bill
Department PowerPoint presentation on establishment of the Small Enterprise Development Agency

SUMMARY
The Department of Trade and Industry (DTI) briefed the Committee on the introduction of co-operatives and the establishment of the Small Enterprise Development Agency (SEDA). Reference was also made to the Co-operatives Bill currently waiting for Cabinet's approval. Members welcomed both initiatives and raised concerns mainly around the membership of co-op Advisory Boards and the management of co-operatives. Another concern was the target dates for implementation and whether the Department would ensure the sustainability of the co-op initiative in light of previous failures assisting Small, Medium and Micro Enterprises.

MINUTES

Department briefing
The Deputy Director-General from DTI's Enterprise and Industry Development Division, Mr Lionel October, led the presentation on co-operatives. He briefly discussed some of the Bill's contents that had been tabled before Cabinet. The main changes in the Bill included allowing black persons to enter the co-operative business and an emphasis on new emerging enterprises.

He said a 'co-op' was an autonomous association of people coming together to meet their common economic and social needs through a jointly owned and democratically controlled enterprise. The main reason for focussing on co-ops was to change the existing dynamics within the co-ops sector and moving it away from being based in the agricultural sector.

This would be used as a vehicle for Black Economic Empowerment. The Department has for the first time developed a new co-ops policy, which was to have co-ops as another variant of economic enterprises. Co-ops had slightly unique features, but shared a lot in common with other entities. Consultation with stakeholders regarding the policy and legislation and the drafting of the new Bill had taken place and included trade unions.

Some of the co-ops included in the Bill were housing, financial services, consumer and transport co-ops. About 90 to 100 co-ops had been identified countrywide. An Advisory Board would be set up to implement the co-operatives policy. A Co-ops Development Fund would be established to offer technical assistance and capacity building for the co-ops. The Department had asked other institutions to identify co-ops that would need assistance.

The Department's Chief Operating Officer, Ms Hlonela Lupuwana, and Interim Chief Executive Officer, Mr Moeketsi Shai, made a joint briefing on the establishment of the Small Enterprise Development Agency (SEDA).

Mr Shai highlighted the rationale for establishing SEDA. The first reason for SEDA's establishment was dissatisfaction of shareholders because of the insufficient impact of previous initiatives. There had been undesired levels of contribution of 36% to GDP while other countries were doing better.

Small Enterprises contributed to employment by 55%, other countries were making about 95%. About 61% of small businesses were micro-enterprises and black, and SEDA's intention was to have more historically disadvantaged people participate in these businesses.

Another aspect was poor outreach in terms of location and product as some of the products and the Department's interventions had not reached everybody Some were clustered around rural and some around urban areas.

SMME's had also been unaware of how and where to access support services. There had been feedback that SMMEs were "one shoe, fits all". SMMEs would have business plans, get funding and then die. Everybody would have a business plan, even if it had been a cut and paste one. The involvement of local government had been limited in SMMEs. The crux of SMMEs was at provincial level.

SEDA would help small entities with advice, information, opportunities and expertise. It would help with local and national opportunities both in government and the private sector. Business development services for these entities would be provided through in-house training and service providers.

Other government departments were setting up support service centres. SEDA would set up a head office by December 2004. By 31 March 2005, Ntsika and Namac would be dissolved.

DiscussionThe Chairperson commented that Members would follow the Department's progress on the Co-operatives Bill.

Ms F Mahomed (ANC) asked how many co-ops had been identified and if there had been any funding envisaged for those. How would the Department empower people in rural areas to get funding for their co-ops?

Mr M Stephens (UDM) asked if people could buy membership and if the membership fees were transferable. Was membership equal and could it be sold for profit? What were the discussions around taxation of the co-ops?

Professor B Turok (ANC) asked if it would be possible to get data on the existing support for the agricultural section. In Ethiopia the state once introduced producer co-ops and they managed to penetrate the whole country. In other countries like Kenya, when rich businesses took control of the co-ops, they deteriorated. The state should maintain good control to ensure that the basic aspirations of co-ops were observed. He added that Members should be in the Advisory Board.

Ms D Ramodibe asked who comprised the Board. Mr L Labuschagne (DA) asked if it would be "one size fits all" types of co-ops?

Mr J Maake asked how co-ops were structured and what needed to be legally changed about them. What was "democratic control" and how would the Department look at this aspect?

Mr October responded that the Department was working with the National Treasury and the Department of Agriculture, village banks and financial co-operatives to look at the tax arrangements. They were trying to identify co-ops for active support. There were no details of which provinces had been identified already.

Countries to be studied for business practices were identified by the group that undertook the tour. Members who were on tour were also mandated to look at the question of ownership and shares in co-ops. A full report would be provided after the tour. It would be dangerous to have a new tax regime for co-ops, but preferential treatment should be given.

The Department would be looking at re-introducing co-ops support. Producer co-ops would be looked at. The integrity of co-ops would be maintained and there would be regular audits to see if they were performing according to their values.

Co-ops would remain community based and would retain their values. The Department would look at small and large co-ops. The Department had no fixed names of board members but it would the co-ops and the Minister would appoint specialist people.

Dr Johan Erasmus, a DTI Director, added that co-ops needed to register within 3 years and that membership could be transferred. Co-ops would have to decide who the board members would be. The Minister may appoint two additional members. The present requirement for co-ops would be 11 members and the constitution would state what powers the different members had.

Ms N Khunou (ANC) stated that Members would want to see delivery in all provinces. What would happen to SMMEs that had functioned without support services? Mr L Labuschagne (DA) asked if the Department had set target dates.

Ms F Mahomed said that SMMEs had failed before. Would people be deployed to rural areas to educate the people? Was there a plan to sustain these initiatives and how was the product going to be sold? How would the private sector be encouraged?

Mr K Bapela (ANC) commented that there was no mention of the "second economy". He asked if SEDA had considered other "survivalist" entities. Dr M Sefularo (ANC) asked how the Department would go about the question of corporate governance, both at regional and local level.

Ms D Ramodibe (ANC) asked why Khula Enterprises had not been integrated simultaneously with Namac and Ntsika Enterprises. She emphasised that people on the ground needed to benefit "now and not tomorrow."

Mr J Maake stated that the core of the problem was access to finance and that the Department needed to be careful. Would the merger be possible this time around? What would happen regarding financial institutions?

Mr Shai responded that the Department would create a database for small enterprises. The dates given were intended for the Department's deadlines. The Department needed to improve its existing products. New and old things were being combined to improve service delivery.

Competitiveness and capacity-building meant training and empowering other smaller enterprises and to train them on the basis of what was working for them. The Department was committed to not let people be worse off because of the merger of institutions.

The private sector would be brought in and the focus would be on all the provinces. "Survivalists" would be taken care of by the Apex Fund. The Department would get to areas of the second economy. The issue of corporate governance was being worked on at local level.

There had been a serious challenge of money and skills. The Department would engage with Sector Education and Training Authorities to approach people and train them.

There was a problem of sustainability with SMMEs. A lot of organisations funded by the Department have crashed because people did not know how to use money.

All provinces would access finance. A consultation process had started and the Department would be meeting more people to divert the funding to SMMEs.

The Chairperson suggested that Members did not exhaust all the issues and that Members would have to look at possible dates for more briefings on the subject of co-operatives.

The meeting was adjourned.