Co-operatives Bill: deliberations

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
5 April 2005
Co-operatives Bill: DeliberationS
 

Responses to all submissions on the Co-operatives Bill, 2005: Public hearings
Co-operatives Bill [B4 – 2005]

Summary
The Committee extensively debated the two competing voting regimes provided in the Co-operatives Bill, i.e. the proportional voting system and the one-person-one-vote regime. For much of the meeting, Members thought that the Bill provided a mandatory one-person-one-vote regime for primary, secondary and tertiary co-operatives, until the Department stated that the one-person-one-vote regime only applied to primary co-operatives, while secondary and tertiary co-operatives had discretion to elect their own voting regime. This caused grave concern among the ANC that felt the one-person-one-vote regime should apply to all co-operatives.

MINUTES

Department briefing
The Department responded to the submissions of all the participants in the public hearings individually. Cosatu's presentation was said to be 'very general and submissions are not linked to provisions as in the Bill but only a few are referenced.' The Institute of Certified Accountants of SA and the Agricultural Business Chamber also received relatively substantial attention.

Discussion
Dr E Nkem-Abonta (DA) said he could not understand why the Department so categorically stated in their presentation that the proportional voting system was undemocratic and would limit the growth of co-operatives. He asked whether co-operatives were required to conform to black economic empowerment policies such as the Employment Equity Act. It was quite conceivable that certain co-operatives were created for the sole purpose of creating wealth and not as a community development organ as stated by the Department.

Ms N Maluleke, DTI Director of the Co-operatives Unit, said co-operatives could benefit from government preferential procurement initiatives. The one-person-one-vote regime encouraged cooperation in the daily management of co-operatives, while more established Members of co-operatives would still benefit from the proportional returns on their productive capacities.

Mr L Labuschagne (DA) said most co-operatives currently employed the proportional voting system and asked whether this Bill would compel them to change their management style.

Professor Turok (ANC) said many years ago Tanzania embarked on a huge state driven initiative to encourage the creation of co-operatives amongst its peasantry in an attempt to alleviate their dire straits. Unfortunately the wealthier peasants soon assumed most of the dominant positions within the co-operatives to the disadvantage of the poorer peasants. He said this emphasised the need for developing countries, where millions were excluded from the formal economy, to be vigilant against the co-option of poverty alleviation projects by the wealthier segments of society.

He said it might be more advantageous for the Committee to take the lead in establishing a body tasked with supporting small and rural co-operatives in their start up phase. He quipped that the DTI was not always very successful in supporting emerging enterprises and Advisory Boards too had often proven less than successful in this regard.

Mr M Stephens (UDM) asked which specific references in the Bill the Department referred to when discussing the 'differential returns to co-operatives' Members.

Mr J Strydom, a Senior State Law Advisor, said clause 89(1) of the Bill catered for ‘any other’ person as designated by the Minister to act as an Auditor. And clause 55(1) allowed for co-operatives to apply for an exemption from the auditing process. He said there was clear provision for exemption from the formal auditing process as argued during the public hearings, but added that the Department did not want to extend blanket exemptions.

He referred to clause 3(1)(b) and said only primary co-operatives were required to employ the one-person-one-vote paradigm. Secondary and tertiary co-operatives were allowed to determine their own voting regime.

Clause 14(1)(e) listed the compulsory items while clause 14(2) listed the optional items for inclusion in co-operatives' constitutions.

He said the aforementioned clauses dealt with the voting regime in co-operatives while the question of patronage was dealt with in clause 45(1) that stated that surplus funds should be disbursed proportional to the product contribution of individual Members.

Dr M Sefularo (ANC) said the amount invested in co-operatives by individual Members could potentially be limited to maintain a balanced Membership. The provision for weighted voting to secondary and tertiary co-operatives appeared to be a concession to the Agricultural Business Chamber.

In its response to NCASA, the Department argued against the establishment of a reserve fund. They suggested potentially legislating that a small percentage of the surplus funds be reinvested in the co-operatives to promote savings and sustainability.

Ms D Ramodibe (ANC) said this Bill was an important instrument to help previously disadvantaged communities and insisted that adequate monitoring mechanisms be employed to ensure that emerging co-operatives developed sustainably. The primary objective of the Bill was to alleviate poverty among the previously disadvantaged. Therefore the DTI should facilitate the establishment of emerging co-operatives.

Ms Maluleke said in countries with established co-operatives movements it was not rare to find savings and reinvestment programs and perhaps a similar approach could be considered for South Africa.

Mr J Maake (ANC) asked whether regulations were generally drafted concurrently with or after the drafting of proposed legislation. Issues such as the proposed reserve fund could conceivable be considered in the regulations, rather than the Bill itself. This Bill was primarily developmental in intent and therefore poverty alleviation should remain its paramount objective. If wealthier, more ambitious people wanted to generate income faster, it was possibly in their interest to invest in a company.

Mr J Strydom, a Senior State Law Advisor, said although regulations were often required to be drafted concurrently with their respective Bills, this was not the case with this Bill with the exception of clause 89(1)(c) which dealt with exemptions from certain aspects of the Co-operatives Bill.

Dr Nkem-Abonta said the Committee should encourage wealth creation, as everyone wanted to see wealthy co-operatives, not ones that merely got by. He supported the Agricultural Business Chamber's proposal of proportional voting while capping the number of votes allocated to any one co-operative Member to protect the co-operative against undue dominance by any single Member. He added the Committee should not dilute the incentive for wealth creation as this might result in unfortunate skills deficits within co-operatives.

Mr Labuschagne said the question of co-operatives as developmental institutions was not in dispute; however, successful co-operatives would eventually need to engage the 1^st economy where economies of scale were very advantageous. He asked whether the dominance of certain groups in the Tanzanian co-operatives example referred to by Professor Turok were as a result of the proportional voting system.

Professor Turok said he suspected normal ‘muscling in’ strategies where behind the usurpation of control in Tanzanian co-operatives by the wealthy. He was not sure whether proportional voting contributed to the aforementioned trend.

Mr Rasmeni said the current provisions in the Bill were sufficient and insisted that all Members of co-operatives should have equal votes.

Ms Khunou ANC said the voting issue should not "bog down" the Committee.

Mr Stephens said that, in practice, the proportional voting system was very rarely used and was mainly a resort in times of crisis. The most important element for encouraging wealthier Members to remain in co-operatives was the proportional return on investment they received. He said decisions should ideally be reached through consensus.

Dr Nkem-Abonta said if the voting system was not important this Bill would not have prescribed the one-person-one-vote management module. The fact that proportional voting was used in times of crises, emphasised its importance.

Mr Stephen asked ‘how many companies have you actually run?’

Mr Martin said most Members appeared to be in favour of the voting regime as indicated in the Bill, although some Members had raised other important considerations.

Dr Sefularo reiterated his question whether existing co-operatives would be forced to change from their current proportional voting to a one-person one-vote management style.

Mr Maake said the aim of this Bill was to uplift the poor whereas proponents of the proportional voting system wanted them 'to stay where they were.'

Mr L October, Deputy Director-General: DTI said the compulsory one-person-one-vote regime only applied at the primary level. Secondary and tertiary co-operatives had the discretion to decide which voting mechanism to employ.

Mr Martins said the Committee should not reopen previous debates but strive to refine the Bill.

Mr Rasmeni referred to clause 14(1)( e) and took exception to the fact that proportional voting was allowed in cases of secondary and tertiary co-operatives. He said the Committee was not made aware of such a distinction during their previous debates and reiterated his support for the one-person-one-vote regime for all co-operatives.

Ms Maluleke referred to the definition of secondary and tertiary co-operatives in the Bill emphasising the juristic nature of their Membership. She added that Nedlac had supported proportional voting for secondary and tertiary co-operatives.

Mr Stephens said the Department's intentions behind clause 3(1) were unclear. He asked whether clause 45 meant co-operatives could disregard the list enumerated in clause 3.

Ms Khunou said allowing secondary and tertiary co-operatives the discretion to choose proportional voting was in contradiction with the Department's answer provided to the NCT Forestry group during their presentation.

Mr October said the Bill proposed the compulsory one-person-one-vote regime for primary co-operatives but allowed secondary and tertiary co-operatives discretion to choose their management regime. He said secondary and tertiary co-operatives consisted of primary co-operatives with disparate financial strength and Memberships where proportional voting was necessary. This was consistent with the majoritarian principle and there was no need to amend this section.

Mr Rasmeni agreed with Ms Maluleke that the Department should revisit some of the issues raised during the deliberation.

Dr Nkem-Abonta said he suspected there was a lack of clarity on certain issues even among the ranks of the Department. The Bill in general, required more precision. He suggested a clearer distinction between natural and juristic persons.

Mr Martins said there was lack of certainty among all the stakeholders and the Committee could not expect the Department to have all the answers. It was the Committee's role to assist in the refinement of the Bill.

Mr Stephen said he felt his questions were not 'answered at all' and added there were too many unclear definitions and vague concepts in the Bill.

Mr Martins said Members should raise all their queries and concerns so the Committee could address them, even if extended deliberations were required.

Professor Turok said the overriding problems appeared to be centered on the definitions of primary, secondary and tertiary co-operatives. Primary co-operatives were a collaborative community effort to establish a developmental organ for the upliftment of the community, while secondary co-operatives usually consisted of professional people providing a specialized service.

Dr Nkem-Abonta said co-operatives in general were established to serve the interest of their constituent Members and not necessarily the broader community. He said the Department had the correct orientation and simply lacked precise articulation. He said co-operatives could conceptually be created for very selfish reasons and Professor Turok was 'leading us away from the right path.'

Professor Turok said Dr Nkem-Abonta should read the preamble of the Bill. The current government was driven by certain principles such as self-reliance and democracy and this paradigm had been adopted by the whole continent. 'Dr Nkem-Abonta was not in line with the values of Africa.'

Mr Martins said the Department should reflect on the suggestions in the deliberations for the next meeting.

Ms Maluleke said the definition employed in the Bill were internationally recognised by all shareholders and were in line with the International Labor Organisation's recommendations.

The meeting was adjourned.