ATC120903: Report of the Portfolio Committee on Trade and Industry on the study visit to Kenya from 29 July – 3 August 2012, dated 29 August 2012
Trade, Industry and Competition
Report of
the Portfolio Committee on Trade and Industry on the study visit to
The Committee, having visited
1.
Introduction
Co-operatives, in both developed and
developing countries have been instrumental in contributing to economic
development thereby addressing unemployment and poverty. They have also made a
major contribution to sustainable development and the competitiveness of small
agricultural producers.
Co-operative development
forms an integral part of the Kenyan Governments strategy for wealth creation
and poverty reduction.
Government
provides an enabling environment for co-operatives through a legislative
framework, policy and strategy.
Other
key factors that contribute to the success of co-operative development in Kenya
include a dedicated Ministry that drives the promotion of co-operatives with a
substantial budget; strong partnerships between government and the co-operative
movement; specialized training and training standards for co-operatives; the
provision of financial support for co-operatives through SACCOs and the
national Co-operatives Bank of Kenya; a conflict resolution system and
decentralized implementation of co-operative legislation that cuts across all
levels of government.
The Committee has on several
occasions acknowledged the important role that co-operatives could play in the
economic development of the country, particularly in rural areas. However,
South African co-operatives have in more recent years failed to reach their
full potential.
The Department of Trade and Industry
developed and reviewed the co-operatives policy and legislation, which was
recently tabled in Parliament and referred to the Committee on 25 May 2012 for
consideration and report.
In light of
the above, the Committee decided to investigate the Kenyan model and principles
used in developing co-operatives and consider what lessons could be applied
within the South African context to promote the sustainable development of
co-operatives.
1.1.
How does the dialogue
relate to the mandate of the committee?
Parliamentarians in
The Portfolio Committee on Trade and
Industrys mandate is to process legislation introduced by the corresponding
Minister, or referred to it by resolution of the House, and, where necessary,
initiate legislation. The Co-operatives Amendment Bill and the Co-operatives
Second Amendment Bill, as introduced, is line with governments strategy to
create decent work and sustainable livelihoods. Both Bills introduce measures
to support co-operatives as part of strategies for job creation.
Co-operatives could potentially play
an important role in economic development of the country, particularly in rural
areas. However, South African co-operatives have in more recent years failed to
reach their full potential. Therefore, the Committee has visited
Furthermore, Members of this
Portfolio Committee are particularly obligated and responsible to ensure that
the legislative environment is created that would reduce the regulatory burden
for co-operatives, enhance compliance, coordination, administration and
sustainability of co-operatives.
1.2.
Preparation Process for
Study Visit
In light of the above and
in line with its strategic objectives, the Committee embarked on an extensive
engagement with the South African High Mission, through the Department of
International Relations and Co-operations, as well as with the Ministry of
Co-operative Development and Marketing in
The following Members of
Parliament and the Secretariat participated in the study tour in
1.
Mr B Radebe (ANC) Leader of the delegation
2.
Mr X Mabasa (ANC)
3.
Ms
S van de Merwe (ANC)
4.
Mr G Hill-Lewis (DA)
5.
Mr C Huang (COPE)
6.
Mr A Hermans Committee Secretary
Engagements occurred with
various co-operatives and the government department responsible for
co-operatives. The report reflects the interactions with the various tiers of
the co-operatives movement within
2.
The co-operatives
movement in
The principle behind the
co-operative movement is to pool the financial resources of members for
re-investment into the productive sector of the economy in order to achieve
sustainable economic growth. This is facilitated by focusing on the
strengthening of the co-operative movement, corporate governance, access to
markets and marketing efficiency. Co-operatives are run by members, patronised
by members and surplus is equally shared among members. It is an autonomous
association of persons to meet their economic, social and cultural needs and
aspirations in a jointly-owned and democratically-controlled enterprise.
In 1908, white settlers introduced
the co-operative movement, the Lumbwa Co-operative Society, in
With the enactment of the
Co-operatives Society Act in 1966, the independent government identified
co-operatives as a key pillar supporting
Government support for co-operatives
is based on its influence and contribution on both the formal and informal,
micro and macro sectors of the economy. It encouraged the establishment of
co-operatives societies at micro-level with government investing at macro-level
by establishing of parastatals. Initial support was provided by government who
sought development partners to assist its development agenda, through
co-operatives. Co-operatives societies were able to invest in processing, real
estate, purchasing of land and savings and credit. This increase access to
finance enabled them to respond to the development needs of their communities.
From a social perspective co-operatives contributed to the spirit of working
together, enhancing mutual respect for each other.
The success of the Kenyan
co-operatives is largely based on its seven key principles
[1]
by which they put their values into practice, coupled with visionary leadership
and sound management. These are the foundation on which the Kenyan co-operative
movement is build on.
The seven principles are:
1
st
Principle: Voluntary and Open Membership
It is a voluntary organisation, open
to all persons able to use their services and willing to accept the
responsibilities of membership, without gender, social, racial, political or
religious discrimination.
2
nd
Principle: Democratic Member Control
It is controlled by members, who
actively participate in setting their policies and making decisions. Elected
representatives are accountable to the membership. In primary co-operatives,
members have equal rights and co-operatives at other levels are also organised
in a democratic manner.
3
rd
Principle: Member Economic Participation
Members contribute equitably to and
democratically control the capital of the co-operative. At least part of the
capital is usually the common property of the co-operative. Members usually
receive limited compensation, if any, on capital subscribed as a condition of
membership.
4
th
Principle: Autonomy and
Co-operatives are autonomous,
self-help organisations controlled by members.
5
th
Principle: Education, Training and Information
Co-operatives provide education and training
for members, elected representatives, managers, and employees so that they can
contribute effectively to the development of their co-operative.
6
th
Principle: Co-operation among Co-operatives
Co-operatives serve their members
most effectively and strengthen the co-operative movement by working together
through local, national, regional and international structures.
7
th
Principle: Concern for the Community
Co-operatives work for the
sustainable development of their communities through policies approved by their
members.
The co-operative movement is
independent and autonomous, but through the Ministry of Co-operative
Development it continues to play a vital role in facilitating and creating an
enabling environment for it to become effective and globally competitive. It
provides the linkage between the co-operative movements, government and line
Ministries and is crucial in achieving its 2030 vision and the Millennium
Development Goals. There is an acknowledgment that while the co-operative
movement is not the solution to all problems in
2.1.
The economic contribution
to the Kenyan economy
The co-operative movement in
Co-operatives are
responsible for 45% of Gross Domestic Product and 31% of national savings and
deposits. They have 70% of the share in the coffee market, 76% in the dairy
market, 90% in the pyrethrum market, and 95% in the cotton market.
Currently, more than 11 000
co-operative societies are registered with the ability to mobilise more than 31
percent of national savings, through the savings and credit co-operative
societies (SACCOS). The SACCO societies in
In
The Co-operative Bank of
Through the Kenyan diaspora, SACCOs
have been established in the
The Kenyan government has recognised
the potential of co-operatives to deliver goods and services in areas not
ventured into by the public and the private sector.
They use the savings and credit co-operatives
to channel funds from the Youth Enterprise Development Fund and the Womens
Enterprise Development Fund to implement its poverty eradication programmes.
The contribution of the co-operative
movement towards the Kenyan economy cannot be overemphasised. Due to the
contribution of the co-operative movement towards the social and economic
upliftment of communities, the Kenyan government recognised its important role
and provided the necessary enabling and regulatory environment to strengthen
the co-operatives.
3.
Legislative and Policy
Framework and the role of government
In 1966,
the independent government enacted the Co-operative Societies Act influenced by
the policy paper contained in Sessional Paper No. 10 of 1965 on African
socialism and its application to planning in
The
Kenyan Nordic Co-operative Development Programme with assistance from the
global financial institutions provided the necessary funding for the
development of co-operatives. Governments initial support with respect to
co-operatives was through the provision of subsidies and free access to government
credit and free extension services.
In 1970,
a policy document entitled Co-operative Development Policy for
Sessional Paper No. 6 of 1997 provides the
current policy framework for co-operative development in
Co-operatives were seen as the engine of growth and a vehicle for
participation in the economy. The 1967 Act was amended in 1997 to accommodate
the liberalization process in
The failure of the co-operatives undermined the economy with government
recognising the serious impediment of its non-involvement within the movement
.
The impact of the liberalization policies was
negative especially in relation to primary co-operatives with accusations of
gross mismanagement, corruption, and nepotism among other things. This prompted
the review of the 1997 Act resulting in the 2004 Co-operative Societies
(Amendment) Act which reinforced state regulation of the co-operative movement
through the office of the Commissioner for Co-operatives Development. Besides
its principal role of registration, the Commissioners powers include the promotion,
inspection, enquiries, auditing, surcharge, debt collection, liquidation and
provision of technical extension services for co-operatives.
The SACCO Societies Act of 2008 was
enacted to address the need for a specialized agency to regulate this market,
as financial instruments in the co-operative financial sectors rapidly expanded.
The SACCO Societies Regulatory Authority (SASRA) was created to regulate
deposit-taking entities.
The Act
provides for the licensing, regulation, supervision and promotion of SACCOs by
the SASRA. SACCO societies after obtaining a licence, and after complying with
the necessary regulations, would be able to carry out deposit-taking business
known as the Front Office Service Activities.
3.1.
The structure of the
co-operative movement in Kenya
·
Primary co-operatives
·
Secondary co-operatives
·
The national co-operative organizations
(NACOs)
·
The national apex organization
Primary co-operatives, which are the backbone of the
co-operative movement in
Secondary co-operatives (also known as unions)
membership is restricted to primary co-operatives. It acts as a service agency
and operates at a district level. It is formed to enhance economies of scale
through shared goods and service, bulk purchases and provision of membership
credit.
National Co-operative Organizations (NACOs) consist
of both primary and secondary co-operatives. It offers specialized services to
affiliates such as commercial and financial services, and represents unions and
societies at international levels. Currently, there are nine NACOs, namely:
1.
The Co-operative Bank of
2.
Kenyan Savings and Credit Co-operative Ltd (KUSCCO)
3.
4.
National Housing Co-operative Union Ltd (NACHU)
5.
Kenya Co-operative Creameries Ltd (KCC)
6.
Kenya Planter Co-operatives Union Ltd (KPCU)
7.
Kenya Farmers Co-operatives Association Ltd (KFA)
8.
Co-operative Data and Information Centre Ltd (CODIC)
9.
Co-operative Insurance Company Ltd (CIC)
The
Co-operative Alliance of Kenya (CAK) is the national apex organisation,
formerly known as the Kenyan National Federation of Co-operatives (KNFC). CAK
was formed in 1964 to act as the spokesperson for the movement and as a
custodian of co-operatives principles, as well as to promote the development of
the movement, and local and international collaboration.
4.
The Co-operative Tribunal
in
The Co-operative Tribunal, hereafter
referred to as the Tribunal, is one of the departments of the Ministry of
Co-operative Development and Marketing. The Tribunal is a quasi-judicial body
which operates as a court and has administrative and judicial powers. The
Tribunal was established under the Co-operatives Societies Act (No. 12 of 1997)
with the sole purpose of hearing and settling co-operatives disputes. The
Tribunal comprises of a seven member bench, lawyers and two experts from the
co-operative sector.
The Act is clear on the nature of
the disputes than can be heard by the Tribunal. The qualifying disputes must
concern the business of the society as it relates to elections, governance
issues, and the issue of guarantees. Disputes must be among members, past
members and persons claiming through members, past members and deceased
members, or between members, past members or deceased members; and the society,
its committee or any officer of society or between the society and any other
co-operative society.
Any person desiring to file a
dispute will be required to complete a form and must pay a small administrative
fee when submitting this. Assistance to complete the form is available. The
Tribunal has decentralized its services by establishing registries across the
country which has reduced the congestion at the Nairobi Tribunal.
Previously, many of the settlements
were challenged in the High Court due to the quality of judgments and due
process not being followed. The establishment of the Tribunal has reduced the
challenges to the High Court and provides the necessary finality and stability to
the co-operatives. Resolutions of disputes are faster, more accessible and
cheaper with the Tribunal than the courts. Although the Tribunal has decentralized
its services, its reach remained limited. A further devolution of the Tribunal
at county level was required, with regular sittings, thereby shortening the
period it takes to resolve disputes. A further challenge faced by the Tribunal
is acquiring the necessary skills and funding for its functions. In 2004, the
power of the Tribunal was enhanced by empowering it to be able to enforce
orders.
5.
The
The
Since 1976, the College has been
operating as a department under the Ministry of Co-operative Development and
Marketing until its establishment as a Body Corporate. The broad aim of the
College is to equip the staff of the co-operative movement and those from the
government of
It offers a number of courses at
diploma and certificate level. The minimum entry requirement is a high school
qualification. The following courses are on offer:
·
Bachelor of Co-operative Business
·
Diploma in Co-operative Management
·
Diploma in Co-operative Banking
·
Diploma in Micro-Finance
·
Certificate in Co-operative Business Administration
·
Certificate in Co-operative Administration
·
Certificate in Co-operative Banking
·
Certificate in Bridging Mathematics
The College receives 30 percent of
its funding from government and generates the remaining 70 percent. Currently,
the College does not offer any vocational courses and are heavily focused on
management courses. Although the education system is designed to provide
technical training and there are other relevant institutions, the model may
require a reassessment to focus on the inclusion of vocational training within
the College.
In 2011, the Co-operative College of
Kenya is set to introduce post-graduate courses after being made a university
college to supply the growing movement with the necessary skills at managerial
level. These post-graduate courses are targeted at providing the necessary
expertise targeted at the savings and credit co-operatives societies.
6.
The Co-operative Insurance
Company Group Ltd
The Co-operative Insurance Company
Group Ltd (CIC) was established 33 years ago and plays a significant role as it
provides the necessary independence and empowerment in terms of insurance for
the co-operative movement in
In
CIC run various seminars, workshops
and training programmes to educate the co-operative movement on good practice
and corporate governance. This is in line with the co-operative principle of
education and training. The CIC actively pursues the provision of low ticket
insurance packages and services to low-income households which are becoming a
major source of business for the CIC.
7.
Kenyan
Kenyan Union of Savings and Credit
Co-operatives Ltd (KUSCCO) acts as the umbrella body, the voice and lobbyist of
the Savings and Credit Co-operative Societies in
KUSCCO provides a number of services
to the SACCOs in
Members benefit from KUSCCO Housing
Fund through the provision of loans to purchase or renovate homes. In order to
benefit from the scheme, individuals are required to be a member of a local
SACCO branch that is affiliated to the KUSCCO. Through its education and
training programmes KUSCCO contributes to the development of management skills
of co-operatives, through focusing on basic rights and obligations and on
governance issues.
KUSCCO offers a number of products designed
specifically for cooperatives in
8.
National Co-operative
Housing
The NACHU formed in 1979 with the
purpose to provide affordable and decent homes within low and modest income
communities. It is member driven and is a leading organisation in the provision
of housing finance, capacity building and technical services. Currently, 390
housing co-operatives are registered with the NACHU. Originally, it was set up
as a technical service organisation but it became member driven, controlled
with democratic governance structures. It focuses on community mobilisation and
training, on the provision of technical support, the provision of financial
services, on lobbying, advocacy and networking and the provision of NACHU
loans.
The Kenyan Constitution guarantees
housing to all its citizens, therefore, the provision of housing is critical
for the NACHU. The annual demand for housing in
9.
The Kenya Cooperative Creameries
(KCC) was established in 1925 to address the supply of milk throughout the year
by processing seasonal raw milk from small farmers. KCC therefore provided a sustainable
or financially viable opportunity for small farmers to process milk. In order
to stabilise the market, powdered milk could then be sold in the absence of fresh
milk. Small farmers therefore required a central point for the processing of
milk. However, in 2000, KCC ceased to exist but has subsequently been revived
by government with the re-registration of the New Kenya Co-operative Creameries
Ltd in 2003.
KCC works with primary level
co-operatives to transport the milk for processing. It therefore deals with the
co-operatives rather than individual farmers. Health inspection occurs at
source and during transit and if milk does not meet health standards it is
destroyed. During slow seasons, milk is processed into butter. Local farmers
deposit milk for local consumption at the primary co-operative with the surplus
going to KCC. Farmers are given incentives to deliver milk.
In order to ensure the quality of the milk,
KCC installed coolers at the co-operatives that still use milk cans. Most co-operatives
use tankers to maintain the temperature.
KCC exports to a number of countries
such as
10.
Issues raised
10.1.
With regard to the
capitalisation of co-operatives, the delegation was informed that members
access funds through loans from the KUSCCO where terms are more favourable than
that offered by commercial banks. Co-operatives attend to their members needs
by providing the necessary funds at favourable terms.
10.2.
The sustainability of
co-operatives remains a challenge in
10.3.
The absence of financial
support from the Kenyan government with respect to co-operatives was evident. The
success of co-operatives is attributed to effective marketing and the political
will, as financial support by the state is not viable in the long-run.
A total mindshift is required in
10.4.
Starting a co-operative
in
10.5.
The Tribunal is not a
final arbiter as applicants can appeal to higher courts for a review of the
decision.
11.
Concluding remarks and
findings
11.1.
The co-operative movement incorporates all facets of Kenyan
life, as people in high office, such as the President of Kenya, as well as
ordinary people belong to at least one co-operative. The broad-based success of
co-operatives in
11.2.
The SACCO Societies dominate the co-operatives movement and
is established solely for savings, and the provision of loans and credit
lines.
Individuals cannot be members of
two SACCOS but can belong to more than one co-operative.
11.3.
Evident from our interaction was the strong savings culture
of the Kenyans, which is sadly absent from the South African society. The absence
of government support in terms of social pensions and housing for the poor
provides the necessary incentive for individuals and households to save for the
provision of housing, education and retirement.
11.4.
Co-operatives are found in a number of sectors of the Kenyan
economy which include housing, and agricultural products such as milk, tea and
coffee.
11.5.
The banking sector in
11.6.
The clear thread which ran through nearly all of the
presentations was that government should not provide financial support for the
establishment of co-operatives. The role of the state should rather be to
provide the enabling environment by establishing a sound regulatory
environment, a functioning dispute resolution mechanism, and non-financial
support programmes including education and training.
11.7.
Limited discussions on worker and consumer co-operatives
prevented extensive engagement on the matter which could have contributed to
our understanding as it relates to regulations and governance structures.
11.8.
An analysis of the appropriate legislation as it relates to
the Kenyan co-operative movement is required to understand governments initial
and ongoing assistance to the co-operative movement.
11.9.
The establishment of an effective Tribunal would facilitate
the resolution of disputes faster and cheaper than courts.
11.10.
Field officers must be in the municipalities to specifically
train co-operatives and provide them with the necessary services.
11.11.
Field officers must have the necessary expertise within the
co-operative sector that would enable them to deal with matters as they arise.
11.12.
The Government must look beyond providing direct financial
support for co-operatives but rather support co-operatives through
non-financial means to ensure the survival and growth of the co-operatives
movement in
11.13.
The DTI should explore the possibility of establishing a
closer relationship with its counterpart in
11.14.
With regard to skills development, the DTI should establish
a mutually beneficial exchange programme with the Co-operative University
College of Kenya that would enhance the skills levels of persons working in the
co-operative sector in
11.15.
The allocated funds should focus on education and training, and
the development of managerial capacity, as well as administrative capacity and
information technology systems.
12.
Acknowledgements
The delegation of
the Portfolio Committee on Trade and Industry wishes to thank Mr N N Ntshinga,
the High Commissioner, and his staff, especially Mr S Mtwazi, the Counsellor (Economic),
for being instrumental in ensuring that the Committee engage with important key
stakeholders during this visit.
The Committee wants
to express its deep appreciation to the Hon J W N Naygah, the Minister of
Co-operatives and Marketing in
Furthermore, the
delegation wishes to thank Mr S Naykanyana, the Permanent Secretary in the
Ministry of Co-operative Development and Marketing, Ms E Gatuguta, the Director
of Administration, Dr J M Nyatichi, the Deputy Commissioner, Mr G Karuku, the
Deputy Commissioner, Ms M Wanyonyi, the Senior Assistant Commissioner for
Co-operative Development, and Dr M Waema, the Regional Director for the
International Co-operative Alliance, for their valuable contribution in
developing a successful programme.
Visits to the Co-operative
University College of Kenya, CIC, KUSCCO, NACHU, and the KCC contributed in
broadening the understanding of Members with respect to the co-operative
movement.
The Chairperson of the delegation
thanks all Members for their active participation during the process of
engagement and deliberations and their constructive recommendations made in
this report.
13.
Recommendations:
Based on the engagement with the
Ministry of Co-operative Development and Marketing, as well as the organisations
representing the co-operative movement, the delegation would like to recommend
that:
13.1.
The Committee should
consider inviting Dr M Waema, Regional Director of the International
Co-operative Alliance, to advise it on the Co-operatives Amendment Bills.
13.2.
The DTI should develop a
campaign and motto for the promotion of the co-operative movement in
[1]
First Co-operative
Society established in
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