400 cooperatives supported since inception: DSBD progress report & intervention plan

Small Business Development

24 May 2017
Chairperson: Ms R Bhengu (ANC)
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Meeting Summary

The Portfolio Committee on Small Business Development expressed its disappointment and strong rejection of a progress report on the development status of 400 cooperatives funded by the Department since its inception and the intervention plan to address challenges identified. The report noted the 88% failure rate of cooperatives, and since 2009 the registration number of cooperatives dramatically declined. Some of the cooperatives were not operational and others could not be reached or located after funds were dished out to them by the Cooperative Incentive Scheme (CIS). 

The Committee requested the report because the Department of Small Business Development, through CIS, provided funding of R350 000 to each of the 400 agricultural primary cooperatives across the country. The Committee was most interested in the impact derived from the funding of the cooperatives, particularly in the number of jobs created, poverty reduction and community development. The Committee expressed its frustration with the Departments Director-General (DG), who avoided responding directly to questions and instead referred them to a new official who started work at the department on 1 April 2017. The Committee also pointed out that it did not appreciate junior departmental officials, with no decision-making powers, being delegated to accompany the Committee on oversight visits.

The Committee gave the Department another week to prepare a detailed report and return to Parliament with senior staff responsible for cooperatives as well as the Small Enterprise Development Agency and the Small Enterprise Finance Agency, who will be able to provide the Committee with adequate answers. The Committee also advised the department to consider locating CIS within the Small Enterprise Development Agency (SEDA) itself because it seems the department has no capacity in this regard.

Meeting report

Opening remarks
The Chairperson welcomed all. She said the first item on the agenda was the consideration and adoption of Committee minutes. They would also be briefed by the Department of Small Business Development (DBSD) on the progress report and intervention plan on 400 cooperatives supported since its inception.
Minutes of 17 May 2017
The Chairperson read through the minutes page by page.
Mr X Mabasa (ANC) moved for the adoption of minutes.
Mr S Mncwabe (NFP) seconded the move.
The Committee adopted the minutes.
Briefing by DSBD on the progress report and intervention plan on 400 cooperatives supported since its inception
Ms Edith Vries, Director-General, DSBD, took the members through the report which reflected the progress made on the 400 cooperatives. The report focused on purpose, background, approach to the intervention plan, inclusion of cooperatives in municipal Integrated Development Plans (IDP’s) preliminary findings and lessons learnt and conclusions.
She said that the purpose of the report was to brief the Committee on the progress in respect of its intervention plan to report on the development status of the 400 cooperatives funded by the Department since its establishment in 2014. This was required to present the report in the last Quarter of 2016/17, but the report was not available and the Committee requested a progress report.
In terms of background, on 27 until 31 March 2017, the Portfolio Committee on Small Business Development conducted an oversight to the Mpumalanga province. The aim of the oversight was to understand the status of 12 agricultural cooperatives, which formed part of the 400 cooperatives funded through the Cooperatives Incentive Scheme since the inception of the DSBD. In its oversight, the Portfolio Committee observed, amongst other things, that all the 12 cooperatives were not known by the district and local municipalities and therefore could not benefit from any roll out of support by these institutions. Further, these cooperatives experienced various challenges ranging from lack of infrastructure, financial and non-financial support which hindered their development to an expected level. She said that the Committee recommended that the Department should put together an intervention plan which would introduce and include the funded cooperatives to district and local municipalities’ Integrated Development Plans. It was against this background that DSBD was briefing the Portfolio Committee on the developed intervention plan.
Mr Mzwanele Memani, Acting DDG: Cooperatives, DSBD, said that in terms of its approach on the intervention plan, following the recommendations of the Portfolio Committee, DSBD developed a Project Plan which contained the following elements:
‒      To engage key players (SEDA and District Municipalities) to work with the Department in introducing and including the funded cooperatives in district and local municipality IDPs. In this respect, DSBD prepared letters and sent them to SEDA on 8 March 2017 and District Municipalities on 20 April 2017.    
‒      Accompanying the letters was a list of cooperatives broken down per district municipality and town so that each of the district municipalities could consider including the cooperatives to their district and local municipality IDPs.
‒      Some district municipalities responded to the request by seeking more information and this information was provided to them.
‒      The process of following up with municipalities that did not respond was triggered in order to obtain their responses.
‒      Over and above exploring the key aspect of including cooperatives to the IDP process, DSBD through its LED directorate also negotiated with municipalities to support cooperatives through other programmes.
‒      SEDA, through its branch network, was requested specifically to establish and maintain strong working relations with district and local municipalities to leverage from their close proximity in supporting the cooperatives, jointly with the municipalities.
‒      Further, an assessment tool was formulated and sent to SEDA to use to collate information on the developmental status and performance of the 400 funded cooperatives. This tool sought to collate information such as demographics, nature of business, nature of support received from DSBD and other partners, business infrastructure, market access and financial indicators.
‒      Over and above this tool, the list of the 400 cooperatives per district municipality was sent to SEDA so that each SEDA branch could deploy its human resources to visit the cooperatives in their jurisdiction.
‒      The reports were compiled by SEDA branches and sent to the SEDA head office.
Mr Memani said that in terms of inclusion of cooperatives in the IDPs in the Eastern Cape, there were three cooperatives in the Alfred Nzo Municipality, ten in the Amatole Municipality, nine in Chris Hani Municipality, nine in Joe Gqabi, 47 in OR Tambo and five in Buffalo City Municipality.
In the Free State Province, there was one cooperative in both Mangaung and Thabo Fotsanyane Municipalities. In Gauteng there were three cooperatives in Sedibeng Municipality, seven in West Rand, 26 in City of Tswane, 14 in Ekhuruleni and 34 in the City of Johannesburg Municipality.
In KwaZulu-Natal Province, there was one in Harry Gwala Municipality, three in Ilembe Municipality, 11 in King Cetswayo Municipality, seven in Ugu Municipality, two in Emgungundlovu Municipality, four cooperatives in Umkhanyakude Municipality and seven in eThekwini Municipality.
In Limpopo Province there were 13 in Mopani Municipality, 27 in Sekhukhune Municipality, one in Waterberg Municipality, and 70 in Vhembe Municipality.
In Mpumalanga Province there was 12 in Ehlanzeni Municipality, one in Gert Sibande Municipality and five in Ngaka Modiri Molema Municipality.
In the Western Cape Province there was one cooperative in both Cape Winelands and Overberg Municipalities, and there were six cooperatives in the City of Cape Town.
Mr Mamani said that in terms of the summary of the SEDA findings in KZN, in uThungulu Municipality five cooperatives were operational and some of them were doing extremely well, six were not operational, and three could not be reached. In Ugu District, one cooperative was operational, whilst waiting to secure funding to complete a structure sponsored by Department of Agriculture, two cooperatives could not be reached, and four were not operational due to lack of access to markets, and assets destroyed by a storm and a lack of water. In Harry Gwala the list showed one cooperative supported through CIS and doing well. But the other was not operational.
In Gauteng Province in the City of Johannesburg, eight cooperatives (23%) were still operational, 23 coops (68%) could not be reached and three cooperatives (9%) were not operational. In the City of Tswane, 14 cooperatives were operational and ten could not be reached. In Sedibeng, one cooperative was operational, though equipment was not delivered and two cooperatives could not be reached.
In Limpopo in Sekhukhune Municipality, 16 coops were operational, two could not be reached and two cooperatives were not operational due to lack of water. In Waterberg Municipality, one cooperative was not operational due to incomplete work (chicken house).
In Mpumalanga Province in Nkangala Municipality, five cooperatives were operational and some of them doing exceptionally well, especially the cooperative supported with a van, two cooperatives could be reached and two coops was not operational due to lack of raw material. In Ehlanzeni Municipality, eight cooperatives were operational, three could not be reached and one cooperative declined funding and applied for another project.
In the Northern Cape Province in John Taolo Gaetsewe, two cooperatives were operational and were receiving non-financial support from SEDA.
In North West Province in Bojanala District, 15 cooperatives were operational, 13 were not operational and five could not be reached/ from another province/ no status.
In the Western Cape Province in the Winelands, the status was not specified, except that this cooperative and the other one in Cape Town were reported to be one enterprise. In Overberg, one cooperative was operational and employing 35 people with potential to export their products. In the City of Cape Town, three were operational and three could not be reached.
The DG said in terms of lessons learnt, it was difficult to conclude on the status of the 400 cooperatives, given that not all information was made available by the time of preparing the presentation. The Eastern Cape and Free State was not included in the report. Overall, the results were uneven as there were provinces such as Gauteng, Limpopo, North West, Western Cape and Northern Cape where cooperatives were relatively profitable and cooperatives in provinces such as Mpumalanga and KZN seemed to be struggling. It appeared that there were gaps in accessing all the cooperatives, given that SEDA did not escalate the matter to the Department in order to get numbers of other members. There were gaps in the collection of information as some information was not collected, for example turnover of cooperatives in some provinces. There was clearly lack of post investment support and to some extent pre investment training. Due diligence should be improved or done jointly with the district and SEDA branches. Majority of the cooperatives were not profitable, given the challenges that ranged from a lack of governance, limited funding which did not cover for all the requirements, to a lack of access to markets and lack of general business management skills. Whilst CIS was viewed as a progressive intervention to assist start-ups and the only grant to support cooperatives, it was never reviewed to assess its impact on cooperatives.
In terms of the way forward, the DG said that the Department introduced a new branch, Integrated Cooperatives Development, headed by an Acting DGG, who was a Chief Director. Functions such as CIS, cooperatives training, Research (including Monitoring & Evaluation) and stakeholder relations, partnerships, planning etc. was established in the branch in order to forge an integrated approach. Though this branch was not optimally resourced, it had additional human resources but no additional budget. Hence, innovations in the approach to cooperatives development with financial implications would be funded from the same budget. As such the Department applied for a deviation to use some of the CIS budget to be funded by the three pilots (Cluster approach). The implication was that fewer cooperatives would be funded through CIS. A formal review of CIS was commissioned and the report was due in the last quarter. The Department developed a draft Integrated Cooperatives Development Strategy which was presented to the Minister, for strategic and political guidance. The Minister met with the team twice. This strategy would be enhanced to embrace the Portfolio Strategic Approach, which would define the roles of the Department and entities. This unit of work would be concluded before 30 June such that it could be part of the Department’s 2018/19 ENE budget bid.
Mr H Kruger (DA) thanked the Department for the report. He said that when the Minister first announced that 88% of all cooperatives failed, it was a very serious announcement. And this presentation did not take that seriousness into consideration because this presentation did not give any insight of what actually happened outside there. It seems that this report was predicting the Minister’s announcement of 88% failure rate of cooperatives because cooperatives that failed were not close to that 88% in the presentation.
Secondly, the Committee concerns in the report of its oversight were clear that there were officials that benefited more in the CIS Grant than the actual cooperatives. Therefore, it was necessary in the report like this that the Committee needed to know how much money was paid by CIS, and how much money or value the cooperatives received.
Mr Kruger said the Committee also received a report that managers were out office for meetings. What kind of a report was that? He was very disappointed with this report because if 88% of cooperatives failed, the Department would not be able to create 90% of the 11 million jobs by 2030, and it could not move an inch with the report like this. Also, Members did not know where these cooperatives were and if the Department did not bring decent reports to this Committee this thing would not work.
Mr X Mabasa (ANC) said that when he looked at the report, there was a graph where it showed columns for province and status. But what also should be there was another column that was informed by the status so that the Department could mention its plan of action.
Mr Mabasa asked whether those cooperatives that could not be located were due to unforeseen circumstances or if it was foreseen, what preventative action was taken to avoid this from happening because it looked like in every province there were cooperatives that could not be located.
Mr Mabasa asked what the response was from the public. Did the Department get the feeling that the public felt the impact of the Department on cooperatives, or could it say it was successfully selling the cooperative idea such that it was seen as a viable vehicle of addressing the triple challenges?
Rev K Meshoe (ACDP) said that he should also voice his disappointment with this presentation. It did not give hope that this 88% failure rate of cooperatives was going to be improved. Also, this presentation did not show urgency on the side of the Department to solve the problems that were there in cooperatives
Rev Moshoe asked on the issue of managers not being available, whether those managers were in meetings for the whole week or the whole month because it was important to get the response of managers as it was very urgent to solve the problems faced by cooperatives. Was it because of inaccessibility that a number of cooperatives could not be reached, and if it was because of inaccessibility, how was those cooperatives expected to access the market with their products?  It seemed that money was being thrown to these cooperatives without finding out where they were or whether there was a need for their products. It was the Department’s role to ensure where cooperatives were situated before dishing out money to them.
Rev Moshoe asked where the equipment went which was supposed to be delivered to a cooperative in Esidimeng, was it paid for and why it was not delivered. He said through lessons learnt, the issue of criteria in terms of qualifying was very important because it took more than a year after money was given without follow ups being made. Has the money reached the intended beneficiary and has the money done what was expected to do so that if the money did not do what it was expected to do there could be an early intervention.
Rev Moshoe asked whether cooperatives would be accountable for the money they were given if they did not find the market for their products because in Mpumalanga there were four cooperatives that owed SEDA R20 million. But many of the people who owned those cooperatives were struggling poor people and would not be able to pay that money. The question was who was going to pay back that money or the officials should take responsibility because allocated money without checking whether people received required training in handling large amounts of money.
Mr T Chance (DA) said that it was very clear that since the CIS was conceived, it was very easy to dish out money and less much to assess the impact. In this report there was nothing to go on in terms of how much money was spent on cooperatives and the financial expense of the cooperatives. When the CIS was conceived, there was no real intention of assessing the viability of those cooperative businesses and how they were supported. In fact, in many cases these cooperatives were not even seen as businesses but seen as some sought of community based activities which somehow received government support forever. The CIS grant was never seen in the context of a bigger business plan. So when the grant money dried up, in many cases the business dried up, because the business had no right to exist in the first place. The constant references to support and funding as the reasons for these cooperatives failing just demonstrated very clearly that most of these cooperatives were not businesses at all because how could one be a business at all by constantly requiring support and funding. A business had to sustain itself through making profits.
Therefore, the review of the CIS was absolutely urgent and it was a surprise that the DG, when she was appointed, did not flag the CIS as a very high risk programme for this very reason because the amount of impact was virtually zero.
Mr Chance said that he was also concerned about the timing disjuncture between the strategic review, which was supposed to be reported in June or/and July and the review of the CIS. How could they not be run simultaneously? Because clearly the CIS was a very important part of whatever was to be reviewed. Who was doing the review of the CIS, was it being conducted by the Department or was somebody else doing it? And if it was done by the Department, could the Department be un-biased in the assessment of its own programme? He said on the Committee oversight visit, it was very clear that the CIS was not talking to the cooperatives support unit within the Department. And hopefully the formation of this new branch under Chief Director Jeffrey Ndumo would address this issue so as to create a synchronised joint approach to support cooperatives.
Mr Chance asked what the status was of the discussion with Treasury about the formation of the cooperatives bank in the Cooperative Development Agency because many of the people who owned cooperatives did not have skills to run these cooperatives. It may be nice to say they’ve funded 400 cooperatives but it was not nice to say most of them were failing. He asked why there was no data information coming up from the assessment tool the Department gave to SEDA because it seemed like a good tool but there was no information coming up from that tool. He asked whether it would not make sense to locate CIS within SEDA itself because it seemed the Department had no capacity and was virtually outsourcing this project into SEDA’s hands.
Mr N Capa (ANC) asked how much was the Department’s contribution into the 88% failure rate of cooperatives which was a national phenomenon. He asked whether these 400 cooperatives were limited to agricultural cooperatives or were there other businesses.
Mr S Bekwa (ANC) said that he was very disappointed with the presentation and would not comment in this regard.
Mr S Mncwabe (NFP) was also very disappointed with the report because this was not what they expected as a Committee. The Department must go back and re-do the report. The Department could not dish out money and thereafter not reach cooperatives.
Mr T Khoza (ANC) was also disappointed by the report from the Department because it was not doing justice for the Committee. This cut and paste report which was done overnight.
The Chairperson said that the responsibility of the Committee was to hold the Department accountable. Not even a single report of the Committee had 20 slides, but the report of the department had 20 slides. The actual content they were looking for was on 17 slides with no detailed information. This report did not reflect what was expected by the Committee. The DG previously rejected help from the Committee and this report reflected that rejection because the Committee was willing to assist the Department. As a Committee they were there to assist the Department to deal with whatever challenges it faced. This report was long overdue, since September last year, and the Department appeared in February to ask for an extension, which was granted. However, the Department was still presenting a sub-standard report with insufficient information. They were surprised that it was still trying to contact some of the cooperatives and municipalities to get information needed by the Committee as late as yesterday. It was disheartening to listen to a report which implied that the Department only focused on disbursing funds and could not account for how the money was used.

The Chairperson continued that following their oversight visit to some of the funded cooperatives in KwaZulu-Natal and Mpumalanga, the Committee viewed the service provided as inadequate and thus leading to cooperatives which struggled to thrive. The Committee was also concerned at the pace with which the Department was moving to develop small businesses and cooperatives, and feared that the National Development Plan (NDP) target of creating 9.9 million jobs by 2030 would not be achieved.

The DG said the Committee previously told the Department to produce a progress report and the implementation plan on 400 cooperatives. As a Department, they did not see this as their final report. The Department was there to share with the Committee what it has done so far and how it would be approaching the task. It could see and hear that all of the Members of the Committee expressed disappointment with the report, but for the Department that was the frame of how it would approach the report
The Chairperson asked what the DG said to the Committee and what the response was to that from the Committee when the Department last appeared before the Committee discussing the issue of 400 cooperatives.
The DG said the response of the Committee was that the Department should come back at a time when the Committee decided.
The Chairperson said the DG should start with what the Department requested when it first received a letter from the Committee in September 2016.
The DG said the work started in September at a time when they were required to give the report around October 2016 because the first report which was produced by the Department was not adequate, and she asked for further analysis of the report where at that it time it was around 380 cooperatives.
The Chairperson interjected that there was no report presented to the Committee. The Department only asked for an extension and it was granted by the Committee, and the Department was only invited this year. They appeared before the Committee this year and were not ready. They asked for more time and it was granted to them. What was expected of the Department today was to present the progress report on the 400 cooperatives. The Department was given enough time to produce a report on the progress of 400 cooperatives. The Department asked for the Committee report on oversight so as to produce its own report and present it to the Committee as its own report, meaning that the Committee were working for the officials of the Department.
Mr Memani said on the 88% failure rate of cooperatives it was correct on the presentation. The Department did not see the delineation of how many cooperatives there were as they were not operational and failed, perhaps as a result of interventions. The Department would have to go back to the study conducted by the Department of Trade and Industry (DTI) and understand the methodology because it could be the overall start of all cooperatives not only those that were supported by DTI in 2009. The Department would be able to collate the information it had and see what the picture was by 2017.

Mr Memani said the matrix should have included a column that spoke to the action. The Department acknowledged that error and that instead of focusing on the status it was also important to indicate challenges for example in water, lack of access to markets, infrastructure and so on, and what action they should implement as a Department in those challenges. As part of the discussions it had with municipalities, it would definitely highlight that so that the action plan of the Department was visible.
Mr Memani said the issue of cooperatives that could not be reached came out very strongly from Members in this meeting. In their lessons they acknowledged that the mistake done was that for the 400 list only listed one member of the cooperative even though the cooperative had more members.
The Chairperson interjected that that was not what created the problem. What created the problem was the Departments verification method because it only interacted with the cooperative but a cooperative was from a municipality in a particular ward and in that ward there was even a ward committee. Therefore, they were neglecting government structures that could have assisted the Department to know where this cooperative was from and to monitor and ensure it existed and received all the assistance because it was known by the ward committee.
Mr Memani acknowledged the point raised by the Chairperson indicating that it was the weakness in the government system and going forward they believed they would be emphasising the point of intergovernmental relations. The Department would correct all those weaknesses so that not only they had in possession the numbers of Members but as well of those of the ward committee.
Mr Memani said on the impact of the Department to the public in terms of cooperatives again when all the credible information was received and analysed they would be able to determine the status of the impact of these cooperatives. The mistake was that success stories of cooperatives were not indicated in the report. Otherwise, there were some cooperatives that had contracts with big retail companies in the country and they would in future put them out so that the Committee knew the success stories.
Mr Memani said that they would also ensure that when CIS and PBS were reviewed that data information would come out of the review.
The Chairperson said the DG indicated that since 2011 there was a decline in the registration of cooperatives which indicated that people did not see the benefits of registering a cooperative because a report already came out in 2009 with 88% failure rate. Therefore, there was already information and the Department thought the department would talk to that.
Mr Mncwabe said that it was obvious that most of the officials that were presenting today were new in the Department and were not able to provide the answers they wanted as a Committee.
Mr Moshoe agreed that they should call the relevant people that were assigned to cooperatives so as to ensure that development took place. Therefore, they called those people that were there rather than grilling people who just started in the Department.
The Chairperson asked the DG who was heading the cooperatives division for the longest period.
The DG said Mr Ndumo was heading the cooperatives division for the longest period. There was also another person who was responsible for research in cooperatives division
The Chairperson said the Department should go and come back with a new report including all the people that were responsible for the cooperatives division, the people who were responsible for the CIS and the person who was responsible for marketing and branding so that the Committee could get to the bottom of what they wanted to see and hear. But the Committee would be taking another oversight visit and in two weeks’ time the Department must be ready to present a good report to the Committee.
Mr Chance asked the Chairperson together with the content adviser to make a wish list for the Department to understand what the Committee was requesting from the Department and circulate that wish list to all the Members of the Committee to also comment on it before it was sent to the Department.
The meeting was adjourned.

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