SUBMISSION TO THE PORTFOLIO COMMITTEEE ON TRADE AND INDUSTRY ON BROAD-BASED ECONOMIC EMPOWERMENT BILL (B27-2003) BEE STRATEGIC DOCUMENT
26 JUNE 2003
Government will implement this agreement through implementing the Broad-based Black Economic Empowerment Strategy, which emphasizes and promotes the role of co-operatives in achieving greater equity.- The Growth and Development Summit Agreement, 7 June 2003
1. INTRODUCTION Let me first express my deep appreciation to the Portfolio Committee on Trade and industry for giving us an opportunity to present our submission to this legislation and to deliver the warm greetings of the National Co-operative Association of South Africa and its entire membership. It is indeed a great privilege to be here and to present our comments on the broad-based black economic empowerment bill and the broad-based BEE Strategy Document. The National Co-operative Association of South Africa is very pleased to be in these public hearings and looks forward to your conclusions.
NCASA, as you probably know, is an independent co-operative association which unites, represents and serves co-operatives country-wide. NCASA was founded in 1997. It is the sole apex body of the co-operatives in the country. Its members are national sector organisations and primary organisations in many sectors of activity including agriculture, savings and credit, worker co-operatives, housing and consumer co-operatives. NCASA has more than 400 co-operatives representing more than 300,000 individuals countrywide. We are also affiliated to the international Co-operative Association (ICA) which represents co-operative movements from more than 100 countries, representing 760-million members.
Our activities are aimed at promoting the concept and principles of the cooperatives; facilitate the co-operation among co-operatives - both for their mutual beneficial relations among themselves and advancing the economic and social empowerment of our members and their communities. The activities include training, education and information; holding of seminars and workshops; facilitating access to markets and promote sectoral and inter-development of cooperatives.
In 2002, the NCASA received part of its co-operative development funding from the Department of Trade and Industry. This is a partnership that would be strengthened in the next coming years to help build strong and viable cooperatives by acting as a co-ordinator and catalyst of co-operative development.
In recent times we have witnessed a growing recognition by government and civil society of the potential role of co-operative form of enterprise in addressing the social and economic challenges facing South Africa. We refer to release of the draft Co-operative Development Policy (March 2003) and Co-operative Development Strategy (June 2003) and the expected tabling of the Co-operative Bill in Parliament during 2003. The Growth and Development Summit Agreement which took place on 7 June, 2003 provides for massive support for co-operative development in South Africa. Our submission should located within the context of inputs were made in these important processes for the co-operative movement.
What we would like to do with this presentation is to submit that in the context of South African pressing problems of poverty, unemployment and inequalities, that a co-operative model of enterprise has an economic and social value that offers greater advantages than any other form of private enterprise in broad-based empowerment of the black majority. This is how we contextualise the Bill and the Strategy and we make specific recommendations where required. We would conclude by proposing the summary the key recommendations on the Bill and Strategy.
2. SOCIAL AND ECONOMIC VALUE OF CO-OPERATIVES A co-operative or 'co-op' is universally defined as an autonomous association of persons who voluntarily join together to meet their economic, social and cultural needs and aspirations through the formation of a jointly-owned enterprise and democratically controlled enterprise. The key features of this definition -meeting social and economic needs; jointly-owned and democratically controlled enterprises - sharply differentiate a co-operative from a conventional private enterprise.
Members of a co-operative "meet their common economic, social and cultural needs". This defining feature emphasises that co-operatives are organised by members to address the common needs of members, not for profit maximisation. For example, a savings and credit co-operative is formed for purpose of providing access to credit and savings products for members not to make a highest investment return.
The co-operative is "a jointly-owned and democratically-controlled enterprise". This phrase emphasises that within co-operatives control is distributed among members on a democratic basis. The dual characteristics of ownership and democratic control are particularly important in differentiating co-operatives from a capitalist controlled or state controlled enterprise. For example in a co-operative, voting rights are based on 'one member, one vote' irrespective of the number of shares member holds in a co-operative. In contrast, a conventional enterprise voting rights on the basis on 'one share, one vote' - i.e. voting is proportional to the number of shares an investor holds.
The co-operative is also different from so-called broad-based enterprises defined in the strategy (e.g. employee trusts) which are often about ownership and less about control. (For further elaboration of the cc operative model please see the universally accept definition and principles of co-operatives in Annexure A)
NCASA is committed to the of goal broadening ownership and control of capital, including productive capital, among the significant number of South Africans through broad-based economic empowerment. We strong believe that a co-operative form of enterprise represents a significant component of government strategy to realise this goal.
Contribution by different types of co-operatives. The main types of co-operatives - worker co-operatives, financial cooperatives, consumer co-operatives and social co-operatives possess great potential for accelerating broad-based ownership and control of the economy, as well as simultaneously addressing pressing problems of inequalities and unemployment. A closer attention of these types of co-op is therefore necessary if their potential and contribution to the programme is to be valued.
Workers co-operatives: job retention and job creation Worker co-operatives are co-operatives which provide decent employment to their members. The workers are both the owners and members of the enterprise and control rest with them. They could be formed in all sectors of the economy. Ownership in worker co-operatives also serves as a means of job retention. Since collective ownership anchors capital in the community it also reduces the uncertainty of economic development created by the fear of capital flight.
Worker co-operatives also have a higher local multiplier effect. This is due to fact that worker co-op enterprises do more of their purchasing locally, and of course, workers purchasing power is more closely tied to the community than that of conventional shareholders. Furthermore, profits are not siphoned off to distant corporate headquarters.
The government's draft Co-operative Development Strategy (2003) identified the following models of workers co-operative formation in South Africa;
- new start up enterprises born out of local initiatives that involved a number of NGOs, government departments and the co-operative movement;
- conversions or worker buyouts in the manufacturing and agricultural sectors. Conversions also take form of rescues of failing enterprises. Related to this are workers takeovers of outsourcing support services in public and private enterprises by workers, with the aid of trade unions and the co-operative movement
The type of the process worker co-operatives are to be formed (rescues, buy-outs, new starts) will influence strategies and support that could be adopted.
Recommendation: Worker co-operative support programme, mandated by government, should be established to:
- provide dissemination of information;
- training and technical assistance in start-ups, expansions and buyouts and rescues;
- tax benefits in worker buyouts; and
- providing feasibility study grants for companies facing closure
- Research programmes in worker co-op development
Financial co-operatives: fighting financial exclusion Burial societies and co-operative funeral insurance systems that African communities to respond to the high costs associated with funeral services. In one recent study, by the University of Witswaterands, it has been indicated that there are more than 100,000 burial societies in South Africa providing funeral cover to 3-million members (excluding dependants) and contributing annual savings of more than R3-billion.
While private commercial banks too often turn their backs, savings and credit co-operatives make investing in their communities' number one priority. Of course savings and credit co-operatives cannot do it alone. Partnerships are essential with government, other types of co-operatives, and where possible, with the commercial private sector.
Savings and credit co-operatives help combat financial exclusion because they:
- are open to low income groups but not limited to them;
- instil in their members a sense of self-reliance, and an understanding of the virtues of thrift;
- provide low cost credit.
We feel strongly that the co-operative savings and credit movement can make a positive contribution to increased access to financial services for low-income communities. For this to happen, a crucial first step is to recognise that savings and credit are not some kind of poor man's bank - a label which stigmatises them and which has impeded their effectiveness. Instead, savings and credit should be developed as broader-based community institutions with a wider appeal, to transform the financial sector, so as to attract savings from those who have money (including local government), thereby mobilising the funds needed for both personal and productive loans to those in need of affordable credit but unable to get it.
Recommendation: The strategy document should outline government commitment to find ways to facilitate the growth of such savings and credit co-operatiyes and burial societies. We also called for the removal of the current legislative constraints imposed through the Bank Act exemption and implementation of the NEDLAC Financial Sector Summit on financial co-operatives.
Consumer co-operatives: mobilising community buying power Consumer-owned retail co-operatives are an effective organisational means whereby the consumers mobilise their collective buying power to be able to enter the marketplace on more advantageous terms than would otherwise be the case. Consumer co-operatives provide goods and services specified by customers themselves at affordable prices. The members (who are also consumers) basically do two things: they buy goods in bulk and sell to each other, thus ensuring a saving in retail prices.
The co-operatives movement believes that consumer co-operatives could contribute to the broad-based empowerment by:
- improving the quality of local economies for the benefit of large sections of the population in both urban and rural areas. They could break monopolies and cartels, thereby reducing prices and rationalizing production and distribution.
- protect the viability of member enterprises, organisations groups (such as spanza shops, buying clubs, trade unions, day-care centres etc), contributing to market diversity and viable local services.
- Realise the broad access to ownership and control in the retail and wholesale sector through mobilisation of communities and utilization their own buying power
Recommendation: The strategy document should ensure that relevant institutions in government are engaged to:
- Develop appropriate funding products by institutions such as Khula, DC and other funding institutions in the promotion of retail and wholesale co-operatives;
- The DTI and Department of Agriculture to develop appropriate products to promote consumer co-operatives especially in the provision of basic food items.
3. POLICY INSTRUMENTS TO ACHIEVE BEE POLICY Already we have touched on some of the policy instruments required to achieve BEE objectives as they relate to different types of co-operatives. In this part of our submission, we would like to highlight they two key policy instruments - restructuring a of state-owned enterprises and state preferential procurement
Restructuring of state-owned enterprises Co-operatives role in restructuring of state-owned enterprises mainly related to complementing the public sector. Internationally there are such cases where co-operative model is utilized to provide, for example, electricity and telecommunications to the rural communities
At present, many co-operatives are undercapitalized and struggle. The point here is to meet community needs, rather than maximizing profit. However, we find formulation in the Strategy Document very confusing. The Strategy states that 'worker and community ownership and management of SOEs is another option' that is available in achieving bee objectives. The worker or community ownership could mean many different things. From the perspective of the NCASA, such ownerships are best articulated and have strong advantages if they are structured around the co-operative model rather than employee trusts or Esops which are known for their minimal effect and do little to promote greater participation and control. Furthermore we believe that policy instrument of worker ownership should be extended throughout the economy not just in SOE.
Recommendation: That worker-ownership application in such cases should be extended throughout the economy sectors based on a co-operative model.
Financing instruments To access external finance, particularly when starting up or growing. Ensuring appropriate finance and funding is available to co-operative enterprise is key to enabling the sector to develop and grow. It is central to the co-operative movement to establish own-financing institutions such as savings and credit, banking and insurance co-operatives are established and developed. Without a strong and coordinated financial co-operative sector there can be no sustainable co-operative movement.
The BEE financing mechanisms do not specify how co-ops' specific funding needs are to be addressed. We propose that first, it must include the need for separate funding programmes by IDC, NEF and other public institutions and secondly that government actively facilitates the establishment of financial co-operatives, including strengthening existing ones such as savings and credit co-ops and burial societies.
State preferential procurement Co-operative enterprises can become most important alternatives in the current transformation of the public service resulting not only in the reduction of job losses, but also in creating decent employment and complementing the public service. They can demonstrate innovative new practices, increasing the participation of workers and users in service delivery. The co-operative movement believes there is significant potential for public services including support services to be delivered by co-operative enterprises, and that government in particular has an important role in opening up procurement processes.
The movement proposes, firstly, and special role in the economy accorded to co-operative type of that, given their unique character and society, special treatment be enterprises in the state tendering process, especially if they are to meet government policy outcomes. This has already been agreed at the Growth and Development Summit.
Secondly, we propose that worker participation or ownership schemes that are being proposed by the Department of Public Enterprises, be oriented towards workers co-operatives, rather than ESOPs or employee trust type vehicles which are have little bearing on control and participation. This weakness has already be acknowledged by the Strategy Document (page 21).
4. SPECIFIC COMMENTS ON THE BILL Objectives NCASA fully agrees the objectives of the Bill. However we propose amendment While regard to Section t(a) before the word 'promote' the following amendment is proposed: 'encourage broader ownership and control of the economy' This is to be consistent with the Strategy Document.
The Scorecard NCASA believes that the scorecard, as currently being formulated in the Strategy Document, might need to be reformulated to consider specific nature and purposes of co-operative enterprises. Given the greater advantages the co-op model offers to broad-based economic empowerment. We strongly recommend that cooperative enterprise be accorded greater points.
Constitution of the Council NCASA believe that as currently proposed the composition of the Council could be biased to one form of enterprise - black private enterprise - to exclusion of organised enterprises such as cooperatives. To ensure that the objectives of the co-operatives are fully carried, the council should be sufficiently representative.
The NCASA therefore propose an additional sentence after in Section 7(2), to read. The Council shall be sufficiently representative of major stakeholders.
5. SUMMARY OF RECOMENDATIONS
With regard to the Strategy the following recommendation are made: 1. Co-operative model of enterprise offers greater advantages than those offered by conventional black private enterprises in achieving broad-based BEE objectives. There is therefore the need for this recognition be clearly spelt out in the Strategy Document and specific support measures required to stimulated co-operatives;
2. There is need to recognise worker co-operatives, as a specific type of co-operative that contributes not only to the broadening ownership and control but also to creating and maintaining productive employment. The worker co-operative support programme , mandated by government, should be established to:
- provide dissemination of information about worker coops;
- training and technical assistance in start-ups, expansions, buyouts and rescues;
- tax benefits in worker buyouts to workers and sellers; and
- providing feasibility grants for companies facing company closure or financially in trouble;
- Research programmes in worker co-op development;
3. The strategy document should outline government commitment to find ways to facilitate the growth of such savings and credit co-operatives and burial societies. We also recommend the removal of the current legislative constraints imposed through the Bank Act exemption and the implementation of the NEDLAC Financial Sector Agreement on financial co-ops.
4. Government and its institutions - IDC, KHULA and NEF develop appropriate funding products for the promotion of consumer cooperatives and other types of co-operatives.
5. Worker ownership policy instruments in the SOE should be extended throughout the economy, using the worker coop model, but not limited to them;
6. Provision of greater points to co-operative in both State preferential procurement;
With regard to the Bill the following recommendation are made: 7. Amendment of the of Section 1(a) to include broader ownership and control of the economy;
8. Reworking of the score-cared to accord co-operative enterprise a greater points
9. To provide for sufficiently representative council
Annexure "A"
STATEMENT ON THE CO-OPERATIVE IDENTITY
This Statement was adopted at the 1995 Congress and General Assembly of the International Co-operative Alliance (ICA), held in Manchester to celebrate the Alliance's Centenary. Recommended to the Congress by the ICA Board, the Statement was the product of a lengthy process of consultation involving thousands of co-operators around the world (There are about 700 000 cooperatives all over the world with 8OOmilIion members).
Definition: A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.
Values: Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others.
Principles The co-operative principles are guidelines by which co-operatives put their values into practice.
1st Principle: Voluntary and Open Membership
Co-operatives are voluntary organisations, 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.
2nd Principle: Democratic Member Control Co-operatives are democratic organisations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organised in a democratic manner.
3rd Principle: Member Economic Participation Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that 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. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.
4th Principle: Autonomy and Independence Co-operatives are autonomous, self-help organisations controlled by their members. If they enter to agreements with other organisations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.
5th Principle: Education, Training and Information Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public -particularly young people and opinion leaders - about the nature and benefits
6th Principle: Co-operation among Co-operatives Co-operatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.
7th Principle: Concern for Community
Co-operatives work for the sustainable development of their communities through policies approved by their members.