While South Africa has tens of thousands of cooperatives, little is known about the business model compared to other types of economic enterprises such as SMEs or corporations.
Cooperatives are businesses owned and run by and for its members. Whether the members are the customers, employees or residents, they have an equal say in what the cooperative does and share in the surplus (profits).
The cooperative model is often compared to traditional business, particularly small businesses, cooperatives are however not small businesses. The key difference between traditional business and cooperative is with their purpose. While traditional businesses exist primarily to generate revenue and make a profit, cooperatives have a purpose that goes beyond profit. They work to meet “economic, cultural and social needs of the organisation’s members and its surrounding community.”
Examples of some of the needs they seek to address are: “rural electricity or other utilities in sparsely populated areas; affordable healthy and organic foods; access to credit and banking services; access to affordable housing; access to quality affordable child or elder care; access to markets for culturally sensitive goods and arts”.
Cooperatives can be formed in all sectors of the economy including agriculture, education, financial services, healthcare, housing, and more.
Examples of the main types of cooperatives that exist in South Africa are:
Worker Cooperatives where employees have a stake in the business and an equal vote in the way it runs, for example bakeries or retail stores.
Financial Cooperatives provide financial products and services to its members such as savings, credit, insurance and investment among union members, to ensure access to these services at reasonable interest rates and premiums.
Agricultural Cooperatives work together to produce, process or market agricultural products and supplies agricultural inputs and services to its members.
Cooperative Burial Society provides funeral benefits, including funeral insurance and related services, to its members and their dependants.
To be a co-operative, the enterprise must reflect the following co-operative values set out by the International Co-operative Alliance, namely: self help, self responsibility, democracy, equality, equity, and solidarity.
Cooperatives must also reflect four ethical values of honesty, openness, social responsibility and caring for others.
They must also subscribe to the following set of cooperative principles:
Cooperatives in South Africa are regulated by the Cooperatives Act 14 of 2005 that is based on international cooperative principles. In 2013, further amendments to the Act as well as a Code of Good Practice were adopted by the government. The regulatory framework also includes the dti’s: A Co-operative Development Policy for South Africa, 2004; and the Co-operative Regulations, 2007.
Cooperatives are well established in many parts of the world, including Canada, Italy, Spain, India, Kenya. In South Africa cooperatives historically play an important role in economic development as well as helping to alleviate poverty and reduce unemployment.
They are one of the major interventions by the government to increase the number of viable and sustainable economic enterprises and to encourage the economic empowerment of previously disadvantaged groups, especially persons in the rural areas, women, persons with disability and youth.
There are various support measures, which have been put in place to bolster the development of cooperatives including incentives, non-financial and financial support to bolster the development of co-operatives in various sectors of the South Africa economy.
Despite this, there is limited success as many cooperatives fail at their emerging stage. The main identified reasons for the failure of cooperatives include a lack of critical skills among cooperative members; limited co-operation among cooperatives; limited access to finance and markets by cooperatives; lack of compliance with legislation and lack of monitoring and evaluation of co-operatives development.
The Department of Trade and Industry’s Integrated Strategy on the Development and Promotion of Co-operatives 2012-2022, attributes the failure of cooperatives to insufficient support. According to the report, “though enterprise development agencies have provided some support to co-operatives, the challenge is that this support has been negligible, unfocused, uncoordinated and lack of systematic and sustained targeting on co-operatives”.
The process of launching a cooperative is as follows:
Identify a need – Cooperatives exist to help solve a particular community need such as affordable housing or affordable and healthy foods. The first step is to discuss with fellow community members to gauge the level of interest in forming a cooperative to address the issue. The meeting should also address what tools or resources (equipment, stock, etc.) and how much money is needed, as well as how much each person is willing to pay to start the cooperative.
Elect a steering committee – A steering committee is the group of people that do the work of forming a cooperative. For example, a steering committee outlines how decisions are made. Often it completes and submits government forms. A chairperson and a secretary who will be responsible for the project.
Formation meeting – Before registering a co-operative, a formation meeting needs to be held with all persons that are interested in establishing the co-operative.
Members should also discuss and agree on the following:
Registration of the cooperative – Contact the company and intellectual property registration office (in short “CIPRO”). By registering a co-operative, you are creating a legal entity with powers and responsibilities as prescribed in the amended Co-operatives Act 6 of 2013.
Cooperatives are established for the mutual benefit of all members, as well as the greater community that they operate in.
Some of the benefits include:
The Co-operative Incentive Scheme (CIS) is a 100% grant for registered primary co-operatives whose objective is to improve the viability and competitiveness of co-operative enterprises by lowering their cost of doing business through an incentive that supports Broad-Based Black Economic Empowerment.
The maximum grant that can be offered to one co-operative entity is R350 000. A co-operative enterprise can apply for multiple activities provided that the cumulative grant awarded to the enterprise does not exceed the maximum grant offered.
How does the CIS work?
The CIS assists emerging co-operatives to acquire their start up requirements and to build an initial asset base to enable them to leverage other support.
What are the benefits?
Eligible co-operatives can use the money in activities that include business development services, including feasibility studies, business, manufacturing and production systems, and production efficiency and improvement.
Also among these activities are technological improvements, machinery, equipment and tools, commercial vehicles, and infrastructure linked to the project and working capital.
The requirements say cooperatives must be incorporated and registered in terms of the Co-operatives Act and also be emerging co-operatives with a majority black ownership. This relates to the ownership requirement which states that cooperatives must be owned by historically disadvantaged individuals.
Also, cooperatives must have projects in any of the different economic sectors, as well as adhere to co-operative principles and be biased towards women, youth and people with disabilities.
Within the public sector, the dtic, other national departments and various provinces offer a wide range of products and services comprising loans, grants, and incentive support, which play a significant role in enabling access to finance for co operatives through various development finance institutions.
The Small Enterprise Finance Agency (sefa) provides development finance to SMMEs and cooperatives that are not able to attract commercial credit.
Sefa provides funding mainly to two types of cooperatives:
To qualify for funding at sefa, the CFI must be/have:
NEF offers funding to cooperatives under their Rural, Township and Community Development Fund (https://www.nefcorp.co.za/products-services/rural-community-development-fund/1-acquisition/). The fund caters for rural entrepreneurs or communities seeking to buy equity in existing rural and community enterprises.
The NYDA offers products geared towards supporting youth development, including various financial and business development products to boost co-operatives.
Besides the registration of co-operatives, the NYDA assists aspiring and established co-operatives with the following business support programmes and services:
Gauteng Enterprise Propeller (GEP)
Gauteng Enterprise Propeller (GEP) is a provincial government agency established under the auspices of the Department of Economic Development to provide support to small, medium and micro-sized enterprises (SMMEs) and co-operatives in Gauteng.
GEP focuses on supporting the development of township enterprises, co-operatives and SMMEs which supply goods and services to township residents. Excess products and services can be sold to other regions, provinces and cross- border markets.
The Department of Trade, Industry and Competition
The dtic offers a wide range of incentives that play an important role in enabling the success of enterprises and improving their capacity and competitiveness, including the Export Marketing and Investment Assistance (EMIA), which provides assistance to co-operatives including SMME exporters with the partial cost incurred in respect of activities at developing export markets for South African products and services and to recruit new foreign direct investment (FOI) into South Africa; and Black Business Supplier Development Programme (BBSDP), which offers support to black-owned co-operative enterprises in South Africa.