Red Tape Impact Assessment Bill consideration of submissions; Alignment of Cooperatives Model with support services briefing

Small Business Development

23 March 2017
Chairperson: Ms R Bhengu (ANC)
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Meeting Summary

Alignment of Cooperatives Model with support services

The Department of Small Business Development (DSBD) briefed the Committee on the progress made in terms of the remedial action plan presented to the Committee on 7 December 2016 and to report on aligning support services to the model of developing the Abalimi agricultural cooperatives pilot project in KwaZulu-Natal. The Department organised meetings with four district municipalities (Ugu, Harry Gwala, Umgungundlovu, iLembe) and eThekwini metro together with other relevant stakeholders such as the Departments of Agriculture, Forestry and Fishing (DAFF), Water and Sanitation, Rural Development and Land Reform; and the Amakhosi.

All stakeholders in district municipalities were supportive of the rollout and agreements were reached that:

  • All districts would report back for signing of the agreement before the end of March 2017
  • Districts would integrate all the 12 Abalimi agricultural cooperatives to the Integrated Development Plans (IDPs) of both local and district municipalities   
  • Districts would link the Abalimi project with agri-park projects to leverage resources and access to markets
  • Districts would establish a steering committee to drive implementation, monitor and report progress
  • All districts would give business opportunities to cooperatives through the 30% set aside  
  • Business plans for the 12 cooperatives, formulated by Kohwa, would be made available to all districts
  • All Small Enterprise Development Agency (SEDA) branches would assist with technical and management training and financial system development to the project 
  • District Agencies such as iLembe and Harry Gwala Enterprise Development would contribute to support by providing funding and access to market

The challenges facing the cooperatives were infrastructure, packing house and its equipment, water rights, access to markets (uptake agreements, 30% set aside) and working capital. For almost all cooperatives, the additional cost for making cooperatives functional was R950 000.

The additional total cost required to bring the cooperatives to plant, harvest and market their produce would cost around R10.6 million. Strong technical support should be provided to the cooperatives to ensure success in farming and access to market. SEDA, the Local Government Sector Education and Training Authority (LGSETA) and other relevant stakeholders would play a meaningful role in this regard.

Members discussed the low demand for cabbages in December and was of the opinion that the SEDA project manager should have known that there would be low demand for cabbages. Members asked if it was easy to work with district municipalities or if a lot of red tape was involved. Members wanted more information on the co-funding by iLembe municipality and questioned why, if money to the cooperatives were disbursed one year ago cooperatives were only functioning now.

The Committee also wanted to know why funding previously approved when all the cooperatives still needed approximately R1 million in funding and how this related to other cooperatives. Little was mentioned on the sustainability of cooperatives after the first year and Members asked whether they would be able to handle market stresses and variations.

Consideration of Submissions on the Red Tape Impact Assessment Bill

Written submissions had been received which would be looked at by the Committee. If further engagement was needed they would be called to make verbal submissions which would assist the Committee in deciding whether the bill was advisable or not.

The Committee was advised to take financial considerations into account and input was needed from Treasury, as well as the Department of Planning, Monitoring and Evaluation (DPME), because all submissions made reference to the Socio-Economic Impact Assessment System (SEIAS). 

Meeting report

Department of Small Business Development (DSBD) on alignment of cooperatives model with support services
Mr Jeffrey Ndumo, Chief Director: DSBD, briefed the Committee on the progress made in terms of the remedial action plan presented to the Committee on 7 December 2016 and to report on aligning the support services to the model of developing 12 Abalimi agricultural cooperatives pilot project in KwaZulu-Natal.

The Department organised meetings with four districts municipalities (Ugu, Harry Gwala, Umgungundlovu, iLembe) and eThekwini metro aimed at aligning support services for Abalimi agricultural cooperatives. The meeting included other relevant stakeholders such as the Departments of Agriculture, Forestry and Fishing (DAFF), Water and Sanitation, Rural Development and Land Reform; and the Amakhosi.

As part of its 13 point plan of action, DSBD had committed to appointing a project manager for the Abalimi agricultural cooperatives project to manage and coordinate the implementation of the project; to harmonise the working relationship between Kohwa and the Department on the rollout of the Abalimi project; to seek approval from National Treasury to shift Cooperative Incentive Scheme (CIS) funds towards investment in advancing a model which will promote the sustainability of funded cooperatives; and to determine the exact business needs by undertaking due diligence to inform funding.

In eThekwini municipality, the Sinothando Primary Cooperative still required R1.02 million in funding, while Green Farmers Primary Cooperative required R950 000.   

In iLembe district municipality, Insabalele Primary Cooperative planted spinach that was destroyed because a wrong chemical was used and the pump was not working well. The water pump has since been washed away by floods. R950 000 in funding was still required.

At the Yahweh Primary Cooperative, the district municipality needed to engage the local municipality and the Ngonyama Trust to secure a minimum of 10 hectares land via a lease agreement. Yahweh still required R950 000 in funding. The iLembe Agency would also fund the cooperative and provide market access for the cooperative through its School Nutrition Programme.

In Ugu district municipality, EShiloh Primary Cooperative lacked suitable land to plant, but 30 hectares of family land was recently secured through a lease. R950 000 in funding was still required. Intombikabhayi Agricultural Primary Cooperative, Kwa-Xolo Fresh Produce Primary Cooperative and Ulimo Agricultural Primary Cooperative still required R950 000 funding each.

In Harry Gwala district municipality, Ncebazakhe Women Multipurpose Primary Cooperative lacked a borehole, water rights and a tractor for soil preparation and R950 000 funding was still required. Selulele Agricultural Primary Cooperative planted and harvested spinach. Transport was provided by the provincial department of agriculture. It was still selling spinach to the local Spar, but revenue was still not known and R950 000 funding was still required.

In Umgungundlovu District Municipality, House of Glory Agricultural Primary Cooperative had done soil preparation but due to lack of installation of irrigation system and lack of security the land was not used. A security person was employed to mitigate security risk. Transportation from the residence of members to the farm needs to be funded and R950 000 in funding was still required. Farmline Food Primary Cooperative also required R1.1 million in funding.

All stakeholders in district municipalities were supportive of the rollout of the 12 Abalimi Agricultural Cooperatives pilot project and agreements were reached that:
-All districts would report back for signing of the agreement before the end of March 2017
-Districts would integrate all the 12 Abalimi Agricultural Cooperatives to the Integrated Development Plans (IDPs) of both local and district municipalities   
-Districts would link the Abalimi project with agri-park projects to leverage resources and access to markets
-Districts would establish a steering committee to drive implementation, monitor and report progress
-All districts would give business opportunities to cooperatives through the 30% set aside 
-Business plans for the 12 cooperatives, formulated by Kohwa, would be made available to all districts
-All Small Enterprise Development Agency (SEDA) branches would assist with technical and management training and financial system development
-District agencies such as iLembe and Harry Gwala Enterprise Development would provide funding and access to market

The challenges facing the cooperatives were infrastructure, packing house and its equipment, water rights, access to markets (uptake agreements, 30% set aside) and working capital. For almost all cooperatives, the additional cost for making cooperatives functional was R950 000.

The additional total cost required to bring the cooperatives to plant, harvest and market their produce would cost around R10.6 million. However, the R10.6 million required that stakeholders in the five districts and provincial departments should contribute to ensure the success of the project. Strong technical support should be provided to the cooperatives to ensure success in farming and access to market. SEDA, the Local Government Sector Education and Training Authority (LGSETA) and other relevant stakeholders would play a meaningful role in this regard.

Discussion
Mr H Kruger (DA) referred to low demand for cabbages in December and said the SEDA project manager should have known that there would be low demand in December. He asked if it was easy to work with district municipalities or if a lot of red tape was involved.

Ms Mthembu (ANC) said assistance should be given to cooperatives so that they could calculate their revenues and return on investments.

Mr T Khoza (ANC) said the figures relating to cooperative members as provided in the presentation did not add up. He wanted more information on the co-funding by iLembe municipality.

Mr T Chance (DA) wanted an explanation why the Kohwa application to be an incubator was turned down. Money to the cooperatives was disbursed one year ago, but cooperatives were only functioning now. Why was funding previously approved when all the cooperatives still needed R1 million in funding and how did this relate to other cooperatives? Did they also need extra funding? He asked if the R350 000 provided by CIS had changed since its inception. Little was mentioned on the sustainability of cooperatives after the first year and he wanted to know whether they would be able to handle market stresses and variability. What were the detailed plans for year’s two to four? Was the Sinathando land now prepared? What happened regarding their pump? What happened to the patty pans they were supposed to sell directly to retailers?

Mr Ndumo replied that cabbage had been planted for sale to markets beyond the local market which were not realised and therefore the cooperatives were limited to sales to the local community.

The Chairperson said that there had been a program to distribute seeds by the Department of Agriculture and 1 million cabbages had been planted which had brought the price of cabbages down. This pointed to the need for coordination between departments so as not to undermine the programs of other departments.

Mr Ndumo said that when the project was running SEDA was not involved, only Kohwa. This had been corrected and SEDA was now involved. Cooperatives could produce, but the issue was access to markets and technical capacity support. However, the current business plans addressed these issues.

He said he had not experienced red tape and the local municipalities would be sharing the risk. The employment figures were correct and it did not add up to the total because it gave a breakdown of how many men, women and youth were in a cooperative.

Mr S Bekwa (ANC) said that there was no agreement for the provision of transport for one of the cooperatives. He asked if there was as there was an agreement in place now and why Kohwa was not mentioned in the reports as assisting cooperatives.

Mr Ndumo replied that there was no agreement but transport was still being provided. Kohwa was not mentioned in the report because he was drafting an addendum and this addendum was not yet signed. The co-funding was not yet crafted. This would be an agreement on who would pay for what aspect and these details had not yet been ironed out.

A Department official said the view of the Enterprise Investment Programme (EIP) adjudication on the Kohwa application was that it had already prepared an application to Treasury for a deviation on the R10.6 million which had been sent. If approved, there would be funds for cooperatives. It had not wanted two funding channels for Kohwa for the same project.

The Chairperson said she wanted a breakdown of the funding to see the amount that Kohwa would be receiving and whether it was justified. She wanted to know what technical support was given to cooperatives and how it was funded.

Mr Chance said there was no reference to the funding for Kohwa’s fees, because the R10.6 million was for cooperatives’ requirements. He said he was disappointed that Kohwa’s application was refused because there was no double dipping because no funds had been mentioned for Kohwa in the presentation. How much did Kohwa ask for incubation and for what period of time was this valid for?

The Chairperson asked what informed the adjudication decision regarding Kohwa.

Mr Ndumo replied that CIS had initially started giving an amount of R300 000 which had increased to R350 000. The Department was currently formulating an addendum which would include technical support from Kohwa. The figures had not been completed so it could not be provided right then. He agreed that SEDA provided training and support in getting access to markets.

In the past applications were received which had no links to municipalities and this had strained the Department. Now that municipalities would be partners they would be able to monitor the cooperatives, so the Department was embracing this model. It was working with district municipalities to assist with the monitoring because the Department lacked the capacity to do this.

The Chairperson asked how the Department would have known whether a cooperative had been funded by municipalities or other government departments.

Mr Ndumo replied that they would not have known and cooperatives would have been double dipping.

The Chairperson said that trainers went around recruiting people to do training courses because there was a stipend attached hence there was training but no results.

Mr Ndumo said the Department was not using consultants.

Mr Chance wanted further elaboration on the addendum. He asked why Kohwa was not funded.

Mr Ndumo said the Department was engaging with Kohwa. An agreement had been formulated which needed to pass through the Department’s legal affairs office and the Director-General’s office before Kohwa could be approached to discuss the details.
Mr Chance asked if it would be done in parallel with the R10.6 million funding request.

Mr Ndumo confirmed this and added that by that time the Department would also know what aspects the district municipalities would be paying for.

The Chairperson asked what role was played by the market.

Mr Ndumo replied that there was an agreement that Kohwa would work on market access. The Kohwa program was in two phases. The first phase was the ‘open field’ phase which they were currently in. The second phase was where green houses were used which were not so affected by the weather. However, the first phase needed to be perfected and the second phase would then be done through loans. The second phase was where the high value niche products were farmed.

Mr Chance asked when the report on the other cooperatives would be ready.

Mr Ndumo replied it would be ready by May.

Consideration of Submissions on the Red Tape Impact Assessment Bill

The Chairperson said that written submissions had been received which would be looked at by the Committee. If further engagement was needed they would be called to make verbal submissions. Which would assist the Committee in deciding whether the bill was advisable or not.

Mr Chance asked if it was up to the Committee to decide who to invite.

Mr Kruger said he believed only Business Unity South Africa (BUSA) did not support the bill because it was limited to small businesses but in principle they supported the reduction in red tape.
 
Mr Sibusiso Gumede, Content Advisor to the Portfolio Committee on Small Business Development, said that the submissions had only been received the day before and that more time was needed to go through the submissions thoroughly. He would then be able to provide a consolidated document detailing the content of the submissions. He added that apart from the submissions the Committee had to take financial considerations into account and needed input from Treasury as well as the Department of Planning, Monitoring and Evaluation (DPME), because all submissions made reference to the Socio-Economic Impact Assessment System (SEIAS).

Adv Charmaine Van Der Merwe, Parliamentary Legal Advisor, concurred with this course of action.

Mr Kruger said the business chambers could be invited including the Small Business Chamber to give insight from a business perspective.

Mr X Mabasa (ANC) said that the chambers giving input would fall into the category of making submissions, but there was a possibility that it would be decided that it was desirable not to go ahead with hearings so it would not be appropriate to invite the chambers.

Mr Chance said it was illogical not to hear stakeholders and that public hearings should be called to make a fully informed decision.

The Chairperson said the first step was that Mr Gumede provides the Committee with a consolidated report of the written submissions.

The meeting was adjourned.
  .
 

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