High failure of cooperatives needs urgent attention – ECDC High failure of cooperatives needs urgent attention – ECDC
Cooperatives key to social entrepreneurship to deal with economic challenges The key to success of co-operatives is business skills, understanding of the legislative prescripts... High failure of cooperatives needs urgent attention – ECDC

Cooperatives key to social entrepreneurship to deal with economic challenges

The key to success of co-operatives is business skills, understanding of the legislative prescripts and matching products produced by co-operatives to market needs. Market access in particular relies heavily on quality and standards, currently lacking within the co-operative sector. This is according to Eastern Cape Development Corporation (ECDC) Fund Manager, Thabo Shenxane.

Shenxane heads up the R50m co-operatives Fund that supports co-operatives within the province. The fund is called the Imvaba Eastern Cape Provincial Cooperative Development Fund (Imvaba ECPCDF) and it is informed primarily by the Eastern Cape Provincial Co-operatives Development Strategy.

Speaking at a social entrepreneurship colloquium hosted by ECDC, Shenxane said thousands of co-operatives fail every year because members do not understand the laws that govern that enterprise form and that there is limited access to markets. This lack of understanding of the law, Co-operatives Act of 2005, makes people not to stay in co-operatives as members when there is no financial backing from outside. The mentality is that “we establish co-operatives so that we can access grants”.

Limpopo has highest coop success rate

While other provinces trail behind in the survival rate of co-operatives, the Limpopo province has the highest survival rate, about 20 percent, according to the information from the office of the Registrar of Co-operatives at the end of 2010. These co-operatives are legally registered, comply with the Act of 2005 and most importantly they submit their annual returns consistently.

Shenxane attributes Limpopo’s relative success to the availability of the Co-operatives Act of 2005 in one of the indigenous languages in that province, where TshiVenda and SePedi are spoken. “It is because XiTsonga is the only African language the Act was translated into. Therefore members of co-operatives in that province can at least read and fully understand the legislation in their own language. Perhaps the Eastern Cape needs to undertake a process of working with the dti to translate the Act into isiXhosa, so that people in the province can understand the compliance required of them to comply with the Act.

Just about 35, 000 are registered in the Office of the Registrar since 2005, the Eastern Cape accounts for the 2nd highest number of registered co-operatives after KwaZulu-Natal.

Coops key to social entrepreneurship

Shenxane adds that co-operatives are integral to social entrepreneurship as a means to deal with economic challenges, but the challenges they face on the ground are enormous and a conducive environment should be put in place to support them, given that government saw it fit for them to be recognized as legal entities through the Act of 2005.

“Government needs to inform communities about economic opportunities in their own areas, facilitate access to markets with industry players, link these with targeted skills programmes and most importantly drive these initiatives through the Provincial Industrial Strategy,” says Shenxane.

Doctor Gordon Shaw of the Sanlam Chair in Entrepreneurship and the University of Fort Hare says social entrepreneurship is especially important in South Africa to turn the tide against the legacy of apartheid.

In South Africa’s communal rural settings, there is an acute need for socially driven enterprises intended for economic upliftment of the communities. Success is key to promote local pride, integration, control and reinvestment, says Shenxane.

“The key to success is to ensure that members understand the philosophies, principles and values. Half of the people coming to ECDC don’t understand their business plans because these business plans are drawn up by service providers that do not understand local communities and the members of co-operatives do not participate in the process drafting such plans..

Governance, group dynamics and poor understanding of laws governing co-operatives were also among the chief reasons for high failure rate.

“That’s what we’ve got to address. It’s the responsibility of government to put mentorship programmes in place.” Shenxane

Co-operatives are a preferred form of business ownership for rural communities and were previously used only in the agriculture sector. Shenxane says since the new act governing co-operatives became law in 2005, the number of registered co-operatives spiked as it widened the scope beyond the agriculture sector.

Wits Business School professor Boris Urban says social entrepreneurship in general has a crucial role in the economic space following the global financial crisis.

“There has been a call for capitalism to reconfigure since the financial crisis. In the past ten years, there has been recognition that we cannot operate business without giving back.

Managers need to work towards the triple bottom line, which includes environmental sustainability and social responsibility. Investors are prepared to put money into a business with a moral compass even if there is less profit,” says Urban.

News editor