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This report evaluates the impacts of the proposed amendments to the Co-operatives Act of 2005 in South Africa, focusing on objectives, policy options, risks, and specific impacts in key policy areas.
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Co-operatives Amendment Bills, 2012 Regulatory Impact Assessment 11
Contents • Introduction • Background • Policy objective • Policy options and risk assessment • Analysis of impacts • RIA findings, Recommendations and Responses 22
Introduction • The presentation relates to the Regulatory Impact Assessment (RIA) on the Co-operatives Amendment Bills, 2012 • In addition to RIA, the Co-operatives Amendment Bills were considered by NEDLAC 33
Background • Prior to the 1994 democratic transition, most successful co-operatives were in the agricultural sector, and responsibility for co-op development vested in the Department of Agriculture • Modernisation of the sector facilitated by a Co-operative Policy Task Team - led to the drafting of the Co-operatives Act 14 of 2005, which is now subject to amendment • Regulatory impact assessment of Amendment Bills: • Why is amendment needed, and what does it try to achieve? • Is the amendment likely to achieve the desired outcome? • Evidence-based policy-making 44
Policy objective • Key objective: provide employment opportunities and support growth, by providing the co-ops with an enabling legal framework, and financial and non-financial support • Specific operational objectives include: • To increase the survival rate of registered co-operatives • To establish institutions dedicated to co-operatives development • To increase the proportion of co-operatives with formal legal status, which can receive dti financial and non-financial support • To reduce the cost of doing business for co-operatives • To improve the quality of information on the co-operative sector available to the dti 55
Options and risks • Policy options: • RIA best employed early in policy development – allows full identification of policy options • This RIA carried out very late in the policy formation process - largely limited to examining the difference between the status quo and the policy proposals embodied in the Bills • Risk assessment • Risk addressed by the Bills is that South Africa will not follow an optimum growth and employment creation path without a strengthening of co-operative support systems 77
Introduction • Impact of changes proposed by the Bills were examined in ten key policy areas, as follows: • Voting structures • Name reservation requirements • Business plan requirements • Reporting and record-keeping requirements • Accounting and auditing requirements for co-ops • Reserves • Winding up, deregistration and judicial management • Co-operatives Development Agency • Co-operatives Tribunal • Exemptions from labour law 99
Voting structures • Proposed changes weaken one member, one vote principal at large and secondary/tertiary co-ops • Appropriate for more complex commercial relationships at larger co-ops • Allows secondary/tertiary co-ops to take into account differing sizes of members • Also allows for more efficient proxy voting 1010
Name reservation • Proposed change requires co-ops to reserve their name at registration • Does not however require that the name should be cross checked against the Companies register, however • Would be preferable to include this as a requirement 1111
Business plans • Proposed change would require co-ops to lodge a business plan on registration • Help to improve management and thus sustainability? • CDA would then provide business plan development services • Costs would be incurred by both the CDA and the co-ops themselves, and there is insufficient evidence as to whether the impact would be positive 1212
Reporting and record-keeping • A number changes proposed relate to an attempt to improve the quality of regulatory data, by tightening up reporting requirements • At present, very few co-ops report, and those that do are larger and already sustainable • New reporting requirements would probably fall mostly on same group of established co-ops – little improvement in data quality likely 1313
Accounting and auditing requirements • Poor accounting and auditing systems at co-ops affect their sustainability – Bills propose changes in these areas • However, the costs of implementing accounting and auditing systems are proportionally higher in smaller businesses – affordability a key concern • Proposed compulsory requirement on co-ops to prepare social and management and performance reviews increases costs relative to other business types • Only 10% of co-ops in 2009 could report on their turnover level • 70% made R50 000 revenue or less per annum 1414
Category size limits • Results suggest that category size limits for various kinds of accounting and auditing should be revised, to address affordability issues • Recommendation: • Category A (less than R20 000 revenue): not required to submit any accounts or review thereof • Category B (R20 000 to R2m): required to submit a compilation of accounts but no review thereof • Category C co-ops (over R2m): PIS of less than 100 - independent review of accounts; a PIS of more than 100 - undertake an audit 1515
Reserves • Proposed change loosens requirements to hold 5% reserves, but imposes Ministerial controls on reserve use and reporting on reserve use • Very few co-ops have sufficient accounting systems to determine appropriate reserve levels or report on reserve use • New requirements would be felt mainly by established co-ops • Little impact on improving sustainability of emerging co-ops likely 1616
Winding up, deregistration & judicial management • Bills introduce a much more comprehensive winding up, deregistration and judicial management system for co-ops • Independent of current companies system: • Allows unique needs of co-ops to be taken into account • But a new unique system likely to be slower and more expensive • Alternative approach: • In the Bills, include only the ways in which winding up for co-ops will deviate from that used for other businesses • Use the current Companies Act systems and processes 1717
Co-op Development Agency • Total spending on co-ops in 2009/10 was ~ R223m • Maximum spending at the CDA per annum planned at R620m – substantial increase • Proportionality can be assessed in comparison to SMME spending • Co-operatives contribute 3-7% of the economic contribution of SMMEs • Government spending on co-op development is 5% of national spending on SMMEs, and 16% of provincial SMME spending • CDA would take co-op spending to 31-34% of SMME spending: well beyond proportional economic contribution 1818
Effectiveness of co-op development spending • Can use current development schemes as a measure of likely impact of future development schemes • Current CIS grant system: • disbursed R118m since 2005, to 578 recipients • 4 727 new jobs have been created • However, jobs have been at co-ops which since failed • Cost per sustainable job created in the range of R772 480 to R124 905 • Economic value added per job per annum ~ R2 900 1919
Co-operatives Tribunal • Proposed Tribunal functions include investigative and decision-making functions, as well as support/ administrative functions (maintaining the register and providing technical support) • Mix of functions will make effective organisational design difficult • Ways of working with the Companies Tribunal should be investigated 2020
Exemptions from labour law • 2005 Act exempts worker co-ops from some provisions of labour law • Potential for “bogus” worker co-ops to be formed to exploit this loophole: evidence that this is in fact occurring • No clear international precedent on how to handle this • Bills propose to remove the exemptions: actual impact should be carefully monitored 2121
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