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«Forum Empresarial ISSN: 1541-8561 forum.empresarial Centro de Investigaciones Comerciales e Iniciativas Académicas Puerto Rico Oelofse, ...»

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Forum Empresarial

ISSN: 1541-8561


Centro de Investigaciones Comerciales e

Iniciativas Académicas

Puerto Rico

Oelofse, Riaan; Van der Walt, J. L.

The Effect of Support Initiatives on the Operations and Performance of South African

Worker Co-Operatives

Forum Empresarial, vol. 21, núm. 1, 2016, pp. 1-21

Centro de Investigaciones Comerciales e Iniciativas Académicas

San Juan, Puerto Rico

Available in: http://www.redalyc.org/articulo.oa?id=63147619001 How to cite Complete issue Scientific Information System More information about this article Network of Scientific Journals from Latin America, the Caribbean, Spain and Portugal Journal's homepage in redalyc.org Non-profit academic project, developed under the open access initiative


Vol. 21 | Núm. 1 | verano 2016 The E ect of Support Initiatives on the Operations and Performance of South African Worker Co-Operatives Riaan Oelofse | roelofse@seda.org.za Seda, Fezile Dabi District J. L. Van der Walt | Louw.VanDerWalt@nwu.ac.za Northwest University Potchefstroom Campus Received: July 21, 2015 Accepted: October 3, 2015 ABSTRACT This study of 111 worker co-operatives registered as clients with the Small Enterprise Development Agency represents a research into the contribution of government support to the business performance and operations of these entities. A relatively successful group was evaluated against unsuccessful ones to establish whether there was any difference in the support received by the groups concerned. Moreover, the performance, operations, and management of supported co-operatives were evaluated against unsupported ones to establish whether the support had made a difference. The results reveal a minimal effect on the co-operatives’ operations and performance. Recommendations for future development are made.

Keywords: business performance, co-operative development, small business development, worker co-operatives RESUMEN Este estudio de 111 cooperativas de trabajadores registradas como clientes en la Small Enterprise Development Agency representa una investigación de la contribución del apoyo del gobierno al rendimiento empresarial y las operaciones de estas entidades. Se evaluó un grupo relativamente exitoso versus las que no tuvieron éxito, para determinar si había alguna diferencia en el apoyo que recibieron los grupos concernidos. Además, se evaluaron el rendimiento, las operaciones y la gestión de las cooperativas apoyadas versus las que no lo fueron, para determinar si la ayuda había hecho una diferencia. Los resultados revelan un efecto mínimo en las operaciones y el rendimiento de las cooperativas. Se hacen recomendaciones para el desarrollo futuro.

Palabras clave: rendimiento empresarial, desarrollo cooperativo, desarrollo de pequeños negocios, cooperativas de trabajadores ISSN 1541-8561 1


Since democratic South Africa came into being, the government has introduced several strategies and pieces of legislation, in order to grow and develop the co-operative sector. In an address on June 25, 1999, former President Thabo Mbeki stated that the government would emphasize co-operative development in the country to combine financial, labour, and other resources, the goal being to rebuild communities and involve people in their own development (DTI, 2004).

The primary aim of worker co-operatives in which this study is focused is to provide employment for their members. The impact of these entities have, thus far, proved disappointing. In fact, the sector has gained itself a reputation of incompetence and inefficiency. One author (Ressel, 2014) proclaimed the whole co-operative business model as fatally flawed.

Satgar (2007) is of the opinion that co-operative development in South Africa fails to consider member needs and capacities, only regarding government objectives as important. This disposition represents danger for co-operative sustainability since it fails to build autonomy and independence. The co-operatives are initiated by members after they have independently identified opportunities; the challenge facing government is to provide them strategic enabling support.

A study by the Department of Trade and Industry (DTI) found that a large percentage of the co-operatives reported losing members due to insufficient income generated by the co-operative (Redrebel, 2009). A full 31.41% of the co-operatives surveyed had an annual turnover of less than R5,000 (US$385, based on an exchange rate of R13.00/US$1). The study also found that only a small percentage of the registered co-operatives were in fact operational.

Chakela (2012) studied eleven agricultural and manufacturing co-operatives in the Mantopa Municipal area in the Free State. Of these, 64% indicated that their turnover levels were below R1,000 per month (US$77). A mere two realized a turnover in excess of R5,000 (US$385).

Statistics provided by the South African National Apex Co-operative (Sanaco) provided in 2012 considered only 20 of its nearly ISSN 1541-8561 FÓRUM EMPRESARIAL VOL. 21 | NÚM. 1 | VERANO 2016


10,000 member co-operatives to be successful (Machaba, 2012). It is, thus, clearly and quantifiably evident that co-operatives in South Africa are struggling; few of them are sustainable.

The purpose of the study is to evaluate the effectiveness of government and support agency on the management and operations of South African worker co-operatives. Pursuant to the purpose, the

study objectives are:

1. To determine the criteria for measuring business success of worker co-operatives;

2. To establish whether there was a difference in government and support agency interventions received by “successful” worker co-operatives compared with those classified as “unsuccessful”;

3. To establish the difference government and support agency interventions have made in the management and operations of supported worker co-operatives as compared to those who were unsupported.

Literature Review

The DTI remains the South African government’s main instrument in support facilitation for the country’s co-operatives (Redrebel, 2009). The department both offers and facilitates financial support in form of grants and special project funding aimed at cooperative development. Furthermore, the DTI has partnerships with other government agencies and organisations which provide financial support to co-operatives. A co-operative unit was established by the DTI with twofold aim; firstly, to support and promote co-operative development; and secondly to co-operate with other government agencies to ensure practical support, such as capacity building. Other governmental departments and agencies, as well as non-governmental organisations, have likewise made financial and other support available to co-operatives.

DTI statistics (DTI, 2010) indicate that government spent at least R558 million (US$42,9 million) on financial support to coISSN 1541-8561 3


operatives between 2005 and 2010. These figures exclude the cost of non-financial support.

Satgar and Williams (2011) declare that between 2005 and 2010 the total financial outlay for co-operative development from government amounted to R923 million (US$71 million). The development initiatives by government have led to a huge increase in the registration of co-operatives, from 469 in 1994 (Theron, 2008) to 69,430 on December 31, 2012 (CIPC, 2013).

According to the Companies and Intellectual Property Commission (CIPC) data quoted by the DTI (2010), in 2009 co-operatives contributed nearly R12 billion (US$923 million) to the South African Gross Domestic Product (GDP). In 2009, South Africa’s total GDP was R1 594,336 billion (US$122,641 billion) (Statistics South Africa, 2012). This means that the co-operative sector contributed a mere 0,75% to total GDP. According to the International Co-operative Alliance (ICA, 2012), co-operatives have internationally made a significant impact on their countries’ economy. In Iran, co-operatives contribute 6% of GDP; in Kenya, 45%. In Switzerland, the two largest co-operatives are responsible for 8% of GDP. In Vietnam, the total contribution to GDP comprises 8.6%.

The GDP Baseline study found that 84.1% of co-operatives in South Africa employed fewer than fifteen people (Redrebel, 2009). Of the co-operatives, 48% employed between one and five employees. The study, thus, found that the co-operatives’ impact on unemployment is negligible. In contrast, this is not the case internationally. Co-operatives provide over 100 million jobs globally;

this represents 20% more than multinational enterprises (ICA, 2012). In Slovakia, approximately 700 co-operatives provide jobs to nearly 75,000 individuals (about 107 jobs per co-operative).

In France, 21,000 co-operatives provide jobs to 700,000 people (33 per co-operatives). Co-operatives in Kenya provide work for 250,000 people.

In 2005, more than half of co-operatives had a turnover of smaller than R10,000 (US$769) per annum, while 30.2% received no income at all (Theron, 2008). In a similar vein, the DTI study found that the majority of emerging South African co-operatives do not ISSN 1541-8561 FÓRUM EMPRESARIAL VOL. 21 | NÚM. 1 | VERANO 2016


exist at a level where they can contribute to poverty alleviation (Redrebel, 2009).

Hough, Wilson, and Corcoran (2010) state that measuring success is fairly easy to carry out in conventional businesses since the measure incorporates financial profitability and viability. Financial viability is a key criterion as the co-operative would otherwise cease to exist. Other factors, such as that discussed by Dash (2013) prove more complex. Dash posits measuring the incorrectness of the efciency of co-operatives in like manner to other business entities, since this fails to provide information on their impact in advancing individual, social, and environmental wellbeing. The author, nevertheless, admits that no internationally recognised standard management system and tools have been effectively developed to measure the performance of co-operatives on the ‘triple bottom line’ of financial, social, and environmental success.

Fairbairn (2002) states that many researchers share the opinion that the economic concerns of co-operatives should be subordinate to their social goals; however, unless the social goals are met by economic activities, it would make no sense to start an economic enterprise to achieve them. Similarly, Chamard, and Webb (2006) stress the importance of financial health of the co-operative, since bankrupt co-operatives fail to meet members’ needs.

In their study, Brazda, and Schediwy (2001) suggest that the success of co-operatives should be measured in terms of simple economic survival. Similarly, Theron (2008) states that most support agencies and donors accentuate the importance of recognizing co-operatives as private economic enterprises that need to make profits or surpluses.

The study’s approach was that worker co-operatives need to meet financial objectives in order for them to meet their social objectives. Success will subsequently depend on the co-operative’s business performance. This approach is supported by Develtere, Pollet, and Wanyama (2008), who state that the World Bank expects co-operatives to adhere to business principles prevalent in a market economy.

ISSN 1541-8561 5


After the criteria for success used in the above and other studies (Chibanda, Ortman, & Lyne, 2009; Cornforth, Thomas, Lewis, & Spear, 1988; Mqingwana, 2010; Skibbens & Chamard, 2006) were considered, it was decided that the following criteria should be utilised as the basis for the measurement of the business success of

worker co-operatives:

Longevity: A term of three years of existence was used in the survey as a minimum criterion for longevity.

Financial independence: To be categorized as successful, the worker co-operative may not have received outside funding in the form of loans or grants for at least a year.

Profitability: For the purposes of this study, the worker co-operatives needed to have been profitable for at least one year, in order to be considered successful.

Member income: The worker co-operatives in the study should have been able to pay their members at least R955 per month for the co-operative to be categorized as successful.


The research population of the study was actively operating worker co-operatives registered with the Small Enterprise Development Agency (SEDA) as clients between 2009 and 2013. One hundred eleven completed questionnaires were received. The questionnaires were completed by either the chairperson of the board or another board member.

The developed questionnaire contained 140 multiple choice questions with regard to management practices and operations.

The questionnaire contains questions regarding identification and membership, finances and financial management, marketing and marketing management, operations and operational management, human resources management, management processes and support from external institutions.

When the worker co-operatives in the study were compared with the criteria for success, the following was found: 90.65% of them ISSN 1541-8561 FÓRUM EMPRESARIAL VOL. 21 | NÚM. 1 | VERANO 2016


were operating for more than three years and 35.64% of them were profitable. Of the co-operatives, 79.66% had operated without external funding for more than a year and 18.68% were able to pay their members a monthly income in excess of R955 (US$73,50);

however, only three of the responding co-operatives met all the criteria; this did not constitute a sufficiently large group. A group of 13 of the worker co-operatives in the study met 3 of the business success criteria; they, however, failed to meet the criterion for member income. This group was considered large enough, labelled as “Relatively Successful” and utilised for the statistical analyses.

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