By: Anna Majavu
The government says it will be easier from April 1 for co-operatives to apply for funding, because it is moving away from a 70% grant, 30% loan blended finance model towards a 90% grant system. It will be rolled out by the Small Enterprise Development Agency (Seda). The four-year-old blended finance approach had been “underwhelming in performance”, Mzoxolo Maki, Chief Director for Enterprise and Supplier Development at the Department of Small Business Development told a meeting of Parliament’s portfolio committee on small business development on Wednesday.
A 2018 survey of co-operatives found that 88% of them ended in failure. “The reality on the ground is that co-operatives who come to the department are in the informal and micro stage of the business life cycle. Most are from impoverished areas and it becomes very difficult to qualify for the loan component of the blended finance,” said Maki, explaining the overhaul. Small Business Development Minister Stella Ndabeni-Abrahams conceded at the meeting that co-operatives were an area in which her department had not done well.
“It is high time that we change strategies from what we have been doing in the past in order to address the challenges that have prohibited maximum participation of co-operatives in the country,” she said. The government funding for co-operatives targets those that are 100% South African-owned and majority black, with a bias towards women, youth and people living with disabilities from underdeveloped parts of the country.
From 1 April, government funds for co-operatives will be transferred to Seda, where co-operatives will have to apply for grants. The government believes this will be more successful because there are more Seda offices spread out across the country for applicants to visit. However, Maki cautioned that there was not enough money in the Small Business Development Department’s “shoestring budget” to fund all co-operatives and that the co-op support programme would need to be recapitalised, and co-operatives would have to become profitable.
“There will be a lot of money that will be required… that will deplete our shoestring budget as it is now. The reality is that we cannot issue grants until eternity, the government’s budget is depleted,” Maki added. Members of Parliament from opposition parties were skeptical, with DA MP Henro Kruger saying that co-operatives had been “the feeding ground for criminals to get their hands on taxpayers’ money” and that government had not succeeded in getting a broad movement of co-operatives off the grounds since the early 2000s.
EFF MP Babalwa Mathulelwa accused the government of forcing township and rural businesses to switch from individual ownership to the co-op model, only to withhold funding from them. “It is very sad. It is the government that forced the people to form co-operatives. Individual businesses were discouraged. Now the co-operatives are in deep crisis and are not funded at all,” she said. Small Business Development Department director-general Lindokuhle Mkhumane also announced that a review of all laws and policies related to co-operatives had begun last month and would be completed in five months’ time.
