Co-ops, tomatoes and potholes - the common denominator

It's 9:30 pm on Wednesday and I've just arrived in Cape Town after Parliament was recalled for an unscheduled sitting tomorrow. This week was supposed to be for committee oversight visits but yesterday evening the Speaker sent an SMS to all MPs saying there was unfinished Parliamentary business to attend to. The programme was set to last only 25 minutes but the DA and other opposition parties objected that this was a waste of taxpayers' money. So it was extended to include a snap debate on the energy crisis (called by our Public Enterprises spokesperson Natasha Michael) as well as a debate on the report of the Powers and Privileges Committee on the conduct of the EFF and farewell speeches. More on that tomorrow after the sitting. For now, I will recount the events of the past two days in KwaZulu Natal, where members of the Portfolio Committee on Small Business Development assessed the state of cooperatives as well as efforts by the Province to stimulate small businesses. All in all it was a disheartening experience mixed with some bright spots.

Our committee chair Ruth Bhengu chose KZN because in the mid-2000s she served as deputy mayor of Ugu District Municipality, which extends down the South Coast, and spent much of her time there trying to get co-ops off the ground. She wanted us to see for ourselves what progress had been made.

To its credit, the Provincial Department of Economic, Agricultural and Tourism Development has some good plans in place to make an impact on the local economy. Its presentation gave a cogent outline of its strategy but soon it became clear there were many obstacles in its way, foremost being red tape and the strictures imposed by the Public Management Finance Act (PMFA). Red tape is always raised as a problem for business in general but the PMFA is increasingly seen as getting in the way of state attempts to bring small businesses and co-ops into the mainstream economy.

The Department recounted its target of achieving 70% preferential procurement by 2013, but this has been thwarted by National Treasury's refusal to implement a 2009 Cabinet decision to implement procurement legislation aligned to these targets. The reason is simple: Treasury insists price be the deciding factor in awarding procurement contracts, whereas the preferential procurement measures provide for set-asides for local (SA), black-owned and small businesses who usually can't compete on price. So there is deadlock. The Department asked the Committee to make representations to Treasury to relax its approach but this is no mean task. It will get us into all sorts of arguments about the need for an efficient and cost-effective versus a developmental state. This goes to the heart of current government thinking.

Next came a presentation on the Province's implementation of the National School Nutrition Programme. In KZN there are 1754 service providers contracted on the programme of which 279 are cooperatives. The 10 113 'food handlers' (their euphemistic term for cooks) earn a fixed stipend of R900 a month at a ratio of 1:200 learners. These cooks supply 2 291 188 learners in 5 258 schools in the current financial year.

Yes, you read that right: a stipend of R900 per month! I asked the Department of Education official running the programme how she squared this amount with discussions on a minimum wage far above that. Conveniently for her time ran out and I didn't get an answer. She promised to supply it in writing later. The issue is not trivial: does it make sense to pay cooks this paltry amount rather than paying less of them three or four times that amount to service more learners? R900 is more a social grant than a justifiable rate for providing this service, one would think.

We then drove to the PRASA offices at the Durban station where we heard about its programme to establish co-ops to clean stations. This is a national programme but so far only KZN, Gauteng, Western Cape and Free State have signed up. Of the 90 targeted stations 52 have come on board, with 51 coops participating involving 406 direct beneficiaries each paid R2 500 per month.

The programme was established when Ruth Bhengu chaired the Portfolio Committee on Transport during the 4th Parliament and progress has been painfully slow. The main reasons seem to be poor communication between the Department of Transport, which PRASA reports to, and the DTI, which runs the Cooperatives Support Programme, and the bug bear PFMA. PRASA has committed to the programme for the next two years, supplying uniforms, equipment and chemicals, and the co-ops appear to rely on this to make their work viable. To employ the coops it has got around the problem of procurement regulations by issuing a one-off grant, but this cannot continue. Only when the PFMA is amended can co-ops be considered as long-term suppliers, as an alternative to larger contractors who do the job for less.

Skipping lunch, we hopped into our mini buses and drove to Umbumbulu on the South Coast to meet a coop growing cucumbers and tomatoes under a huge greenhouse. This is a truly inspiring project and has all the ingredients for success apart from lack of money to expand.

Trevor Tshuma explained the origins of the project. He works for Kohwa Holdings, describing itself as "South Africa's leading dynamic advisory and management company specialising in agribusiness". Identifying this rural community as a test bed for its model of farming co-ops, it requested proposals from greenhouse suppliers to partner on the project. The South African suppliers declined, wanting to be paid for the greenhouse, and only an Israeli company - Top Greenhouses - responded positively (better not tell the Woolworths protesters otherwise they will hot-foot it to Umbumbulu!)

Top provided an engineer and the community the labour and heh presto, a 1 000 sq metre greenhouse sprung up which now supplies top quality produce to the likes of Spar, PicknPay and Massmart. The coop leases land from the local nkosi, Chief MC Maphumulo, and 15 workers are employed full time. This year they expect to turn over R500 000 at a net profit of 40%, and this after a 20% cut paid to Kohwa.

The supervisor, a young man named Khanyisa, related how he qualified as a horticulturalist in Port Elizabeth but remained unemployed for 5 years until he found work here. We watched as one of the co-op members took an electric toothbrush fitted with a custom-designed knib-like device and placed it delicately on the tomato flowers, stimulating the stamens to release pollen so the plants could pollinate. Trevor proudly told us only 2 of the 15 workers have matric, some were illiterate, but all were trained as horticultural technicians. The project is perfectly suited to employing thousands like them in rural areas where employment opportunities are thin on the ground and skills are minimal. Watching them going about their work it was hard to argue.

The greenhouse environment is so productive, using soil, fertiliser and drip-feed irrigation, the tomato plants are harvested twice a week 10 months of the year. The fruit, and the cucumbers alongside, are so perfect they are export quality and compare with the best grown in industrial-style plantations elsewhere in South Africa.

The set-up cost of R3 million for a 2 000 square metre greenhouse and 2 hectare open field plantation can be recouped in only a couple of years, with annual sales of around R3 million and net profit of 40%. So we were surprised to find the project is struggling to obtain finance to expand. Why, we asked.

The National Empowerment Fund only finances agri-processing, not primary agricultural projects. Banks won't lend them money because co-ops have a bad track record and they can't find owners willing or able to put down collateral finance. Ithala, the KZN development finance institution which one would have expected to jump at the opportunity, "act just like a bank". Government delegations wax lyrical about its potential but never commit. Even the Presidency has visited but nothing materialises. So in desperation they turn to us, hoping we can offer a solution.

We ask why the big retailers, who boast about their supplier development programmes, won't help. Apparently they demand punitive, exclusive fixed-price supply agreements which restrict their freedom to sell at market-related prices when other growers can't supply. No wonder the co-op turned them down.

It's tragic a project like this, which produces top-quality vegetables profitably and puts unemployed people to work, can't find backers to take it to the next level.

This morning, on our truncated oversight visit to KZN, we stopped off at the Hibiscus Coast Local Municipality, one of six making up the Ugu District Municipality. We heard about its project - again initiated by the irrepressible Ruth Bhengu - to form co-ops to fix pot holes. Hibiscus derives much of its income from tourism and ratepayers, many of whom run tourism establishments, threatened to revolt because of the shocking state of the roads. The pilot project was started in 2009 and only with a R6,5 million grant from the Road Accident Fund did it finally get underway.

65 unemployed, mostly young people were employed and trained. In the project's 14 week duration they fixed 6 500 potholes on 225 roads and were paid R900 / week - better by far than the schools nutrition programme stipend. Phase two envisages them being formed into 7 registered co-ops, but yet again only once they overcome the PMFA obstacles. Normally, the municipality employs its permanent staff to fix potholes. To employ co-ops they must apply a new procurement policy and this conflicts with PFMA provisions.

We left KZN with much to ponder on. A revealing comment from one of the Hibiscus officials neatly tells the story. He recently met Pravin Gordhan, former Minister of Finance and now Minister of Cooperative Governance and Traditional Affairs. When explained the problems they faced Gordhan assumed a remorseful air, admitting his determination to protect the public purse could be holding back development where it was most needed.

These past two days have been very revealing. Co-ops do not have a good track record in South Africa. Is this because they have been badly run, or are there other factors holding them back which need attention? The Committee will consider all the evidence put before us. Perhaps fundamental reforms are needed to unlock the potential for job creation using unconventional means.