South Africa

The legal framework analysis aims to provide general knowledge of the national cooperative legislation and of its main characteristics and contents, with particular regard to those aspects of regulation regarding the identity of cooperatives and its distinction from other types of business organisations, notably the for-profit shareholder corporation.

It aims to evaluate whether the national legislation in place supports or hampers the development of cooperatives, and is therefore “cooperative friendly” or not, and the degree to which it may be considered so, also in comparison to the legislation in force in other countries of the ICA region, or at the supranational level.

In addition, the research aims to provide recommendations for eventual renewal of the legal frameworks in place in order to understand what changes in the current legislation would be necessary to improve its degree of “cooperative friendliness”, which is to say, to make the legislation more favourable to cooperatives, also in consideration of their specific identity. This webpage presents a snapshot of the legal framework analysis results for South Africa.

Cooperatives in South Africa are regulated by the Cooperatives Act 14 of 2005.

The 2005 Act makes explicit reference to the cooperative principles, which are defined with reference to the ICA. The purposes of the Act include the promotion of cooperatives that comply with the cooperative principles, and a section of the Act headed ‘compliance with co-operative principles’ attempts to give an objectively ascertainable meaning to the different principles. The Act also applies to all kinds of cooperatives, and a schedule to the current Act contains special provisions for four kinds of cooperatives, as defined: worker cooperatives, housing cooperatives, financial service cooperatives and agricultural cooperatives

In 2013, further amendments to the Act as well as a Code of Good Practice was adopted by the government.

The only other law which applies specifically to cooperatives is the Co-operative Banks Act of 2007, which provides for the registration of deposit-taking financial service cooperative which meet a specified threshold as cooperative banks. This Act, which is administered by National Treasury, also provides for the establishment of a Co-operative Banks Development Agency.

Cooperative friendliness

Tax legislation does not adequately acknowledge the particular legal nature of cooperatives and this is a legal obstacle to their development. On the other hand, there are other regulations that provide opportunities which cooperatives can utilise, such as procurement regulations favouring “broad-based black economic empowerment (BBBEE),” as well as the grants national government and some provinces give (or have given) newly established cooperatives.

However, government has evidently been powerless to prevent applications being made to register “cooperatives” for no other reason than to access the grant and divide the money amongst the “members”. The lack of a coherent cooperative movement has also made this kind of abuse easy.

The South African experience also suggests that emergent cooperatives generally do not have the capacity to exploit legislative provisions that are intended to benefit them, probably because they are locked in a struggle to survive economically.

Key recommendations for improvement

A starting point would be to develop some consensus as to how cooperatives are best categorised. It would also be necessary to begin ruthlessly weeding out from the registry ‘cooperatives’ that only exist on paper. Other decisions that do not require legislative changes concern reviewing the kind of incentives government provides, and the location of cooperatives in a ministry which is primarily concerned with for-profit enterprises. The notion of “cooperative friendly” legislation is not helpful in this regard.

Much can also be done within the existing legal framework as regards specific sectors or types of cooperative. This is perhaps most striking in the case of agriculture, given that agriculture is the sector within which cooperatives have had the most success locally as well as globally e.g. land reform for farmers that will make farming viable .

Conclusions

The proliferation of cooperatives in South Africa since 2005 does not represent a vibrant or coherent cooperative movement, and has more to do with the political and economic context than the legislation. But to the extent that the legislation has been a factor, it has more to do with its application in practice than any provisions of the legislation itself.

It is important not to view the legislation in isolation from the processes by which it was enacted and implemented, as well as the social and economic context locally and globally.

_{The legal frameworks analysis is a tool developed under the ICA-EU Partnership #coops4dev. It is an overview of the national legal frameworks at the time of writing. The views expressed within are not necessarily those of the ICA, nor does a reference to any specific content constitute an explicit endorsement or recommendation by the ICA.}