By Mwansa Chalwe Snr
There has been unprecedented calls by the New Dawn politicians for the youth to form cooperatives in order to access the Constituency Development Fund as part of the Youth employment creation strategy. The government’s call for the formation of cooperatives is not wrong in itself, but the major concern by experts and observers, is whether the leaders and the youth fully understand the Cooperative business model. The Daily Nation Newspaper editorial of 15 February, 2022 raised this very important point when commenting on President HH’s handover of 30% of the total Black Mountain to a Consortium of Cooperatives owned by the youth and women on the Copperbelt.
“It is important to know whether these members understand the concept of the cooperative movement. We say so because this is not the first time that a sitting government has spearheaded formation of cooperatives, and even providing the initial capital. But at the end of the day, there is nothing to show for the confidence and investment put in by the government using public resources. We hope the new dawn administration has learnt something from the former ruling Patriotic Front which also spearheaded formation of cooperatives by youths as a way of empowering them. What comes to mind is the ill-fated empowerment scheme involving Higer Buses given to cooperatives formed by bus drivers. To date, the story that keeps cropping up is that the beneficiaries have not been able to repay what was lent to them as start-up operational capital. Cooperatives that don’t invest but depend on hand-outs are guaranteed of failure,” The Paper wrote.
This article is purely an education piece and can be dubbed: Cooperatives 101. It is meant to briefly describe the Cooperative Business Model, which if interventions are properly designed, can contribute immensely to the economy. But what people do not know is that the cooperative business model is very complex to operate but very easy to form. In this article, I will try to share with readers what a cooperative business model entails in summary. It is hoped that the youth and politicians will have some basic understanding of this business model so that they are helped in its implementation especially with regard to the Constituency Development Fund, to mitigate against the risk of failure.
As a starting point, it is imperative that a Cooperative is defined. A Cooperative is a business organisation which is formed by people with mutual social, cultural, and economic interests. It is democratically controlled and owned by its members and works in the best interests of its members The Cooperative business model is different from other business formations, such as a sole trader, partnership and limited company, because it is a social enterprise, whose ultimate objective is service rather than profit. However, it must be recognized that Cooperatives are business enterprises just like any other business formations. It follows that basic business management principles should be followed.
In terms of application, Cooperatives operate virtually in all industries or sectors. The common types of cooperatives, if classified according to economic activities are: Agriculture, financial services (Savings and credit, Insurance), retail, energy and communications, transportation, construction etc. The other common type of cooperative is the worker cooperative. This type of cooperative’s main objective is to create and maintain members’ employment.
As a business model, it has both advantages and disadvantages. The merits of a cooperative include the following: ease of formation, limited liability, equality in voting rights, income tax exemption, and government support, low cost of operations. On the other hand, the cooperative business model has disadvantages, which include: lack of expertise, lack of understanding of principles of cooperative societies, inefficient Management, absence of motivation, differences and factionalism among members, rigid rules and regulations, lack of incentive and initiative among members, and undue government interference.
PRINCIPLES, VALUES AND ETHICS
Cooperatives around the world operate according to the same set of core principles and values, adopted by the International Co-operative Alliance. Cooperatives trace their roots of these principles to the first modern cooperative founded in Rochdale, England in 1844. In terms of values, Cooperative are based on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity. Cooperatives follow seven core principles which distinguish them from other business formations.
One, Membership to cooperatives is open and voluntary. Cooperatives are open to all people who can reasonably use its services and stand willing to accept the responsibilities of membership, regardless of race, religion, gender, or economic circumstances. Two, Cooperatives are democratic organizations which are controlled by their members. Third, Members contribute equitably to, and they democratically control the capital of their cooperative. Fourth, Cooperatives are independent and self-help organizations. Fifth, cooperatives believe in provision of education, training and information to its members, elected representatives (directors/trustees), CEOs and employees to help them effectively contribute to the development of the organisation. Sixth, Cooperatives believe in working together through local, regional, national, and international structure. Seventh, Cooperatives are concerned with the sustainable development of their communities.
In as far as ethics are concerned, cooperative members are expected to embrace ethical values of honesty, openness (transparency), social responsibility, and caring for others in accordance with the traditions of the founders of movement.
CORPORATE GOVERNANCE STRUCTURE
Cooperatives are supposed to be run as formal businesses with a formal corporate governance structure as required by the law. The structure is made of members who should have made contributions to form the institution, and are the de facto owners. The members are supposed to elect the Board of Directors, who should in turn hire management and staff of the cooperative .Cooperatives are required to maintain proper books of account and should make annual returns to the Registrar of Cooperatives. Successful Cooperatives are supposed to be run on similar lines like public limited companies quoted on a stock exchange with regard to the strict accountability requirements.
In terms of regulation, the Cooperatives Act No. 20 of 1998 provides the legal instruments of government for the management of the cooperative sector in Zambia. The Department of Cooperatives which regulates Cooperatives, has been transferred from Ministry of Agriculture, first to Ministry of Commerce and Industry under PF and now to the new Ministry of Small and Medium Enterprises, as is the case in neighbouring South Africa. The rationale of the transfer is to change the mind set among Zambians from the traditional view of associating cooperatives with agriculture, by extending it to other sectors of the economy such as engineering, construction, insurance, finance, manufacturing etc.
FLAWED EMPOWERMENT SEQUENCING AND PROGRAM DESIGN
One of main reasons why interventions like Cooperatives and other Youth empowerment programs fail, is the wrong sequencing of the implementation of activities and the poor program designs. This is in spite of the overwhelming empirical evidence from various studies showing that training, knowledge, skills transfer and information provision to beneficiaries should precede financial disbursement. This recommendation is ignored and not followed, and yet interventions are expected to succeed. The various Zambian governments have always put the cart before the horse.
The implementation of youth empowerment programs in the past, including the current Cooperatives and Constituency Development Funds for Youth and Women empowerment programs, have followed the same pattern. There is a rush to disburse empowerment funds rather than the preparation of beneficiaries with basic knowledge, skills and information for the program in the first place. One would suspect that political imperatives supersede the economic considerations.
One of the core principles of the Cooperative Business Model, for example, is education, training and information provision, but what we see is that both current and previous administrations, implement cooperative interventions willy-nilly, without this core principle. The model requires the training of members, board of directors and employees at the beginning and after commencement of operations. The Zambia Cooperatives Federation (ZCF) Director General, Mr. James Chirwa was quoted in the Daily Nation Newspaper to have emphasized the same.
“Zambia Cooperatives Federation (ZCF) director-general, James Chirwa has advised government to ensure that the youth and women organisations receive the training needed because a cooperative was a complicated business design module to effectively manage. Mr. Chirwa said as a country, Zambia should avoid making assumptions that everyone knows how cooperatives operate because it was a complicated business that required training,” The editorial observed.
The issue of training which constitutes knowledge and skills transfer, should be prioritised before any Youth empowerment initiative is implemented. And instead of just being an arm chair critic, I have developed a 21st Century digital solution to Youth empowerment by way of knowledge transfer. The App-Youth employment creation App (YECA), could be used for Cooperative and CDF programs. This App has been reviewed and recommended by the Ministry of Technology and Science. The App provides Youth with over 1,000 business ideas in all sectors of the economy, and guides them on how to start and manage a small business which includes cooperatives. It has an embedded information portal with links to websites of Pacra, ZRA, ZDA, National Youth Development Council (NYDC), Economic and Youth cluster Ministries and other resources, which can be accessed by the youth, even those in the remotest rural area of Zambia, from the comfort of their mobile phones. This is an innovation. This is the type tool the United Nations Development Programme (UNDP) recommends for African countries trying to promote Youth Entrepreneurship due to its mass accessibility. This is a game changing App that both the Ministry of Youth, Sport and Art and the Ministry of Small and Medium Enterprises could immediately deploy as a mass, fast track E-learning tool of practical entrepreneurship skills for the Youth. The App can be accessed from google play store or through the website: www.youthemploymentcreation.com.
CONCLUSION
Although Cooperatives are not a panacea to Youth unemployment and poverty alleviation, they do represent a practical and time-tested model for self- employment and small enterprise development and promotion. And if their underlying principles and values are adhered to, and with sound management, good leadership and governance, they can help Zambia create employment, create wealth, improve livelihoods and contribute to poverty reduction.
It should be borne in mind that the very nature of cooperatives is that of being social enterprises and non-profit making. The government should not over promote them at expense of other SME formations like sole traders, partnerships and limited companies given the diverse needs of the Zambian economy. In order to achieve expansion of the tax base, employment creation, promotion of inclusive growth of the economy, encourage innovation and achieve other macro-economic objectives, there is need for a balance between the promotion of cooperatives and other private sector business formations.
The writer is a Chartered Accountant and Author. He is a retired international MSMEs Consultant and an independent financial commentator. He is also an Op-Ed Contributor to the Hong Kong based, Alibaba owned, and South China Morning Post (SCMP). Contact: [email protected]
