Topic: Cooperatives


A large number of people in South Africa who live in rural and peri-urban areas are part of the informal economy or are otherwise socially, economically and politically excluded from the benefits of development. Cooperatives play an increasing significant role in helping these people to find solutions on how to cooperate out of poverty by tapping their own resources, knowledge and strengths. Cooperatives contribute to develop the the local economies where the poor live through their unique and strong linkages with the community. They enable poor people to have their voices heard in addition to improving their daily working and living conditions. Because co-operatives are democratic organisations and owned by those who use their services cooperatives are an ideal instrument to empower the poor. They are participatory, responsive to local needs and able to mobilize communities and help particulary vulnerable groups of people. 

What isn't possible for the individual is possible for many persons acting together!

National and provincial government promote cooperatives as a type of business entity and a means to get informal economic actors involved in and benefitting from the formal economy. In local economic development (LED) the focus is to develop cooperatives that aggregate buying power and generate oportunities for collective marketing.


The International Co-operative Alliance (2007) defines a cooperative as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. Co-operatives are usually understood to be either an agricultural form of business or a state-driven welfare intervention.


Key Issues

For municipalities and local economic development (LED) the focus is to develop cooperatives that aggregate buying power and generate opportunities for collective marketing. Municipalities should therefore have a defined approach and strategy for cooperatives as part of the municipal LED strategy. Municipalities' roles in terms of cooperatives can vary, for example:

Champion: the municipality takes the lead in organizing everything from identifying the cooperative’s members through to selecting the business opportunity.

Facilitator: the municipality works with existing groups of community members and assists in “forming” the cooperative using the DTI’s Cooperative Incentive Scheme as well as other initiatives that will improve the cooperatives’ access to finance and / or markets.

Broker: the municipality understands the nature of their local economy and identifies areas within the production value chain where the opportunity for cooperatives (or other small scale businesses) to supply services and resources to larger scale local producers.

Trainer: the municipality encourages the establishment of sustainable cooperatives by providing access to business skills training and life skills (negotiation, basic banking etc).

Enabler: the municipality focuses on the spatial environment for cooperatives such as improving basic services; investment in hard and soft infrastructure; examples would include access roads, markets and abattoirs.

While there is possibly validity in this varied mix of roles for municipalities, it is possibly either a misunderstanding or rather a misalignment between the expectations of and from cooperatives has resulted in some poor practices and unrealistic expectations and increased recipients frustration. Cooperatives are enterprises founded by and belong to the members, and therefore cooperatives can be imposed, neither directly on communities nor through national government policy onto the other spheres. Practical approaches are required if cooperatives to be more successful.

Critical Success Factors

In order to be successful co-operatives need the following internal fundamental conditions:

  • A group of people must have the desire to solve a common problem

  • There must be a least one person with leadership abilities in the group

  • The co-operative should produce tangible benefits for the members

  • The co-operative should have dynamic managers who can implement business policies. A management structure that reflects the capabilities of the members should be in place

  • The advantages of membership must outweigh the cost of duties of membership

In order for successful co-operatives to work one needs the following external fundamental conditions:

  • There must be a favourable climate for co-operative work

  • Enabling legislation must be in place granting autonomy to adjust the by-laws of each co-operative society to the wishes and needs of its members

  • A tax regime for co-operatives should be provided which takes their particularities into account

  • Patience is essential. Trying to speed up the development process artificially by injecting external funds usually leads to short lived growth followed by collapse after external aid comes to an end

Practical Knowledge

Title & Detailssort descending User Ranking Popularity
An introduction to cooperatives, factors for success and failures, and their role in Local Economic Development
Author(s): Bernd Harms
Year: 2007
Format: Training
No votes yet
Case Study of the ZR Mahabane Brick Manufacturing Cooperative in Masilonyana, Free State
Author(s): Tiisetso S. Makhele
Year: 2010
Format: Case Study
Average: 2.7 (9 votes)
Co-operating out of poverty - Approaches to Co-operative Development
Year: 2007
Format: Training
No votes yet

Theoretical Knowledge

Title & Detailssort descending User Ranking Popularity
A better future for young people: What cooperatives can offer
Author(s): ILO
Year: 2012
Format: Overview
Average: 5 (4 votes)
A Co-operative Development Policy for South Africa
Author(s): Department of Trade and Industry
Year: 2004
Format: Policy
Average: 5 (8 votes)
Co-operative enterprises build a better world: Food
Author(s): Co-operatives United
Year: 2012
Format: Report
No votes yet