Why most Cooperatives have failed in Zambia

UPND Alliance needs to recalibrate the Cooperative Movement

By Mwansa Chalwe Snr

There has been a craze by the ruling Party Politicians of urging the Youth to form cooperatives. The excitement for the movement is such that, it has given the impression to young people that the concept or business model is new to Zambia. The reality is that the Cooperative movement has been in Zambia for about 108 years. This is an educational piece, and a continuation from last week’s article.

The Cooperative business model is a very useful developmental model if its principles are followed, and there is proper leadership, management as well as an enlightened membership. The model is ideology neutral. It is practiced both in Capitalist and Socialist countries alike. In the United States of America, which is the epicentre of capitalism, for example, there are over 40,000 Cooperatives ranging from small neighbourhood stores, to the $30 billion multi-national organisations like Land O’ Lakes. It is estimated that more than 110 million Americans belong to a credit union, which is about one-third of the total U.S. population. The model is also practiced all over the world: UK, Europe, Japan, China, India, Australia, South America etc.

Brief History of Cooperatives in Zambia

The first Cooperatives in Zambia were formed by European settler farmers in 1914 to protect their interests. They used them as a means of marketing their agricultural produce to the newly opened copper mines in the Congo (now DRC) and Northern Rhodesia (now Zambia).In the early 1940s, however, despite restrictions, small-scale African farmers formed several cooperatives among themselves. At independence, the United National Independence Party (UNIP) government, wanted to develop the cooperative movement and created the Department of Marketing and Cooperatives. The UNIP Government encouraged the formation of cooperatives in order to equitably distribute financial resources to all rural areas and as a vehicle to fast track development.

In 1970, the Cooperative Societies Act of 1970 was enacted. Through this new Act, the Government gave itself powers that enabled it to influence the day to-day activities of cooperatives. More importantly, the Government was able to inject massive financial assistance and technical expertise into cooperatives. Government was joined by several Donors in providing technical assistance and grants to cooperatives. In 1973, a Confederation – the Zambia Cooperative Federation (ZCF) – was formed for the purpose of overseeing the cooperative movement in Zambia. In 1989, the National Agricultural Marketing Board (NAMBOARD) which was responsible for the marketing and distribution of agricultural produce was dissolved, and its responsibilities, along with its assets and liabilities, were transferred to ZCF. The Cooperative movement was so strong under UNIP, such that there was even a separate Ministry of Cooperatives, a Cooperative College and a Cooperative Bank.

In 1991/92, the new government of the Movement for Multiparty Democracy (MMD) liberalized the economy to comply with the IMF/ World Bank prescribed Structural Adjustment Programme (SAP). This brought an end to the era of government sponsored and controlled cooperative development. The role of government shifted from direct involvement in the day-to-day activities of cooperatives, to providing an enabling environment for private sector operations. The ZCF was negatively affected as its capacity to effectively oversee the development of the cooperative movement was greatly impaired.

In 1998, the Movement for Multiparty Democracy (MMD) enacted the new Cooperatives Act No. 20 of 1998 to replace the Cooperative Societies Act of 1970. In 2015, the Patriotic Front transferred the Department of Cooperatives from the Ministry of Agriculture to the Ministry of Commerce, Trade and Industry. In 2021, UPND government transferred the Department of Cooperatives to the new Ministry of Small and Medium Enterprises (SMES), as is the case in neighbouring South Africa. The relocation of the Cooperative department was meant to change Zambians mindset from associating them with agriculture only, but extend them to sectors like engineering, construction, insurance, finance, mining, transport, manufacturing etc.

Performance of Cooperatives in Zambia

There are number of studies that have been conducted with regard to the status and performance of cooperatives in Zambia since the liberalisation of the economy in 1991.They all have concluded that cooperatives were performing very badly in Zambia. Cooperatives have disappeared from the public limelight since 1991 and the majority of them were either dormant or non-performing.

According to research, on average, each cooperative only employs 3 employees including the cooperative society manager. Consequently, it was estimated that at the end of 2019, the Cooperative movement only employed about 30,000 employees. Prior to that, cooperatives were the third contributor to employment creation in Zambia. The International Labour Organisation (ILO) conducted a study on Cooperatives in 2009.

“Overall, the cooperative movement in Zambia is generally weak. Most cooperatives are either defunct or non-performing. The majority have a very weak financial base. Enactment of legislation in itself may not be enough to ‘re-invent’ the cooperative movement in Zambia. Legislative reforms will need to be supported by deliberate initiatives aimed at orienting the people’s mindset towards appreciating the potential benefits of an effective and sustainable cooperative movement. Of paramount importance is the need for co-operators to appreciate the meaning and objectives of cooperatives, with a view to ensuring that cooperative members accept that it is their responsibility to take actions that help to enhance the development and effective performance of their cooperatives. If the success stories from other parts of the world, including Russia and Bangladesh are anything to go by, cooperatives in Zambia should also be able to stand on their own and contribute to economic and social development”, Wrote Dr. Peter K. Lolojih, of the University of Zambia, the Author of the 2009 ILO report that reviewed the performance of the cooperative movement in Zambia.

And more recently, the International Cooperative Alliance (ICA) in conjunction with the European Union (EU) did another study in 2019 which also concluded that the Cooperative movement was performing poorly in Zambia.

“Majority of co-operatives especially those in the agricultural sector are poorly managed and struggle to create job opportunities with their involvement revolving around accessing government handouts through youth empowerment funds, FISP and other programs. There are exceptional cases of co-operatives that are creating employment in particular, the Savings and Credit Cooperatives, though mostly based in Lusaka, have wide membership country wide such as Care co-operatives and Nkhwazi cooperative whose membership is drawn from a range of Non-Government Organization (NGOs) and embassies, the Zambia Police Thrift Cooperative, Zambia National Service Savings and Credit co-operative, the Zambia Army Savings and Credit, World Vision, Civil Servants Savings and Credit Union all of whom have employed skilled workforce to manage their businesses,” the Report Said.

Major Causes of failure of Cooperatives in Zambia

In a capsule, there are about seven major causes of failure of the Cooperative movement in Zambia. First, the withdrawal of government support and control of cooperatives in the early 1990s seems to have invited management and financial problems to most cooperatives resulting in their collapse. Second, there has been poor leadership and Corporate Governance to the extent that many cooperatives stopped holding Annual General Meetings (AGMs) for very prolonged periods of time. Third, the Department of Cooperatives has failed to enforce the law. The laisse faire regulatory regime has encouraged cooperative leaders to abuse their positions by ignoring membership interests. Fourth, there has been a lack of entrepreneurial skills among the potential co-operators including the youth which has made the exploitation of self-employment opportunities associated with various cooperative activities impossible.

Fifth, there has been inadequate publicity and communication to disseminate cooperative activities. The ZCF has conducted inadequate publicity to educate the general public about the merits of cooperative business model, possibly due to financial constraints. Sixth, the current major hindrance to the sustainable development of cooperatives in Zambia is that they are mainly being formed for the purpose of accessing government resources through programs such as FISP and Youth, Women empowerment programs, which programs are also poorly designed and implemented. The opportunistic and imposed nature in the formation of cooperatives in Zambia does undermine the cooperative philosophy and principles in forming cooperatives, and this makes them susceptible to abuse and corruption. The recent introduction of the CDF is a potential treasure trove for crooks and the corrupt to exploit by facilitating the formation of Cooperatives as means of stealing public funds.

The seventh factor is the lack of education, training and information for members, board of directors and employees. One of the core principles of the Cooperative Business Model 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 Zambia Cooperatives Federation (ZCF) Director General, Mr. James Chirwa was quoted in the Daily Nation Newspaper bemoaning the lack of training for the Youth before implementing Cooperative initiatives.

“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.

What is the Way forward?

The first thing that the New Dawn administration should do is to revisit the Cooperative movement with a view to restructure, recalibrate and relaunch it for the 21^st Century. The current and past approach of asking Youths to form cooperatives without attending to issues that led to past failures, will not succeed. It will not have the intended impact. It amounts to doing the same thing over and over again and expecting a different result. As part of the process, government should advertise or head hunt for Zambians who are still alive, who worked in the Cooperative ecosystem in the past. They can leverage on their experience and institutional memory of the movement in the reform process. There is also need to review the various studies that have been done in order to ascertain in detail, the reasons why the cooperative movement is performing poorly in Zambia, when it is booming in other countries. They should also review the “National Cooperative Development Policy” that was developed in 2007 by the MMD administration, with a view to updating and implementing it. The Department of Cooperatives in the Ministry of Small and medium Enterprises requires strengthening by building capacity to enable it enforce the Cooperative Act. The government should also strengthen the ZCF’s capacity by providing it with more resources so that it can effectively carry out its mandate.

In regard to the current CDF program, as it relates to Women and Youth empowerment, through the formation of Cooperatives, the government is well advised to ensure that they arrange for guiding the beneficiaries on the basic steps that need to be followed at the formation stage. There are four core prerequisites that need to be followed in order for a Cooperative to have a chance of succeeding once in operations. First, any Youth and Woman cooperative should identify a leader, who should be the vision carrier, with the motivation and energy to lead the formation. In order to succeed, a cooperative like any other business, requires a person with entrepreneurial attributes who thinks creatively and is capable of organizing others. Secondly, there is need to organize an identifiable group of individuals who are interested in the cooperative and willing to work together (cooperate). Thirdly, the cooperative, like any serious start up needs to identify the business opportunity it wants to pursue. And in order validate the business idea, a cooperative has to prepare a basic business plan at the very minimum. Fourth, there is need for some basic training for all parties involved prior to commencement of operations. In the absence of implementing these prior actions key success factors, the CDF Women and Youth empowerment programme is destined to fail like others before it. That is a guaranteed.

Conclusion

There is no doubt that the promotion of cooperatives should be encouraged. According to the ILO, the Cooperative form of enterprise is especially suited to promoting rural development and employment. ILO further observes that there is a current trend of growth in cooperatives worldwide with countries like Finland, Philippines, Moldova and Lithuania registering very rapid growth.

“A particular sector of current rapid expansion is the sustainable energy sector with the creation of bio-fuel cooperatives in Brazil, Mexico, Thailand, India, and the United States and wind power cooperatives in Canada, Denmark and the United Kingdom”, the ILO wrote in its fact sheet. Adding, “In Argentina, 58% of rural electricity was provided by cooperatives, in India the needs of 67% of rural households are covered by cooperatives whereas in Benin, West Africa, the savings and credit cooperative federation (FECECAM), provides financial services including affordable micro health and life insurance to its 516,076 individual members and 90% of which are found rural areas.”

In the light of the foregoing, the New Dawn administration needs to be encouraged to pursue the Cooperative Business model especially for rural areas, but it needs to change its current approach and press the rest button. In addition, the government should not give blanket support to all sectors of the economy. Certain priority sectors should be targeted. Programmes should be designed for direct intervention in terms of grants and subsidised loans aimed at sectors like clean energy, agriculture, tourism, financial services, which have immense multiply effects in achieving macroeconomic objectives such as job creation and poverty alleviation.

There is need to address the issues that have been raised in this article which have contributed to the poor performance of the cooperative movement in Zambia. The infrastructure for a proper functioning cooperative movement including a fully-fledged College dedicated to cooperative training does exist. However, after over 30 years of ineffectiveness in the operations of the cooperative movement, there is need for the Government to institute measures aimed at resuscitating the movement rather than rushing to implementation with half – baked programs, as is the case now.

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], www.youthemplymentcreation.com