ANALYSIS | Young and unemployed in SA: How to help SMEs create jobs | Fin24
 
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ANALYSIS | Young and unemployed in SA: How to help SMEs create jobs

Mar 04 2020 19:27
Zyaan Davids Anter

This is the second of a 2-part series on youth unemployment by Zyaan Davids Anter, content manager at Trialogue and editor of the Trialogue Business in Society Handbook. 

The national unemployment rate remains around 29%, according to Statistics South Africa’s Quarterly Labour Force Survey. Even more concerning is the the unemployment rate of young people between the ages of 15 and 34 years, at 56%.

However, while South Africa is far from realising the employment goals set out in the National Development Plan 2030, there are pockets of progress being made in creating jobs for young people.

A study by the Small Business Institute found that there were about 250 000 SMEs in South Africa in 2018, accounting for just 28% of formal jobs in the economy.

Despite many public-private partnerships supporting SMEs and a range of corporate-run small business support initiatives, South Africa has low levels of entrepreneurial activity in relation to comparable developing countries, and a 70% to 80% failure rate for start-ups in the first five years of business.

The Global Entrepreneurship Monitor 2016/17 report (GEM 2016/17) and Seed Academy's 2016 Startup Survey identified the most significant challenges faced by early-stage entrepreneurs as:

  • the inability to raise funds and access information on funding;
  • lack of access to market opportunities;
  • lack of guidance and mentorship;
  • the inability to manage administrative and business processes;
  • lack of financial management knowledge;
  • lack of market research skills; and
  • lack of customised SME support for businesses at different life stages (i.e. acceleration programmes versus incubation).

According to the Aspen Network of Development Entrepreneurs (ANDE), there were 340 organisations providing support to South African entrepreneurs in 2017.

This support is generally categorised into five business 'life stages': ideation, start-up, early stage, expansion and growth. The majority of the 27 companies in South Africa that ANDE tracked provide entrepreneurial support at the start-up and early stages. Only two out of the 27 companies provide capacity development support for entrepreneurs at the business ideation stage.

Based on GEM 2016/17 and research conducted by the Jobs Fund, the following six factors have been found to influence the success of incubation and business support programmes.

1. The type of entrepreneur. 

Finding the right type of entrepreneur is critical. Entrepreneurs tend to be more successful when they are opportunity-, rather than necessity-driven; have conducted some degree of market research that indicates meaningful market potential and opportunity; and possess favourable personal and behavioural qualities and competencies, including resilience and innovative thinking.

2. Tight selection processes.

There should be a rigorous recruitment and selection processes in order to attract high potential entrepreneurs.

3. Focus.

Entrepreneurs should focus on a single sector or type of product, so that resources can be pooled, innovation encouraged, skills transferred and information exchanged.

4. Networking.

There should be a strong networking component that facilitates access to corporate procurement opportunities.

5. Incubation.

Longer periods of incubation (providing entrepreneurs with office space and services, etc.) spanning at least one year and running up to three years.

6. Ongoing support.

Post-incubation monitoring and support for entrepreneurs, for at least three years, plays a role.

While entrepreneurial programmes with a higher entry threshold tend to have better outcomes, they also marginalise entrepreneurs with limited education, experience and access to resources.

By exposing learners at under-resourced schools to entrepreneurial education and opportunities early on, companies can help to foster opportunity-driven entrepreneurial mindsets.

Banks tend to view SMEs as risks, rather than opportunities. Corporate funders can play an important role in offering favourable terms and providing access to partners who may be able to offer discounts.

Large companies are beginning to realise that making small business part of their supplier base is more than corporate social responsibility – it is good business.  SMEs can be more flexible in providing innovative products or services to meet corporate needs. They can also be quicker and more responsive in delivering services locally, which can save on costs. Their knowledge of local markets can be extremely valuable for large companies trying to enter new markets.

The public and private sectors must closely collaborate to ensure a conducive policy environment and the resources required to realise accessible quality education and skills development, mentorship, entrepreneurial support and equitable employment that responds to the immediate unemployment crisis, while also steadily creating the systemic shifts that are needed for sustainable job creation and economic growth.

One last thing...

BBBEE Codes incentivise companies to help address youth unemployment.

The Amended Codes of Good Practice on BBBEE came into effect on 1 May 2015. The definitions in the Amended Codes relating to socioeconomic development expenditure, skills development, and enterprise and supplier development focus specifically on initiatives that promote economic inclusion, allowing excluded black people (i.e. those not employed or contracted to become employed) to become participants in the mainstream economy. Working to fulfil the requirements of the Codes in an innovative and strategic way can enable companies to make a significant contribution to addressing unemployment in their communities and supply chains, while also benefiting their own businesses.

Skills Development is an absolute priority for achieving South Africa's economic growth and employment goals. This BBBEE element measures the extent to which employers carry out initiatives designed to develop the competencies of black employees and black people external to the business.

Enterprise and Supplier Development assesses the extent to which companies buy goods and services from empowering suppliers with strong BBBEE recognition levels (preferential procurement).

Companies are encouraged to align their enterprise development and supplier development initiatives with their supply chain requirements. This element also measures the extent to which companies carry out supplier development and enterprise development initiatives intended to assist and accelerate the growth and sustainability of black enterprises.

Socioeconomic Development (SED) contributions are defined as monetary or non-monetary contributions initiated or implemented in favour of beneficiaries by a measured entity, with the specific objective of facilitating income-generating activities for targeted beneficiaries. The SED element measures the extent to which companies carry out initiatives that contribute towards South Africa's social and economic development. While CSI is not necessarily synonymous with SED, as it is defined in the Codes, there is substantial overlap between many traditional CSI activities and what can be considered SED.

Views expressed are the author's. The full version of this article was first published in the Trialogue Business in Society Handbook 2019, available for download from https://trialogue.co.za/

unemployment  |  jobs  |  youth  |  labour
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