A massive problem, not just in South Africa, is the large number of young persons who are unemployed. In South Africa’s case 50% of the South Africans who don’t have jobs, are youngsters; and the last fortnight has seen a vigorous debate about a youth wage subsidy – something which President Zuma first mooted in 2011. The idea is that companies receiving the subsidy will use it to train and skill these young people. Obviously, a commendable sentiment.

While business and the government (for the moment anyway) support the idea, it is vigorously opposed by the biggest labour confederation COSATU. COSATU is committed to the principle of a “decent” wage and sees this as something compromising that principle. Its concern is that “an unconditional wage subsidy will create a two-tiered labour market open to misuse by employers who wish to maximise profit and improve their bottom-line”. COSATU also feels that business will use the youth subsidy to replace older workers with youngsters. In fact, COSATU feels so strongly about the matter that it violently opposed a march in Johannesburg by opposition Democratic Alliance (DA) – incidentally a smart bit of politics - which favours the proposal.

The reason I said the government supports the concept for the moment is that COSATU’s support of the ANC from an electoral point of view is critical, and it will be interesting to see whether the government under increasing pressure from COSATU will hold its line.

The youth wage subsidy – in fact anything that makes a dent on the unemployment particularly of the young – must be welcomed. But it has limitations. And there are also more effective ways of generating jobs.

The limited effect of the youth wage was eloquently set out by Terry Bell – a columnist with Business Day with strong labour tendencies. He pointed out that the problem of employment is not so much a question of training and skills but of available jobs. “There is a wide spread assumption that there will be jobs to be had if only the millions of unemployed youth in particular were provided with adequate skills. But both surplus capacity and surplus productions, together with the ongoing development of technology, make this highly improbable. The end result is not only increased, and increasing joblessness, but also a sharp rise in temporary and part-time work and a steady decline in the disposable incomes of working families.”

Rather than skilling people, a better system would be to create the jobs that are needed – which brings us to the promotion of entrepreneurship and small business. Dr Reuel Khoza, whom we referred to at some length in our last Insight, is turning out to be one of the more sensible and eloquent advocates of entrepreneurship and small business; and in addressing unemployment and creating jobs in a microfinance conference last week, Khoza said: “The issue of job creation is stifled when our economy is not expanding. And the issue needs to be addressed by focusing on entrepreneurship. Government should therefore create an enabling environment with minimal regulation to enable entrepreneurs to flourish.” And Discovery’s Adrian Gore put it differently: “Create one million small businesses and you will create five million employment opportunities” – incidentally, the theme of a conference Omega organised last year.

What does entrepreneurship and small business need? Firstly, it is an unfortunate fact that entrepreneurship levels in this country are extremely low. And secondly, getting small business – especially microfinance up and running – seems harder in South Africa than in many other similar social and economic systems. The result is that the 2011 Global Entrepreneurs Monitor (GEM) Report showed that in South Africa less than one half of 1% of employees are actively engaged in entrepreneurial employee activity, compared with a country like Uruguay where nearly 5% of employees are busy with new business ideas. One reason for this is an enabling environment. According to the World Bank’s Ease of Doing Business 2012 in the top rated country, Singapore, it takes 3 procedures, 3 days and costs only 0,7% of income per capita to start a business. In South Africa, which is ranked 35, it takes 5 procedures, 19 days, and costs 0,3% of income per capita to start a business.

Another reason for the retarded state of small business in South Africa is availability of initial funding. And one of the problems in this regard is that there has been a wide array of funding agencies. A positive development is an investment plan recently announced by economic development minister Ebrahim Patel. Called the Small Enterprise Finance Agency (SEFA), and completely managed by the Industrial Development Corporation (IDC) – a usually sensible and well-established self-funding agency established in 1940. Listening to the IDC’s Katinka Schumann last week explain how SEAF will work one felt some hope that there will be more financial support and guidance for small business. However, much depends on how well the various previously existing funding agencies gel together under the IDC.

Editor’s note – An Invitation
If you think you have an original idea which will promote small business and entrepreneurship, or increase youth employment, please forward it to us. But please keep it brief.
Email Stacey Farao: staceyf@omegainvest.co.za