This opinion piece, written by Youth Capital’s Kristal Duncan-Williams and Clotilde Angelucci, with the ONE Campaign’s Tumba Tshimanga, appeared on Fin24 Business on 10 December 2022.
Natalie Lakey taught herself how to cook at an early age. The fact is she had little choice. Her mom was a single parent juggling childcare responsibilities and a full-time job, so Lakey often cooked and cared for her younger brothers. Today, she owns a restaurant called Pekish that also offers private catering, and employs three full-time staff in Cape Town. No small feat for a 28-year-old who was retrenched during the pandemic and started her own small business knowing that most restaurants close within a year of opening. Lakey’s small business and others like it make up roughly 40% of South Africa’s GDP. In government speak, they are categorised as small, medium and micro enterprises — commonly referred to as SMMEs.
Businesses like Lakey’s are the backbone of our economy, not just in South Africa but the world over. Data suggests that SMMEs created more than 1 800 jobs each day between 2016 and 2019. In fact, Youth Capital crunched the numbers and estimated that more than 60% of all employed people in this country work in micro and small businesses, with fewer than 50 employees.
If we pull the right levers, businesses like Lakey’s can grow our economy and create much-needed jobs. The potential of this sector is precisely why our government created a ministry dedicated to supporting small business development. The number of young people (aged 15-34) who are looking for jobs is on the rise; it has increased from 11.4 million to 12.8 million since 2008. Many of these young people could be absorbed by the SMME market, but there are barriers blocking their entry.
Youth Capital’s latest research brief, Bridge the Gap. Identify the ‘right’ young talent sought to surface the challenges that small business owners face when hiring and retaining young employees. The findings show that at least three things need to change to better support the absorption of young people into the SMME market.
Shift one: addressing skills mismatch
Entrepreneurs value young employees because they promise to bring fresh perspectives, curiosity and energy to a budding business. But many entrepreneurs surveyed by Youth Capital said they were cautious about hiring young people who did not have prior work experience or references that could vouch for them.
Youth employment programmes have sought to remedy this problem by getting young people ready for the world of work, but there remains a disjuncture between the soft and technical skills offered by these programmes and the skills employers need.
Efficient skills matching is key. Existing state-sponsored platforms, such as SAYouth, that link employers with young job seekers could play a critical role in matching employers and young people with the right skills profile.
Shift two: prioritising hiring practices
Youth Capital’s survey also found that entrepreneurs prefer leveraging their existing network of connections to find new hires. This trend is confirmed by national research that shows employers often rely on professional networks and past employees to find the right person to fill vacant posts. Considering that many small businesses lack in-house recruitment resources, youth employment programmes must expand their services to bridge the divide between young participants and potential employers. Entrepreneurs also need support to improve their recruitment strategies so that the right employees are matched with the right companies.
Shift three: reassessing government incentives
While incentives were designed to promote the hiring of young people by providing value for businesses, their impact is difficult to accurately measure. An example is the Employment Tax Incentive (ETI), introduced in 2013 and increased to R1 500 in 2022 to share the cost of young hires between employers and the government. But current research shows that mostly large firms are accessing this incentive instead of SMMEs.
However, Bridge the Gap reveals that these incentives are a missed opportunity, as only one in 10 business owners had accessed the ETI, and only two out of 10 had accessed funding from the Sector Education and Training Authority (SETA). When asked about the main reasons behind this low uptake, seven out of 10 SMMEs said they didn’t know about the incentive options or complained about the red tape involved.
Since inception of the ETI, the government provided employers with subsidies totalling R42 billion, while SETA received R2 billion for the 2022/23 financial year. Ensuring that these incentives work for SMMEs is a non-negotiable. Some of the ways that the government can improve the uptake of available incentives is by streamlining requirements for the sector, providing a support line to guarantee accessibility, and by prioritising the functioning of such SETAs.
With roughly 2.6 million people operating small businesses in this country, bridging the gap between young talent and SMMEs must be a national priority. The remedies lie in aligning and coordinating the activities and interventions of government, youth development organisations and business owners.
The research was conducted with input from Youth Employment Service, Harambee Youth Employment Accelerator, Heavy Chef Foundation, and the ONE Campaign.