As an advocacy campaign focused on young people’s roadblocks to employment, Youth Capital regularly speak to South Africans about the factors holding them back from finding economic opportunities; but we also realised that small business owners are also coming up against their own set of challenges. Determined to find ways of finding solutions, we started digging into quantitative evidence and analysing qualitative data to better understand this divide.
Bringing these two sides of the employment story into focus helped us surface key policy and systems changes , which can be found in our research brief Bridge the Gap. The findings were also unpacked in a Daily Maverick webinar, where Business Maverick’s Ray Mahlaka was in conversation with Professor Lauren Graham (Centre for Social Development Studies) and Michael Jordaan (Rain and Bank Zero).
The latest Quarterly Labour Force Surveys confirms that youth unemployment is a critical issue affecting the country, with 4 in 10 young people between the ages of 15 and 35 years old are not in education, employment or training. Prof Lauren Graham started off the discussion reflecting on the complexity of the crisis, which can’t be solved by a silver bullet. ‘Our economy is constrained on many fronts, and we don’t have job growth; at the same time, young people face multiple barriers in getting into employment. We need an integrated strategy, which is not easy to implement.’
Unemployment is not going to fix itself. There should be a high level of urgency to get this economy to grow at a higher rate, and I am not seeing clear indications from the government on their inclination to take tough decisions to put us on that path.Michael Jordaan
When asked about what South Africa is not getting right when tackling the crisis, Michael Jordaan commented on the importance of policy decisions that can promote economic growth. He also reflected on the role that the education system ‘The current system is not tailored to the needs of the job market, and this puts young people at a disadvantage. These are problems that can be easily solved’.
The role of small businesses
Michael Jordaan painted a picture of what constitutes an SMME, ‘There is no standard definition across the world, but in South Africa a SMME has a number of employees between 1 and 200, and an annual turnover less than R100 million’.
According to Youth Capital’s research, in South Africa, over ver 60% of all employed people work in businesses with fewer than 50 employees. Between 2016 and 2019 SMMEs created more than 1800 jobs per day. However, SMMEs often have to navigate difficult conditions and high failure rates, so Prof Graham explained some of the reasons that make these businesses great job creators.
‘SMMEs often rely on employees, and this makes them good job generators.So they are creating jobs for young people, but we need to find ways to support them in bringing people into the world of work in ways that are positive for both the business and the young person.’
Prof Graham went on to outline one of the gaps businesses experience, which is relying on social connections to find the right young hire, ‘SMMEs and businesses in general mostly recruit through social networks, and this is often used as a proxy for trust. But actually it’s not the best way to employ young people. This is mainly because the majority of young people are outside these networks – over 4 in 10 young people who are not in employment, education or training come from households where nobody is employed. Working with organisations that run youth employability programmes is a good way to do it’
Michael Jordaan considered the willingness that small businesses have to employ young people ‘However, we must remember that their first goal is to make a profit and to survive. So whatever we can do to support businesses being more successful, it indirectly leads to more employment’. He went on to discuss the impact of red tape ‘There are programmes out there, but most businesses either don’t know about them, or they’re difficult to navigate – these schemes should be more user friendly. Secondly, regulations should be relaxed to encourage the hiring of labour’.
How can we bridge the gaps?
Incentives have been a government strategy to promote hiring. Michael Jordaan reflected on how these have worked well in some parts of the world; he also adds that ‘the majority of these schemes have been created in consultation with large businesses, while 60% of all employed people work in small businesses. So these don’t necessarily work for small business owners, and the application process is complex.’
‘The evidence around the Employment Tax Incentive is contradictory; but we have seen some shifts in small businesses where the Employment Tax Incentive has shifted hiring practices among small businesses but the effect is tiny, simply because small businesses don’t know about these schemes, and those who are aware of it don’t have the capacity to manage the red tape. The ETI is with us until 2029 so let’s make it work for us’ adds Graham.
While tax incentives play a role, the macroeconomic context is key, and Jordaan underlined South Africa’s need for a boost of confidence.
‘Confidence is the cheapest form of stimulus that any economy can have’ added Jordaan.
How to get started in hiring and retaining young people
There seems to be a mismatch of skills between young people entering the world of work and employers hiring them. Young people lack basic work readiness skills for a work environment and at the same time, employers expect young hires to have a comprehensive understanding of the workplace. When asked about the profile of young people small businesses seek out, Prof Graham said that ‘Like many others in a business setting, business owners are looking for people who work hard, have an attitude of learning and transferable skills like working in a team, spirit of initiative, and workplace etiquette. Reference letters also help young people stand out, especially with reference to volunteer work done in communities. It’s also important to raise awareness among young people of platforms such as JobJack and SAYouth’. Michael Jordaan added that he looks for complex problem capability that is not attitudinal; he reflected how this is not a skill taught in schools.
Graham commented that businesses owners should also grow awareness of the profile of young people who come through the door. ‘In our policy speak we see young people as job-seekers, but they are whole people who face a variety of challenges in their households and communities. Secondly, it’s important that employers set the expectations right, remembering that most young people don’t have the workplace socialisation, such as working hours and workplace etiquette, as well as providing workplace mentors. This is difficult for SMMEs to implement, and this is why partnerships with youth employability programmes could be very effective’.
Integrated and coordinated response.
Prof Graham confirmed the crucial role played by policy and legislation by providing an operational framework that can support small businesses. She added that there has been a deliberate shift to coordinate policy efforts. ‘Previously you had the ETI in one department, and the Skills Development Levy elsewhere, without talking to each other. What we’re seeing through the Presidential Youth Employment Initiative is much more of a coordinated policy effort to interact, and importantly to make that coordination much easier to navigate for the young person. This is something that should be celebrated’.
While the government can create the prospering conditions, it is the responsibility of the private sector to create jobs, which in turn provide tax income that fund many of government activities. Michael Jordaan reflected on the number of businesses that are trying to solve problems and would like to contribute more to the country. ‘They need a bit more love and appreciation for what they’re doing in South Africa; the bottom line is that we need this economy to grow more. I hope that the Budget Speech will include some pro-growth initiatives, to place us on a structurally high growth path. It’s possible for this economy to grow around 3-5% a year, and only if we do so can we create jobs.’
Michael Jordan concluded with a sense of urgency to tackle the crisis.
‘I want to emphasise that unemployment is the biggest crisis we’re facing, all these resources going to waste, and it’s resulting in secondary effects such as crime, poor living conditions and complete dependence on social grants. A long term solution is to fix our education system.’