The national unemployment rate was at 29% in the second quarter of 2019, according to Statistics South Africa’s (Stats SA’s) Quarterly Labour Force Survey (QLFS). Even more concerning was the significant increase in the unemployment rate of young people between the ages of 15 and 34 years, to 56%. While South Africa is far from realising the employment goals set out for us in the National Development Plan 2030, there are pockets of progress being made in creating jobs for young people. This article considers the drivers of youth unemployment and some of the key public and private sector initiatives and partnerships for job creation.
Unemployment continues to climb, disproportionately impacting the youth
According to Stats SA’s QLFS for the second quarter of 2019, 6.7 million people, or 29% of the working age population, were unemployed, marking a 5.8 percentage point increase in a decade and the highest unemployment rate since 2003. Over 70% of unemployed people have been looking for work for one year or longer.
The overall unemployment rate is skewed by concentrated levels of youth unemployment. The unemployment rate for 15- to 24-year-olds is 56% and 25- to 34-year-olds is 35%, while 35- to 64-year-olds is 19%.
Trading Economics, a global economic indicator website, lists South Africa fifth highest in the world and third highest in Africa in terms of unemployment rates, following the Democratic Republic of the Congo (46% – however, this figure was recorded in December 2013), Namibia (33%), Bosnia and Herzegovina (33%) and Palestine (29%).
Barriers that keep youth out of work
The primary barrier to employability is education. Within the youth cohort, university graduate qualifications clearly improve the chances of being employed, with 33% of young graduates unemployed. While still shockingly high, this is less than the average 15-to 24-year-old rate of 56%. Access to university education is not only impeded by financial restrictions for those who make it to tertiary level studies. The vast majority of young people in South Africa do not even have university education as a prospect.
Despite the country spending more than 6% of its GDP on education, about half of learners drop out before completing high school and fewer than 5% who start primary school end up with a university qualification, according to the International Monetary Fund 2019 Working Paper, titled Struggling to Make the Grade: Weak Outcomes of South Africa’s Education System. The working paper goes on to note the long-term correlation between poor schooling results and the low employability of young people.
Based on insight from Harambee Youth Employment Accelerator’s November 2018 Breaking Barriers Quarterly Enrolment Report which analyses Harambee’s own data, having access to some form of finance positively impacts future labour market outcomes: “Access to any household income improves the probability of long-lasting employment by almost 50% because there is funding for the high costs of work seeking.”Work-seeking costs which include internet access, printing and transport costs that entry-level recruitment company, Lulaway, estimates to start at around R550 per month.
Young work seekers from under-resourced communities also rarely have access to the social networks and contacts that can assist with job leads and provide career advice and professional mentorship. According to data from Lulaway, 30% of new young employees were likely to leave their jobs within three months if there was no support or mentoring in the workplace. The recruitment company advises companies to provide regular feedback, engagement and a clear indication of career growth.
To assist with the integration of young people who are new to the world of work, some companies are introducing mentorship programmes. Investec, for example, facilitates mentorship between staff and recipients of the company’s bursary programme, while Aurecon pairs young employees who are new to the company with a mentor to help guide professional and personal development. Harambee advises that companies also offer financial literacy and wellness programmes, particularly to entry-level employees.
Four key NDP recommendations for economic growth and increased employment
- To eliminate poverty and reduce inequality, South Africa has to raise levels of employment and, through productivity growth, the earnings of working people.
- South Africa needs faster and more inclusive growth. Key elements of this strategy include raising exports, improving skills development, lowering the cost of living for the poor, investing in a competitive infrastructure, reducing the regulatory burden on small businesses, facilitating private investment and improving the performance of the labour market to reduce tension and ease access to young, unskilled work seekers.
- Only through effective partnerships across society can a virtuous cycle of rising confidence, rising investment, higher employment, rising productivity and incomes be generated.
- South Africa requires both a capable and developmental state, able to act to redress historical inequities and a vibrant and thriving private sector able to invest, employ people and penetrate global markets.
Cross-sector cooperation aims to propel job creation
The Public-Private Growth Initiative (PPGI), initially positioned in the Presidency in 2018, is a five-year collaboration between government and the private sector. Between December 2018 and June 2019, government met with representatives from 21 business sectors to discuss how the two could work together. Forty-three private sector projects were identified as having the potential to create 155 000 jobs and inject R840 billion into the economy over the next five years. Projects include the expansion of an abattoir, the establishment of automotive parts manufacturers, forestry plantations and paper processing plants, and an agricultural development agency.
In his 2019 State of the Nation Address, President Cyril Ramaphosa referred to the success of the PPGI. The initiative has facilitated commitments to 43 private projects in 19 sectors of the economy over the next five years.
The Presidential Jobs Summit, convened by the National Economic Development and Labour Council (Nedlac) in October 2018, engaged government, business, labour and community to discuss how jobs could be retained and created. A total of 77 commitments were made, ranging from investment in job creation, small and medium enterprise (SME) development, education and skills development, to create at least 275 000 jobs over the next year. Banks also committed to targeted loans and investments for black-owned enterprises, to the value of R100 billion over five years. Reporting in August 2019 on progress made, minister of employment and labour, Thulas Nxesi, said that the most serious constraints to job creation since the summit have been the issue of electricity supply; bureaucratic government processes, including the difficulty for businesses to obtain water licences; and the visa issues that impacted the tourism industry. Nxesi committed to more robust implementation moving forward and said that stakeholders in the process would meet monthly, rather than quarterly.
The Youth Employment Service (YES), launched in early 2018, aims to create one million work experiences in five years. This business-led collaboration with government and labour aims to stimulate demand-driven job creation through company investment and by leveraging existing government initiatives such as the Employment Tax Incentive and Broad-Based Black Economic Empowerment (BBBEE) Codes. YES aims to place unemployed youth in minimum 12-month work experiences and training opportunities; develop critical skills, particularly in digital, business administration and innovation; and develop SMEs in townships, through YES Community Hubs. Work-seeking youth register for employment opportunities on the YES website and, once selected, are invited to attend interviews. To date, 355 companies have registered and over 18 000 work experiences have been facilitated.
The CEO Initiative, launched in 2016 as a collaboration between business, labour and government, received an initial R1.5 billion investment from corporates for the development of SMEs, with the ultimate goal of creating new jobs. In 2019 the SA SME Fund, established by members of the CEO Initiative, received R1.4 billion from the Public Investment Corporation (R500 million) and 50 local companies.
The Employment Tax Incentive (ETI), previously known as the Youth Wage Subsidy, was introduced in 2014 to incentivise the employment of inexperienced and untested young workers. A tax subsidy is paid to eligible employers for the first two years that a new and qualifying candidate below 30 years is employed, with the size of the subsidy dependent on the worker’s earnings. According to the ETI website, 270 000 young people have been employed by 29 000 companies under the scheme. However, an ETI report found that companies are underclaiming by between 25% and 45%. The ETI was originally planned to run until December 2016 but was extended until February 2019 and then again until February 2029.
The Jobs Fund, an initiative of the National Treasury, was launched in 2011 with the target of creating 150 000 permanent jobs. Initially, an amount of R9 billion was set aside by the South African Government to co-finance projects through a combination of grant and match funding by public, private and non-governmental organisations that significantly contribute to job creation. The Jobs Fund offers funding in four categories: enterprise development, infrastructure, support for work seekers, and institutional capacity building. By December 2018, 170 000 permanent jobs, 55 000 short-term jobs and 20 000 internships had been created, and 220 000 beneficiaries had been trained. The Fund supported 126 projects and allocated R6.7 billion in grant funding, which leveraged co-financing of R9.5 billion towards job creation.
Harambee Youth Employment Accelerator works with employers from various sectors to promote inclusive hiring practices that focus on young people. The organisation sources, trains and places unemployed young people from under-resourced backgrounds into first-time jobs. Harambee identifies candidates where existing corporate recruitment networks do not reach, and assesses and trains the youth through bridging programmes. Newly trained youth are then placed in jobs that match their skills. To date, Harambee has supported over 600 000 work seekers, placed young people in 100 000 jobs and work experiences and partnered with 500 companies.
Bonds4Jobs is an innovative impact bond incubated by Yellowwoods and Harambee, together with the Gauteng Provincial Government and the private sector, including The Standard Bank Tutuwa Community Foundation. Impact or pay-for-performance bonds are a funding model in which investors provide working capital that is returned with interest when results are delivered. In this instance, funding is provided to organisations that upskill excluded youth and place them into jobs in growth sectors. The Gauteng Provincial Government has committed to repaying investors when results are delivered, using the Tshepo 1 Million youth skills empowerment initiative. Tshepo 1 Million targets unemployed residents from Gauteng, aged between 18 and 34 years old, with at least a grade ten education. Furthermore, the individuals must be first-time work seekers with no more than 12 months’ work experience. Bonds4Jobs aimed to achieve 600 youth job placements in its first year of the four- year pilot study. This was achieved after nine months and all the investors had their money paid back with interest.
The National Business Initiative (NBI) is a membership-based organisation of companies from different sectors. One of its focus areas is skills development, particularly supporting company partnerships with technical and vocational education and training (TVET) colleges. For example, the Construction Industry Partnership, launched by the NBI in 2006, facilitated partnerships between TVET colleges and construction companies to improve the colleges’ responsiveness to the industry’s skills needs, with the Department of Higher Education and Training as a strategic partner.
Big business can support small business to create jobs
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 factors have been found to influence the success of incubation and business support programmes:
- Finding the right type of entrepreneur, one that is opportunity, rather than necessity driven; has conducted some degree of market research that indicates meaningful market potential and opportunity; and possesses favourable personal and behavioural qualities and competencies, including resilience and innovative thinking
- Rigorous recruitment and selection processes in order to attract high- potential entrepreneurs
- Focus on a single sector or type of product so that resources can be pooled, innovation encouraged, skills transferred and information exchanged
- A strong networking component that facilitates access to corporate procurement opportunities
- Longer periods of incubation (providing entrepreneurs with office space and services, etc.) spanning at least one year and running up to three years
- Post-incubation monitoring and support for entrepreneurs, for at least three years
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.
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.