NDP: The relationship between Youth and SMEs

Eythan Morris | Aug 16, 2013
This brief analyses youth involvement in, and its relationship to, the Small to Medium Enterprises (SME) sector within the boundaries of the National Development Plan (NDP).

Youth involvement

The National Development Plan (NDP) aims to eliminate poverty and reduce inequality in South Africa by 2030. It recognizes constraints on growth, and serves as a guide to a more inclusive economy that will address the country's socio-economic imbalances.
The youth continue to play a significant role in the present as well as the future of South Africa.  In the past the youth played an important role in the liberation of the country. The NDP merits the endorsement of the youth as the country looks towards the future. Cyril Ramaphosa, Deputy President of the ANC, said that the planning commission that drew up the plan, which has been criticised by its alliance partners, had been “particularly impressed” by the interest shown in the NDP by the youth. [1]

On 24 June 2013, in Durban, young South African citizens were advised to connect with and to take ownership of the NDP as part of a dialogue session.

"The NDP is about the future and the youth, so our young people must look at the document and find out how they can make it work and how it can actually enhance their opportunities in skills development, in training, in improving the quality of life for all," KwaZulu-Natal Premier Zweli Mkhize

Youth unemployment hinders NDP aims

High levels of unemployment are a matter of concern. The NDP takes this into account and explains how it may destabilise the fiscus. Unemployed youth become reliant on the government for social protection and welfare services. The NDP entitles the youth to social protection as part of its vision. However, the accumulated cost of supporting so many unemployed youth threatens the programme’s affordability and sustainability [2]. According to the NDP, social protection is a right as part of the respectable standard of living. The Constitution in Sections 26, 27, 28 and 29 guarantee access to housing, healthcare, sufficient food and water, social security, basic education provision, and further education.
A negative situation highlighted by the NDP is that “on current labour market participation and tax-base estimates, there will not be enough taxpayers and contributors to ensure sustainability of social protection." [3].This will inhibit reducing poverty and inequality as an excess burden of responsibility that falls on a small minority of the population. The NDP does however state that the best form of social protection is employment.

"Talking about 2030, it's not about the older guys, it's about the youth. These guys are going to inherit a messed up world unless we get them involved in making this a better country." Khulekani Mathe - Senior Policy Analyst at the Presidency: National Planning Commission [4] 

SMEs and Youth

The best chance of employment lies with increasing the number of Small to Medium Enterprises (SMEs). According to an SME index South Africa has a 50% unemployment rate amongst the youth; South Africa’s young entrepreneurs make up 20% of all employers’ and 32% of the self-employed. [5] From this one could believe that youth entrepreneurship could be an option to start addressing youth unemployment. However, this is not the case due to various factors.

Entrepreneurial Culture

The first of these factors is a lack of entrepreneurial culture amongst the youth. The 2012 Global Entrepreneurship Monitor (Gem) report, which was published earlier this year, illustrates that the percentage of youth in South Africa starting businesses is lower than that of eight other sub-Saharan countries (Uganda, Ghana, Malawi, Nigeria, Zambia, Namibia, Ethiopia and Botswana) despite South Africa’s high youth unemployment rate. These same countries rank higher with regard to how the youth rate their entrepreneurial capabilities, with 40% of South African youth believing they have the capacity to start a business, against an average of 69% in the countries. [6]

According to, GEM a culture of entitlement is affecting South African youth as they misunderstood what it means to be an entrepreneur. [7] This occurs as they believe it is a swift route to effortless wealth, while in reality it often takes years for a business to take off and few entrepreneurs are highly successful, where most just hover along.

Government regularly advises unemployed youth to start their own business – however, young people often lack business experience, education and collateral.   The report suggests that if South Africa is to support more job-creating entrepreneurs, it must back entrepreneurs who are motivated by the opportunity to start a business, rather than those who are driven by necessity or the need to survive. [8]

Economic climate

Another factor influencing youth entrepreneurship is the economy. The elevated level of insecurity within the economy is producing a negative effect on SMEs as its failure rate increases. [9] A consequence of the slowing economy is that investment deals have begun to fail, which combined with slower or negative growth in core operations has left many business owners with high levels of debt that they are unable to service. This is of particular concern as the NDP allocates a key driver for growth and employment within the SME sector. If current SMEs are failing the prospects for new SMEs are condemned and ultimately unemployment will continue to increase.

Government incentives for SMEs

Government has began to support small business by increasing its incentive for small business and creating support structures to help them, according to Deputy Director General Tumelo Chipfupa.

Examples of theses are:

  • Grant approvals under the DTI's Black Business Supplier Development Programme had increased fourfold from 306 approvals valued at R96.6-million in 2011/12 to 1 213 approvals valued at R451.2-million in 2012/13. The Black Business Supplier Development Programme provides cost-sharing grants for technology and business support services to black-owned small enterprises;
  • The number of grants approved under the DTI's Co-operative Incentive Scheme had increased by more than 70% to 182 approvals valued at R85-million over the same period. The Co-operative Incentive Scheme provides cost-sharing grants to co-operatives to purchase equipment or carry out enterprise support;
  • Grants under its Export Marketing and Investment Assistance Scheme had increased by 17% to 1 018 grants valued at R70-million. The Export Marketing and Investment Assistance Scheme help businesses to attend national pavilions, trade missions and trade shows.
  • R169-million, half of this provided by the government, was committed to support 14 incubation programmes under the DTI's new Incubation Support Programme, which was launched in September. [10]

Concluding Remarks 

The NDP calls for youth involvement in achieving its goals. The high youth unemployment South Africa is seen as the biggest threat towards growth – however, it may also be its biggest asset because it can be seen as a potential resource in the development of human capital. If this human capital is mobilised appropriately it could help to attain the growth and employment aims of the NDP. When incorporating this potential human capital into the SME sector he result may lead to more funding for social protection and the fiscus.  

References
[1] http://www.iol.co.za/business/business-news/ndp-should-be-mission-of-sa-s-youth-1.1529336#.Ucr3fuYaK01
[2] http://www.npconline.co.za
[3] ibid
[4] http://www.iol.co.za/business/business-news/ndp-should-be-mission-of-sa-s-youth-1.1529336#.Ucr3fuYaK01
[5] http://www.fin24.com/Entrepreneurs/News/Young-entrepreneurs-make-up-20-of-bosses-20130719
[6] http://www.gemconsortium.org/docs/2801/gem-south-africa-2012-report
[7] ibid.
[8] ibid.
[9] http://www.fin24.com/Entrepreneurs/News/Tough-times-for-SMEs-20130724
[10] http://www.southafrica.info/business/economy/development/small-business-290713.htm#.UfuukdI3CyY

16 August 2013

Eythan Morris – eythan@hsf.org.za
Intern
Helen Suzman Foundation