Gugu Nxiweni | Incentives needed for young entrepreneurs

SA’s National Development Plan sets an ambitious target of small business contributing 60-80% of gross domestic product (GDP) and 90% of the 11-million projected new jobs by 2030.

Achieving this goal would align us with global trends for small and medium enterprise (SME) job creation and contribution to the economy, yet we currently fall far short of achieving the envisaged target.

Though there are varying estimates, there are no single conclusive figures on how many people are employed by SMEs and the size of their contribution to GDP, but it is most likely that the lower estimates of 28% of employment and around 20% GDP contribution are closest to reality — far short of global trends and far short of the target to be achieved within the next nine years.

The Small Enterprise Development Agency (Seda) reports two interesting statistics, that only a quarter of SMEs are owned by young people (under-35s) and that more than half of SME owners have not completed secondary education.

Noticeably, we lag in the latter, compared wiht the US, for example, where 95% of small business owners have a secondary education.

I also recall a conversation I had with an entrepreneur from Thailand, where he indicated that most small business owners in his locality were professionals holding multiple degrees — master’s and doctorates — yet interestingly had chosen entrepreneurship rather than the corporate or academic world.

With Q1 2021 youth (aged 15-34) unemployment at 46.3% coupled with 9.3% of university graduates unemployed, one of the key questions that we need to ask is why our brightest and best, ambitious graduates and young professionals, are not choosing entrepreneurship, and why some of our high potential professionals are choosing to stay employed or be job-seeking rather than start their own businesses?

Among  the multi-layered reasons may well be the lack of incentives and encouragement for entrepreneurial thinking, including the fear of failure and embarrassment, coupled with an overemphasis on the value of employment throughout our studies and in our communities.

So much so that people are more likely to continue looking for work long after losing or leaving a job, even if disheartened and discouraged, instead of looking at how they can turn their skills into self-employment or start their own business.

If employment creation is to move at the desired pace, then we need to look at how we create entrepreneurship-linked incentives that make it worthwhile for young professionals to forgo a corporate salary and take risk, while making sure that our funding instruments and support systems are geared to support these entrepreneurs.

Much of the funding and support, including training, currently available appears to be more geared to suit micro-enterprises and those SME owners who lack formal secondary or tertiary education.

This kind of support is certainly necessary, yet arguably we need to expand and create tailored solutions rather than a one-size-fits-all approach if we also want to grow and support SMEs owned by graduate professionals.

Training programmes, which form the bulk of enterprise development initiatives, need to consider the skills and qualifications that would-be entrepreneurs already have.

It’s senseless, for example, insisting that a person with a legal qualification complete a “basic business law” module or an accountant take an introductory bookkeeping course before they can access SME support or even some of the corporate value chains.

Business infrastructure is another significant barrier to SME development. This could be addressed by setting up shared infrastructure facilities, be it a shared manufacturing facility with tools and advanced equipment or an equipped office space for remote workers.

This could be explored to help and professionalise even those micro-enterprises operating from garages or backyards, to unlock further employment.

Critical is the need to locate this shared infrastructure close to where people live and catalyse the potential of even the township economy.

The private sector has turned such shared facilities into a business opportunity, and it may also be a great opportunity for public-private partnership with entrepreneurs who can make such infrastructure more widely accessible.

Similarly, we need to look at tailoring and aligning funding programmes to the actual needs of the business, rather than to the needs of the funder.

This includes looking at progressive ways of linking repayments to varied business outputs and cashflows, and likewise, improving the effectiveness and reach of government grants and incentives, thereby improving the overall gearing of start-ups.

As we embark on any interventions, it is important to answer the fundamental question of what our young people, and indeed our professionals, are good at and thereafter incentivise them to build businesses that can grow sustainably in those areas of skill and interest.

Rather than only incentivising and allocating resources around targeted sectors, we need to balance these allocations with the sectors in which our people are most likely to succeed and thrive.

In our youthful society with high unemployment, we can and need to be doing more to turn young people and professionals into entrepreneurs.

By supporting and growing a successful small business sector, we have the opportunity to turn the tide on social ills, while improving quality of life for all.

Gugu Nxiweni is a chartered accountant, small business owner and board member of the Nelson Mandela Bay Business Chamber.