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Sunday, December 5, 2021

OPINION: social investors must target the creation of small businesses


President Cyril Ramaphosa has outlined a number of measures to address the burning issue of unemployment, particularly among young people. With South Africa’s unemployment rate rising to a record 32.6% in the first quarter of 2021, social investment from the private sector can play an important role in what seems like an almost insurmountable challenge.

Unemployment in South Africa is a systemic issue, and there are two elephants in the room that need to be addressed — the structure of the economy and education.

From a funding perspective, most funders are interested in addressing the education component, because that is the “easier” option, but without addressing the systemic issues in the economy, the struggle to address unemployment will continue unabated.

Funding into training might seem like a step in the right direction when it comes to supporting the education side of unemployment, but this is problematic as this funding does not always address education at the systemic levels. An example of this is funders putting resources into “training” people to run businesses and issuing bursaries, but not addressing key issues such as literacy and numeracy, a problem from the foundation phase of education.

The net result is that we tend to have a lot of funds going into programmes that are trying to develop young people into employment, but there are either no jobs available for them once they graduate, or they are not graduating from various programmes with the necessary skills.

READ: Ramaphosa has no plausible strategy for reducing youth unemployment

Another important consideration to factor into any education and employment support funding is how the Fourth Industrial Revolution will affect jobs.

The reality is that more jobs are going to emerge over the next decade which will in all likelihood require higher technical proficiencies. This will only exacerbate the problem that South Africa and many developing economies face, with school leavers not having enough of a background for the development of these proficiencies.

Digital inclusivity is also essential, especially as we look to develop more people into the gig economy. How do we as social investors bring more young people into the digital economy as active participants and not only technology recipients? What is needed is a reassessment of what skills we deem necessary. For social investors it is imperative that they try to match the output to the skill sets, link earlier school-based investments to post-school development, so that we begin to develop pockets of excellence through various cohorts.

Because the structure of the economy and education will never be changed by social investments alone, social investors need to adopt a more pragmatic approach to investing in employment creation. What is needed is the tempering of expectations and localising of efforts.

Instead of funding a programme from which thousands of young people hope to graduate and be employed, certain strategic investments could build and develop local economies. This could include investing in a very small local economy that produces a “space” where 10 start-up businesses can thrive.

While many of these changes are needed in the long term, the greatest paradigm shift that is needed is moving the social investment from breadth to depth. While this may sound counterintuitive, we should not be aiming to reach as many people as possible. Rather, we need to be creating jobs, businesses and industries that are as sustainable as possible.

This will develop local economies that will develop new markets that will have a multiplier effect on absorbing more people into the greater economy. Also, with the use of technology, the “local economies” will not only have to remain geographical, but will be able to broaden their reach, once they have been initially contained and somewhat protected.

READ: Youth unemployment: Is the solution a change in mindset?

The support of small business is absolutely essential. We desperately need to be putting cash into building small businesses and their immediate markets, as opposed to the funding of training or any other resources. 

We need to jump-start certain industries with market-creation techniques through direct investment before leaving the business to contend with the open market. Types of interventions here could include rent relief, loan sureties and better supply-chain integration.

Attracting impact investments into this space could also have an enormous benefit, specifically if we use high-risk social investments that do not require returns, to lower the risk for impact investors.

Riyaadh Ebrahim is a Social Investment Specialist at Tshikululu Social Investments

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