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How EMEs can tackle youth unemployment

By Deon Oberholzer Time of article published Jun 4, 2020

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Alarming estimates suggest that between 1 million and 4 million formal and informal sector jobs are at risk as a result of the nationwide lockdown, with South Africa’s unemployment rate forecast to be 35.313 percent in December.

For South Africa’s youth, the outlook is expected to be even more grim. The estimated youth unemployment rate was 53.18 percent last year.

In addition to the outlook of spiralling unemployment are the businesses that are struggling to employ people, even though they need to and would like to. The economy is estimated to shrink by between 10 and 16.7percent this year despite stimulus efforts, with slowed economic activity placing enormous pressure on companies across all sectors, particularly small businesses.

Exempt micro-enterprises (EMEs) contribute significantly to the economy, and they are job creators. By rethinking their role in the economy, they could become part of a novel solution to the country’s unemployment crisis - even against the backdrop of the Covid-19 crisis.

High youth unemployment could be tackled by allowing EMEs to participate in the Youth Employment Services (Yes) Initiative and allowing them to earn black economic empowerment (BEE) points for hiring and training previously disadvantaged young people.

Introduced in 2018, the Yes Initiative is a business-driven programme in partnership with the government and labour that is aimed at job creation for black youth between the ages of 18 and 35.

Companies that participate in the initiative earn recognition for broad-based black economic empowerment (B-BBEE).

With the critical need to create jobs, it is also appropriate to consider whether we should expand the Yes programme to allow for three levels and not two.

In terms of the Department of Trade and Industry’s Codes of Good Practice for BEE, EMEs typically have an annual turnover of less than R10million and they are exempt from measurement in terms of the codes.

White-owned EMEs, however, are stuck at level 4, and therefore excluded from some business opportunities that may be reserved for companies with better BEE levels.

In terms of the BEE codes, EMEs are excluded from participation of the Yes programme for BEE benefit, unless they go through the complex and costly process of becoming BEE compliant as a much larger enterprise.

We have a glaring unemployment problem, and it is only going to get worse in the wake of Covid-19.

Youth unemployment is more than 53percent, and this is untenable in an inclusive society.

The creation of the Yes Initiative was an attempt to mitigate this. But with an underperforming economy, it is unlikely that the jobs will appear overnight unless we consider a new approach to the problem. We need to rethink the role that EMEs could play in our economy.

EMEs are throttled by the current Codes of Good Practice for BEE, which prevent them from achieving sustained growth unless they graduate up the BEE levels by introducing shareholding or at a high cost submit themselves to the full compliance regime to achieve a higher score by investing in audit and compliance activities to increase their score.

Many companies set out minimum requirements for businesses to tender or become registered or approved suppliers.

Often, they want a minimum BEE level 4 or higher. There are also preferences built into the Preferential Procurement regulations to favour companies with higher levels.

Indeed, small companies can obtain higher levels than level 4, but the costs of meeting all the requirements can be prohibitive.

EMEs can obtain a higher BEE level from other categories other than ownership, such as management control, skills development, enterprise and supplier development, and socio-economic development.

However, they need to comply with all the elements, and that might be a tall order, because you must get almost everything right to get to a level 1, which is against the spirit of exemption in the first place. The Yes Initiative would be a much better incentive, and it would mean they can employ vulnerable youths. It just makes sense.

A 2018 South African Revenue Service and National Treasury report showed that there are about 240000 VAT-registered companies earning between R500 000 and R10m a year. If the codes were amended to allow these EMEs to employ at least one person from the Yes programme, per BEE level, they could earn two BEE levels, or three.

The net result would be the potential employment of 750000 people in small companies, while each EME could go up three BEE levels. Thus, this would result in about 250 000 EMEs emerging as active and growing players in the economy with a beneficial BEE status, while helping to train and give jobs to previously disadvantaged youths.

It is clear to see that by allowing EMEs to participate in the Yes Initiative, they can help to get young people off the street, while obtaining a level 1 or 2 BEE level. It is time to think innovatively to help address unemployment as well as stimulate South Africa’s small business economy, which has been severely impacted by Covid-19 and the lockdown. This is a scenario that we have never experienced and unusual problems call for unusual solutions.

Deon Oberholzer is the chief executive of Gestalt Growth Strategies.

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