Alarming estimates suggest that between 1-million and 4-million formal and informal sector jobs are at risk as a result of South Africa’s nationwide lockdown,1 with the country’s unemployment rate forecasted to be 35.313 % in December 2020.2 For South Africa’s youth, the outlook is expected to be even more grim. In 2019, the estimated youth unemployment rate was already at 53.18%.3
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 contracting economy is estimated to shrink by between 10% and 16.7% this year despite stimulus efforts,1 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 also 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.
This is according to Deon Oberholzer, CEO Gestalt Growth Strategies. He believes that 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 government and labour which is aimed at job creation for black youth between the ages 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 if we should expand the YES programme to allow for three Levels and not just the 2 it currently provides for.
In terms of the Department of Trade and Industry’s Codes of Good Practice for Black Economic Empowerment (BEE) an EMEs typically have an annual turnover of less than R10-million and they are exempt from measurement in terms of the Codes. White owned EME’s, 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.
Oberholzer says: “We have a glaring unemployment problem in South Africa and it is only going to get worse in the wake of COVID-19. Youth unemployment is over 53%, and this is untenable to 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.”
Oberholzer says 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 then 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,” says Oberholzer.
He cites from the 2018 SARS, and Treasury report that there are about 240 000 VAT registered companies earning between R500k and R10m per annum. 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 if Oberholzer’s suggestion is implemented. The net result would be the potential employment of 750 000 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 national lockdown. This is a scenario that we have never experienced and unusual problems call for unusual solutions. Giving EMEs the opportunity to participate in the YES Initiative is the type of incentivising approach that is needed in this unusual time.”
- Cronje, J. (6, May 2020). SA economy could shrink by up to 17% in 2020 despite stimulus, warns business alliance. Retrieved from fin24: https://www.fin24.com/Economy/South-Africa/sa-economy-could-shrink-by-up-to-17-in-2020-despite-stimulus-warns-business-alliance-20200506
- Fund, I. M. (18, 05 2020). South Africa Forecast: Unemployment Rate. Retrieved from SEIC: https://www.ceicdata.com/en/indicator/south-africa/forecast-unemployment-rate
- Plecher, P. b. (12, 02 2020). Youth unemployment rate. Retrieved from statssa: https://www.statista.com/statistics/813010/youth-unemployment-rate-in-south-africa/