By Catherine Wijnberg
The recent election results are a stark reminder that South Africa needs radical change, rather than more of the same, if it is to grow the economy in any meaningful way.
One of our biggest challenges is that job creation has not kept up with a growing labour force, resulting in more unemployed people.
GDP growth of less than 1% means we’re moving backwards when we need growth of at least 4% just to keep pace with population growth. A report published by the Inclusive Society Institute in 2020 pointed out that even an accelerated GDP growth rate of a consistent 3 to 4% percent annually between 2020 and 2030 would only improve the unemployment rate marginally.
But is a higher growth rate possible?
According to the Bureau for Economic Research (BER), South Africa’s average economic growth has been slashed to less than a third of what it was during the first 15 years of democracy. GDP growth averaged 3.6% per year in that golden window, reaching a peak of 5.6% in 2006.
Fast-forward to 2024, and the BER forecasts growth of just 1.3%, which is slightly higher than IMF’s predictions of 0.9% but is an improvement on 2023’s 0.6%. In reality, economic growth has not kept pace with population growth.
Crippling unemployment and the worst inequality globally are a stark reminder that sitting back idly is no longer an option.
To change the current economic trajectory we need bold, ambitious, and visionary thinking, coupled with a firm commitment to implementation. Slight changes in strategy won’t cut it.
The government’s National Development Plan of 2014 projected that 90% of the 11 million new jobs required in South Africa would be created by SMMEs.
This is a pipe dream. In reality, not everyone is in a position to start and run a new business.
In 2015, for example, there were 2.25 million SMEs out of a population of 56 million people – that’s around 4% of the population. Add to this the fact that the failure rates of new businesses remain high, with only one in 10 businesses surviving to celebrate their first decade.
Similarly, youth-run businesses are also not the panacea to South Africa’s high unemployment rate. It’s an unrealistic expectation that a significant proportion of the youth population will become overnight entrepreneurs and solve the unemployment problem.
Entrepreneurship is not a silver bullet, particularly in a constrained economy. Armed with a poor standard of education and no work experience, it’s even harder for younger entrepreneurs from disadvantaged backgrounds to succeed.
With the right support, however, young people can succeed as entrepreneurs.
The 2023 Global Entrepreneurship Monitor (GEM) report, released earlier this year, found that globally, younger people are more likely than older people to start new businesses, with the total early-stage entrepreneurial activity rate of the 18 to 34 age group exceeding that of the 35 to 64 age group.
This is supported by Fetola’s own data, which reveals that more youth are looking for business support now than in 2015. The number of people aged 35 and younger applying to Fetola programmes increased by 22.37% between 2015 and 2022.
Interestingly, of the individuals applying for support, nearly 75% have a tertiary education.
Small business is a critical role-player in economic growth and even more so in developing economies.
However, as the GEM Report concedes, South Africa has a long way to go before entrepreneurship contributes its full potential to economic development, technological advancement, job creation and social cohesion.
The most recent GEM Report reveals that South Africa still lags in both global and African levels of entrepreneurial activity. There are a number of reasons for this, not least of which is a sluggish economy and the lack of a favourable enabling environment to support business start-up, growth, and sustainability.
What is clear is that South Africa’s challenges will not be solved by politicians, any one political party, or the government of the day. Instead, it’s time for the government, private sector, and civil society to work in a more effective, collaborative way and deliver bold solutions to our most pressing problems.
Delivering entrepreneurial success requires building access to market and providing access to growth finance. This can only be achieved through collaborations and scalable partnerships. Encouragingly, there are excellent pockets of opportunities in South Africa in sectors such as waste management, recycling, agriculture, fashion, technology, and services, among others.
However, entrepreneurs need to be provided with support if they are to translate these opportunities into sustainable businesses. For example, the FNB Youth Start-up Accelerator (FNBYSA), in partnership with Fetola, is an investment the bank is making in the future of the nation. The programme is helping to ensure that young entrepreneurs have the knowledge, skills, and resources they need to start and grow successful businesses that contribute to the growth and development of the South African economy. This is an initiative that has the potential to scale exponentially and make a lasting impact.
The FNBYSA is a 12-month online programme which provides aspiring young entrepreneurs with the practical tools required of a successful entrepreneur, including the right mindset, risk and the willingness to work outside their comfort zone. It also provides practical business skills and training on how to become investment-ready to help start-up businesses attract the necessary capital to grow and scale their businesses.
Fetola has tracked the performance of their suite of business growth accelerators for 17 years, and the data clearly reveals that with the right preparation and support, youth-led businesses can perform well. In fact, on average, well-supported youth-led businesses, especially those with post-matric qualifications and work experience, generate more revenue growth during acceleration than start-ups led by older entrepreneurs.
The current environment has resulted in an increase in youth-run community organisations looking to solve their own problems. The SA Youth Economic Council, as one example, was born out of a frustration about the lack of access youth have into the formal economy. This youth-led economic and legal advocacy group promotes youth participation and integration into the economy and aims to promote a transformed economy where the youth become central to economic growth and job creation. We need to provide professional support to these kinds of bold grass-roots initiatives.
What won’t change our national trajectory are well-meaning investments built on hope. What we do need is to pool our best resources, professional skills, and experience to ensure that every rand invested delivers tangible and sustainable benefits.
These include national initiatives that build positive sentiment, encourage investment, and enable economic growth. Targeted solutions to enable the success of small businesses, and a government focused on creating an enabling environment for small business and collaborating with the best skills on offer to get the job done properly. It’s time to think beyond the status quo to delivering GDP growth that outpaces population growth, and an economy that is built on a thriving SME ecosystem.
Catherine Wijnberg is the Founder and CEO of Fetola.
BUSINESS REPORT