What is the solution to South Africa’s youth unemployment problem?

African countries are experiencing an unprecedented level of unemployment among young people. The unemployment numbers are expected to increase given the booming youth population in Africa.

Not only are more young people without jobs, the vast majority are employed in the informal economy. The International Labour Organisation puts the proportion of 15-24 year olds employed in the informal economy in the world at 95% in 2018. The proportion in sub-Saharan Africa is in the same ballpark.

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If not arrested, this situation presents a ticking time bomb with adverse political and socioeconomic consequences.

The problem is particularly acute in South Africa. World Bank statistics show that in 2019 the youth unemployment rate in South Africa stood at 58%, which is one of the highest in sub-Saharan Africa. For South Africa, the unemployment numbers are expected to increase. Over 60% of the unemployed at the start of 2020 were aged 15-34.

The South African economy has consistently underperformed in the past decade, with growth in real GDP per capita declining since 2011. While South Africa experienced political emancipation in 1994, the population still suffers from high inequality. The country’s GINI coefficient stood at 0.63 in 2015 – one of the highest in the world.

South Africa is desperate for a more dynamic, employment intensive and innovative growth trajectory – even more so after the pandemic of COVID-19.

A sustainable and inclusive economic recovery that guarantees decent jobs will require an integrated response from policy makers, in partnership with the private, academic and community sectors.

We argue that promoting entrepreneurship has a role. But the data show that South Africa needs to step up entrepreneurship development for it to catalyse youth employment.

Joblessness and education

Unemployment is not limited to those with basic or lower levels of education. The trend of unemployed young people with tertiary education is also on the rise. According to the 2021 World Bank World Development Indicator the percentage of the labour force with an advanced level of education that is unemployed rose from 3.7% in 2007 to 14% in 2019.

Gone are the days when a university graduate was guaranteed a job.

A gender gap is also evident in the unemployment figures among people with advanced education. The unemployment rates of 2.3% in 2007 and 12% in 2019 for males with advanced education were lower than those of their female counterparts, which grew from 4.7% to 15%.

This status risks long-term scarring effects for young people along with increases in informal working and social isolation.

Rising unemployment has a severe effect on the wellbeing of families, in terms of hunger and mental health. According to research done at the University of Stellenbosch, roughly one in five (18%) families reported someone going hungry at the end of 2020, compared to 14% (one in seven) in 2018. At the same time, a recent study found that a 1% increase in youth unemployment led to a 1.6%-1.8% increase in murder crimes.

The already dire situation has been compounded by the COVID-19 crisis with its adverse economic and labour market fallouts. According to Statistics South Africa, the economy is still 2.7% smaller than it was in the first quarter of 2020 before the COVID-19 pandemic started.

And evidence suggests that the impact is disproportionately affecting young people with many more losing their jobs, or being driven into the informal sector.

Entrepreneurship

Entrepreneurship has been cited as a key lever to transform local and global communities and societies.

We agree that entrepreneurship has a major role in promoting innovation, improving productivity and developing a business culture. And, importantly, it has the potential to create employment.

But data from the Global Entrepreneurial Monitor, coordinated by the University of Stellenbosch Business School, indicate that South Africa’s Total Early-Stage Entrepreneurial Activity between 2001 and 2016 was below average compared to most other similar countries.

Research shows that this measure has dropped below half that of the more entrepreneurial economies.

This suggests that South Africa isn’t doing enough.

A greater focus on entrepreneurship would permit the development of more enterprises to formalise many aspects of the South African economy.

Having said that, the evidence from across the world shows that entrepreneurs do not always create jobs. Indeed, research shows that many entrepreneurs are sole traders and involved in activities with limited potential to create employment.

Put simply, South Africa needs entrepreneurs that create jobs rather than simply setting up informal stores (known as spaza shops, which number more than 100,000 in the country).

South Africa should encourage entrepreneurship with three characteristics:

• social entrepreneurship. This is the kind that addresses issues such as inequality, healthcare, hunger and environmental sustainability. These are based on business models that create tangible economic value at scale.
• entrepreneurship that embodies the Schumpeterian idea of creative destruction – developed by Austrian political economist Joseph Schumpeter, the idea is that inferior solutions get replaced (partly or completely) with new products, services and business models.
• entrepreneurship that unlocks multiplier effects for other small businesses to create employment. This would include fintech like Yoco, M-PESA and JUMO.

The challenge for policy makers is to understand, develop and nurture the support that helps entrepreneurs develop. And enables them to move on to become employers and creators of jobs as well as innovating products and services.

Next steps

For innovative businesses to thrive, effective and supportive environments have to be created. This should include access to resources, such as capital or knowledge and a market for their innovation.

These supportive environments require an educational system that infuses intensive technical skill-based vocational education complemented with practical, innovative training at all levels. This would give young people the foundation, skills and mindset they need to become entrepreneurs.

Access to finance by youth enterprises and entrepreneurs is critical. But this needs to be tailored to their needs. Examples include loan guarantee schemes, direct loans and equity as well as structured finance.

There are signs of some progress. For example, the African Development Bank is developing Youth Entrepreneurship Investment Banks to finance youth entrepreneurship and innovation in Africa.

And the South African government has introduced programmes and schemes that provide finance for enterprises including those owned by young people. These could be strengthened.

Mentorship for young entrepreneurs is also needed. As is the creation of incubators and innovation hubs where young entrepreneurs can experiment with business ideas and learn from others.

Ultimately, critical capacity development in the field of entrepreneurship is needed. For South Africa this would include capacity in research, training, and advice with the aim to boost dynamism, growth and inclusion through entrepreneurship for more members of society.

Mark Smith, Professor, Director & former Dean, Grenoble École de Management (GEM); Jako Volschenk, Senior lecturer in Strategy and Sustainability, Stellenbosch University, and Meshach Aziakpono, Professor of Economics and Development Finance, Stellenbosch University

This article is republished from The Conversation under a Creative Commons license. Read the original article.