South Africa has the lowest levels of youth entrepreneurship in the southern African region and on the rest of the continent, despite the country’s massive youth unemployment problem.
The Industrial Development Corporation (IDC) is determined to change this. Its Development Impact Support Department (DIS) has embarked on a drive to encourage more young entrepreneurs, especially those that are focused on manufacturing, to knock on its doors to get support for their start-ups or to expand their existing businesses.
Stuart Bartlett, head of DIS, says the development finance institution set aside R4.5 billion to invest in youth businesses over five years, the objective being to create a new cohort of young people that can get into industries that have the capacity to create employment and unlock opportunities.
One of the major challenges the team has encountered so far has been finding enough young people with experience and skills to enter the manufacturing sector.
A ROJECT IN PARTNERSHIP WITH THE IDC
“Youth very often don’t have this type of experience in manufacturing, the finance or the networks of the old boys’ club. They haven’t been given the opportunity to gain experience in the sector. They are moving more into retail, services and similar industries where competition is stiff.”
Bartlett says most youth entrepreneurs tend to gravitate towards light manufacturing, technology and tourism.
“These are the new types of industries that are kick-starting the fourth industrial revolution. The youth are more tech savvy and knowledgeable in these sectors, but we also want to encourage and assist them to venture into manufacturing.
“As the IDC, we are determined that if we are going to start making an impact in industrialising the country, we need to deal with the issue of youth unemployment.”
To make the corporation more appealing to young people, it launched the Gro-e-Youth Scheme.
This scheme has designed products and terms that are suited to budding young entrepreneurs.
Mzwabantu Ntlangeni, who is also a development specialist in the same department, says they have also come up with additional support packages to assist youth-owned businesses that are investment ready.
The Youth Pipeline Development Programme is a another business support package that helps young people become investment-ready by removing any obstacles in their path.
“Say a business plan qualifies for funding, there could be a condition that requires them to spend money first to become investment-ready.
“Let’s say in order to operate a factory they first need to undertake an environmental impact assessment (EIA). We know that this exercise is not cheap.
“This programme subsidises the young person at a 50% ratio to get this EIA done, and this money can be repaid at the end of the loan term,” he says.
His colleague Daniel van Vuuren adds that the objective was to create an environment that would not intimidate young people, and this they did by putting in place a process that would take them by the hand and provide them with guidance from the moment they walk through the door until those who are successful receive funding and support.
To assist young entrepreneurs that are applying for the first time, Bartlett’s team works closely with the Pre-Investment Business Centre, which is where all new applications for IDC funding are received and assessed.
“We have worked to change the perception that young people may have had in the past that the IDC is a bridge too far for them.
“What we are now saying is that the IDC is open for business, including providing support to youth-owned businesses.
“Young people need to experience that when they walk through our doors,” Van Vuuren said.
This means helping them by understanding their ideas, then taking into account their background and skills, and helping them compile a basic business plan. Then guiding them on what sectors the IDC is interested in funding and helping them structure their business pitch to make it more attractive for funding.
Through the Gro-e-Youth Scheme, youth-owned enterprises (those with a 50%-plus youth ownership) and youth-empowered enterprises (those with between 25% and 50% youth ownership) are offered financial packages that are tailored at an interest rate of up to prime minus 3% on the capital amount.
What they offer to qualifying youth enterprises is not just a financial package, says van Vuuren, but post-funding business support as well.
He said the developmental mandate of the IDC, especially in such a difficult time when the country has been hit with credit downgrades and is in the midst of a technical recession, is to inject more capital into the economy and create jobs.
“We want to see youth enterprises creating jobs. Youth unemployment is almost 60%. We are experiencing a youth bulge and most of these youths are unemployed … it’s dangerous. We want to see youth enterprises creating jobs at a cost of two jobs for every R1 million that we invest.
“It is not difficult to achieve in these industries, especially for mid-level jobs,” he says.
Ntlangeni further pointed out that the National Development Plan envisages an economy that should create 11 million jobs by 2030.
For this to happen, he says, South Africa has to create 50 000 small and medium enterprises between now and then. This requires the economy to grow by a staggering 20% a year until 2030, something that is extremely difficult in the current economic climate.
That is why the IDC, and its cooperating partners, are expected to play a bigger part in helping the country to grow its economy.