Analysis

More Enabling Environment Needed For Entrepreneurship

Despite the fact that the South African economy grew due to its adoption of the neo-liberal economic system, the Growth, Employment and Redistribution (GEAR) Strategy, the results did not generate employment. Economic growth in modern South Africa is experienced in the skills-intensive industry such as financial and business services sectors, causing the majority of the low-skilled youth to remain unemployed.

Currently, the South African economy is characterised by an uneven distribution of wealth, high rates of unemployment and persistent poverty (Tshofuti, 2016). With an economic goal to improve its international competitive position, there has been an increase in demand for skilled labour resulting in a sharp decrease for unskilled labour across the country. This mismatch between what the labour market demands and the skills or non-skills available is called structural unemployment. (Delbiso, 2016).

The consequences of neoliberalism in South Africa included increasing youth unemployment and economic inequality which caused citizens into a deeper poverty trap. The neoliberal economic policies enabled the entrenchment of capitalism that dictated to governmental institutions, its profit interest against the poor people (Sebake, 2017). Capitalism enabled the few wealthy or the owners of production to get richer while the vast South African majority remained poor, creating and maintaining the status quo of social inequality. With the latter said, maybe after all, Socialism would be a better option to eradicate economic and social inequalities that are maintaining the poverty cycle amongst the unemployed youth.

The youth unemployment scourge has become a global phenomenon that is not just limited to South Africa or Africa as a continent. According to the International Labour Organization (ILO), out of the 1,2 billion young people aged between 15 and 34 globally, approximately 71 million were unemployed in 2017 of which 90 percent of them reside in developing countries (Statistics SA, 2018a).

Frans Barker in his book titled ‘The South African Labour Market’ confirms that three out of four unemployed individuals in South Africa are younger than 35 years and a whopping 65 per cent of them have never been employed (Barker , 2018). To date, a minimum of 12 million young people in South Africa are affected by unemployment. This could result in a generation missing relevant work skills and which is totally reliant on state grants for survival countrywide (Shankar, et al., 2016). The realities faced by the youth concerning their future employment opportunities seem to be worsening.

The youth unemployment rate in South Africa reached a disturbing 55.2 percent in the first quarter of 2019. High rates of youth unemployment can cause serious threat to the nation’s social, economic and political stability. The IMD World Competitiveness Ranking Yearbook reported South Africa’s unemployment and labour practices as the worst globally in 2016 (Claymore, 2016). Additionally, the ILO ranks South Africa in the bottom 10 countries in terms of unemployment in the world.

Now, the youth is encouraged by the government to establish small-enterprises and venture into production and manufacturing to self-sustain, participate in the economy and to fight persistent poverty in their societies. Supporting governmental institutions such as the NYDA (National Youth Development Agency), SEDA (Small Enterprise Development Agency) and LED (Local Economic Development) departments in municipalities play pivotal roles in ensuring success. The primary role of the NYDA in the country is to address issues faced by the youth through providing them with skills development and entrepreneurship programs that will assist them to participate in the economy (Courant, 2019).

But now the South African economy is structured in a manner that contradicts the efforts of these governmental institutions. The economic structure limits the general scope for small business activities because it is not only characterized by high levels of inequality but also of economic concentration. This is when a few large firms dominate the total sale, production and capacity within industries or markets, leading to greater chances of price and market manipulation. After the end of Apartheid, Fedderke and Szalontai found that approximately 15 percent of companies actually controlled over 90 percent of output in food, other food products and beverages.

Therefore, large-scale businesses thrive and enjoy the monopoly of being able to produce and distribute through economies of scale which chokes the small businesses as they do not have the economic muscle to compete on prices. Small businesses that the youth are encouraged to establish are usually forced to compete head to head with large conglomerates. On average, when a South African citizen thinks of buying a product such as soap, they immediately gravitate to brands such as Sunlight or Lux, produced by the big companies. When they think of bread, they choose brands like Albany, SASKO and Blue Ribbon. The same with staple food such as maize meal, brands like Iwisa, Ace and White star dominate the market and have a stronghold on consumer habits.

Now what platform do small businesses have on the South African market and economy when majority of citizens think of big brands like Clover or Dairybelle brands when they need milk?

In other developing countries, products such as bread, maize meal and milk are produced by small businesses and sold in their respective local markets. But in this country, an attempt like that by a small business would see them competing with giant firms that are well established in terms of packaging, band recognition and consumer habits.

This means young entrepreneurs should be assisted and protected when they try to venture into such highly competitive markets.

Another example is in the retail sector where Pep Store has ventured into vertical integration. It has an extensive footprint in both urban and rural areas where it is known to sell affordable school uniforms to low income consumers. However, it now has its own manufacturing division or factory which produces school uniforms in mass quantities. Through economies of scale, they are able to compete with other players at low prices. Therefore, Pep has ventured into vertical integration where it is now competing with small businesses that seek to sell school uniform and it is now a supplier too.

So, do small businesses really have a platform in the South African economy? Are there any policies that protect small businesses from big firms that venture into vertical integration? And given that  there are a number of government institutions that seek to assist young entrepreneurs to be successful, are there any significant discussions about competition laws?

Unfortunately, small businesses in South Africa either struggle to grow or close shop within a few years of establishment and are vulnerable needing serious intervention. According to the SME Landscape Report launched by SME South Africa, the majority of these businesses do not generate more than R200 000 annually with most of them employing a maximum of five employees.

For as long as the structure of the economy remains characterised by economic concentration with no policies that effectively challenges it, the performance and success of ‘youth entrepreneurship’ will remain vulnerable and they will gradually be choked out of the economy as big firms expand through vertical integration.

OPINION: Ntombi Nhlapo