Youth entrepreneurship and the Illusion of grandeur!

2015-06-26 14:46

As we wind down youth month, I would like speak soberly on the challenges facing the youth entrepreneurs in South Africa. Youth unemployment is well documented in all local economic discos and there is a comfort among commentators to suggest entrepreneurship is the solution. However, despite this attention, there has been no systematic attempt to look at it from an angle of a South African young person with his inherent challenges.

We tend to incorporate the youth into the general adult population when it comes to some of the policy decision that drive business development and we ignore their efforts to forge a livelihood through enterprise activities. We have stopped very short of understanding the potential benefits of youth entrepreneurship as a means of improving youth livelihoods. Can youth entrepreneurship be promoted as a viable career option? What obstacles stand in its way? And what policy measures and strategies can be initiated to support it?

With 38% of the population of South being aged between 15 and 35 years of age, the importance of Youth entrepreneurship cannot be understated. There are obvious advantages to why it should be encouraged:

Employment: Enterprise has the potential to create employment opportunities for both the self-employed youth and other young people;

Redress: it has a less centralised platform to bringing the alienated and marginalised youth into the economic mainstream;

Socio-economic Solution: it has the potential to impact on some of the problems and delinquency that arise from joblessness including crime and drug abuse;

Innovation: Youth resilience is associated with innovation;

Local economic development: it has the potential to revive and revitalize local community;

Accessing fast paced economic opportunities: Young entrepreneurs may be particularly responsive to new economic opportunities and trends. Especially those that are driven by the ever evolving technology;

 Skills development: Enterprise helps young women and men develop new skills and experiences that can be applied to many other challenges in life.

Naturally the irreplaceable value of experience and post graduate education has meant that youth owned business will have the following inherent challenges:

Youth businesses face problems of access to resources such as capital, especially if it is to be loaned, given the South African strict loan regiment under the National Credit Regulation (NCR). This is particularly more challenging for young people from impoverished communities, who do not have alternative sources of funding;

The result is that young people will start their enterprises with lower levels of initial capital and will operate very small businesses that are at a survival level (from hand to mouth as affectionately referred);

The biggest challenge with a low capital business includes lower market value or lower inventory book. This has played into the hands of heavily invested foreign subsidized small businesses, especially in the retail sector (a train vegetable vendor vs. a 500 product tuck shop);

The result then becomes that youth entrepreneurs are engaged in a narrower range of activities. They tend to operate from homes or streets (lack of access to space);

Correcting Youth Entrepreneurship through Institutions such as the NYDA

When the National Youth Development Agency (NYDA) was founded, it was to help redress these challenges and accelerate the youth through this path. These challenges are not unique to NYDA but most Developmental Finance Institutions face them. The commercial orientation of entrepreneurship and the subsequent implementation of business capitalisation by a bureaucratic process have left gaps in the system. The resulting gaps include lack of mentoring programmes; lack of specialised financing where the youth are treated differently business plan to business plan. The 10 points below are but an appeal to addressing the challenges:

Clear Objective: Any programme that promotes youth entrepreneurship should not attempt to combine social and economic objectives. Many youth enterprise promotion programmes fail because of a multiplicity of objectives. We should identify a future sector of growth and shape the development of youth entrepreneurs to fulfil the market demands of that growth sector. Preparations for the world cup in 2010 were way advanced before we realized that we had a shortage of welders (artisans) and I believe that this was an ideal opportunity to have groomed, at the announcement of the bids’ success, a model for owner managed artisan youth enterprises. These businesses would be instrumental in helping Transnet and PRASA today with their Capital programmes, which are estimated in the multiple billions.

Commercial Orientation: A development agency (NYDA) has the responsibility to instil and enthuse a sense of professionalism and commercial will. It is not a welfare’ or social services, this will mandate the agency to develop a professional capability and technical competence that is critical to the success of youth enterprise support programmes.

Adequate funding: Available literature shows that youth enterprise support programmes in many developing countries fail due to, among other factors, inadequate funding. A well-funded organisation has adequate funding to help its clients.

Well-trained and properly supported staff: The agency requires staff with professional capability in their operations. Lack of technically competent staff and/or staff that lack entrepreneurial experience is a major factor that explains the failure of youth enterprise support programmes in many countries.

Flexible and adaptable operation style:  Rigid administrative procedures are a factor in the failure of youth enterprise promotion programmes in many countries.

An ‘integrated’ package for youth: The Agencies support for young people should not only be limited to the resources that the youth can gain from the Agency such as credit and voucher services. Such a minimalist approach has a danger of limited development with similar beneficiaries going through the system over and over with new ideas every-time. The birth of the Tenderpreneurs in the past decade is an example. The agency should provide a wide range of services to youth, including skills training and advice. This is based on the recognition that young people pass through various stages of transition and therefore tend to face problems specific to those transitions.

Customer-centered loans: The treatment of the youth as mere beneficiaries is the key challenge in this area and hence the reason why all loans to youth owned businesses are treated the same. Firstly I believe all loans should be issued condition to a viable business plan and accepting a mentor.  Secondly, all youth entrepreneurs should be treated as clients as opposed to beneficiaries. Thirdly there should be a shift from standardised programmes that are not sensitive to the needs of individual youth and therefore have little impact on youth entrepreneurship promotion. For example, a young professional who has just graduated from University and after realising that he had no prospect in the employment sector and they started business. Statistics tells us that this is the most successful entrepreneur currently in SMME sector in South Africa (SMME's ran by Professionals). Currently as things stand this guy cannot be loaned money by the NYDA unless he had surety from someone who is employed. This is the case even when such a professional has a contract with a reliable third party and they only require bridge financing. The strength of the contract and the success of the sector of business they have venture into do not count for much in their credit rating.

Proper targeting and selection: Young people are not a homogeneous, and thus the Agency needs to make an attempts to identify variations amongst young women and men in their skills, experiences, status, needs, aspirations and capacity to obtain resources – all of which influence their ability to establish and run a small business successfully. This is the blueprint that we lack in South Africa, on how we can help young people from school going age to choose Entrepreneurship as a career. The difference from reading a Robert Kiyosaki book and being nurtured in to the profession is the intelligence we are able to build as a country on the subject. The motivation of foreign Business heroes like the Donald Trumps and Richard Branson are different from that of a South African rural youth.

Mentoring: NYDA needs a strong and highly effective mentoring programme that is designed to provide young people with informal advice and guidance on how to properly manage their businesses. This will help youth entrepreneurs to overcome the constraints of limited business experience, contacts and skills. Through mentoring and other business support services, young people will learn to deal with the risks that they face in running their enterprises.

A supportive policy environment: Favourable changes in the regulatory environment can have a positive impact on the provision of business development support to the youth entrepreneurs;

Be Inspired SA!

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