A new approach to employment is needed, and growth must come from new seeds, new seed capital, says the writer. Picture: SUNDAY TIMES
A new approach to employment is needed, and growth must come from new seeds, new seed capital, says the writer. Picture: SUNDAY TIMES

Estimates of the number of jobs lost in SA due to the Covid-19 crisis have risen as high as 3-million. Whatever the actual figure, the scale is devastating, especially when you note how many breadwinners have five, six or more family members who depend on their meagre monthly wage packet. 

Unemployment in SA was dire before Covid-19. It has now reached the proportions of a biblical plague. The government has limited resources to boost job creation, the private sector has limited capacity, and trade unions have divided loyalties between preserving the jobs of their own members and the wider good.

A new approach to employment is needed, and growth must come from new seeds, new seed capital. We must stop thinking big; we must think small. I advocate a community-based approach to job creation, with seed-funds in towns and townships, fostering new growth in new businesses while also supporting the expansion of the existing business base.

I am talking about community catalysts. For now, this can be done with the backing of a venture capital tax incentive known as section 12J (S12J), but soon this support measure is to be removed and we will need other innovative support measures.

Bringing investment directly into a community is a no-brainer. You seed community investment by establishing a fund for entrepreneurs, which will spark an expansion of the business footprint. This is a practical, no-nonsense approach to help support entrepreneurs and new businesses and to help existing businesses to expand.

It meets two important objectives: job creation and helping to boost the economic revival of our small towns and townships. This is not a central planning concept — there should be a plethora of these independently run community catalyst funds throughout the country.  

Each operation should be led by a champion who is keen to spearhead the revival of the local economy. And we are talking about the grass-roots expansion of the economy, not funds that come down from the central government to the municipality. 

Ask any SA ratepayer about the value delivered by municipal managers and you are unlikely to hear much praise singing. Of course, no municipality should be indifferent to this initiative, as growth in any local economy will lead to an expansion in rates and taxes from more and more successful businesses, more economic activity and more jobs.

It may all sound like a great dream, but it is already a reality. I am helping to fund several community catalysts with the help of S12J, which enables a taxpayer to channel their tax liabilities into a venture capital project. If it succeeds they receive the benefits; if it fails the investment money would have been gobbled up anyway by the taxman.

S12J is due to expire in a few weeks’ time, so we may ultimately need to use another channel to bring more seed-funding to local communities. Changes are under way to section 28 of the Pensions Act to oblige pension funds to divert more investment into government infrastructure. We should surely ensure there is a greater capacity for also using this development for funding community catalysts.

There is already one such scheme up and running in the Johannesburg township of Alexandra. This is the future of community development, and it works. My team is also looking at Komani (Queenstown) in the Eastern Cape, Rosendal in the Free State, and Coligny and Lichtenburg in the North West.

But throw a dart so it lands almost anywhere on a map of SA and you won’t be far from a deserving candidate as a community catalyst. The model will work in any town or township where there is a definable community that needs help with employment creation through business creation and business expansion.

The community catalysts will unlock access to capital by small players in the economy. And this is where support is most needed to help to turn around the economy, to reverse the jobs bloodbath.

Big companies have very strong access to capital, and for them the financial system works very well. However, we still lack channels of access to the financial system at the grass-roots level. It will, of course, need strong oversight of any initiative, given the pervasive corruption and moral laxity in this country. But if you do localise it there is a lot more peer pressure and peer support to help make these things work.

Businesses that could be supported range widely, from plumbers and restaurants to spaza shops, car washes and other such small businesses, but also more ambitious industrial projects that feed the local value chains.

This is not a charity concept. The revenue from successful investments goes back to the investors. The successes we are already seeing with this concept may help boost the image and credibility of S12J, which finance minister Tito Mboweni has pledged to terminate. 

But the community catalyst concept is not born from the self-interest of the financial sector. It must integrate with the critical need for job formation and empowerment. National economic initiatives to boost jobs and the economy are lekker. But through the community catalyst model local can be a lot more lekker.

• Hart is executive chair of Impact Investment Management.

subscribe

Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.