NAJWAH ALLIE-EDRIES: Opportunities for economic inclusion, stability and prosperity

Despite the current low level of economic growth in SA, there are opportunity pathways to employment that will support finance minister Enoch Godongwana’s comment that his medium term budget policy statement (MTBPS) aims to secure South Africans' future stability and prosperity and reduce inequality and unemployment.

SA remains one of the most unequal countries in the world, characterised by unusually high levels of unemployment and poverty. The country has twice as many welfare beneficiaries as registered taxpayers. Before Covid-19 it was estimated that SA had 5.2-million taxpayers (about 9% of the population), while some 18-million people received some form of social grant provided by the state.

A smaller proportion of taxpayers have become responsible for an increasingly large portion of the total personal income tax payable. As highlighted in the MTBPS, the social wage, totalling R3.56-trillion over the next three years, will take up the biggest share of the budget in support of poor households and the most vulnerable in our society. Clearly a key thrust of our growth strategy must be to broaden the country’s tax base, and to that end we must develop and harness every available opportunity to create conditions conducive to investment and job creation.

The most recent Organisation for Economic Co-operation and Development (OECD) Economic Survey of SA (August 2022) confirmed that the pandemic has worsened labour market conditions and further increased inequality in the country. Vulnerable segments of the population are finding it more difficult to integrate into the labour market. The key challenges for individuals remain the slow pace at which new jobs are created, the skills mismatch, access to finance, professional and social support networks, and for smaller enterprises it also includes inadequate infrastructure and regulatory support.

Given the depth of SA’s unemployment crisis we need higher levels of collaboration between the private sector, government, and civil society and an openness to new ways of doing things. The minister highlighted the need to address the country’s dire socioeconomic challenges. He mentioned that by delivering on public sector investments, government will “crowd-in private investment, improve public service provision and address backlogs; thus, igniting a virtuous cycle of higher investment, growth and employment potential”.

The Jobs Fund’s partnership-based model for job creation has delivered positive outcomes across a range of economic sectors. Project partners have invested in job creation interventions alongside government, providing additional funding, access to established networks as well as technical expertise to roll out social impact projects efficiently. Emerging from the Jobs Fund’s work over the last few years is a body of knowledge on successful job creation models and strategies. The fund has experienced particular success with its interventions in the informal economy.

Our intent, as set out in the MTBPS, is to build an inclusive economy; this requires that we pay equal attention to the development of the informal economy. Millions of South Africans rely on the informal economy to earn a living. They are either self-employed or employed by informal businesses. According to Statistics SA’s second quarter data the informal economy accounts for 19.1% of total employment. However, informal economy participation in SA is low relative to comparable economies and highlights a missed opportunity for employment creation.

Interventions in this sector have the potential to stimulate the development of viable business enterprises, create sustainable livelihoods for vulnerable communities, stimulate local economies, improve service provision, and may reduce our citizens’ reliance on grant income. Furthermore, supporting enterprise growth and job creation in the informal economy can in future contribute to broadening the tax base and reducing the R3.56-trillion social wage bill.

Fifteen Jobs Fund’s informal economy interventions yielded the following results (September 2022):

• More than 38,000 jobs created at a grant cost per job of just over R13,000.
• 78% of the jobs created were filled by women (supporting the livelihoods of the most vulnerable).
• R500m in matched funding (off the back of R506m in grant funding) has been leveraged from primarily our private sector partners. This has been channelled to the support of informal sector microenterprises.
• More than 34,000 micro businesses have been supported.
• Local wealth is being generated in historically underserved areas: goods and services are available within the community, and the money generated from these sales largely remains within the community.

The low grant cost per job of R13k for projects that stimulate small business growth and employment in the informal sector is a significant social return for government and the country. However, the sector is complex and interventions must be appropriately designed. This includes appropriate financial products, technical support, infrastructure, market access and space to develop the capacity of intermediaries that can adequately support the growth of the sector.

In particular, interventions that facilitate enabling infrastructure investment alongside microbusiness support can yield positive results and complement government’s short-term mass employment programmes by building the foundations for the creation of demand-led growth. It will take time and careful planning for the informal economy to reach its full potential, so the time to act is now.

The Jobs Fund’s partnership with the Phakamani Foundation, a not-for-profit organisation that empowers poor women to succeed in micro-enterprise, is a good example of the sustainable impact that public funds can have when deployed effectively in an appropriately designed initiative. Phakamani facilitates an integrated micro-enterprise training programme, administers group micro-loans, and provides mentorship support. This intervention is based on the Grameen bank microfinance model. Operational in four provinces (Mpumalanga, Limpopo, KwaZulu-Natal and the Eastern Cape), the programme provides income, savings, and hope for the next generation.

When loans are paid back, they are recycled to assist other entrepreneurs, meaning every rand is leveraged to increase the number of individuals reached by the initial investment. In February Phakamani celebrated reaching R1bn in disbursements to 166,000 women. As of September the Jobs Fund’s partnership with Phakamani has created nearly 6,500 jobs.

A2Pay is another partner operating in the informal sector providing ICT infrastructure in the form of end-to-end technology (business-to-business and business-to-consumer) solutions, point of sale systems, a stock management portal and a vending platform for virtual prepaid products and cash management. Through the Jobs Fund’s support it assists in building the capability of spaza shops. The impact has been significant for both entrepreneurs and the surrounding communities.

The entrepreneurs have seen an increase in revenues and reaped the benefits of electronic payments and service distribution, and the communities have been able to access prepaid products without having to travel into nearby towns and cities. To date, the A2Pay-JF partnership has created over 10,500 jobs through its support of informal economy enterprises.

Providing appropriately designed packages of support to businesses operating in the informal economy will significantly contribute to economic inclusion with positive spin-offs, including enterprise growth, job creation, reduction in social grant reliance and an expanded tax base that will support the growth of our economy.

As the finance minister clearly stated, “our democratic ideals will be given life and sustained by a growing and inclusive economy”.

• Allie-Edries is head of the National Treasury's R9bn Jobs Fund.