Change the world

11/03/2021

It is a massive concern that the official unemployment rate among people aged 15 to 34 in the fourth quarter of 2020 was 46%. 

With more than two out of five young people unemployed, and slim-to-no chances of formal employment after a year of Covid-19, boosting entrepreneurship among our young people is the only option for South Africa.

My research on this subject is based on Statistics South Africa’s figures that I used as proxy to examine youth entrepreneurship outcomes for South Africa.

These figures show that in the 10-year period before Covid-19, that is 2010 to 2019, there were improvements in the number of young people owning businesses, but the coronavirus pandemic led to a significant drop in these numbers. So much that when compared to 2019, the average for 2020 second, third and fourth quarter dropped by 10%.

The study presented in this article is part of the bigger research I am doing on youth entrepreneurship, including my doctoral research, which shows clearly that youth entrepreneurship outcomes are influenced by age, gender, race, education, province, sector, and industry.

Some of the interesting findings from the research, particularly when looking at the impact of Covid-19 “hard lockdown” are the following:

  • Gender dynamics: Most youth entrepreneurs are male, with a higher share operating in the formal sector when compared to young female entrepreneurs. Over Covid-19, the gender gap in this sector widened as the number of females declined more than males.
  • Racial demographics: The racial breakdown of young entrepreneurs reflects the country’s demographics. However, more white and Indian youth entrepreneurs operated in the formal sector, compared to other racial groups who were more highly represented in the informal sector. It was interesting to see how, although Covid-19 affected all races, the proportion of whites and coloureds who stopped their entrepreneurial activities was higher than other racial groups.
  • Education: Most young entrepreneurs did not have matric. Of these, 95% worked in the informal sector whereas those with a tertiary qualification were more evenly split between the formal and informal sectors. Over Covid-19, the number of youth entrepreneurs with less than matric shrunk more than those who had tertiary education.
  • Where they live: Perhaps not surprisingly, Gauteng has the highest number of young entrepreneurs. In every province, however, those working the informal sector far outnumbered those in the formal sector. In predominantly rural provinces such as Limpopo for example, in 2019 only 8% of young entrepreneurs worked in the formal sector. Interestingly, over Covid-19, the number of youth entrepreneurs hugely declined in six provinces except for Eastern Cape, KwaZulu-Natal and Mpumalanga.
  • Where they operate: Most youth entrepreneurs are in the wholesale and retail trade industries, and more likely to be in the informal sector. The business services and agriculture related industries had a higher share operating in the formal sector. Over Covid-19, the informal sector declined twice as much as the formal sector.
  • Age: Older young entrepreneurs, that is, those aged 30- 34 were the biggest group, followed by the 25 to 29 year olds. As they left their teens (the “formative stage”) and headed towards their 30s (“prime stage”), this cohort moved into the formal sector in greater numbers, which led to greater earning power.
  • Earnings: The median monthly income of youth entrepreneurs between 2010 to 2018 was less that R10,000, although by 2019 this increased to R11,140.Those working the formal sector were also likely to earn twice as much as those in the informal sector, with a median monthly income of around R20,000 in the formal sector, compared to R8,575 in the informal. One in four entrepreneurs in the formal sector earned more than R50,000, compared to R17,458 in the top quarter of the informal sector.
  • Job creation: Despite the perception that entrepreneurs create work for others, most young entrepreneurs did not employ anyone, that is, they had no staff. Among those who did, many created job opportunities for between two and four employees. Those in the informal sector were less likely to employ 10 or more people than those in the formal sector – and only a tiny percentage hired more than 50 people.

There is no doubt about the urgency needed to boost entrepreneurial activities of young South Africans as the coronavirus pandemic has hit this sector hard. The most vulnerable groups – such as young women and those operating in the informal sector – are also those who have been hardest hit by Covid-19 and require urgent assistance. While figures from Stats SA were helpful to understand the depth of the problem, the figures are not going to tell us what strategies to use.

Based on the findings of this research, my recommendations are that there is a need to:

  • Promote entrepreneurship as a career path, rather than as a last resort. This will improve young people’s intentions to become entrepreneurs.
  • Get more young women into entrepreneurial activities This will help bridge the gender gap and dynamics in the sector.
  • Encourage youth with tertiary education to be more engaged in entrepreneurial activities through incentives. This will see more young people with higher education became entrepreneurs.
  • Offer bursaries targeting youth entrepreneurs with the aim of graduating many youth entrepreneurs from a lower education status to higher qualifications.
  • Provide tailored support to those operating in the informal sector with the aim of formalisation.
  • Increase the participation of youth entrepreneurs in the real sectors like agricultural and manufacturing. This will improve young people’s overall contribution to economic development.

Going forward, we also need to find ways to improve entrepreneurial intentions amongst the unemployed youth.  However, the big questions remain, how can we get our youth to want to start a business?  And more importantly, how can we ensure they stay in business during difficult times?

Biography:

Asanda Fotoyi lectures economics in the Faculty of Business and Economic Sciences at Nelson Mandela University where she is studying towards a PhD. She previously worked as an economist at Trade and Industrial Policy Strategies (TIPS) and as assistant economist at Statistics South Africa (Stats SA). She has experience in economic research, data production and analysis, lecturing and academic co-ordination.

This article appeared in the Daily Dispatch of 11 March 2021

Contact information
Ms Asanda Fotoyi
Lecturer
Tel: 041 404 4117
Asanda.Fotoyi@mandela.ac.za