A letter to Godongwana: How to create one million jobs in South Africa

Creating a million jobs is not necessarily easy but it’s not rocket science either. It just requires a healthy dose of courage by our government, which has been far better at talking than doing when it comes to our economy. 

President Cyril Ramaphosa delivered a positive State of the Nation address (Sona). It took many of us by surprise, not least those of us who have an interest in seeing the success of the small, micro and medium enterprise (SMME) sector, which to be fair, should be everyone as it holds the single biggest hope of sustained economic growth and job creation.

The government imbued SMMEs with an important job when the National Development Plan was penned, setting a goal of 90% of new jobs being created by the sector by 2030. Although many years have been wasted, and then made worse by the Covid-19 pandemic, the 2022 Sona signalled what appears to be a radical shift in government sentiment, from a state-led mindset towards a pro-business tone.

The president alluded to undoing burdensome red tape, he mentioned a new support scheme for SMMEs that would include the non-bank lenders — and therefore not exclude most micro-enterprises — and promised us that the allocation of spectrum would be imminent. He signalled a renewed vigour to fix the biggest threat to our economy, Eskom, as well as large infrastructure plans. Perhaps most importantly, he shifted the national narrative from “it is the government who creates jobs” to “it is the private sector that creates jobs”.

There was the expected backlash from the business-unfriendly segments of the country, but by and large, those who understand how the economy works welcomed this statement. 

So, with all this in mind, how do we create a million jobs or more? Let’s start with the government’s own statistics. 

The Small Enterprise Development Agency (Seda) is a function of the department of small business. According to the most recent research report available on their website, the SMME Quarterly Update 1st Quarter 2021: “The number of SMMEs in SA declined by 11% (or 289 000) year on year from 2.61-million to 2.33-million in 2021 Q1. The decline in the number of formal and informal establishments was of the same order, indicating sustained pressure on the sector despite the broader economic recovery.

“Whereas the contraction in SMME employment was deep, it recovered by 633 000 during 2021Q1. This partly reflects increased unemployment in the rest of the economy, but also reflects a measure of resilience in the sector. Total employment provided by SMMEs measured 9.8-million (64% of economy-wide employment), 6.2% down from 2020Q1.”

According to the report, of the total number of SMMEs, 667 111 were categorised as “formal enterprises”. In other words, registered entities operating officially in the South African economy. That’s down from over 750 000 a year prior, largely because of the pandemic. 

Seda goes on to write: “It appears that it is particularly the younger-aged SMME owners, those with lower educational attainment and lower skills (disproportionately represented by the black population group) who have been more vulnerable to the pandemic impact. Support policies should recognise the informal nature of the SMME sector; marketing and financial support also remain critical in the current economic climate.” 

At the risk of reverting to being a broken record like we were prior to the president’s Sona, this is exactly what we had been saying for years.

Another government agency, Statistics SA, wrote in its Quarterly Labour Force Survey on 30 November 2021: “The Quarterly Labour Force Survey (QLFS) for the third quarter of 2021 shows that the number of employed persons decreased by 660 000 in the third quarter of 2021 to 14,3-million. The number of unemployed persons decreased by 183 000 to 7.6-million compared to the second quarter of 2021. The number of discouraged work-seekers increased by 545 000 (16,4%) and the number of people who were not economically active for reasons other than discouragement increased by 443 000 (3,3%) between the two quarters resulting in a net increase of 988 000 in the not economically active population.”

Read together, both these sets of numbers tell the well-known story of a crisis of unemployment, and a problem where the SMME sector, which creates 64% of the country’s jobs, is becoming smaller instead of becoming larger. It also tells the story of how much potential there is for the economy if the informal SMMEs can be formalised with the reduction of red tape, tax breaks, incentives and digitisation. 

And so, it becomes patently clear how one creates a million jobs in the country. The private sector creates them, and this must be led by the SMME sector. When Finance Minister Enoch Godongwana takes to the podium to deliver the budget, he must lay out tangible, clear and coherent strategies to make good on the president’s Sona promises, especially regarding a support scheme to get finance to the small businesses that need it most. 

Beyond that, the government must accelerate its drive towards reducing red tape and it must be brave enough to relook the labour laws — especially about hiring. But perhaps the most important ingredient is following through. Despite the noise, politicking, accusations of a super-presidency, it must make good on its intention to create an environment that is conducive to running a small business. If every single SMME in this country had the capacity to hire just two more people as a result of accessible support and a friendly environment, that would be 1.2-million jobs — and that’s only among the formal businesses. As they keep growing, so too will their need to hire more people.
The potential mapped out in the National Development Plan is still there. The right sounds are emanating from the government. The finance minister has a golden opportunity to put big plans in motion. What we need, as South Africans desperate to see sustained economic growth and job creation, is corruption-free, pragmatic implementation. And a little less talking and a lot more doing.

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Miguel da Silva
Miguel da Silva is the managing director of Retail Capital

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