Failures of Gov’t Incentives for SMMEs to Hire, Retain Young Talent

The incentives, in question, are from the Employment Tax Incentive (ETI), Sector Education and Training Authorities (SETA), and Broad-Based Black Economic Empowerment (B-BBEE).

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By Gaby Ndongo

Government incentives have traditionally been aligned with the interests of large corporations and not Small, Medium and Micro Enterprises (SMMEs), creating a more unconducive business context for these enterprises to employ and retain young talent, states Youth Capital’s last report of 2022.

This unconducive business context further consists of aspects such as the lack of funding, coaching/mentorship, psychosocial support and business tools, as well as difficulty in penetrating new markets. They are coupled with a decline in consumer spending, rising inflation and severe loadshedding.

The incentives, in question, are from the Employment Tax Incentive (ETI), Sector Education and Training Authorities (SETA), and Broad-Based Black Economic Empowerment (B-BBEE).

Insights about incentives. Since 2013, ETI sought to motivate employers to hire young and less experienced talent, availing R42 billion to date. The funds partially cover the labour costs of employers, who received R1,000 per staff member until March 2022, when the amount was increased to R1,500.

“The return on investment is not clear; early research indicated that mostly large firms were accessing this incentive,” explains the report. “While the latest research concludes that the impact of the incentive is difficult to measure accurately, because of the significant differences between firms that claim the incentive with those that do not.”

Infographic by Gaby Ndongo.

On the other hand, “accessing SETA funding often means that companies must meet strict criteria, and complete long trails of complicated paperwork, effectively locking many SMMEs out of this opportunity,” it expands.

SETA mainly serves the function of enabling practical training of young people, allowing for each to gain work experience. To achieve such, it accredits companies to render practical training programmes like learnerships and apprenticeships, as well as distribute funding to support those efforts. In the 2022 and 2023 financial year, an overall of R2 billion was reserved for SETA.

The last incentive is B-BBEE, which was “designed to nudge businesses to hire young people. For example, through participating in the Youth Employment Service (YES), businesses can improve their B-BBEE scorecard by up to two levels. But as with the other incentives mentioned, often it’s not clear how SMMEs are leveraging B-BBEE in its current form,” elaborates the report.

This report was based on three focus group discussions with 20 SMMEs in August 2022. The discussions mapped out five key challenges that SMMEs encounter when employing young talent.  An online survey was then created in accordance with these insights, filled by 55 SMMEs representatives in September 2022 and provided responses aligned with the themes arising from the discussions.

Infographic by Gaby Ndongo.

While the discussions were conducted in partnership with YES and ONE Campaign, Harambee Youth Employment Accelerator distributed the survey to its network of SMMEs. A total of 70% of SMMEs expressed concern about the lack of awareness of the available incentives and complex processes preventing access to the respective benefits.

According to estimations from a study by The Centre for Development and Enterprise, the country has around 670 000 to six million SMMEs, and they can be positioned as key players when establishing an inclusive employment market that accommodates young talent.

This is the case if those businesses are provided with a conducive economic context, consisting of aspects such as accessible, government-led incentives.

What can be done? The government should do the following:

  • Reassessing and then realigning the value of these incentives for SMMEs,
  • Streamlining requirements for SMMEs to access them,
  • Ensuring that these incentives and their requirements are clearly communicated to SMMEs,
  • Providing a support line where queries can be responded to promptly, and
  • Improving the functioning and administration of SETAs.

There is further a need for “meaningful engagements” among SMMEs, youth employment programmes, as well as research and advocacy groups to “share their experiences around leveraging government incentives to hire young employees”, explains the report. This is to “indicate the practical and ongoing shifts that need to happen to the legislation and its implementation”. YC

Feature image by Microsoft Edge on Unsplash.

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