How social investors can help to create sustainable jobs, businesses, and industries one small local step at a time.

President Cyril Ramaphosa last week outlined a number of interventions that government plans to use to address the enormous issue of unemployment, particularly amongst the youth. With South Africa’s unemployment rate rising to a new record high of 32.6% in the first quarter of 2021, Social Investment Specialist Riyaadh Ebrahim unpacks the role that social investment from the private sector can play in what seems like an almost insurmountable challenge.

Unemployment in South Africa is a systemic issue. There are two elephants in the room that need to be addressed when it comes to unemployment, that being the structure of the economy and education. From a funding perspective, most funders are interested in addressing the education component, because that is the “easier” option, but without addressing the systemic issues in the economy, the struggle to address unemployment will continue unabated.

Funding into training might seem like a step in the right direction when it comes to supporting the

education side of unemployment, but this is problematic as this funding does not always address education at the systemic levels. An example of this includes funders putting resources into “training” people to run businesses and issuing bursaries, but not addressing key issues such as literacy and numeracy, a problem from the foundation phase of education. The net result of this is that we tend to have a lot of funds going into programmes that are trying to develop youth into employment, but there are either no jobs available for them once they graduate, or they are not graduating from various programmes with the necessary skills.

Another important consideration to factor into any education and employment support funding, is how the 4th Industrial Revolution is going to impact jobs. The reality is that more jobs are going to emerge over the next decade which are in all likelihood going to require higher technical proficiencies. This will only exacerbate the problem that South Africa and many developing economies face, with school leavers not having enough of a background for the development of these technical proficiencies. Digital inclusivity is also essential; especially as we look to develop more people into the gig economy. How do we as social investors bring more youth into the digital economy as active participants and not only technology recipients? What is needed here is a re-assessment of what skills we deem necessary. For social investors, it is imperative that they try match the output to the skillsets, link earlier school-based investments to post-school development, so that we begin to develop pockets of excellence through various cohorts.

Because the structure of the economy and education is never going to be changed by social investments alone; social investors need to adopt a more pragmatic approach to investing in employment creation. What is needed is the tampering of expectations and localising of efforts. Instead of funding a programme from which thousands of youth hope to graduate and be employed, certain strategic investments may be able to build and develop local economies. This could include rather investing in a very small local economy that produces a “space” where ten start-up businesses can thrive.

While much of these changes are needed in the long term, the greatest paradigm shift that is needed right now, is moving the social investment from breadth to depth. While this may sound counter-intuitive, we should not be aiming to reach as many people as possible. Rather, we need to be creating jobs, businesses and industries that are as sustainable as possible. This will develop local economies that will develop new markets that will have a multiplier effect on absorbing more people into the greater economy. Also, with the use of technology, the “local economies” will not only have to remain geographical, and will be able to broaden their reach, once they have been initially contained and somewhat protected.

The support of small business is absolutely essential. We desperately need to be funding cash into building small businesses and their immediate markets, as opposed to the funding of training or any other resources.  We need to jumpstart certain industries with market creation techniques through direct investment, before leaving the business to contend with the open market. Types of interventions here could include rent relief, loan sureties and better supply chain integration.

Attracting impact investments into this space could also have an enormous benefit, specifically if we can use high-risk taking social investments that do not require returns, to lower the risk for impact investors.