Every June, South Africa returns to a familiar conversation. We talk about youth unemployment, celebrate young entrepreneurs who have beaten the odds and encourage more young people to consider starting businesses of their own. The sentiment is understandable. With youth unemployment remaining stubbornly high, entrepreneurship is often presented as one of the most effective ways to create jobs, stimulate economic activity and give young South Africans greater control over their economic futures.
The problem is that we tend to stop the conversation there.
Encouraging young people to become entrepreneurs is relatively easy. Creating an environment in which they can build sustainable businesses is considerably harder. Yet if entrepreneurship is genuinely going to play a meaningful role in addressing unemployment and driving economic growth, then the conversation needs to move beyond motivation and towards the practical realities of starting and growing a business in South Africa.
What is often overlooked, however, is that there is a significant difference between celebrating entrepreneurship and actively enabling it.
Over the past few years, there has been growing recognition that young South Africans need greater access to economic opportunities. Government has introduced initiatives such as the Employment Tax Incentive (ETI) and allowed for YES B-BBEE recognition on the scorecard, which has helped encourage businesses to hire younger workers. These programmes have an important role to play and should be supported. However their complexity, short term nature, the inadequate education system and general bureaucracy make them inherently unsustainable and unattractive. They also highlight a broader policy imbalance. Much of the focus remains on creating incentives for businesses to employ young people, while comparatively little attention is given to creating incentives for young people to build businesses of their own.
That distinction matters because entrepreneurs do more than create jobs for themselves. Successful entrepreneurs create opportunities for others. A small business that grows from one employee to five employees contributes far more to the economy than its size might suggest. It generates income, develops skills, creates supply-chain opportunities and ultimately broadens the country’s economic base. If South Africa is serious about entrepreneurship as a solution to unemployment, then supporting youth-owned businesses should receive the same level of attention as supporting youth employment.
Access to funding remains another area where there is a noticeable gap between aspiration and reality. Research and commentary released over the past year by organisations operating in the SME sector, including Xero, Lula and Business Partners, continue to point towards financing and cash flow constraints as some of the most significant obstacles facing small businesses. Xero’s State of South African Small Business research found that 41% of small businesses experienced cash flow challenges, while 46% struggled with late payments. Perhaps most tellingly, 43% of business owners reported having to sacrifice their own salaries to keep their businesses operating.
While there is no shortage of discussion around SME funding, many young entrepreneurs still find themselves caught in a familiar cycle. They require capital to establish credibility and grow their businesses, yet lenders and investors often require evidence of an established track record before providing that capital. This challenge is particularly pronounced in a country where many aspiring entrepreneurs do not have access to family capital, property assets or professional networks that can provide an initial foundation.
The same can be said for regulation and compliance. Few business owners argue against the need for proper governance, taxation or regulatory oversight. . Established small, medium and large businesses already struggle with unnecessary bureaucracy, inept staff at government departments, failing systems, unanswered phones that make compliance impossible. Even appeals for assistance to the presidential hotline go unanswered. The concern is that administrative complexity often falls disproportionately on smaller businesses that have the least capacity to absorb it. This challenge is reflected in the latest Global Entrepreneurship Monitor research, which found that South Africa’s entrepreneurial environment score declined from 4.1 in 2022 to 3.6 in 2023, ranking among the weakest entrepreneurial ecosystems measured globally. Government itself has recognised the issue. The Department of Small Business Development has identified red tape reduction as a strategic priority, while Parliament’s Small Business Development Committee has noted that the absence of standardised red-tape reduction measures is estimated to cost the economy 6.5% of GDP. Larger organisations can dedicate entire departments to compliance, often without success. Young entrepreneurs are often trying to manage regulatory requirements while simultaneously finding customers, managing cash flow and delivering products or services.
None of this suggests that entrepreneurship should be made easy. Building a successful business has always required fortitude, resilience, discipline and a willingness to take calculated risks. However, there is an important difference between the inherent challenges of entrepreneurship and obstacles that arise because systems have not been designed for ease of use, minimal barriers or with new entrants in mind.
As South Africa reflects on Youth Month, there is an opportunity to broaden the conversation. We believe that there is room to move beyond employment incentives and rather to broaden the discussions around entrepreneurship incentives.
Countries around the world have experimented with a variety of incentives here. Tunisia as part of its “Startup Act” are is proposing that there is corporate tax exemption for up to 8 years. In France, the Jeune Enterprise Innovante have offered exemptions from certain employee taxes – specifically those involved in R&D type roles.
If we turn our attention to the Transformation Fund – which has drawn much angst – maybe we could look to the likes of the Malaysian Co-Investment Fund which offers a form of matching contributions through Peer-To-Peer financing platforms. Instead of the state managing massive, slow-moving bureaucratic funds (like the NYDA or SEDFA), the state could plug a capital co-investment match engine directly into regulated local crowdfunding platforms. If a young SA founder successfully raises R200,000 from private backers who believe in the business, the government instantly matches it. The crowd does the vetting, and the state provides the scale.
Countries like Chile and Ireland have experimented with paying founders a living wage for 6 to 12 months while they get their businesses off the ground. If we consider the concerns around wastage through the SETAs, this funding could provide the runway for increased entrepreneurship activity if qualifying young entrepreneurs had a basic salary or stipend coming in.
The question is whether South Africa is prepared to show the same level of policy innovation. If entrepreneurship is genuinely seen as a solution to unemployment and economic growth, then creating incentives for youth-owned businesses should move from the margins of policy discussions to the centre of them.
South Africa does not suffer from a shortage of entrepreneurial ambition or an abundance of opportunity. If anything, young South Africans have repeatedly demonstrated an extraordinary willingness to identify opportunities and build businesses despite challenging conditions. The greater challenge is ensuring that our policies, institutions and economic systems are aligned with the future we say we want.