"Very difficult" – that’s how Hot Dog Café MD Derek Smith describes getting his project to meet the National Treasury’s Jobs Fund targets.
The fund, administered by the National Treasury, was launched in 2011. It funds organisations that run projects that are expected to generate a significant number of jobs.
The Treasury recently extended a number of the fund’s enterprise support projects and has revised job targets of others downwards, as the worsening economy has made it hard for many to meet initial targets.
Smith’s franchise was granted an extra 15 months to meet its target of creating 372 jobs through training and funding black youths to become franchisees.
The Jobs Fund has committed more than R17.2m ($1.2m), with the franchisor contributing a further R18.2m ($1.3m), to set up 62 outlets. But by end-June, three months past the deadline, the project had created just 218 jobs.
Blackouts, currency decline, strikes
Smith attributes this partly to last year’s power blackouts, which led many customers to stay away from malls where a number of the outlets operate. Treasury has since agreed to extend the project until June 30 next year.
But now the slowing economy has begun to bite. The combined turnover of outlets was down 16% in May from the previous month.
For Curafin, which finances owner-driver schemes for seven firms through a R96m (half from the Jobs Fund) project, a 2014 strike prevented the project from meeting its job targets.
Curafin MD Brendan Nunan says the project was to have ended last year but that treasury has granted an extension until at least the end of next month, as the strike had delayed the purchasing of new vehicles for six months. As of the end of June, 359 of the 367 targeted jobs had been created.
For business A2Pay, which provides imported vending equipment and business equipment such as printers and fax machines to franchisees in townships, the crash in the rand affected job creation.
The company had initially pledged to create 5,000 jobs and the Jobs Fund allocated R78m, which was matched by A2Pay. But the target was cut to 3,128 after the decline of the rand last year. By the end of the three-year initiative on June 30 the project had created 3,123 jobs — about a third being the operators themselves.
A2Pay chairman Bert Roux admits that the company should have taken out forward cover to hedge against any drop in the value of the rand.
Despite this he believes the project had "taken off like a rocket". The company has now begun assembling the equipment locally and is seeking a local partner to manufacture the goods. It is also looking at creating spaza shops to operate the devices.
Slump hits jobs
Mining giant Anglo American also adjusted the jobs target of its enterprise development programme Zimele – from 8,000 to 6,000 jobs — following the commodities slump.
By the end of the three-year project on March 31 the programme had created just 4,143 jobs, by funding 106 small businesses from its R500m Sebenza Fund (half of this was committed by the Jobs Fund). Just R281m of the funding had been utilised by the project’s end.
The initial plan was to fund 1,600 businesses via Zimele’s network of business development hubs. Zimele MD Hlonela Lupuwana says the company subsequently found that only a few high-quality businesses are able to create sustainable jobs.
Need to adapt targets
Jobs Fund head Najwah Allie-Edries points out that despite the revised targets, treasury would still take into consideration the initial target when evaluating a project.
"In SA, projects operate in dynamic markets — if we assume that forces within the economy and labour market will remain the same from concept to completion, we are being very short-sighted," she says.
She adds that a project’s success shouldn’t be measured only by the number of jobs created, but also by whether the long-term livelihoods or circumstances of beneficiaries had been improved or not.
Finding right entrepreneurs
Key for most of the projects has been finding the right entrepreneurs to back. Hotdog Café’s Smith says a quarter of all applicants drop out of the project’s initial month-long training course, some because of a family issue or alcohol problems.
This, he says, adds significant wastage, which needs to be costed into the programme. But he says there may be some future benefits even for those who drop out of the training.
Many who are recruited to the programme are unemployed township youths with little or no business experience. Only about 5% did maths in matric, he notes.
Interviews often don’t tell the full story, because candidates are so desperate to make an income that they will say anything to get the opportunity. It’s often down to "trial and error" when it comes to finding the right person to run outlets.
But there is some evidence that project managers are learning to get better at finding the right entrepreneurs to support.
Just 15% of those whom business-support organisation the Awethu Project trained and mentored in its first round of funding from the Jobs Fund created jobs. But two years into its second round of funding from the fund, almost half of all entrepreneurs are creating jobs (see this previous post on the project's first round struggles).
This has helped to halve the cost borne by the Jobs Fund to create each job.
Not without challenges
Yet even with the best intentions the focus on creating jobs can create other problems, as Cape-based business Rain, which makes bath and body products, discovered.
The business tapped R2.4m in funding from the Jobs Fund via the Cape Craft & Design Institute (to which it had to contribute R600,000 of its own money), to fund various interventions such as developing a new products range and recruiting specialist employees.
This helped the company to grow its job numbers, including those generated from community projects, from 50 to 172. Turnover has increased by more than 120%.
But Rain CFO Helen du Toit says the new hires also pushed the company’s overheads "sky high", putting strain on the business’s cash flow. It will take time before the increase in turnover covers all the new jobs, she says.
Masibonge Mthethwa’s fruit retailing business, Frutee Belliez, created four jobs during the period she received training and mentoring from a R5m project run by Project Preparation Trust . But Mthethwa can’t attribute those hires directly to the organisation’s help.
While she found a week-long course on basic business skills useful, she says one mentor failed to help with her business plan. A second was more forthcoming, providing some useful legal advice.
This month the Jobs Fund is expected to announce new projects to be funded in its innovation round, which closed in February. Supporting the right entrepreneurs will be vital, but those involved will be hoping strikes, currency depreciation and further economic woes don’t stand in their way.
This story originally appeared in The Financial Mail (go here for the original version). Click here to sign up for the monthly Small Business Insight newsletter.
Stephen Timm is a