The government and experts are fooling themselves if they believe that encouraging more young people to start their own business will make a serious dent in the youth unemployment rate.
Last year a report by the World Economic Forum (WEF) revealed that South Africa has the third highest unemployment rate in the world for those aged 15 to 24.
The report says more than 50% of young South Africans between 15 and 24 are unemployed. Only in Greece and Spain is unemployment in this age range higher, notes the report.
In January The Presidency released the draft national youth policy for 2014-19. It outlines a range of measures to tackle young unemployment, including encouraging more young people to start their own business through a "mass youth enterprise creation programme"
The programme is detailed in the Department of Small Business Development's strategic plan as one of its planned initiatives over the next five years in which it aims to help 3,000 youth to launch businesses.
In addition funding of R2.7 billion for youth businesses was last year set aside by both the Small Enterprise Finance Agency (Sefa) and Industrial Development Corporation (IDC). The government's National Youth Development Agency (NYDA) will screen candidates suitable for finance (see this earlier post).
Yet the government's efforts to assist youth businesses so far have been met with limited success. The NYDA used to offer loan funding to youth businesses, but ran up millions of rands in debts because of the high number of business owners that failed to honour their loan repayments. Since 2013 it has been made to offer only grant funding, while scaling down amounts available for funding.
The private sector has also had limited success. Few youth that are trained in dedicated entrepreneurship academies go onto run their own business. At one of the most prized ones, the Raymond Ackerman Academy in Cape Town, only about 10% do, according to the academy's director.
Setting them up to fail
But by encouraging unemployed youth to start their own business policymakers are effectively setting them up to fail - argues local author and entrepreneurship expert Barrie Terblanche.
In an opinion piece in 2010 he argued that it's hard enough to start a business for someone who was once in salaried employment, but that unemployed youth are possibly the worst type of group to encourage to start their own business because they lack capital and networks gained through years of work experience.
With little credit history, banks will find it hard to lend to them. As many unemployed in South Africa have little education, they may struggle with the various challenges that come with running a business.
Terblanche points out that while in finding a job one only need convince one person to give you a chance, with starting a business one has to convince hundreds of people to give you a chance - including suppliers, clients, prospective employees, business partners and many others.
"How can someone who doesn't have the ability to persuade one person to give him a shot at a job be expected to persuade the hundreds necessary to survive in business? " he notes.
What is missing in South Africa, he says, is a properly trained and educated workforce. The answer to the millions of unemployed youth lies in better schooling and training.
Target existing companies
Policymakers could also find ways to get existing companies to hire more youth - by improving the business environment through making it easier to hire and fire employees and by helping produce more skilled candidates.
At present the government is only tinkering with improvements on some of these measures - by increasing funding to training colleges and getting state-owned enterprises to create more artisans. Nothing is being done about labour legislation, which most employers cite as the biggest hurdle to taking on more jobs.
The government is instead trying to get employers to hire more young people through an employment tax incentive which was implemented at the beginning of last year.
But since it was initially proposed in 2011, the subsidy implemented at the beginning of 2013 has been greatly reduced in size.
The National Treasury initially proposed giving employers monthly subsidies of up to R12,000 if they hire young people between the ages of 18 and 29. When it was finally adopted the subsidies were scaled down to R1,000 a month for employees hired in the first year and R500 in the second year.
The original proposal was that the subsidy would cost R5 billion and would create at least 423,000 jobs for youth over three years. Up to the end of last year about 29,000 employers had accessed incentive, helping 270,000 young people to land jobs, says a report. The incentive will come up for review in 2016.
Perhaps a glimmer of light is a plan (see this article) by the Deputy President's Human Resource Development Council and the Department of Basic Education to encourage learners at schools to adopt more entrepreneurial traits, by nurturing problem-solving skills.
The programme is still largely at the pilot stage, and has a long way to go before all schools adopt it. What is arguably just as important is that the country needs to improve the quality of its education too.
Getting this right can help businesses to take on more graduates. After gaining work experience and building capital, they would be better equipped to in the near future start their own businesses. Their likelihood of failure would be lower, which would increase the chances that they would stick around to employ people themselves. Like this a virtuous cycle could be generated.
This doesn't mean one shouldn't help young entrepreneurs, it just means having a dedicated programme that targets youth, encouraging them to start up, can be disastrous and prove a waste of resources.
Timm is a South African who writes on small business in emerging economies. Follow Small Business Insight on Twitter at @Smallbinsight and on Facebook.
Stephen Timm is a