South Africa talks about youth entrepreneurship but where are the incentives?

Celebrating entrepreneurs is not enough

The feeling is understandable. With youth unemployment remaining 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 future.

The problem is that we stop the conversation there. It is relatively easy to encourage youth to become entrepreneurs. Creating an environment in which they can build sustainable businesses is quite difficult.

Yet if entrepreneurship is to truly play a meaningful role in addressing unemployment and driving economic growth, the conversation needs to move beyond inspiration and towards the practical realities of starting and growing a business in South Africa. The difference between celebrating entrepreneurship and actively enabling it is often overlooked.

a policy imbalance

Over the past few years, there has been growing recognition that young South Africans need greater access to economic opportunities.

The government has launched initiatives such as Employment Tax Incentive (ETI) and allowing Yes B-BBEE recognition on the scorecard, which has helped encourage businesses to hire young workers. These programs have an important role and should be supported.

However, their complexity, short-term nature, inadequate education system and general bureaucracy make them inherently unstable and unattractive. They also highlight broader policy imbalances.

Much of the focus remains on creating incentives for businesses to employ youth, while comparatively little attention is paid to creating incentives for young people to create their own businesses.

This 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 would suggest.

It generates income, develops skills, creates supply-chain opportunities and ultimately broadens the economic base of the country. If South Africa is serious about entrepreneurship as a solution to unemployment, then supporting youth-owned businesses should receive the same attention as supporting youth employment.

The funding gap remains real

Access to funding is another area where there is a noticeable gap between aspiration and reality.

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 that they had to sacrifice their own salary to keep their business afloat.

Although there is no dearth of buzz around SME funding, many young entrepreneurs still find themselves stuck in a familiar cycle. They need capital to establish credibility and grow their business, yet lenders and investors often require proof of an established track record before providing that capital.

This challenge is particularly evident in a country where many aspiring entrepreneurs do not have access to family capital, property assets or professional networks that could provide an initial foundation.

When compliance becomes a hindrance

The same can be said for regulation and compliance. Some business owners argue against the need for proper governance, taxation or regulatory oversight.

Established businesses already struggle with unnecessary bureaucracy, failed systems and administrative delays. The worry is that this complexity often falls disproportionately on small businesses who 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 dropped from 4.1 in 2022 to 3.6 in 2023, leaving it with one of the weakest entrepreneurship ecosystems measured globally.

The government itself has recognized this issue. The Department of Small Business Development has identified red tape reduction as a strategic priority, while the Parliament's Small Business Development Committee has noted that the absence of standardized red tape reduction measures is estimated to cost the economy 6.5% of GDP.

Young entrepreneurs are often trying to find customers, manage cash flow, and deliver products or services, as well as regulatory requirements.

The difference between challenge and unnecessary friction

None of this suggests that entrepreneurship should be made easy. Building a successful business has always required patience, flexibility, discipline, and a willingness to take calculated risks.

However, there is a significant gap between the inherent challenges of entrepreneurship and the barriers that arise because the system is not designed with ease of use, minimal barriers or new entrants in mind.

What are other countries trying

There is an opportunity to expand the conversation beyond employment incentives to entrepreneurship incentives.

Countries around the world have experimented with various methods. Tunisia's Startup Act offers corporate tax exemptions for up to eight years, while France's Jeune Enterprise Innovante framework offers exemptions from certain employee taxes for qualifying innovative businesses.

The ongoing debate over South Africa's transition fund also raises alternative possibilities. An example is Malaysia's co-investment model, where government funding is matched with private capital raised through regulated crowdfunding platforms.

Instead of the state managing large, slow-moving bureaucratic funds, the government could match private investment in young businesses that have already attracted market support.

Can South Africa support the founders directly?

Countries such as Chile and Ireland have also experimented with paying founders a basic living wage for a limited period of time while they launch their business.

Given concerns about waste and inefficiencies in some existing support structures, a targeted stipend for deserving young entrepreneurs could provide the runway needed to scale up entrepreneurial activity.

Taking entrepreneurship to the center of policy

The question is whether South Africa is ready to show the same level of policy innovation.

If entrepreneurship is truly seen as a solution to unemployment and economic growth, then creating incentives for youth-owned businesses must move from the margins of policy discussions to the center of them.

South Africa does not suffer from a lack of entrepreneurial ambition. Young South Africans have time and again demonstrated a willingness to identify opportunities and build businesses despite difficult circumstances.

The bigger challenge is to ensure that our policies, institutions and economic systems are consistent with the future we want. As the author argues, supporting youth-owned businesses deserves the same attention as supporting youth employment.