http://www.slideshare.net/VijayanChetty/comment-annual-report-2015

1. Page 1 of 10
Draft National Youth Policy 2014-2019
Some commentary
1. INTRODUCTION
The Durban Chamber of Commerce and Industry has comments and recommendations on
the Draft National Youth Policy 2014-2019. While supporting the government’s efforts to
consolidate youth initiatives to transform the economy and the society in which they live,
the Chamber believes there are several fundamental concerns inadequately addressed.
2. LABOUR MARKET FAILURES
The root of the youth unemployment conundrum can be traced to labour market failures
preventing job-seekers from entering the market and identifying meaningful employment.
On the supply-side, young job-seekers process inaccurate information about the types of
work available, while their expectations on potential earnings and career progression are
frequently unrealistic.
Employers are unwilling to incur the transaction costs and risks associated with hiring young
people given their short or non-existent employment history. Consequently, young people
are disproportionately affected by labour market failures.

2. Page 2 of 10
These failures manifest negatively in skills training. Again the lack of access to accurate
information means young job-seekers are unaware of the most appropriate market skills,
but even if they identify them, they encounter difficulties in securing the finance to
undertake their acquisition or in identifying the right institution.
Employers, particularly small businesses, encounter skills development difficulties as they
hesitate to finance employees’ training, fearing the person will merely be poached by a rival
firm. This lends the private sector to the "free rider" approach to skills development where
no firm wants the risk of investing in skills development only to be exploited by competitors.
There are various well-known methods to counteract labour market failures (see Appendix 1
- The DCCI’s Business Vision for the Economic Development of Durban) including a
comprehensive survey ascertaining the current workplace needs; an engagement between
the private sector, tertiary education institutions and training providers; establishing an
institutional mechanism to monitor the appropriate development of suitable skills;
establishing jobs centres and providing meaningful incentives for the private sector to take
on interns and trainees.
3. YOUTH EMPLOYMENT TAX INCENTIVE
While the National Treasury stated in January this year 29000 employers had claimed the
Youth Employment Tax Incentive for 270000 employees, the Chamber has several
fundamental concerns.
The Chamber is aware the incentive is not coupled to mandatory skills development and
training. Essentially, it does not encourage employers to engage in skills development and
training for young workers nor does it put downward pressure on the wages of low-skilled
workers as firms receive a greater incentive for salaries in a specific band.
4. APPROPRIATENESS OF THE EMPLOYMENT TAX INCENTIVE
Regarding its appropriateness, the Chamber feels this incentive does not address and
remedy the underlying causes of youth unemployment, specifically poverty, income
inequality and a poor basic education system. It is also unlikely businesses, especially small

3. Page 3 of 10
medium and microenterprises (SMME), will employ more staff based on the incentive.
Businesses make hiring decisions on their growth and expansion with employers seeking
specific employees and skills and believing young people lack the following essential
elements:
- Basic literacy and numeracy skills;
- Logical thinking and problem solving;
- Trainability or the ability to quickly acquire and apply difficult technical skills required to
successfully complete tasks;
- Flexibility and openness to new ideas and
- Discipline and work ethic.
Business owners feel South Africa's youth lack these skills and perceive young job-seekers as
lazy or entitled. The Chamber believes a successful youth employment programme should
limit these negative qualities and foster positive ones and suggests the government further
investigate Germany’s youth employment programme (implemented in addition to the tax
incentive) as that programme addresses the causes of youth unemployment, specifically a
lack of "work-ready" skills. In recent years, Germany's unemployment rate has hovered
below 5%, underpinned by the country implementing an effective system to allow the labour
market to absorb school drop-outs and individuals lacking the financial resources to study
further. Specifically, the system fulfils the "second chances" requirements mentioned in the
strategy.
Germany has implemented its project via government-funded jobs centres offering a dual-
training system of theoretical education and practical work experience in a vocational school
environment. Learners receive a monthly stipend during their training, typically two to three
years. Thereafter, they receive a certificate and are entered into a database from which
employers can source new hires. Students have the option to undertake further training to
obtain a master craftsman qualification, effectively allowing them to manage a small
enterprise and train other youth. The advantage of this model is the youth develop

4. Page 4 of 10
knowledge of skilled crafts, considered the cornerstone of the German small business sector.
Gross1
(1997) summarises the case as follows:
“. . . the German education system is very structured and less gifted students have little
access to purely academic options. However, they can pursue advanced training in the
apprenticeship programme and in vocational schools. As a result, the option least favoured
by teenagers is to enter the labour market as an unskilled worker”.
The Chamber recognises the government has sought to remedy the youth unemployment
problem by channelling money into the Skills Education Training Authorities (SETA), Further
Education and Training (FET) colleges and provincial labour centres. However, these
interventions have failed spectacularly, not even scratching the surface of their objectives.
The Chamber suggests the government replicate the German model by improving the
youth's basic cognitive skills through a well-structured institutional framework providing a
range of career paths and options.
The Chamber also suggests the private sector actively engage in skills development and
youth employment programmes. Business should view this expenditure as an investment in
a pool of future labour resources and, should legislation make it mandatory for businesses to
engage in such activities, it will remove the "free ride" incentive.
5. YOUTH ENTREPRENEURSHIP
Young entrepreneurs often suffer from the absence of a cohesive and integrated policy and
strategy environment. Numerous initiatives, managed by a laundry list of agencies, with a
significant financial expenditure, have yielded minimal success in developing a vibrant youth
SMME sector. There are several fundamental, yet untackled, concerns relating to facilitating
a small business functionality requiring comprehensive plans and strategies to ensure talk
translates into economic reality. The Chamber proposes these challenges could be better
met with a dedicated division for youth-owned enterprises in the Small Business
Development Ministry.
1
Gross, D. M. 1997. Youth Unemployment and Youth Labour Market Policies in Germany and Canada.
Employment and Training, Paper 37. IMF.

5. Page 5 of 10
The barriers to entry for small businesses are more daunting than in other sectors. The
combination of the inhibitive capital outlay and lack of market knowledge are the most
significant obstacles, but are amplified for young entrepreneurs. While various government
agencies and private sector financiers may address access to finance concerns, the Chamber
believes the more pressing issue is formalising mentorship and training support for young
entrepreneurs. This must be provided in a sector-specific fashion as a one-size-fits-all
approach is unsuitable. The Chamber advocates compliance-based training to ensure young
entrepreneurs are compliant from the outset, thus reducing the risk of sudden legal
discretion in the later stages of their business operations. Topping the agenda are labour,
environmental and occupational health safety compliance.
6. SUPPLIER DEVELOPMENT
Greater resources must be invested in a specialised supplier development programme for
young entrepreneurs to assist them grow vertically by improving their business practices and
delivery. This may include financial support or incentives for quality assurance achievements
like ISO and SABS certification and the Chamber believes improving the small business sector
to enhance its growth potential demands local municipality support, but can also translate
into a private sector project for local chambers of commerce.
Vital in this discussion is youth co-operatives. In the Chamber’s experience, co-operatives
have been largely haphazard, lacking the necessary interventions that encourage
collaboration. However, that is what underpins co-operatives, as viable businesses are raised
through concerted guidance while a minimum quota of tenders or contracts for execution
for co-operatives contemplated.
To promote the success and growth of youth-owned small businesses, the Chamber
supports the concept that companies procure from local suppliers wherever possible.
In response to the Code of Good Conduct amendments relating to the broad-based black
economic empowerment (BBBEE) policy, increasing attention will be given to supplier
development. This offers the potential for meaningful small enterprise development and
goes beyond procurement. Supplier development involves skills transfer, effectively raising

6. Page 6 of 10
the quality of product and service and creating more competitive, competent young
entrepreneurs. In terms of small business growth and job creation, horizontal growth by
accessing more orders must be complemented by vertical growth – improving
product/service, business practices and productivity. The Chamber, through its members
and programmes, can provide constructive assistance to advance youth-owned enterprises
and favours an arrangement with the local municipalities to support the growth of its small
business vendors.
7. PROCUREMENT
The Chamber believes sustainable procurement adds stability to the demand for goods and
services from youth-owned enterprises and proposes local government tendering policies
and processes be reviewed and updates to both reward companies offering contracts to
youth-owned enterprises and to encourage their development. These contracts can be
broken into smaller parts within the SMME's management capacity or awarded as larger
contracts to companies undertaking to outsource to acceptably qualified enterprises and/or
adopted programmes to promote skills transfer. Public sector procurement is also a
powerful means to facilitate BBEEE, but must be used effectively. The Chamber is concerned
this is not always the case.
Dumile Cele 28February 2015
Chief Executive Officer
Durban Chamber of Commerce and Industry

7. Page 7 of 10
Appendix 1
DCCI BUSINESS VISION FOR THE ECONOMIC DEVELOPMENT OF DURBAN
GOAL 3
CREATION OF MEANINGFUL EMPLOYMENT
Job Creation
In 2011 eThekwini's unemployment rate was the third-highest among South Africa’s seven largest
metropolitan areas. Although the number of unemployed individuals dropped between 2001 and
2011 from 43% to 30,2%, the implication is one in three individuals in the municipality is
unemployed (EDGE, 2012). As far as KwaZulu-Natal is concerned, there was a 2,7% employment
decline from the last quarter of 2011 to the last quarter of 2012 and it is likely the city suffered
commensurately. Moreover, Census 2011 revealed KwaZulu-Natal’s outward migration (281568
individuals) exceeded inward migration (250884 individuals) and 58% of eThekwini’s inhabitants
possess qualifications below a matriculation (EDGE, 2012). The combination of a large number of
unemployed individuals with a lack of skills and a propensity for migration does not bode well for
the city’s economic growth.
There are several interventions required to create meaningful employment opportunities in
Durban. Firstly, the Municipality must ensure job creation is a policy priority in compiling its
economic development strategy. This does not preclude promoting and supporting other
business growth and expansion initiatives. Some potential growth sectors are not labour-
intensive, yet offer excellent economic growth prospects, while others do not provide
opportunities for un- or semi-skilled employees but are no less important in the local economy
context for this reason.
Vision
The City drives programmes and adopts economic development policies and strategies that
lead to the creation of meaningful, sustainable jobs in both the public and private sectors.

8. Page 8 of 10
If investment and expansion incentives are considered appropriate (see page 15), there would
be merit in linking their availability to a labour-intensiveness index to favourably discriminate
companies employing more people. Similarly, incentives like tax and rate holiday schemes, land
concessions and subsidised service provision can be tailored to favour youth employment
initiatives and the city's wider economic policy objectives, augmenting national government
innovations.
Secondly, there is greater scope for short-term job creation programmes like the Expanded
Public Works Programme (EPWP) that prioritise skills training to ensure individuals completing
the programme are employable. There is growth potential in the EPWP, but the private sector
currently knows little about it and its operation in the city.
The value of productive occupation should not be under-estimated. Projects in the non-
governmental organisation (NGO) sector have shown those young people whose time is organised
and who spend time in constructive activity, benefit enormously. Not only do they learn new skills,
they develop self-confidence and lose the sense of hopelessness that accompanies unproductive
idleness. They become more employable over time. In some cases, the work experience develops
entrepreneurship which may result in establishing subsistence micro businesses offering self-
employment in the first instance.
Thirdly, the Municipality must consider introducing a civic service programme offering young
people occupation in an orderly and planned environment. Such programmes act as a safety net
for unemployed individuals. There is plenty of work for teams of people whose activities are
planned, well-led and given encouragement to see the value in the civic services they perform.
Remuneration is not essential for success and providing some suitable clothing and food may
suffice. If these programmes draw more generous financial support, paying modest stipends
would be advantageous.
‘Town and Gown’
The Municipality will participate in facilitating co-operative learning relationships between
educational and training institutions and business. Internships and similar experiential learning
initiatives are essential to ensure education and training are aligned to workplace expectations.
While principally individual institutions and companies develop relationships, some joint
discussions by the parties may identify a constructive role for the city.

9. Page 9 of 10
Employment Promotion Agency
The Chamber proposes the Municipality establish an Employment Promotion Agency to
promote employment by highlighting for potential employers as much information as possible
to expedite job creation. To work in collaboration with the Chamber, the agency could launch
flagship projects for work experience and internships, especially for graduates, and publically
encourage an interest in, and commitment to, proper and productive employment. Too often
people are unaware of inducements like tax incentives and other programmes mitigating some
of the perceived difficulties in employing people.
The Municipality must also remove obstacles to self-employment. Collaboration promotes youth
entrepreneurship, engages in entrepreneurship training and mentorship and promotes
participation in the formal economy.
Migration
Employee migration is a concern. Anecdotally, it appears many of them are either students
(many in the top bracket) choosing universities in other provinces or young, qualified
professionals finding better career prospects elsewhere, often in Gauteng. Thus, in addition to
creating jobs, their quality, remuneration and career advancement prospects need attention.
This problem would be addressed by a significant local economic growth and companies'
national head offices were located here.
Leeds, an eThekwini Municipality sister City, made a conscious decision to attract head offices to
its financial sector. This was done via a partnership organisation that managed the project and
drew new corporate headquarters to the central business district (CBD). Umhlanga Ridge and
neighbouring areas constitute a particularly hospitable business environment and the
Municipality would do well to add an attraction plan to the Investment Promotions Agency's
work. The Leeds initiative is worth imitating as its achievements addressed many problems
mirrored in Durban.
The Leeds successes were achieved by "place marketing" - marketing a locality’s competitive
advantages. This encompasses a two-fold approach: targeting particular firms for which the
potential host region possesses clear advantages and where a cogent value proposition exists and
reducing hassle factors like travelling convenience.
Establishing Gauteng-based headquarters is part of South Africa's economic evolution, but
electronic communication and subsequent technological advances diminishes the argument.
Granted, this is a generalisation that does not apply equally to companies and depends on their

10. Page 10 of 10
products and services and the markets to which they need to be close. Currently, there appears to
be disincentives or "push factors" for location in Gauteng including travelling distances, traffic
congestion, crime, high staff and rental costs, and a sometimes stressful pace of
life. Correspondingly, Durban has "pull factors" requiring more aggressive exploitation including a
road network allowing for easy traffic flow close to logistics like the King Shaka International
Airport and the port, good schools and a superior quality of life. However, these factors need
considerable force if they are to prevail given the costs and human capital disturbances of
relocation.
In 2006, ahead of significant development in Umhlanga, a survey2 of KwaZulu-Natal commercial
and industrial estate agents investigated factors deterring firms from relocating. It revealed 52%
believed there was no land available for property development; 19% believed planning controls
were both too lengthy and extremely onerous and another 19% believed property and building
prices were too high. The survey also found large corporates encountered a shortage of
appropriate, large, greenfield sites, although this inhibition must be a diminished factor currently.
It is evident that in KwaZulu-Natal, eThekwini is endowed with sufficient capacity, appropriate
infrastructure and comparative agglomeration economies to make relocation a viable proposition.
The strategic challenge for the private and public sectors will be driving Durban into an optimal
configuration of push and pull factors - reducing local deterrents and augmenting pull factors.
The short-term objective will be securing the relocation of at least one top 100 South African
firm or major multinational branch headquarter to Durban. This firm will reap first-mover
advantages, while also attracting others to the region. The externalities from this agglomeration
could prove constructive for the local economy.
2 McCarthy, J. 2007. DoED: Draft Strategy for Firm Relocations to KZN. August 2007.