Youth Business Funding Opportunities in South Africa

Young people make up the largest population segment in South Africa at about 20,6 million, making up 35,7 percent of the country’s total population of about 57,7 million people. The country’s large youth population mirrors that of the rest of the African continent. According to the United Nations, the continent has the youngest population in the world, with 70% of sub-Saharan Africa under the age of 30. There are many benefits to having a young population, including opportunities for economic growth and innovation as suggested by World Bank Vice President for Africa, Hafez Ghanem, in the article ‘Youth Key to Strengthening Africa’s Future’. He writes, “Africa’s young people are its most valuable asset. It is a region of entrepreneurs and engineers, students and scholars, farmers and future leaders eager to help transform Africa.” The truth, however, is that South Africa’s young people are facing a steep hill and are dealing with many challenges that include economic exclusion, lack of quality education and continued inequality. The most pressing of the challenges is unemployment. Statistics SA in May this year revealed that South Africa’s unemployment levels are at the highest rate since the labour force survey began in 2008. Young people bear the brunt of unemployment in South Africa with an unemployment rate higher than the national average at around 66%.

Entrepreneurship is often touted as the remedy for the massive youth unemployment in the country. In particular, young people are called to take up opportunities available, in digital sectors and others, to combat the high youth unemployment. Although this may be true, the reality is that for many young people, entrepreneurship is not a viable solution. This is largely because the environment often does not support young people becoming entrepreneurs suggests Chimene Chetty, director of the Centre for Entrepreneurship at Wits Business School in an article for SME South Africa ‘Rebels with a Cause’. Some of the barriers to youth entrepreneurship she mentions include a lack of appropriate policy and entrepreneurship culture, insufficient accessible market and human capital, and limited access to youth business funding opportunities. Furthermore, youth entrepreneurs are often first-time entrepreneurs who find it difficult to navigate the red tape of launching a new enterprise that increases the cost of doing business.

While more South African youth are turning to entrepreneurship one of the main challenges they face is access to funding. To combat this both the government and the private sector have launched a number of youth business funding opportunities to help youth to start and maintain their businesses. Below are some of the interventions available to youth entrepreneurs providing both financial and non-financial support.

The NYDA grant programme is one of the most well-known youth business funding opportunities provided by the government. The programme offers financial and non-financial support to entrepreneurs in the development phase or already existing businesses. The NYDA targets qualifying youth businesses, including co-operatives and community facilitation projects, that show growth potential. Additionally, entrepreneurs must have the necessary skills and experience to run the enterprise. The types of businesses assisted through the grant programme include but are not limited to, motor mechanics and panel beaters, electricians, plumbers, domestic appliance repair services, beauticians, hairdressers, cleaning companies, small-scale recycling companies, street vendors, car washes and others. To qualify for an NYDA grant you must meet the following criteria:

• You must apply before the age of 35.
• Submit all required documents.
• Proof that you have attended a business management course.
• A 10-minute business pitch can be conducted telephonically or in person.
• A due diligence report will be conducted by an NYDA official.
• The business be in good standing as the NYDA will conduct credit checks for all grant applications for funding.

If you are successful with your application, your NYDA grant can be used for any of the following activities.

• Purchase movable and immovable assets
• Bridging finance
• Shop renovations
• Working capital paid directly to the grantee
• Co-funding with legal entities only

The grant limit per individual or business may not exceed R 200 000 from NYDA during their lifetime except for cooperatives (for agriculture and technology-related projects the maximum cumulative value is R 250 000). Under non-financial business support services, entrepreneurs benefit from a range of programmes. These include:

• Mentorship
• Market linkages
• Voucher programmes
• Business management training programmes
• Entrepreneurship and youth cooperative development programmes
• Other necessary business support systems

The Youth Challenge Fund (YCF) is a youth startup support programme administered by Small Enterprise Finance Agency (SEFA) launched to help turn the tide against youth business failure. Specifically, the programme is a response to the negative impact of the COVID-19 crisis which has threatened the survival of many youth-based businesses and severely limited their growth. The programme’s goal is to encourage the establishment and growth of youth-owned businesses, promote digital skills, grow the economy and foster job creation. It ultimately seeks to support 15 000 young people by 2024. To qualify you must be a youth startup with a commercially viable, sustainable and feasible business idea. Additional requirements are:

• Registered with CIPC and be prepared to register with SARS & UIF.
• 100% South African owned.
• Are adequately involved in the day-to-day operation and management of the business with at least one or more of the members being full-time employees of the company, especially the majority shareholder or essential personnel/applicant.
• Prepared to participate in business development support and mentorship (pre and post).

Find out more about the Youth Challenge Fund

The IDC, which works to promote economic growth and industrial development, typically funds large manufacturing projects with a minimum of R 1-million with a maximum of R 1-billion per project allowed. However, the manufacturing sector has high barriers of entry especially for young people. As such, to encourage youth participation in the manufacturing sector the Youth Pipeline Development Programme was established. The business support and grant funding programme assists potential applicants to improve the readiness of their proposal and become investment-ready. The grant funding covers interventions such as environmental impact assessment (EIA), marketing studies, mentoring and technical assessments. Support is available to all youth-owned businesses that meet the IDC sector and funding limits. The programme supports businesses in the following sectors:

• Agro-processing and agriculture
• Automotive and transport equipment
• Basic metal and mining
• Basic and specialty chemicals
• Chemical products and pharmaceuticals
• Clothing and textiles
• Heavy manufacturing
• Industrial infrastructure
• Light manufacturing and tourism
• Machinery and capital equipment
• Media and motion pictures
• New industries

The fund size of this programme is R 50 million.

The Industrial Development Corporation’s (IDC) Gro-E Scheme funds startup businesses with the goal of encouraging youth entrepreneurship and creating jobs. The scheme provides finance for renewable energy and energy efficiency projects of smaller scale and manufacturing of green products in South Africa. Gro-E Youth Scheme instruments include equity, quasi equity and loans. Their pricing is as follows:

• More than 26% Youth Owned – Prime less 2%; Equity – 6% RATIRR; and
• More than 50% Youth Owned – Prime less 3%; Equity – 5% RATIRR.
• Discounted equity pricing is only applicable for the youth equity portion.
• The first draw must occur within 1 year from approval of funding by the IDC or pricing reverts to normal IDC pricing.

Below is the qualifying criteria for the fund:

• Available to South Africans and permanent residents up to and inclusive of the age of 35 years at the time of final approval;
• Youth shareholding should be at least 26%;
• Youth operational involvement in the business;
• Applicant can be a start-up or expansion within South Africa;
• Cost per job of up to R 800 000 for the duration of funding – calculated using total project cost;
• Applicant to meet the BBBEE requirements of the IDC – level 4 or have a plan to achieve this within 24 months; and
• Own contribution will be determined by the financial capacity of the entrepreneur and the cash flow profile of the business.

The fund offers a minimum of R1 million and a maximum of R50 million per transaction.

The Youth Technology Innovation Fund (YTIF) is an initiative of the Technology Innovation Agency (TIA) which provides financial and non-financial support to innovators and inventors to help commercialise their innovations. YTIF in particular aims to promote and stimulate the culture of technology innovation and entrepreneurship among youth by providing access to financial and business support resources. The fund is available to young innovators between the ages of 18 and 30 and offers financial support to individuals, school leavers, students and researchers. Under the programme, youth entrepreneurs get the following:

• Intellectual property protection up to the value of R 150 000
• SABS product certificate to the value of R 100 000
• Services at a TIA station worth R 250 000
• 160 hours of business coaching
• Annual stipend of R 60 000 for two years

The grant funding is non-repayable and is provided to support projects run within a higher education institution (a level of outsourcing to third-party suppliers is permitted) or to spin-off companies that are based on IP emanating from this institution.