The South African SRD Grant: Over R3.3 Billion Every Month: Is It Possible to Create Jobs and Impact Entrepreneurship?

Over R3.3 billion is spent to pay R350 South African Social Relief of Distress Grant to 9.5 million people every month. The grant has assisted many people since the start of the COVID-19 pandemic and has become a vital safety net to the unemployed, especially young people. The grant does relieve immediate suffering, however, there is some controversy regarding the grant and the payments, which revolves around the social, economic, and opportunistic prospects of the grant and the R350 payments. It begs the questions: should the money be used for something more constructive and ultimately to the betterment of the South African economy as a whole?

It is estimated that South Africa spends a whopping 40 billion Rand a year on Social Relief of Distress Grants (SRD). Logically, the answer begs itself: if money was to be spent to stimulate the economy, a better South African economy as a whole, especially for those that rely on the grants to survive, wouldn’t it be better spent to support small and medium entrepreneurs? This is the essence of the article to further support the proposition of investing a small portion of the SRD Grants into small and medium enterprise (SME) entrepreneurs.

The R350 Grant: A Lifeline But Not Without Consequences

The SRD grant was designed only to be temporary. It was only meant to assist those without work to bridge the gap and meet a few essential needs. For most families, it is the only income that can be accessed to buy food, electricity, and even transport to look for work.

The grant is very much appreciated, however, it is not without consequence.

The grant fails to;

produce skills, job creation, or empower one to become economically active.

Cause long term economic pausing. It maintains millions in survival mode.

Impact movement from poverty to economic progress.

South Africa is left with an economic paradox, is the country only sustaining poverty and not creating an economically progressive environment in the country?

The R3.3 Billion Opportunity

In order to understand the possible potential of spending R3.3 million a month differently, it is a good start to understand the range of what that money can do. It is a known fact that small and medium enterprises are the backbone of an economy. In many developing economies, SMMEs account for about 60%-70% of job creation.

The SA Government has the capacity to shift the narrative and make the impact possible to the extent that a portion of the SRD budget was allocated to enterprise development.

Let’s unpack this:

1. Funding New SMEs

If R3.3 billion was distributed over a month, and assuming the average start-up capital of each business is R200,000, R3.3 billion would fund over 16,000 new small businesses.

Furthermore, assuming 10% of grant recipients are entrepreneurial, there would be over 950,000 micro-entrepreneurs.

This would be expected to last, seed, and nurture hundreds of thousands of new businesses.

These businesses range from Agriculture, Manufacturing and Digital services, to Transport, Retail and Community businesses.

2. Job Creation at Scale

Most of the SMEs in South Africa employ 3 to 10 people.

If 1 new business per 64,000 new jobs, then in 1 month there would be 64,000 new jobs, and in a year over 700,000 jobs, and that would significantly reduce unemployment in the Country.

This is especially true if there were high failure rates of these businesses.

3. Strengthening Local Economies

Development of entrepreneurial activity nurt a a locality’s:

– Local sourcing

– New economic ecosystems

– Economic activity

– Community skills enhancement

This would be especially true in the Townships, Rural regions, and Informal Settlements that have high levels of unemployment. These areas would be production and innovative centres, rather than economically stagnant areas.

A Hybrid Approach: Assistance + Funding

Critics of removing the R350 grant say it would lead to the impoverishment of millions. True, the R350 grant is essential for survival. However, the discussion does not need to delineate between relief or development. South Africa could implement a mix of the two where:

The grant is maintained, though

Recipients could receive an entrepreneurship option, financed by a small portion of the SRD budget. This model is not unique to South Africa:

The Youth Fund for Kenya Community enterprise model in Brazil Rural development microfinance in India

South Africa could equally implement the same models, or a mix of models, to best suit its socio-economic context.

Training and Support: The Unplugged Gears

Funding is an excellent start; however, it is not sufficient alone to yield business viability. For continued entrepreneurship to be effective, the government would have to put funds in:

1. Skills Development Training

Basic financial skills

Assistance in registering the business

2. Support Structures

These could be set up in all provinces and would include:

Workstations

Mentoring

Technological support

Resource pooling

3. Help With Selling

New SMEs are likely to need assistance in:

Municipal procurement

School feeding projects

Manufacturing of clothes and furniture

Maintenance of public works

4. Microfinance and Reinvestment

The primary objective of successful SMEs is to repay a part of the funds into a national reinvestment fund that is utilized to support the sustainability of the program

The funds are intended to support the future vision.

Transforming Clients Into Providers

The primary benefits and purpose of the social and economic development of the business are to improve the mental and social well-being of clients. There is a marked change when people go from being the dependent to the productive member of a society.

They restore their dignity,

Grow their skills,

Become financially independent and support the government

Stimulate their economic environment

The state would not have to financially support millions of people, as many would have the means to create jobs.

Future Vision

Picture a South Africa where:

New businesses are started on a monthly basis, by the thousands.

Mentorship, skills, and financial support are provided to young people.

Local communities change into powerhouses of production and employment.

The SRD Budget serves as an activator of economic restoration beyond just relief.

This vision is not unattainable but requires political will, strategic planning and cooperation of government, the private sector and civil society.

The Benefits and Challenges

While converting the R350 Social Relief Grant into a stepping stone for enterprise creation has enormous potential, it can also be particularly risky and complicated to do so. Understanding the benefits and challenges is essential as we explore visionary, sustainable models.

The Benefits of Converting the R350 SRD:

1. Economic Empowerment for Millions

Some of the R3.3 billion per month allocated for the SRD might be redirected to entrepreneurial efforts that would empower millions of unemployed South Africans to support themselves. Instead of relying solely on government grants, citizens would be taking home a sustainable income from their own business.

2. Significant Job Creation

Small- and medium-sized enterprises can absorb labour at scale. Many times this could be at least one or two employees even in a micro enterprise such as a spaza shop, delivery service, small farm, manufacturing project, and/or digital businesses. When you add that up at hundreds of thousands of small businesses this drastically changes the scope of job creation.

3. Stronging Local Economies

Entrepreneurship has a direct positive economic impact on township and rural economies. When someone starts an enterprise and buys raw materials, hires labour, pays rent, or provides a service that brings economic benefit to a local community, money now circulates in the local economy and supports local networks both formal and informal.

4. Innovations Created/Expanded

If people are given capital and capacity building support, new ideas will follow. South Africans have a strong and creative informal entrepreneurial history already—entrepreneurial funding and training could unleash opportunities to innovate.

5. More Revenue for Government

New businesses eventually pay taxes. More employees equal more income tax to governments. More production locally results in less reliance on imports and better the balance of trade. Therefore, over time more revenue are collected by governments (and their budget will be less stressed over time).

Challenges — Risks:

1. The High Likelihood of Business Failures

Most countries around the world will see a sizeable number of small businesses failing within the first 2-3 years. Without effective mentoring, training and support, beneficiaries may lose their capital investment in the first few months of starting a business. To avoid entrepreneurship becoming a failure rate and drain of government money, the capacity and capability of individuals is crucial — this simply cannot occur without skills and good planning process.

2. Skills of Beneficiaries

Many of the SRD recipients do not have basic access to business training, which is lacking and important as any young business person needs to understand digital literacy in the 21st century and sound financial management skills. In the absence of strong training programmes, there is a high likelihood that beneficiaries tend to misuse and/or misuse funds.

3. High Administrative and Corruption risks

When managing funding in the billions of rand for enterprise support funding, it is vitally important to maintain very strict eligibility, approval, and oversight processes. South Africa has faced serious corruption challenges in several public programmes and interventions. This means that without a very strict governance process is upcoming, there is a possibility the applicants could misuse funding (or worse).

4. Uneven access to businesses across provinces

Most urban beneficiaries would find it easier to start businesses based on market needs or market access, while many beneficiaries from rural areas will struggle to some degree in even securing a small market, infrastructure, transport or any sort of reliable flow or quality of network marketing for services and products. Therefore, a clear “one-size-fits-all” model will not work.

Finding the Right Balance

The concept of converting the SRD grant model into a development strategy for enterprise is compelling, but it should also be realistic, notwithstanding the large benefits to participants—economic empowerment, job creation, new ideas, tax base expansion, poverty reduction, etc.—to the potential considerable challenges of skill gaps, administrative risk, business failure risk, and infrastructure inequities.

Final thoughts

The necessity of the R350 SRD grant, as a major lifeline for millions of unemployed South African citizens cannot be overstated. However, the uncomfortable truth is that while we are spending R3.3 billion per month, we are trying to keep people alive, not transform their lives.

With a small portion of that total being reallocated into a bold structured enterprise-development system and programme, South Africa is looking to have created thousands of SME’s and hundreds of thousands of jobs, and grant recipients will become economic facilitators – not welfare recipients.
There is no choice between compassion and development, we must simply take the compassion and harness it towards development. And, with a proper directed approach and full enough purse strings, the R350 grant could be the precursor to pulling millions of South Africans out of the poverty dodging cycle of unemployment and grants.