The Minister of Finance today announced the launch of the Jobs Fund, an initiative first declared by President Zuma in his State of the Nation Address in February. The Jobs Fund is another innovative approach that gives effect to government’s New Growth Path and the emphasis on making 2011 a year of job creation.
It will co-finance projects with the potential to create jobs by supporting the expansion of existing, self-sustaining programmes and in piloting new and innovative approaches to job creation. The Fund will target the creation of 150 000 jobs in three years.
The Jobs Fund is distinct from existing development financing instruments as it provides grants instead of loans. There will be no repayment or financial return sought, although funds that are not spent for the purpose for which they were allocated, or are misappropriated, will be reclaimed by the National Treasury.
The Jobs Fund will complement other government and related employment creation funds and provides a concrete opportunity for programmes that have proved their effectiveness to expand their footprint. Applicants may be required to also contribute funds towards financing projects.
The Fund will be administered by the Development Bank of Southern Africa (DBSA) because of its experience in working with communities in more than 200 municipalities on facilitating socio-economic development. The DBSA also has developed specialised technical knowledge and expertise in managing projects on behalf of government departments and international donor agencies.
Proposals are invited from both private and public sector organisations operating in South Africa. Projects with demonstrable potential for self-sustaining job-creation will be funded, and particular emphasis will be placed on opportunities for young people to acquire skills and improve their long-term employment prospects.
The Jobs Fund will consider proposals in four broad areas:
- Enterprise Development – investments in product development, local procurement, marketing support, equipment upgrading or enterprise franchising.
- Infrastructure Investment – local infrastructure investment projects such as light manufacturing enterprise zones, local market and business hub facilities, critical transport and communication links and upgrading of infrastructure services.
- Support for Work Seekers – support programmes with a particular focus on unemployed young people such as job search projects, training activities and support for career guidance and placement services.
- Institutional Capacity Building – projects aimed at strengthening institutions through which jobs are created or overcoming institutional barriers to job creation.
The Fund recognises the capacity for enterprise and skills development in South Africa, which are undermined by structural distortions, inequality and a fragmented economy. Neither the state nor the market can address these challenges alone. Well structured partnerships are needed combining both state capacity and private sector resources.
Questions and answer: Jobs Fund
1. How is the Fund different from other government funds?
The Jobs Fund is a grant whereas funds like the Industrial Development Corporation’s (IDC’s) R10 billion are loans. It will not seek repayment or a financial return on its investments, but will retain the right to reclaim funds that are not spent for the intended purpose or are misappropriated. It complements other funds and all these funds contribute the one goal employment creation and economic growth.
2. How much has been allocated?
R9 billion over the Medium Term Expenditure Framework (MTEF), with R2 billion of that set aside for the current financial year.
3. Who will manage the fund?
The Development Bank of Southern Africa (DBSA) because of its work in support of infrastructure improvement and specialised project management experience. It has also partnered with a number of government departments on different programmes of national significance one of which was the establishment and management of the Job Creation Trust. Strategic objectives and alignment to government priorities and programmes will be overseen by government.
4. How is the financing structured?
The financing varies in funding ratio and contribution. To ensure real ownership, there will be a cost and risk sharing by applicants with a matched funding ratio of 1:1 for private sector applicants. However, for non- private sector applicants there is a reduced own contribution given that such applicants are likely to have less resources to contribute and that rewards are not likely to be financial in nature. In some cases, a minimum contribution may apply.
5. It would appear that the fund is not meant to help small entrepreneurs, correct observation?
The jobs fund is targeted at established companies with a good track record and plans to expand existing programmes or pilot innovative approaches to employment creation, with a special focus on opportunities for young people. There may not be a specific focus on small or micro businesses, although there are other government programmes aimed at assisting small entrepreneurs.
6. How will companies access the funds?
Through the DBSA which is ready to accept applications as of today. The closing date for the first round of applications is 31 July 2011.
7. How long is the application process going to be?
A large portion of the process is will be done electronically including applying for the fund. Once an application is received it will be screened against the eligibility criteria, the competitive impact criteria and then submitted for decision by the Investment Committee.
8. What kind of projects will it fund?
There are four areas of focus:
a. Enterprise Development: investment in product development, local procurement, marketing support, equipment upgrading or enterprise franchising.
b. Infrastructure Investment: light manufacturing enterprise zones, local market and business hub facilities, critical transport and communication links and upgrading of infrastructure.
c. Support for Work-seekers: assistance with job search, mobilisation and enhancement of training activities, support for career guidance and placement services. Does this not contradict Congress of South African Trade Unions (COSATU) re: labour brokers?
d. Institutional Capacity-building: internship and mentorship programmes, producer cooperatives.
9. R9 billion is a lot of money - how will government monitor it and ensure that there is no misuse or mismanagement?
The performance of the fund will be closely monitored by the Development Bank of Southern Africa (DBSA) and the National Treasury. National Treasury reserves the right to reclaim funds if misused.
10. Will there be bias towards supporting local companies or are proposals open to all companies?
There will be bias towards companies that demonstrate potential for growth and job creation in South Africa. The fund is targeted at established organisations with existing plans for expansion in South Africa that offer good prospects for job creation.
11. What happens after the three year cycle of the fund?
Government will continue to closely monitor and assess the performance and sustainability of the projects funded through this incentive. All the projects or employment initiatives must be sustainable over three to five years. Job creation is not just government responsibility, but a challenge that must be embraced by the public and private sectors.
12. What will it cost to run the Fund? i.e. is the R9 billion purely to fund jobs, or will some be diverted to cover administrative costs? The administrative costs of running the fund have already been calculated and included in the R9 billion.13. Will there be any emphasis placed on regions or provinces in South Africa where unemployment is particularly high, or will applications from all areas be considered equally?
The Fund will not limit investments to specific sectors or geographic regions. However, it will seek to support projects that contribute to addressing identified social and economic objectives.
Projects will have to satisfy both eligibility and impact criteria. Eligibility criteria will be used to determine whether or not applicants conform to the core pre-requisites of the fund. Impact criteria will measure the relative merits of each application in relation to all others under consideration. Applications with the highest impact scores will be accepted for consideration. But the goal is the same: stimulating the economy and creating jobs.
14. Why co-finance projects rather than provide loans?The Jobs Fund is distinct from existing development financing instruments which may provide loans. It provides an opportunity for established programmes that have proved their effectiveness to expand and extend their footprint. The aim is to limit the scope for dependency and market distortion, and to support good ideas, investment and innovation.
This draws partly on international experience with “challenge funds”, a development financing mechanism which has been successfully used by donor agencies on the African continent across a range of sectors and linked to a variety of objectives, and has recently been piloted in the South African context by the Business Trust, in the form of the Shared Growth Challenge Fund.
15. Is this initiative enough to try to address the major challenge of job creation in South Africa?
This is not the only government initiative aimed at addressing job creation. Reducing unemployment is one of government’s key priorities. In itself it would not be enough, but it’s definitely a step in the right direction to bring down persistent high levels of unemployment.
