Standard Bank client insight enables practical private sector job creation
Unemployment compromises GDP growth, threatens economic stability and tears at the fabric of our society.
Standard Bank, as well as independent research, show that South African employment is still 5% lower than pre-Covid-19. A 35% unemployment rate means that only 200 000 out of the approximately 350 000 South Africans entering the job market each year will find work. In short, every year approximately 150 000 mostly young South Africans join the ranks of the unemployed. More disturbing still, PWC recently reported that if current trends continue, South Africa’s unemployment rate will reach 40% by the end of the decade.
Despite this bleak picture, “many of Standard Bank’s larger unlisted commercial enterprises, and even many of the country’s mid-sized corporates, are bucking the current low or no growth trends, doing relatively well compared with their peers. Some are even increasing employment,” reports Craig Polkinghorne, Head of Commercial Banking at Standard Bank.
Since many of these enterprises operate outside of South Africa’s major metropoles in smaller centers or rural areas, they are also highly involved in the communities to which they sell or serve, and from which they employ.
“The high levels of growth and deep local involvement of many of these larger commercial enterprises means they not only understand the scourge of unemployment intimately, but they are also exhibiting the growth to make a difference,” observes Polkinghorne.
Leveraging these two insights, Standard Bank developed the Employment Growth Initiative, a subsidised business loan aimed at stimulating job creation by partnering with clients for growth.
In a nutshell, any qualifying Standard Bank commercial loan, new or existing, to the value of R30 million or more could receive an interest rate reduction of up to 0.25%. Since a 0.25% interest rate reduction on a loan of R30 million equals South Africa’s minimum wage, the client is required to use this saving to subsidise the employment of one person. In return, the client will then be required to match this incentive by employing an additional person.
This way, “for every R30 million that we lend out under this initiative, a minimum of two jobs are created,” said Bill Blackie, CEO of Business and Commercial Banking, Standard Bank.
Should a business be able to employ ten additional staff members through the saving generated by the Standard Bank premium reduction, the business will be required to match this by employing ten additional staff members. The result in this scenario is that a total of twenty new jobs will be created. Having, initially, set aside R3 billion for this job-creating loan initiative it is expected that, at a minimum, the initiative should create 200 jobs. Obviously, since many companies may well employ more than one person because of the loan, “in the long run we envisage that many more jobs will be created,” says Blackie. While Standard Bank will be targeting established clients with track records of growth, “in terms of our social mandate in South Africa, a portion of the R3 billion earmarked for this initiative will be ringfenced for black-owned and black woman-owned businesses,” added Lungisa Fuzile, CEO of Standard Bank South Africa.
As such, this growth-targeted private sector job creation initiative supports Standard Bank’s own Social, Economic and Environmental impact strategy while also delivering on the bank’s commitment to the United Nations’ Sustainable Development Goals.
The beauty of the concept lies in businesses being able to “use the saving from the interest rate reduction to increase their employee head count at a cost that is commensurate with the business’ interest expense savings,” explains Polkinghorne.
Growing companies generally experience an increase in the working capital that supports their businesses. They also see staff numbers increase as their business grows. Since those sectors experiencing growth are natural drivers of job creation and most likely to increase employment, they are also most likely to support this initiative. Since “our sector teams provide valuable insights into the likelihood of both sectoral and regional growth, we can accurately target our Employment Growth Initiative at those pockets where we know growth is happening and the capacity to increase employment exists,” says Polkinghorne.
Apart from addressing unemployment practically, the Standard Bank Employment Growth Initiative will also serve to create additional awareness of unemployment, inspiring and challenging other private sector organisations to leverage their capabilities for job creation.
More generally, this initiative also demonstrates the important role that the private sector can play in solving unemployment in South Africa, “positioning the private sector in general and Standard Bank in particular as trusted partners committed to resolving this critical national crisis,” concludes Polkinghorne.