Umsombovu Youth Fund: briefing

Meeting report

LABOUR PORTFOLIO COMMITTEE
25 October 2005
UMSOMBOVU YOUTH FUND: BRIEFING

Chairperson: Ms O Kasienyane (ANC)

Documents handed out:
Umsobomvu Youth Fund Annual Report 2005 [available shortly at www.uyf.org.za]
Umsobomvu Youth Fund PowerPoint presentation

SUMMARY
The Umsombovu Youth Fund (UYF) briefed the Committee on their annual report and activities.

Members received the presentation well, but asked searching questions about the Fund’s performance; its successes and failures; funding; outreach activities; involvement in Further Education and Training and co-operation with government departments and local authorities.

MINUTES
The Chairperson started the meeting by declaring that there were no apologies and excusing Ms Rajbally (Minority Front) because she was still sick. She welcomed the Umsombovu Youth Fund (UYF) Delegation led by their Chief Executive Officer, Mr. Molase Kekana. She went on to say that she felt a major cause of unemployment in South Africa was the suffering of black youth, as they were the most affected. The UYF facilitated and promoted the creation of jobs and skills development of young South Africans. The UYF was in its fourth year of existence and she told the delegation that Members of Parliament would be listening attentively to their problems. More specifically, they would be focusing on their annual report. She stated that R850 million had been set aside for the establishment of the UYF to deal with the problem of unemployed youth. She welcomed everybody and guests, and asked the delegation to keep it brief, as they had to be done by 11am.

UYF Briefing
Mr. Kekana began his presentation by introducing his delegation. He gave an apology on behalf of Advocate Richard Moloko who could not attend the meeting. The delegation that was present consisted of Ms Motau (non-executive director and chairperson of the audit committee), Mr. Jeffrey Du Preez (non-executive director since 2001), Mr. Tom Wixley (independent audit committee member and ex-CEO of Ernst and Young) and Ms Jennifer Law (Chief Financial Officer). The key issues that he would focus on from the audited financials were last year’s achievements, the results, what they planned to do about unemployment and plans for 2005/2006.

The first thing Mr. Kekana touched on was where the UYF found itself in terms of money received from government. They had involved themselves in commitments that they could not just back out off. In order to sustain activities over the last 3 years they had spent R300 million. They assumed that some projects like skills development and transfer would be scaled down. The current funding situation was R55 million plus interest and R780 million had been spent and committed. Only the figures that the auditors recognised were reflected in the financial statements.

In terms of the cumulative report, there were 32 advisory centres and most of these were located in peri-urban or rural areas. They have had 70 000 young people through this skills programme and the Business Development Services launched the first-ever voucher programme. They launched 2000 businesses and R31 million in loans from third parties and 65% of these businesses were owned by women.

Regarding process cycle management and capacity building, they had invested a lot of money in capacity building. For example, if young people wanted to start an NGO and they had two members but no board they had to invest in training and capacity building. UYF had helped many NGOs: R600 million had been committed. It took 3 years for programme delivery as there was a lack of capacity in NGOs and government departments and this affected the time it took to approve a project. All these factors affected the time it took to launch the project and the UYF was not interest in duplicating programmes that already existed. They had raised R200 million from third parties as part of the programme for loans. The Sector Education and Training Authorities (SETAs) were already involved in capacity building and skills development and they were not duplicating their programmes.

They funded 26 further education colleges. They were integrating education and training and had increased collaboration between training and education. They intended to increase capacity in this area.

In August 2004, the National Youth Service Programme was launched and it took less than 6 months to implement. The voucher programme ran by Business Development Services had only been available in 5 provinces and not in Mpumalanga, Free State, the North West and Northern Province. In the last financial year, they got it running in all 9 provinces and now had 20 offices. These offices also did outreach work, for example, the office in Kimberley did outreach work in Upington.

They were also running an Entrepreneurship education project where the youth could learn what it took to run a business whilst in school. First National Bank had initially committed R20 million to Umsombovu work but this had increased to R240 million in the last financial year. In terms of contact information and counselling, in May 2004, the President had instructed that a database should be established. The Youth Card campaign had been successful and there were 69 access points. In terms of skills development, 15 000 young people had been assisted.

With regards to approval and disbursements, the whole process could take 4 to 5 months. The Contact Information and Counselling centres gave strong support to projects in addition to the new centres being established. The target for issued vouchers had been met. The voucher for company registration had initially been done away with because it was felt there was no need to support people with registering, as it cost only R500. However, this had been reinstated as it not only helped government with recording economic activity but assisted with tax purposes. There had been a 60% decline in profitability as the majority of projects were not making a profit.

The challenge was that the Fund was required by GAAP to apply the AC132 standard for the consolidation of underlying investments under control. This required that small entities had to be consolidated in annual financial statements. It was a big task to get young people to produce audited financial statements. This had resulted in the financial results being presented on 31 September instead of August. Umsombovu loaned money that was totally unsecured. They had to control cash flows in order to prevent people from failing. There was an element of control.

Financial statements had to be consolidated and for consolidation, they had to be audited. Because of lending activities of R340 million, they had to report on small investments. They were adopting international reporting standards by reporting on fair value on the Balance Sheet. This would help to equalise matters and there would soon be new guidelines for financial reporting for SMMEs.

With regards to access to UYF services, especially in rural areas, issues of scale had to be considered. There were only 120 projects and many communities missed out. The question was whether this could be sustained or whether the number of projects should be increased. When the fund was set up, they received initial funding for only 5 years, but community projects needed a longer period to be sustainable.

The growth in projects had been limited by the lack of service providers. The reality was that in many communities, there were no service providers. And if they did exist, they were not viable. At the moment, they were setting up UYF projects where there was a CIDA and the fund would run the projects. The people working for the fund would be trained.

There were plans to support government’s 6% growth strategy, especially in the second economy. They were embarking on training and graduate development programmes because presently people seemed to be getting jobs depending on whom they knew. The youth needed to know how to use computers, get driver’s licenses and prepare CVs to enhance employment and close the gap between unemployed graduates and available jobs. They were introducing service programmes for matriculants to volunteer to tutor schoolchildren in subjects like maths, science and English. It was a mentorship programme where Black and White young people could tutor township kids.

Umsombovu was present in 30 schools and this was increasing. They were also training out-of-school youth, like vegetable vendors, on entrepreneurship education. There were business opportunities such as tenders and government contracts that young people could get into with assistance. What the UYF could do was to link the youth with procurement officers and give them support. In terms of enterprise finance, the UYF was launching a franchise cadet programme that would train youth on how to run and manage a franchise. Only 20% of businesses in South Africa were franchises, while 40% of businesses in developed countries were franchises. The training of loan officers could help people get access to funding, for example, they could have community development workers focusing on loans. They would be piloting more UYF outlets by at least March 2006 to address the problem of reaching more communities. The fund needed support to supply these services.

Discussion
Mr. Maduna (ANC) commended the Umsombovu Youth Fund on their report because it had assisted him to understand what it was that they did. He said that it had shown improvement as it now had more substance than they had observed previously. It was more focused now. He brought up the challenges of the UYF’s involvement with FET colleges as they were not found in all areas of our country. For example, they were very rare in rural areas. He wanted to know how the UYF attached itself to FET colleges in rural areas. He knew that local municipalities were trying to bring FET colleges to rural areas, however youth from poor backgrounds could not always be absorbed in Cape Town or George as it was difficult for them to travel there. These youth were not being absorbed by urban programmes and were not well received there. They were sometimes treated in a discriminatory manner. How did the UYF deal with that?

Mr. Maduna heard on the radio that the UYF had had a workshop in the Eastern Cape where they were trying to explain their services to the youth. One young man called into the show and commented that he had been taken for training by the UYF but was told afterwards that his business was not a viable one. How did the UYF close the gap in such cases?

Mr. Mzondeki (ANC) felt that out of the few things that challenged the service provider, he wanted to know what role the SETAs played. What was the UYF’s relationship with the SETAs; did they assist with accreditation? He was also curious about Umsombovu’s social development programme where they were caring for AIDS orphans. He felt that the UYF was overstretching itself in this regard as they were moving away from their area of focus; mainly assisting young people to start businesses. He wanted to know how the UYF was tracking those people who had had training. He also noted that there could or should be a strong relationship between the UYF and the youth development that took place in local municipalities, as these two were often disjointed. He said that he felt that the UYF was an organisation that one always saw in the papers but on the ground it was nowhere to be found. He wanted to know how many businesses out of the 2000 odd started were still in existence and how these were tracked. Also, how many people were affected and got jobs from this? Regarding the National Youth Service programme, Mr. Mzondeki wanted to know in which provinces it was taking place in so that they could help with monitoring its implementation. He also wanted to know whom the third parties were that Umsombovu had received R260 million from.

Mr. Kekana stated that FTE colleges were accessible and it was really a question of the challenge of scaling up. He said that Mr Maduna was correct in his observation that the overwhelming majority of FET colleges were in peri-urban / urban areas. He said what was being done for young people nationally was to recruit them for the National Youth Service programme and pay them a stipend for their work. For example, the UYF had a project with the Western Cape Nature Conservation group in Mossel Bay. They were recruiting youth from as far as Knysna and Plettenberg Bay to assist with the conservation of their park. The people in those communities were also receiving support. When one committed to starting an organisation from scratch, it could take 3 to 4 years to get everything together like the Northern Cape example showed. There was a lot of support in that community, and it was important to look at the level of support in the communities.

Mr. Kekana’s personal view was that if there were 5000 high schools, then at least 25% of those could be turned into vocational training schools. This had been done in Tunisia. If the economy indicated that we needed vocational training, then we had to convert. There could be 15 high schools in an area and yet none of these could train carpenters or welders. The UYF was doing research into the utilisation of closed training facilities, for example when mines closed down, what happened to their training facilities? They were communicating with Anglo American and were looking into re-opening these with private funding.

Regarding the voucher programmes, the UYF wanted to look at integration of facilities by having their centres in one area so that the youth did not have to go from one part of town to another. This would assist in the aftercare and mentoring of young people. Integration was crucial in this sense. The role of SETAs was to assist with accreditation. They had to work with these organisations because there were instances where they were needed. They had no problem with capacity building; they had a problem with accreditation.

With child-headed households, Umsombovu was training young people who would work with such households. They were also training assistant probation officers who would work with young juvenile offenders. These projects were done with the assistance of the Department of Social Development because it was important to consider how such people would be dealt with.

Umsombovu was now able to track its participants. A year ago they could not. If a young person called the UYF and gave them their ID number, it was possible to know from the online system whether that person had received a voucher or not. Graduation no longer meant termination. They also had an alumni system. Another thing was to encourage young people to be leaders in their communities and to engage in civic involvement.

The businesses that the UYF had helped to establish were sustainable. For every voucher distributed, they had calculated that 1,5 jobs were created and estimated that 30 000 jobs over the last 3 years had been created. With the skills programmes, 60% of graduates had gotten jobs. There was a lag between existing jobs and new jobs. The number of businesses had also been sustainable. The portfolio of risk was 30% and this was calculated from those businesses that were in arrears with their payments.

Regarding third parties, R140 million had come from collaboration with SETAs. The Business Development and Voucher Programme had received R10 million from local committees in places like Mpumalanga. They were paying only R900 000 for the 17 new Youth Advisory Centres and were saving about R800 000 because they selected organisations that could raise resources.

Mr. Anthony (ANC) wanted to know more about the school-to-work programmes and also about the service providers.

Mr. Mogale (ANC) used the guidance of the Public Finance Management Act (PFMA) to ask the following questions:
-Why did the report come late to Parliament?
-The Auditor-General had indicated that disclosure was an issue. Since the UYF was established this seemed to be the first year that they had submitted an audited financial report?
-Did the UYF have the capacity to deal with issues relating to their report?
-He wanted to know if it was difficult for them to sit down with their board members and develop a clear strategic plan from which Parliament could determine their capacity.
-Could the claim of having assisted 6500 entrepreneurs be verified? Where were these people located, specifically in terms of provinces?
-They had signed a memorandum with some SETAs regarding vouchers and they had a graduate database. Had their own separate programmes been linked?
-How did they engage in getting young people into the second economy and marketing such a programme?
-How effective was the UYF? How did their clients rate and view them?

The Chairperson stated that some of these questions could be answered now and some in writing.

Ms Ngcengwane (ANC) also commended the UYF as they had shown improvement from what they had presented the previous year. She said that they had demonstrated that they had ways to deal with their challenges. She said that they had only made mention of two provinces where there were financial loan officers- the Free State and Limpopo. Would this be increased? She also wanted to know about the funding of women businesses and whether the UYF was funding the same group of women who were already empowered over and over?

Mr. Kekana said that they had audited financials done by external auditors and their company financials had not been qualified, but their group ones had been. They had always submitted reports, even only 6 months after they had started.

The UYF was the biggest funder of young people in the country. They were applying for the ISO9002 and would get it. They had quality systems and controls in place. They were not lacking in capacity. In fact, they were growing and with growth came challenges. They had a balanced scorecard in place, which was a system whereby every division submitted its own budgets, plans, visions etc. They produced this and mapped individual measurements for all employees online. Employees could now apply for leave or training online. Entrepreneurs could be located depending on where they were. Issues of scale came into play and the UYF could not solve all the problems that young people had. Those that have not been helped or were rejected were really angry. It took a lot for a young person to come forward and ask for something, so when they were rejected, it really hurt. The UYF was a glimmer of hope for unemployed youth.

In Mogwase in the North West, 700 young people were building houses. This was done with support from the construction SETA, Cuba, the Health Department and the ETDP SETA. The UYF would promote the driver’s license programme.

Mr. Wixley (independent audit committee) had been on the audit committee for 3 year. He explained that from the financial side, the UYF was running at full capacity. A qualification progress fund had been set up in strategic partnership with FNB. Disbursements amounted to R10 million and capital had in fact grown by 1/3 of profit or R1,6 million. The financial statements and position of the fund were fine. There were no problems. The technical problem was the investments that the fund had put money into. The auditors could not do the group accounts because small entities did not produce audited statements. This was not under the control of the UYF, but of FNB who had not taken care of the problem. The audit committee was disappointed that this had occurred.

Mr. Du Preez (Non-executive director) asked Members to keep in mind that their involvement with SETAs was to facilitate services like learnerships and not just for funding. Another general comment was on the media profile of the UYF. This has been a challenge because the Fund did not know when it would be wound up. Government had not given a clear indication of when this would occur and it was therefore difficult to increase the media profile in a situation of such uncertainty.

The Chairperson interjected and said that Mr. Du Preez’ point was very important and it gave the Members homework. Perhaps the board members could give Members of Parliament a proposal that could be discussed with the Minister. The relationship between the UYF and the relevant government department was very important. She also mentioned an idea to create employment for the youth in Taung as it had been declared an international heritage site.

Mr. Maduna (ANC) commented that government and NGOs must address the challenge of rolling-out drivers’ licenses, and the SAPS should be one of the key players in such an exercise. Many young people could not get jobs in the SAPS because they lacked driver’s licenses.

Mr. Kekana said that it was not a case of giving the same women money over and over again. They used a system of micro loans. They started with an initial R2500 and gave more depending on performance. It was only in these instances that the same women were funded over and over. Their progress fund ensured that they limited exposure per entity so that losses would not be too high.

They would follow up with the Taung National Heritage Site so that business opportunities could go to young people. There were some government departments that were already assisting them. For example, in Umtata, the Business Development and Voucher Programme offices did not have a vehicle. When they did outreach work, the police captain picked up the women that worked in the outreach programme. If it were not for his help, there would be no outreach in that area. There had been some mismatches with regards to funding that was intended for this year. The UYF offered technical assistance to government departments and programme managers provided help where it was needed.

Mr. Maduna (ANC) commented that the Minister was passionate about getting young people to obtain driving licenses. Maybe the UYF could help young people start driving schools so that they could help other young people to get driving licenses? He also wanted to know what the UYF was doing for the physically challenged.

Mr. Kekana said that he had had a meeting with the Department of Transport and would follow up with the Department of Labour to get funding. The Department of Transport had already given an indication that they would be prepared to help.

The UYF was not doing well in helping the disabled. They employed disabled persons in their call centres and were developing an entrepreneurship programme specifically to cater for them. They wanted to do more and had launched specific projects to deal with this.

The Chairperson thanked the UYF delegation for the presentation. She was confident that if they were given a chance they could go far. Their responses had encouraged Members.

The meeting was adjourned.