But not everyone thinks it is a good idea – it’s far larger but also more complex than other institutions with similar aims of boosting black participation in the economy through financial and non-financial support. From Moneyweb.
The launch of the R100 billion Transformation Fund to promote broader black participation in the economy is expected to take shape in the coming months, with funding from both the private sector and government.
Falling under the Department of Trade, Industry and Competition (dtic), the fund expects to raise R100 billion over the next five years and disburse R20 billion a year – a fanciful target, according to some, given the difficulties existing institutions with similar objectives have in managing far smaller amounts.
Listen/read: Proposed BEE fund already causing a stir
More concerns raised around proposed R100bn transformation fund
The fund will aggregate contributions from existing Enterprise and Supplier Development (ESD) obligations under the Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice, topped up with other development and government funding, as well as donor funds.
Minister of Trade, Industry and Competition Parks Tau says the fund would be voluntary and would not interfere with ESD programmes already implemented by companies in terms of their BEE obligations.
The fund will be housed in a special purpose vehicle – with members of the private sector assisting with management, expertise and processes, which should protect it against corruption.
Critics of the fund have pointed to the government’s shoddy track record in tackling corruption as detailed in the Zondo Commission reports into state capture.
The fund has also been slammed for being racially exclusive and for replicating what existing institutions, such as the National Empowerment Fund (NEF), Small Enterprise Finance Agency, and the Small Enterprise Development Agency, have attempted to achieve on a smaller scale.
Read:
State capture scorecard: R500bn looted, zero assets recovered [Jul 2022]
R10bn fund for SMEs must prioritise businesses with scale [Feb 2023]
DA slams plan for R100bn black fund [Jan 2025]
Anti-corruption efforts in SA stagnate – Corruption Watch [Feb 2025]
“Government is committed to fighting corruption, focusing on accountability, transparency, and the dismantling of corrupt networks,” Deputy President Paul Mashatile said on Monday at a function introducing the fund.
“This effort includes establishing specialised investigative units and strengthening legislation to combat money laundering and fraud.
“It is important to recognise that the funding deficits in South Africa are a contributing factor to the failure of small businesses,” said Mashatile.
“In spite of government intervention, such as Enterprise and Supplier Development, which is a critical component of the B-BBEE framework, there is still a need for additional measures to be taken to expand fund access to SMMEs.
“Loans are the most common financial instrument for micro, small, and medium-sized enterprises in South Africa, but they often have stringent underwriting standards, making them difficult for smaller businesses with limited collateral and financial records to secure.”
Government intends to use the fund to promote sectors identified as critical to job creation and industrial development, such as renewable energy, mining, agro-processing, information and communication technology, infrastructure, manufacturing, and services.
Half-baked idea
Business Leadership SA CEO Busi Mavuso told Moneyweb’s Jimmy Moyaha in March that while the fund’s intentions are correct, the solution being put in place is half-baked.
“We are happy as the business community that the fund concept assumes a more voluntary tone and emphasises an intention to work with the private sector, because we’re worried that this thing was actually going to be compulsory. And we were asking ourselves to say that we already have enterprise supply development funds and initiatives as business,” said Mavuso.
Stuart Theobald of research and advisory firm Krutham says the fund is overly focused on inputs – how much is spent – rather than outputs.
“No one seems to have thought through what outcomes that amount is supposed to get us, or how the money will deliver them. The first problem is that R100 billion, split into equal R20 billion amounts over the next five years, is an impossibly large number that simply cannot deliver reasonable outcomes without huge wastage.”
This has been tried before. The NEF was created in 1998 to drive transformation by investing in and mentoring black-owned businesses. It has a loan book of R2.4 billion against which it has set aside R810 million for impairments. It disbursed about R600 million in loans last year, but has R2.2 billion cash on its balance sheet, suggesting a lack of cash is not the problem.
Listen: What has the National Empowerment Fund achieved in 20 years?
Disbursing and managing R20 billion a year over five years seems like an impossibly large task, given the scale and problems identified in much smaller funds.
Cart before the horse?
Theobald says the Transformation Fund concept has been developed the wrong way around.
“First, it should analyse what change it intends to create in the world. It should set specific targets — for instance, the number of black-owned businesses it will take to sustainable scale with clear definitions; or the number it will help grow with specific revenue outcomes.”
A more useful exercise would be to analyse what the obstacles to achieving these desired outcomes are and assess the performance of existing initiatives.
The fund needs to demonstrate – with evidence – how its model will overcome the obstacles, and that it has the required physical resources and skills to do its job.
Mavuso points out that about 70% of all businesses in SA fail due to a lack of skills, limited access to markets, and insufficient funding. Initiatives that have attempted to address these problems have had limited success.
Given the competing priorities among government departments, funds should be directed to those that deliver the maximum returns in development outcomes.
