Business organisations and experts remain divided over whether a R100bn Transformation Fund mooted by the department of trade, industry & competition could help black-owned businesses access markets and scale.
The department wants to raise R20bn over the next five years and disburse R100bn, using a mix of contributions from enterprise and supplier development (ESD) obligations under B-BBEE codes of good practice and voluntary donations by big corporations.
There was anger when it initially appeared as if the department was proposing that contributions be compulsory as part of the B-BBEE codes, but minister Parks Tau gave assurances that the Transformation Fund would not replace existing ESD programmes and contributions would be voluntary.
The minister also pledged that there would be independent oversight, with the entity selected to manage the fund made up of representatives of the public and private sectors.
While the document and the minister reference the constitutional imperative for transformation — an aim we fully support — this conflates the nobility of the objective with the appropriateness of the proposed solution. The noble intent does not rectify the inherent flaws in the concept of a centralised fund.
— Khulekani Mathe, Busa CEO
Despite these reassurances, at least one major business organisation believes the concept is flawed.
Khulekani Mathe, CEO of Business Unity South Africa (Busa), told Business Times this week that the discussion document on the fund provided minimal information, making it difficult to properly assess the proposal. He said the minister's assurances did not address this lack of information.
He said there was no compelling evidence that a centralised fund was necessary. The existence of enterprise and supply development funds that fail to meet their objectives, as noted by the department, did not justify the creation of such a fund.
“While the document and the minister reference the constitutional imperative for transformation — an aim we fully support — this conflates the nobility of the objective with the appropriateness of the proposed solution. The noble intent does not rectify the inherent flaws in the concept of a centralised fund,” he said.
It was either “extremely naïve or misleading” to assume that R100bn could be readily raised from the cited sources. Even if all public sector funds were included in the proposed centralised fund, the figures would not amount to R20bn per annum, Mathe said.
“The potential size of the fund diminishes significantly as we do not believe there are companies willing to surrender their ESD funds to an unproven central fund. The notion that public funds will also be pooled voluntarily into this fund further undermines its credibility, as it is improbable that departments will relinquish funds that are part of their budget baselines to another entity.”
Busa's sister organisation, Business Leadership South Africa (BLSA), has welcomed the introduction of the R100bn Transformation Fund.
CEO Busisiwe Mavuso told Business Times after a meeting between government and business at the Union Buildings on Friday that her support came from “the point of departure that the government had made up its mind about the fund and it would be prudent to support the government in making it as effective as possible”.
“We are not at odds with Busa. The questions I have raised now are the same ones that Khulekani [Mathe] has raised.
“We are going to have to address what forms of funding this fund will provide. Is it equity and debt? What kind of risk management will the fund deploy? What sectors will it target? How will funders be able to direct their contributions to these targets? How much money will it utilise? It will be pointless if R100bn is raised for the fund and R50bn goes towards administration.”
“We [Busa and BLSA] are both saying this thing has gaps and these gaps need to be addressed.”
She said while the proposal was far from perfect, BLSA was opting to sit at the table to have “meaningful engagement” on the fund to help find the best solutions.
“It is undeniable that South Africa remains untransformed, stagnant and in need of more diverse economic participants. Big business plays a crucial role in accelerating transformation and we understand what the government seeks to achieve.
“However, the question remains whether the Transformation Fund is the right instrument to address this challenge, as we must acknowledge it is not a silver bullet.”
Tau told parliament this week said the department had noted attempts to “undermine” the Transformation Fund, even in its early stages, saying this was due to its aim of achieving spatial transformation, finance access and value chain inclusion for black firms.
“Certainly, there have been concerted efforts in certain quarters to vilify and cast aspersions on the fund, even at the point when it was still at the concept stage and was still at the design stage. There have been attempts to undermine the initiative.”
The public comment period has been extended to May 28, after which the department will conduct “a detailed analysis with the aim of strengthening implementation of the Transformation Fund”.
“I wish to reiterate, [the aim] is to aggregate the enterprise and supply development and equity equivalent investment funds in support of transformation and enhancing the sustainability of black-owned enterprises in the economy.
It is not there to replace but to fast-track black business development in a specific and specialised way. The fund is necessary to have when it is understood to be playing a specific role in transformation, and not a broader role. In its current form, it remains too broad and it creates very high expectations from the public
— Monde Ndlovu, Black Management Forum MD
“This provides an opportunity for the seventh administration, working with the private sector, to increase the effective economic participation of black-owned and managed enterprises, including small, medium and micro enterprises and co-operatives, and to enhance their access to financial and non-financial support in line with the requirements of the B-BBEE Act.”
Kganki Matabane, CEO of the Black Business Council, said they fully support the fund. “The sooner the fund is implemented, the better for economic transformation. It is 31 years late and long overdue.
“We support the minister in making participation in the fund voluntary. In this regard, we have been approached by a few companies that are ready to join the fund, once in place,” Matabane said.
The fund was necessary and not meant to replace the initiatives that many companies had started, but to complement them in accelerating the participation of black people in the mainstream economy.
He supported putting in place a robust governance structure to shield the money from corruption and appointing credible people to the board that will manage the fund, as happened with the Solidarity Fund at the onset of Covid-19.
Monde Ndlovu, MD of the Black Management Forum, said the fund must be understood to add to the existing transformational infrastructure of the country.
“It is not there to replace but to fast-track black business development in a specific and specialised way. The fund is necessary to have when it is understood to be playing a specific role in transformation, and not a broader role. In its current form, it remains too broad and it creates very high expectations from the public,” he said.
Duma Gqubule, research associate at the Social Policy Initiative, said the devil would be in the details.
“From the way it is conceptualised, I think it will fail unless there is a direct annual capital allocation from the budget, and the government must increase allocation to existing development financial institutions for small businesses like the National Empowerment Fund and the Small Enterprise Finance Agency.”
Izak Odendaal, chief investment strategist at Old Mutual Multi-Managers, said making participation voluntary and ensuring independent oversight would make the idea more acceptable to the private sector, but that did not mean the fund was a good idea.
“One could argue that pooling the resources of enterprise and supply development programmes could increase scale and save costs. Some companies might also prefer to outsource this function to the fund or another third party. However, I would imagine that companies would prefer to do this in-house, given that they ultimately rely on their suppliers performing well.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.