The minister of trade, industry & competition wants access to the R26bn in enterprise and supplier development (ESD) funds he says do not reach their intended beneficiaries each year.
Tabling his budget vote on Friday, Parks Tau suggested the ESD money be channelled to his proposed R100bn Transformation Fund — an idea that has drawn sharp criticism from business and other quarters.
Large companies are legally obliged to contribute 3% of their aftertax profit to enterprise and supplier development to assist small and medium-sized firms owned by historically disadvantaged groups.
In dismissing the idea of a Transformation Fund, business organisations have pointed out that it would become a parallel structure to already established ESD programmes under broad-based BEE codes.
Tau said ESD efforts had fallen short of their potential, with only 61% of funds reaching the intended beneficiaries.
“Despite regulations requiring companies to allocate 3% of their net profit after tax towards ESD, only 61% of these funds reach their intended beneficiaries. This leaves an estimated R26bn untapped each year.
“The Transformation Fund changes this. By ring-fencing, aggregating and centrally managing these contributions, we will ensure that they are deployed with scale, discipline and impact,” he told MPs.
By ring-fencing, aggregating and centrally managing these contributions, we will ensure that they are deployed with scale, discipline and impact
— Parks Tau, minister of trade, industry & competition
Tau said his department was also eyeing sectoral funds in mining, ICT, automotive and the financial sector, which could contribute R3bn towards the Transformation Fund; and another R1bn of equity equivalent investment projects already in the pipeline.
Equity equivalents allow multinationals seeking to invest in the ICT sector in SA without giving away a stake in their businesses to instead direct money to enterprise development, job creation, technology transfer and skills training.
Meanwhile, as SA looks for strong export markets for its goods, Tau said he planned to transform the state-owned export credit company into a fully fledged export-import bank.
Addressing a post-budget vote lunch, he said the department was looking to reposition the Export Credit Insurance Corporation (ECIC) to directly invest in facilitating exports from SA to key markets from priority sectors. He said this proposal would be raised in the cabinet.
“We have an agency, which is the ECIC, in our portfolio of agencies in the department... So we’re saying, can we reposition it, moving beyond just insurance to being an export credit agency, and or, an Ex-Im bank?”
South Africa also planned to deepen its shareholding of the African Export-Import Bank (Afreximbank), a bank established and headquartered in Nigeria, dedicated to driving intra-African trade through finance initiatives.
“If we reposition ourselves in relation to our membership at the Afreximbank, which is the African Export-Import Bank, and we assume our class A shareholding, we can see what can be unlocked.”
SA is a class B shareholder in Afreximbank through the Public Investment Corporation and the ECIC.
While SA’s class B shareholder status means that the country is invested as an African private investor institution, class A shareholding status would mean investing as a sovereign African state with a significant portion of subscribed capital callable for lower payment portions.
“It’s not new money. You are taking your existing shares and turning them into sovereign shares in the Afreximbank. What that creates is that, in the high level of portfolio investments, we would be able to get Afreximbank to invest in export and import initiatives in our country, particularly focused on our export strategy.”
Willem van der Spuy, acting deputy-director-general for exports, said the department was leveraging the country’s missions in key regions to promote the export of high-priority goods to the markets where those missions are based.
“It’s a tool that we are using, but I think the way we are applying that tool is focusing on a number of different objectives. Diversification has become even more critical in the current geopolitical environment, as we need to strengthen our ties with some existing markets where there are challenges, but at the same time, we need to find additional markets for our products and services.”
He said SA needed to investigate how to put to better use its existing preferential and free-trade agreements.
CFO of the department Irene Ramafola said instead of simply providing grants to companies, it was considering supplementing grants with a loan to make the portfolio’s schemes “self-sustainable” and “run by themselves”.
“Almost all of our incentives are oversubscribed... We don’t have the funding to support that. So, we sit, as the department, on the incentives grants, together with the Treasury, to say how do we expand the resources that we have or how do we stretch the limited resources that we have to try to support as many people as we can?”
The minister said the establishment of a national export-import bank would allow “co-creating with international partners to realise the true potential of South Africa in the global market”.
“A fully operational Export-Import Bank of South Africa by 2028, coupled with the potential upgrading to sovereign shareholding in the Afreximbank, will expand affordable financing options for exporters.”
He said SA’s Brics partners, and other priority markets across the Americas, Asia and the Alliance of Southeast Asian Nations, were actively enhancing the diversification of the country’s trade portfolio.
“Through targeted trade missions, specialised exhibitions and capacity building for exporters, we aim to propel our export value to R3-trillion by 2029/30, a cornerstone of our sustained 3% GDP growth target.”
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