The South African government is set to launch a R100 billion Transformation Fund, aimed at catalysing economic transformation through bolstering black-owned businesses and Small, Medium, and Micro Enterprises (SMMEs). This initiative has ignited significant controversy, as it will be funded by private sector contributions.
The plan was articulated by Parks Tau, the Minister of Trade, Industry, and Competition (dtic), in a parliamentary question and answer session.
The fund is designed to comply with the Broad-Based Black Economic Empowerment (B-BBEE) regulations and various mechanisms outlined in the Competition Act. Proponents of the fund argue it will help address economic disparities, while critics express concerns over its potential to deter investment and stifle economic growth.
In further detail, Minister Tau elucidated that the dtic, in collaboration with both private and public sectors, will manage the fund via the National Empowerment Fund (NEF) Special Purpose Vehicle (SPV). He further highlighted that the fund’s capital would be amassed in accordance with the B-BBEE Codes of Good Practice and through public interest engagements under section 18(1) of the Competition Act Number 89 of 1998 (as amended).
Concerning Enterprise and Supplier Development (ESD) Funds, Tau clarified that under Statement 400 of the B-BBEE Codes of Good Practice, corporations are mandated to allocate an equivalent of 3% of their annual Net Profit After Tax towards the development of black suppliers. The Minister confirmed that contributions to the Transformation Fund would be mandatory for compliance with the ESD stipulations.
Addressing the Equity Equivalent Investment Programme (EEIP), Tau noted that under Statement 103 of the B-BBEE Codes, multinational corporations can fulfil ownership requirements by dedicating 25% of the value of their South African operations for transformation initiatives.
“Therefore, funds from the EEIP will contribute to the Transformation Fund, ensuring a more significant and widespread impact on transformation,” Tau stated.
On the issue of public interest in competition law, Tau explained that section 18(1) of the Competition Act allows ministerial involvement in merger proceedings to safeguard public interest as defined in sections 12A(3)(b), (c), and (e). Where mergers potentially undermine public interest, the Minister can intervene to enforce commitments towards the transformation fund, support for Historically Disadvantaged Persons (HDP) ownership, job protection, and sector inclusivity.
The primary beneficiaries of this fund, as described by Tau, will be enterprises predominantly owned by black individuals as per the B-BBEE Act, encompassing designated groups such as women, youth, people with disabilities, and those from townships and rural locales.
“The Transformation Fund is designed to enhance access to funding for black-owned enterprises and SMMEs, thereby increasing their economic participation and potential to generate income. It aims to combat unemployment, inequality, and poverty, aligning with the NDP Vision 2030. Furthermore, it seeks to dismantle financial barriers for black individuals entering the broader economy, fostering an environment where SMMEs and black-owned businesses can thrive,” said Tau.
He also underscored that the fund’s establishment reinforces the implementation of the BBBEE Codes of Good Practice, which requires established businesses to support black-owned enterprises and SMMEs, enabling them to engage in their supply chains and broader markets as suppliers.
However, this initiative has drawn sharp criticism. Dr. Anthea Jeffery, Head of Policy Research at the Institute of Race Relations (IRR), remarked, “Mr. Tau’s proposed Transformation Fund conflicts with at least four key constitutional provisions.”
The IRR argues that Section 1 of the Constitution endorses “non-racialism” as a foundational value, which is compromised by categorising individuals into racial groups from the apartheid era and then favoring some over others.
Moreover, the IRR emphasised that Section 9 outlaws racial discrimination by both the state and private sectors unless it “promotes the achievement of equality,” a principle upheld by the Constitutional Court.
Yet, they argue, BEE predominantly benefits a narrow segment of the black elite with political connections.
According to the Institute, BEE also hampers investment, economic growth, and job creation, significantly impacting the majority of economically disadvantaged black South Africans. “BEE is the chief contributor to the increasing inequality within the black community and explains the rise of the country’s Gini coefficient from 59 in 1994 to 63 in 2022,” the IRR highlighted.
The IRR also pointed out that Section 213 of the Constitution mandates that “all money received by the national government must be paid into…[the] National Revenue Fund, except money reasonably excluded by an Act of Parliament”.
“Yet, Mr Tau intends to steer R100 billion towards the National Empowerment Fund without legislative authorisation or proof of ‘reasonableness’. Essentially, this move could serve as a covert method to fund public service salaries and other governmental expenditures under the pretext of BEE benefits for the economically disadvantaged,” the IRR criticised.
Additionally, as explained by the IRR, Section 217 requires public procurement to be “competitive and cost-effective”. Judge Raymond Zondo, in his report on state capture, emphasised prioritising “value-for-money” in tender awards over BEE considerations. However, Tau’s proposal would exclude non-contributors from state tenders, potentially compromising competition and cost-effectiveness.
Jeffery further argued, “Race-based BEE has inflicted considerable damage on the economy. By defining beneficiaries by race, it enables a black political elite to exploit these preferences, while the majority descend further into poverty. The Transformation Fund should be abolished, along with all racially discriminatory legislation. Instead, we should transition to a non-racial system of Economic Empowerment for the Disadvantaged (EED) that uses a means test to identify the genuinely disadvantaged and supports them with tax-funded vouchers for education, health, and housing.”
She added that EED would redirect funds currently misused or embezzled by bureaucrats directly to families, empowering them to select the best services from a competitive market.
Furthermore, the Democratic Alliance (DA), through its Spokesperson on Trade, Industry, and Competition, Toby Chance, condemned the policy outright.
“This approach is not only imprudent but also deeply flawed, circumventing necessary Cabinet deliberations and approvals for such pivotal policy shifts. The DA will oppose this recklessness. The Minister’s strategy to impose additional obligations on the private sector via the BBBEE codes, compelling contributions to the fund under threat of penalties, is both anti-competitive and illegal. No government should establish such a fund without explicit Cabinet consent, particularly when it acts as an implicit new tax on businesses,” Chance argued.
He stressed that this move contravenes principles of good governance. “It’s unfathomable for the Minister to announce such a significant policy without adhering to legal protocols. Governments cannot arbitrarily levy taxes or impose new financial burdens on businesses without following legislative procedures,” he added.
Chance also raised concerns about potential corruption and the mismanagement risks associated with the fund, given the National Empowerment Fund’s track record on oversight and accountability. He warned that this could become a conduit for squandering taxpayer money with scant oversight or beneficial outcomes.
“We urge Minister Tau to promptly present this issue to Cabinet for thorough discussion and approval. The DA will not support any move that undermines legal standards or jeopardises South Africa’s economic competitiveness. We advocate for transparent, consultative government operations within legal frameworks. This imprudent plan must not proceed without proper legal and Cabinet endorsement,” Chance concluded.
With the dtic aiming to mandate that the private sector contributes 3% of its profits to support exclusively black-owned businesses, what is your perspective on this matter?
Please share your insights in the comments below.
2 Responses
Ya…. What can one say. no, There’s no Poor Indian people, No poor White people, No Poor Chinese people. You want this country to succeed. Stop dividing people by race. We are one! This useless Government is the problem . They break everything they touch and then they cry Apartheid.
Replace this government and then it will improve for everyone. People are so uneducated to even understand, the middle class, Its being destroyed. The rich pay less taxes because of loopholes, The poor pay less taxes because they have little to nothing, The middle class is carrying the finical burden of the entire country. When this goes. We are all in trouble…..
Get rid of the ANC.
Get rid of the DA
get rid of the EFF
get rid of BLM
get rid of all these hate driven parties with one agenda, destabilization.
They keep you poor to keep themselves rich .
Lets find a one nation party. where everyone is accepted and treated with respect not because of ones skin tone, but because we are all South African.
Aristotle in his study of Democracy in Greece,
notes an oligarchy gains wealth and power via taxation which they then use in future to raise further unrestrained taxes.a
Any transformation fund means an extra 3% in expenses, means SA’s business taxes will be pushed up into the top 10 in the world, personal income taxes the highest in Africa and our property taxes in the top 3 in the world. with the highest unemployment rate on earth.