Public comment invited on R100bn draft Transformation Fund for black-owned businesses

The long-awaited controversial R100 billion Draft Transformation Fund concept document to boost black-owned business has finally been published on Wednesday by Minister of Trade, Industry and Competition, Parks Tau.

It is open for public comment from March 20 to May 7. The proposed fund was first announced by the Department of Trade, Industry and Competition and Tau in January, while President Cyril Ramaphosa formalised the announcement during his State of the Nation Address on February 6.

The proposal comes at a time that South Africa's policies of catalysing economic transformation through BEE is under the global spotlight after the US Trump administration took issue with it.

Tau said the proposed fund, targeting R100 billion over the current administration’s term, aims to catalyse economic transformation by aggregating resources to support black-owned enterprises, with a focus on small, medium, and micro enterprises and co-operatives.

The initiative, rooted in the Broad-Based Black Economic Empowerment (B-BBEE) Act, seeks to mobilise funds primarily through Enterprise and Supplier Development (ESD) contributions. However, Tau made clear that the requirements of the Fund are no additional requirements for entities over and above what currently exists in the B-BBEE policy.

"The B-BBEE policy through the Codes of Good Practice requires that entities must contribute through Enterprise and Supplier Development (ESD) in the 3% of Net Profit After Tax, on development of black suppliers, black industrialists and SMMEs to broaden the industrial and services base of our country," he said. The fund is a collaborative effort between the government and the private sector.

The rationale for the fund is explained in the draft document, which notes that there is a need for a "more impactful approach" to economic inclusion. The B-BBEE Commission’s 2022 study revealed only 61% compliance with ESD targets in 2021, which is a continuing trend over the past five years (2017: 44%; 2018: 60%; 2019: 51%; 2020: 61%).

"The issue at hand on ESD and its utilisation transcends the compliance imperative as imposed legislatively by all economic actors, it is about unleashing its potency in driving economic inclusion and participation. As matters stand, it is imperative to acknowledge that the funds raised through ESD contributions do not have a positive impact on marginalised groups as envisaged within the B-BBEE legislation, more especially the SMME sector which is underserviced and under-funded," it stated.

Tau said, "We firmly are in pursuit to transform the economy as guided by the Vision 2030 of the National Development Plan (NDP), which is to eliminate poverty and reduce inequality. Our Constitutional imperative places a collective burden on all of us to advocate for equality and redress."

“This provides an opportunity for the 7th Administration, working with the private sector, to increase the effective economic participation of black-owned and managed enterprises,” he said.

With an anticipated annual capitalisation of R20 billion over five years, the Transformation Fund aims to bridge the financing gap that has long hindered black entrepreneurs. South Africa’s SMME sector, a critical driver of job creation, remains underserviced and under-funded, a challenge the fund seeks to tackle head-on.

Beyond financial support, it will offer technical assistance and market access, targeting key sectors like manufacturing, agriculture, and tourism. Tau said special attention will be paid to businesses owned by women, youth, and people with disabilities, particularly in rural and township areas, where economic exclusion is most acute.

A portion of the Fund distribution will be exclusively for entities who operate within the definition of ‘Black Industrialists’ as per the definition of the Black Industrialist Policy, such as agriculture and agro-processing; mining and minerals beneficiation; manufacturing opportunities and services opportunities as well as infrastructure opportunities.

The fund’s objectives include promoting meaningful participation of black people in the economy, improving access to funding, and empowering black-owned firms to integrate into value chains. It builds on existing B-BBEE policies, with no additional burdens on businesses beyond current ESD requirements, but aims for greater impact through coordination.

The governance structure is designed to ensure transparency and accountability. A Special Purpose Vehicle (SPV) will manage the fund, overseen by a board and an Oversight Committee comprising government and private sector representatives.

“We will be putting in place governance structures that will ensure accountability to both government and private sector, transparency, and efficiency in managing the fund,” Tau said. This framework aims to instil confidence among stakeholders, with the SPV operating as a tax-exempt entity to maximise resource deployment.

The fund’s R100 billion target will be achieved through a mix of government seed capital and private sector contributions, including ESD funds and the Equity Equivalent Investment Programme for multinationals. It will deploy a range of instruments - grants, debt, and equity - to support businesses at various stages, from start-ups to distressed entities. A portion will be earmarked for township and rural economies, tapping into opportunities like spaza shops, informal services, and urban farming, which hold untapped potential for job creation and local growth.

Black Business Council CEO Kganki Matabane has defended the proposed fund, saying the economic transformation will only end when the ownership and control of the economy reflects the demographics of the country.

Others will contend the draft document. Democratic Alliance (DA) representative Mat Cuthbert earlier this week labelled the proposed fund "outrageous". 

In a statement he said, "It is important to note that this is in addition to the tens of billions of Rands already allocated exclusively to black-owned businesses through development finance institutions such as the National Empowerment Fund and the Industrial Development Corporation, which have failed to meaningfully empower black South Africans."

"To make matters worse, he [Tau] wants businesses to pay 3% of their annual net profit after tax under the auspices of the B-BBEE Codes of Good Practice and further utilise the Competition Commission's public interest participation in order to capitalise the fund. This is frankly outrageous. Considering the significant tax burden that businesses already face and the considerable backlash the Minister's party received from South Africans for presenting a pro-tax and anti-growth budget."

Cuthbert also pointed to the failure of the "trickle-down redress" model. A recently released World Bank report entitled "Driving Inclusive Growth in South Africa," highlighted how BEE policies and laws impede investment and economic growth in South Africa.

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