BEE R100bn Transformation Fund Draft Published: Here are the Facts

Minister Parks Tau of the Department of Trade Industry and Competition  has recently released a draft concept for the new BEE transformation plan– an ambitious R100 billion fund aimed at supporting small and majority black-owned businesses in South Africa. This announcement represents a significant potential shift in how transformation policy is structured and managed in our country.

The proposed fund aims to consolidate various existing transformation fund streams, particularly focusing on equity equivalent programs and enterprise and supplier development contributions. While the concept has merit in principle, there are several practical and regulatory challenges that need to be addressed before implementation.

Understanding the Transformation Fund Resources

One of the key funding sources for this new initiative would be redirecting funds from Equity Equivalent Investment Programs (EEIPs). These programs currently serve multinational companies that, as a matter of global policy, do not offer ownership stakes in any country where they operate. Companies like Lexmark, for example, have utilized EEIPs as an alternative to direct Black ownership requirements.

Under the current system, these multinational companies invest a percentage of their revenue or profit into industry development initiatives and receive BEE points in return. The duration of these programs – whether three, five, or ten years – depends on the investment amount. These programs are substantial financial commitments for the participating companies.

Enterprise and Supplier Development Considerations

The second major funding source would be Enterprise and Supplier Development (ESD) contributions. Currently, under the generic BEE codes, companies must spend 2% of their net profit after tax on supplier development and 1% on enterprise development to achieve maximum points.

These contributions take various forms – from direct financial support to in-kind assistance such as staff time, free office space, utilities, grants, or loans. A key distinction in the current framework is that supplier development supports businesses already in a company’s supply chain, while enterprise development supports potential future suppliers.

Companies receive bonus points when they successfully transition businesses from enterprise development to suppliers, with additional points awarded when these initiatives create new jobs. This structured approach creates a clear pathway for black business development with measurable outcomes.

The BEE Funding Implementation Challenge

The fundamental challenge with the proposed fund is reconciliation with existing BEE legislation. The current codes specifically require supplier development contributions to benefit actual suppliers to the contributing company. Pooling these funds under government control raises questions about how this supplier relationship would be measured and verified.

This creates a regulatory conflict, as the BEE Act contains a trumping clause that supersedes other legislation (except the Constitution). The proposed fund would effectively require amendments to the BEE codes to be legally implemented – a complex and typically lengthy process.

Additionally, the draft concept suggests that contributions to this fund would be non-recoverable – unlike the current loan model where companies can count 70% of outstanding loan values toward their BEE scores while eventually recovering their capital. This permanent contribution requirement may face resistance from the business community.

BEE Verification and Governance Concerns

The verification process represents another significant hurdle. Currently, we don’t even have an updated verification manual for the existing codes – the gazetted manual is nearly 15 years old. BEE Transportation sector codes are still based on outdated frameworks. Given these existing delays and challenges, implementing and measuring compliance with an entirely new funding mechanism seems problematic.

There will likely be substantial pushback against government management of a R100 billion fund without proper corporate governance structures. A more viable approach might involve collaboration with established corporate entities experienced in managing large funds – organizations from the mining sector or financial institutions like Discovery that have proven track records.

The Way Forward for the Transformation Fund in South Africa

Despite these challenges, the concept has merit if properly executed. Many companies currently run their own ESD funds with questionable impact. A well-structured, transparently managed central fund could potentially deliver more significant transformation results than the current fragmented approach.

However, the proposal requires substantial refinement, stronger governance frameworks, and alignment with existing legislation before it can be effectively implemented. The business community and verification professionals should engage constructively with the Department of Trade , Industry and Competition to help shape this initiative into a workable solution that advances genuine economic transformation.

As the consultation period proceeds, we at Honeycomb BEE will continue to monitor developments and provide updates on this potentially significant shift in South Africa’s transformation landscape.