The department of trade, industry & competition (DTIC) should leverage and strengthen existing industry-driven transformation initiatives rather than creating a new, large-scale fund, Business Unity SA (Busa) says.
In its concept document for the R100bn Transformation Fund, the business lobby group, which represents some of SA’s largest listed companies in various sectors such as Absa, Aspen and MTN, is instead advocating for ensuring voluntary and incentivised contributions from private sector.
“The concept document lacks clarity in addressing the chronic challenges faced by black SMEs particularly those in rural and township areas. The challenges constraining the growth and scalability of SMEs extend beyond access to finance,” Busa states in its submission.
“The DTIC must establish clear, measurable key performance indicators (KPIs) to track the fund’s effectiveness and performance concerning socioeconomic transformation, particularly regarding inclusivity and compliance with BBBEE objectives. Although the proposal mentions a transformation fund index as a benchmark, further details are needed to clarify the exact KPIs and measurement criteria.”
The fund is intended to drive broad-based economic transformation and support inclusive growth. In addition to funding empowerment initiatives, the fund will allow companies to meet BEE requirements by contributing to the equity-equivalent investment programme, rather than surrendering a 25% ownership stake in their local operations.
The initiative, led by the DTIC, has drawn scrutiny from business groups, the Centre for Development and Enterprise (CDE) and the DA.
The fund, which will be governed by a public-private partnership, aims to support black-owned enterprises through debt financing, grants and equity instruments. Sectors targeted include renewable energy, mining services, agro-processing, information and communication technology, infrastructure, manufacturing and services.
The fund aims to invest R20bn a year over five years through a mix of grants, loans and equity backed by technical support and programmes to help businesses grow and access markets.
Busa has questioned the source of the public sector funding for the DTIC initiative considering SA’s fiscal constraints. Busa also notes the transformation fund might have trouble raising money from the private sector considering that the private sector currently spends an estimated 3% on Enterprise and Supplier Development (ESD), as required by the BBBEE Codes, representing 40%-60% of the 3% net profit after tax target.
“The DTIC proposes that this share be redirected to the proposed transformation fund. This change is a concern for businesses, as it suggests a restructuring of current ESD programmes and may ultimately undermine the desired link between ESD funds and businesses’ supply chain needs,” Busa contends.
“The concept paper does not present clear evidence that the transformation fund will succeed where previous state-driven initiatives, such as the Public Investment Corporation (PIC), Industrial Development Corporation (IDC) and National Empowerment Fund (NEF), have failed to meet empowerment and ownership targets. Without a comprehensive evaluation of past transformation funds, there is a high risk of repeating previous mistakes,” Busa says.
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