The current structure of the broad-based BEE enterprise & supplier development (ESD) framework, while well-intentioned, may be inadvertently hamstringing corporates..
Instead of encouraging bold participation, the system often reduces ESD to a narrow checklist — one that treats small business development as a side activity rather than an imperative deeply tied to how value chains are built, goods are delivered, and transformation is sustained.
Conservative funding trap
In practice, many corporates allocate ESD expenditure conservatively — often late in the financial year — because it is tied to their profit after tax. That makes ESD a reactionary function, where the budget is released cautiously only once profitability is confirmed.
That fosters a passivity, with transformation driven by leftover budget instead of deliberate strategy. It delays procurement planning, stifles the harnessing of SMEs and undermines corporate confidence in making long-term commitments to emerging suppliers.
While fiscally understandable, this approach has two unintended consequences:
- ESD becomes a compliance afterthought, not a business lever. It is reduced to a checklist rather than a proactive driver for business growth and transformation.
- SMEs receive support too late, too thinly, and often outside procurement pipelines. For the SME, that means participating in yet another programme, another workshop, another “capacity-building” intervention, but walking away without what matters most: a purchase order.
The issue is not a lack of will or commitment, but rather a framework that fails to empower corporates to act boldly, confidently and commercially. Transformation becomes a budget line item rather than a core business function.
ESD as a commercial lever
A more effective evolution of ESD would require treating it not as philanthropic spend or training compliance, but as a mechanism to unlock commercially integrated participation for SMEs. It is time to position ESD as a proactive, procurement-driven lever. That would include:
- Encouraging corporates to ring-fence a portion of procurement expenditure (particularly from untransformed areas) as a recognised form of ESD — in advance, and not solely dependent on year-end profit.
- Decoupling transformation impact from budget volatility, thereby incentivising proactive harnessing of SMEs and pipeline creation.
- Integrating ESD directly into core business operations, rather than treating it as an auxiliary or philanthropic gesture.
When supplier development is linked to commercial delivery (to contracts, logistics, service levels and real economic activity), everyone benefits. ESD then becomes a channel for innovation, agility, and cost competitiveness, not just compliance targets.
This would not only deepen impact for SMEs but also create shared value: corporates benefit from resilient supply chains and meet transformation targets through trade, not just training. In such a model SMEs are not beneficiaries. They are partners. They are contributors. And transformation becomes visible — not only in reports or scorecards, but in delivery trucks, contracts signed, and services rendered.
Policymakers should consider flexible structuring and scoring mechanisms that reward early, proactive procurement allocation to transformed SMEs; incentivise performance-linked support (working capital, standards alignment); and reduces reliance on net profit after tax-tied expenditure ceilings as the sole basis for ESD scoring.
Just as other transformation pillars such as skills development, ownership and equity financing have evolved, ESD now requires a policy refresh that recognises a simple truth: wealth is built through trade, not talk.
When transformation is funded only from leftovers the impact will always be limited. Let’s give corporates the confidence, policy space and commercial logic to make ESD truly work — not just for points, but for prosperity.
• Mahlalela is director of management consultancy Bullhorn ESD.
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