The department of trade, industry & competition has proposed a transformation fund for black entrepreneurs, funded by a voluntary 3% revenue levy for businesses.
Like most people, my knee-jerk reaction was: “This is just another tax on the private sector”. The next thought is, “3% of revenue is quite high!” And my final reservation, “Who’s going to manage the money?”
And then I read a bit further. First, the fund has been formulated to augment existing BEE on the basis that existing enterprise & supplier development (ESD) programmes have stopped growing. It’s not just another “fund”. It’s a tool for accelerating market access, skills and funding for black entrepreneurs.
Second, the 3% levy is not a tax. Taxes are mandatory. This is voluntary. Just like VAT, the levy is applied against revenue, which means it’s super-simple to calculate. No fudging, no complexity, no auditors required. Just multiply your top-line by 3% and voila: you have the answer.
And you get something in return for paying the 3% levy: a level 3 BEE score. A 3% levy in exchange for a level 3 score. That’s why they call it 343. But only if you want it. It’s important to note that it’s voluntary and it doesn’t replace the existing BEE compliance regime.
It’s just an alternative to the existing options of traditional BEE compliance or zero BEE compliance. Think of that: instead of being forced to comply with the existing complex and opaque BEE compliance process you can simply pay a levy and boom! You get a level 3 scorecard.
You pay the levy via the SA Revenue Service, which issues you your BEE certificate, just like it issues tax clearance certificates. No ratings agencies, no auditors, no lawyers, no mess, no fuss.
Sure, 3% of revenue is stiff, but it’s not as though the existing process has no financial cost. Equity, enterprise and supplier development, socioeconomic development, advisers ... it all adds up. And it takes ages and it distracts from the important stuff in business such as making and selling stuff.
The 343 is simply placing a clear, simple financial cost on compliance. Rather than the pain of traditional compliance, pay 3% on your top line and off you go. It’s the price of BEE.
The question is why companies would choose to pay this price. Why should companies opt in for BEE? Aside from the moral reasons of historical redress, there is a simple financial incentive: if you want to tender to the government you need BEE. The National Research Foundation estimates that the public sector spends almost R1-trillion on procurement every year.
That is an enormous market. And it is inaccessible unless you have a BEE score. Another way to frame it is that BEE is a tariff: the SA government as a customer is akin to the EU as a market.
If you want to sell oranges to the EU you must pay a 16% tariff. If you want to sell oranges to the SA government, you must have a BEE score. The 343 simply introduces a clear cost to BEE compliance: 3%. If you want to sell oranges to the SA government you must pay a 3% tariff. Finish and klaar.
That’s why I love it. It’s so simple! It takes away all the complexity and bureaucracy and uncertainty of traditional BEE compliance while opening up a R1-trillion market opportunity.
The 343 also solves for the messy uncertainty of equity equivalence. Many foreign multinationals want to operate in SA but can’t give away equity to comply with BEE. In other words, foreign direct investment is held back by uncertainty over BEE compliance.
Instead of the government being forced to negotiate separate equity equivalence deals for each company, it can simply point them to 343: “Hello Mr Microsoft, you don’t want to give away equity? No problemo, just pay a 3% revenue levy and you get a level 3 BEE score.”
Certainty equals investment
Simplicity equals certainty. Certainty equals investment. That’s how you attract investment. That’s how you build confidence that the rules won’t change. That’s how you grow the economy and create jobs.
“But what about the fund itself? Who manages the money? How do we know it won’t be stolen or mismanaged?” I hear these words in my head too and 343 is a simple funding mechanism for the transformation fund, but what about governance and management?
The obvious first step is to put guardrails in place. Make sure organisations such as union federation Cosatu, the Black Business Council and Business Unity SA have a seat at the table and can oversee the fund administration. Then unleash the private sector on the challenge of funding successful black-owned businesses.
— Within a couple of years we could have hundreds of billions of rand washing around BEE, helping fuel growth and wealth creation, especially in townships.
We don’t have to reinvent the wheel. We have one of the most advanced and professional fund management industries in the world. The transformation fund has the potential to harness our existing expertise to create a decentralised funding ecosystem exclusively focused on black businesses.
Within a couple of years we could have hundreds of billions of rand washing around BEE, helping fuel growth and wealth creation, especially in townships. SA could create the Silicon Valley of BEE.
There may be debate as to the effectiveness of BEE policy to date, but we can’t debate the need for economic transformation in SA. From the 1913 Natives Land Act to the 1994 election, dispossession of blacks of property and opportunity through racial discriminatory practices was entrenched in the law of the land. Eighty-one years of legislated economic unfairness.
As a result, the government introduced BEE, a policy aimed at assisting black South Africans with acquiring skills, gaining experience and building wealth to reduce entrenched racial economic inequality.
Some people believe BEE has been a failure. Rather than promoting economic transformation it has enriched politically connected elites and burdened businesses with red tape and uncertainty, slowing economic growth and costing jobs.
That’s not entirely true. Based on a report by Tusker, 873,000 black South Africans now directly own shares in businesses. That’s a lot of people. We have a burgeoning black middle class. We have black billionaires. One of them is our president.
BEE has not been utterly ineffective. But it could be better. The truth is that it is still difficult for black entrepreneurs to access the capital, skills and markets needed to build a successful business.
That’s what the transformation fund is about. It’s about providing preferential capital, skills and market access to aspiring entrepreneurs in townships so they can tackle problems in their own communities, build their own businesses, create their own jobs, and become wealthy in their own right. That’s the best path to true black empowerment.
It’s easy to moan and groan about the government in SA. It’s far harder to come up with a constructive way forward. The department of trade, industry & competition deserves credit for putting forward a new BEE policy tool that aims to not only solve access to funding for black entrepreneurs, but also, via 343, simplifies BEE compliance.
A 3% revenue levy in exchange for a level 3 score. A 3% tariff in exchange for market access. That’s economic transformation.
• Knott-Craig is the cofounder of Kululeko Institute for Economic Freedom.
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