There is little doubt that government’s BEE (BEE) laws have been a major disappointment. Not only have they failed to facilitate the entry of millions of black South Africans into the mainstream of the economy and create jobs, they have also failed to develop entrepreneurship and sustainable small businesses.
Twenty-five years on, it is worth rethinking the way government — through its development finance institutions (DFI) — and big business support small businesses, entrepreneurship and BEE that benefits more than a handful of politically well-connected individuals.
However, the surprise announcement by the department of trade, industry & competition (DTIC) that it will set up a R100bn transformation fund requires to be treated with a pinch of salt.
It needs to be treated like the R100bn infrastructure fund, another pet project of the sixth administration which has failed to take off.
Very little is known of this new fund, other than that it will be managed by a special purpose vehicle (SPV) within the undercapitalised National Empowerment Fund (NEF) from funds raised from enterprise supplier development (ESD) and merger and acquisition programmes of the private sector.
At present, ESD funds are managed by business through outsourced specialist functions. Much more could be achieved through these funds especially if competition authorities granted block exemptions to big businesses in a sector to collaborate to bolster BEE and small businesses.
Up until now, the interface between government and the private sector on ESD utilisation has been limited to the annual reporting that individual big businesses file on BEE performance. Quite rightly, government has stayed away from directly managing these funds.
However, should the DTIC’s headline-grabbing idea, being championed by the department’s political head Parks Tau, succeed, it would mean that government, through the NEF’s SPV, would spread its tentacles into private sector funds.
The NEF, which struggles to speedily process funding applications, remains in a limbo as to whether it will continue as a stand-alone DFI or will be merged with the Industrial Development Corporation (IDC).
Assuming the private sector agrees to hand over its ESD funds to a government entity, there are legitimate doubts too that the NEF, a tiny institution, has the requisite capacity to set up and efficiently and effectively manage such a large fund; which is multiple the size of SA’s venture capital industry.
Also, as matters stand, government’s funding of small businesses — not to be confused with BEE funding — is fragmented, and will likely worsen if the idea sees the light of day. As well as the Small Enterprise Development and Finance Agency (a merged agency being set up by the small business development department), funding for small firms continues to be provided by NEF, the DTIC and the IDC. This is over and above what commercial banks and private sector SPVs are doing.
The new fund will cause more confusion to the ecosystem’s role players, especially genuine entrepreneurs, which desperately need co-ordination.
That said, Tau’s announcement will elicit excitement in certain quarters such as advocacy groups which supposedly speak for black businesses, firms owned by designated groups and small businesses.
For now, however, we would urge caution. Until further details are provided by government in a structured fashion, it is too early to praise the day before the evening.
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