Trade, Industry and Competition Minister Parks Tau has again insisted that no new demands will be imposed on business and industry because of the establishment of the R100-billion Transformation Fund, which government believes will help improve the effectiveness of broad-based black economic empowerment (BBBEE) spending.

The proposed fund will seek to aggregate the funding that JSE-listed groups, State-owned enterprises and unlisted private companies spend collectively on enterprise and supplier development (ESD), as well as some of the funding multinationals direct towards equity equivalent schemes to secure their BBBEE compliance, without selling shares in their companies.

A concept document for the fund is currently out for public comment, with the submission deadline having recently been extended from May 7 to May 28.

The Department of Trade, Industry and Competition (dtic) estimates that some R20-billion a year could be mobilized over the coming five years to help capitalise the fund; an estimate calculated using an historical analysis of ESD spending by companies monitored by the BBBEE Commission.

This funding, the department says, could be supplemented by donors, impact investors and some government “seed funding”. No breakdown has yet been provided as to the precise contributions from each potential funding source.

Tau also stressed during a briefing in Johannesburg that participation in the fund would be entirely voluntary and that government also had no intention of interfering with companies that were implementing successful ESD initiatives of their own.

“The BBBEE Commission report suggests that there are significant areas that require us to work with business, and we're not going to come wielding a big stick … rather, we are saying: ‘Let's have a process of collaboration that says, we have all not done well so far, let us work together to improve'.”.

Tau added that the commission’s analysis was pointing to a reality whereby much of the ESD spending under way was not as “impactful” as it could be and that a large portion was also being directed towards “side-stream activities” rather than activities that were core to the business of companies being monitored.

This, he argued, was reducing effectiveness of their ESD investments, while undermining the long-term sustainability of the beneficiary enterprises, as they had no direct link to the upstream or downstream activities of the company providing the support.

CORRUPTION CONCERNS

The dtic is proposing that the fund be established in partnership with the private sector and that a special purpose vehicle (SPV), with its own board and executive, be given responsibility for governance and the day-to-day running of the fund, which would include the National Empowerment Fund as an anchor member.

Tau argued that such an SPV was necessary to ensure that the fund was established in partnership with the private sector, which he said could then assist in introducing the expertise, systems and processes that financial institutions use to reduce subjectivity in decision-making.

Such systems, he added, would also be important in building guardrails against corruption, which opponents to the Transformation Fund have flighted as a major risk.

Newy appointed dtic director-general Simphiwe Hamilton said the department was acutely aware of the potential for corruption.

“It is a genuine concern, but we believe that the structuring that will be done in this regard will mitigate against any possibility of malfeasance, and it's good that we start with that lens right from the beginning,” Hamilton said.

Besides reporting to the BBBEE Commission, the Transformation Fund would also undertake to make regular reports to Parliament to improve transparency.

An effort would also be made to align funding with sectors that government had identified as key to industrial development and employment creation, including renewable energy, mining, agro-processing, information and communication technology, infrastructure, manufacturing, and services.

Deputy director-general for incentives Susan Mangole reported that the fund would also focus on township and rural areas, and provide financial products such as debt, equity, and startup support.

“The fund will also provide technical assistance and access to markets for funded businesses,” Mangole added, indicating that the target beneficiaries would include small and medium-sized black-owned firms, including firms owned by women and young people.