Pieter Steyn | Director | Werksmans Attorneys | mail me |
South Africa stands at a pivotal moment. Two months ago, the Department of Trade, Industry and Competition (DTIC) unveiled a draft Transformation Fund Concept Document. This announcement sparked a bold conversation about the future of Broad-Based Black Economic Empowerment (B-BBEE).
The proposed R100 billion fund is not just a policy proposal, it represents a potential catalyst for reshaping economic inclusion. It aims to empower black-owned businesses and redefine corporate responsibility in South Africa. But with great ambition comes great scrutiny.
The key question now is: Will this fund deliver a transformative impact, or will it stumble under its own complexity?
The R100 billion fund and a vision for empowerment
The Minister of Trade, Industry and Competition announced the Transformation Fund in January 2025. It aims to channel R100 billion into firms that are majority black-owned and controlled, as defined by the B-BBEE Act.
The fund will operate as a registered Financial Services Provider and be administered through a tax-exempt Special Purpose Vehicle (SPV). An eight-member board, appointed by the Minister and including two private-sector representatives, will oversee it.
Funding will come from a mix of sources. These include government, public entities, international donors, development banks and crucially, the private sector. The private sector’s role is where the fund’s innovation stands out.
Companies can contribute through two key mechanisms:
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Equity Equivalent Investment Programme (EEIP)
Multinationals without black shareholding can earn B-BBEE ownership points by investing in DTIC-approved initiatives. The fund could become a new destination for these contributions. However, it remains unclear whether existing EEIPs must redirect funds or if this rule applies only to new programs.
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Enterprise and Supplier Development (ESD) Points
The DTIC plans to amend the B-BBEE Codes of Good Practice. This amendment will allow firms to earn ESD points by contributing to the fund.
These mechanisms aim to align corporate incentives with national transformation goals. However, they also raise valid concerns about execution and long-term impact.
A simpler path to compliance or a missed opportunity?
Under the current B-BBEE framework, firms earn ESD points by directly supporting black-owned businesses. These businesses must have annual revenues of R50 million or less.
Support can be monetary, such as loans, grants or investments – or non-monetary, like mentoring or training. This system fosters direct relationships and integrates beneficiaries into supply chains.
The current rules also encourage timely action. Contributions must be delivered within the firm’s financial year to count toward its ESD score. However, the Transformation Fund introduces a compelling shortcut. Companies could earn ESD points “immediately” by contributing to the SPV. This bypasses the need to design and manage their own ESD programs. This shortcut could save time and reduce administrative burdens. It could also help firms meet their ESD targets more easily – 2% of net profit after tax for supplier development, and 1% for enterprise development.
Tax incentives further enhance the fund’s appeal. These include exemptions under section 56(1)(h) and deductions under section 18(A) of the Income Tax Act. But here’s the catch: simplicity may come at a cost.
Direct relationships between firms and beneficiaries often generate tangible outcomes, such as customized support and supply chain integration. By introducing the SPV as an intermediary, the fund may dilute these critical connections.
The concept document’s vague description of the “participation agreement” with the SPV creates additional uncertainty. Will contributions include conditions or limitations?
Voluntary contributions, strategic choices
The DTIC emphasises that contributions to the fund remain voluntary. This means that firms can continue using their existing ESD programs. However, the proposed changes to the B-BBEE Codes may shift corporate behavior.
Companies may gravitate toward the fund for its simplicity and efficiency. Currently, firms have the flexibility to scale their ESD spending according to strategic needs. Yet, they face the risk of a B-BBEE downgrade if they fall below 40% of ESD points.
If the fund becomes the default path to compliance, this flexibility may be limited. Investors and business leaders must pay close attention.
The fund’s success will depend on strong governance, operational efficiency, and alignment with existing B-BBEE programs. These include the National Empowerment Fund, the Industrial Development Corporation, and the DTIC’s Black Industrialist Scheme. This raises a critical question: Why create a new entity instead of expanding well-established programs?
To justify its existence, the SPV must prove its value. It must operate transparently and deliver measurable results. Otherwise, it risks becoming just another bureaucratic layer.
The R100 billion fund as an investment in SA’s future
The Transformation Fund represents more than just policy, it signals a long-term investment in South Africa’s economic future. If implemented effectively, it could create unprecedented opportunities for black-owned businesses. In doing so, it would help drive economic growth and social inclusion.
For investors, the fund highlights a maturing market. Here, transformation goals and profitability are becoming increasingly aligned. Companies that engage with the fund strategically could improve their BBBEE ratings. They could also lower compliance costs and build public goodwill in a society eager for progress. However, the fund’s success depends entirely on execution.
Will the SPV operate with the agility and accountability needed to manage R100 billion effectively? Can it enhance existing BBBEE programs without undermining them? Most importantly, will the private sector view its contributions as an investment in shared prosperity—or simply a checkbox for compliance?
South Africa’s transformation journey now stands at a crossroads. The Transformation Fund could mark a bold step toward economic justice. Alternatively, it could become a cautionary tale of ambition outpacing execution.
As the DTIC gathers public comments, all stakeholders – businesses, investors, and policymakers, must engage. This is essential to ensure the R100 billion vision delivers real and lasting impact.
