eNCA interview – The Department of Trade, Industry, and Competition has unveiled plans to establish a R100-billion Transformation Fund which aims to advance South Africa’s constitutional commitment to economic redress and inclusive growth for black businesses. Watch the interview here.
Host: Let’s start with the fundamental aim of this fund. The R100 billion Transformation Fund seeks to promote equality through legislative and financial measures to empower black-owned enterprises and SMEs. At its core, this seems to be the objective. What are your thoughts?
Shaun Smit: It’s still early days in terms of communication from the DTIC, but the fund appears to be designed to support enterprise development and economic growth, with an implementation target of 2029. The fund will mobilize capital under the BEE framework to provide financial backing for black businesses, ensuring targeted investment in economic transformation.
Host: The DTIC has stated that this fund is anchored in the Broad-Based Black Economic Empowerment (B-BBEE) Act, meaning it’s not a new initiative but rather an extension of existing legislation. Can you elaborate on the legal framework?
Shaun Smit: There were initial concerns that this fund would introduce additional costs for businesses operating in South Africa. However, the DTIC recently clarified that it will be funded through existing BEE contributions, specifically enterprise development allocations. These contributions typically involve a percentage of net profits directed toward enterprise development, as well as ownership contributions from multinationals unable to comply with traditional ownership requirements.
Host: The fund aims to mobilize R100 billion by 2029. However, some political parties argue that managing such a large sum poses risks, including corruption and mismanagement. How do you respond to these concerns?
Shaun Smit: It’s a valid concern. Large-scale funds often raise fears of financial mismanagement and corruption. However, the DTIC has indicated that this could be a public-private partnership in collaboration with the National Empowerment Fund. If managed with proper oversight, accountability, and transparency, the fund has the potential to drive meaningful economic transformation rather than becoming a misused resource.
Host: What are some of the unintended economic consequences or risks associated with this initiative?
Shaun Smit: South Africa competes globally for investors, and policies that introduce uncertainty or potential inefficiencies can deter investment. Concerns include inefficient allocation of funds, increased business costs, and policy uncertainty. On the other hand, if the fund is well-executed, it could stimulate economic activity by providing much-needed support to SMEs.
Host: Does the establishment of this fund suggest that B-BBEE has not fully achieved its goal of fostering an inclusive economy?
Shaun Smit: That’s a fair observation. There has been some criticism, including from Minister Patel, about the effectiveness of B-BBEE in driving inclusive growth. The idea behind the fund is that a centralized pool of capital could be more effective in enterprise development than individual businesses managing their own contributions. This approach allows businesses to focus on their core operations while ensuring a strategic and impactful distribution of funds.
Host: The Democratic Alliance (DA) has called for Minister Patel to bring this matter to Cabinet for further discussion and approval. From your understanding, does this initiative require Cabinet approval?
Shaun Smit: The DTIC has stated that the fund is still in its early stages and open to further dialogue. It will likely require Cabinet approval before implementation, but for now, it serves as a framework outlining the DTIC’s intent. Further engagement and refinement are expected before any final decisions are made.
Host: Shaun, thank you for sharing your insights on this significant yet contentious initiative. As you mentioned, further discussions and clarifications will be crucial.
That was Shaun Smit, Director at Transcend Capital, speaking to us about the proposed R100 billion Transformation Fund. This initiative aims to redress economic exclusion and enhance participation in the economy for black-owned businesses. We will continue to track developments on this story.