Transformation is a word politicians conjure up whenever the uncomfortable topic of economic power arises. The department of trade, industry & competition, now under the banner of the government of national unity, is mulling another policy instrument to close the notorious inequality gap.
The proposal is to let unlisted companies purchase a coveted level 3 broad-based BEE (BBBEE) rating by paying 3% of gross revenue into a centrally managed Transformation Fund. The intention is not just to buy indulgences for compliance but also to mobilise capital for black-owned small businesses and address the core failing: the chronic shortage of capital for enterprises owned by black people.
It promises clean numbers — about R40bn a year if participation and revenue assumptions hold — and a quick path to higher BBBEE recognition for contribution. It hands policymakers a tempting fix for a problem that is political, legal and moral.
For busy small businesses, the proposal’s selling point is irresistible: replace sprawling compliance, consultancy fees and ownership gymnastics with a single predictable line item.
Compliance with BEE rules has always been as much about appearances as outcomes. Today, BBBEE status is a golden ticket to government contracts and the broader procurement gravy train. Level 1 status is the gold standard, reserved for those who have fundamentally changed their equity, boardrooms and procurement chains. For most non-listed firms, often family-owned or multinationals, this is a distant prospect.
At present, participation in enterprise & supplier development (ESD) is mandatory for medium to large firms, set at 3% of net profit after tax. Many businesses have met this requirement via direct support to black-owned suppliers or through ESD intermediaries. The proposal swaps this — optionally — for a 3% levy on gross revenue, with the reward of level 3 status, short of the holy grail of ownership transformation but sufficient for a material jump up the tender pecking order.
The rationale is that, absent fiddly audits and the temptations of creative profit accounting, a gross revenue levy is simple, predictable and easy for the taxman to track.
The justification for a central Transformation Fund appeals to genuine market failure. The chronic and often insurmountable barriers faced by black entrepreneurs in accessing capital are documented, not least by the latest study by the Gordon Institute of Business Science and the BBBEE Commission.
The case of Bergman Ross & Partners (BRP) is instructive. Thapelo Motshudi, a black radiologist, had signed a contract with a client, Netcare, but lacked capital to turn the opportunity to scale. The practice he founded was soon appropriated by the more established, white-owned BRP after he was unable to secure the required tens of millions of rand bank guarantee.
What began as a partnership intended to offer 50:50 ownership became a source of acrimony, litigation and formal complaints. The parties now trade allegations of fronting and unprofessional conduct. The episode is less a story of perfunctory ownership than it is about missing capital.
The logic of the proposal stumbles on implementation. Money is necessary, but not enough. Governance is the real battleground. Routing receipts through the SA Revenue Service into a fund — which is likely to be managed by the National Empowerment Fund (NEF) — reduces transactional frictions but centralises political risk.
The wreckage of state-managed funds offers a parade of scandals, questionable loans, indecipherable audits and, in several cases, outright looting. For all the billions allocated to development finance via the Industrial Development Corporation, the NEF, the Jobs Fund and the like, success is modest and mostly anecdotal.
The scale — R40bn a year — is unprecedented in enterprise support and raises the spectre that, unable to distribute a sum of this magnitude, the Transformation Fund will revert to its BEE default setting of favouring the connected, the large and the headline-grabbing.
That said, the new fund ticks many of the right boxes, aligning with constitutional imperatives, galvanising support for black businesses, creating new equity and promising the sort of measurable impact scorecards still fail to deliver. That makes it worth exploring.
• Motsoeneng is Business Day acting editor.
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