The real problem with government’s ‘new’ BEE fund

The government’s plan to start a R100 billion fund to boost Black-owned businesses was made without first examining the root cause of the problem it attempts to address.

South African Chamber of Commerce and Industry (Sacci) CEO Alan Mukoki told The Money Show’s Stephen Grootes that many critiques surrounding this plan are misdirected.

This comes after Trade, Industry, and Competition Minister Parks Tau revealed his department’s plans for a “Transformation Fund” in response to a parliamentary question.

This fund aims to promote economic inclusion for black-owned enterprises and SMMEs. The National Empowerment Fund will administer it and will issue funding in line with BBBEE regulations.

Therefore, it will be funded through three sources:

• Enterprise and supplier development contributions: Companies must allocate 3% of their annual net profit after tax to develop black suppliers. 
• Investment programme: Multinational entities operating in South Africa can allocate 25% of the value of their local operations for transformation purposes, forming part of the fund.
• Public interest competition commitments: Under Section 18(1) of the Competition Act, the Minister can negotiate commitments from mergers to support transformation, including funding, employment protection, and inclusivity.

While the minister has yet to obtain approval for the plan from lawmakers and the nation’s cabinet, it has already been widely criticised.

Notably, the ANC’s coalition partner, the DA, said it would “not support this madness”. 

Toby Chance, the Democratic Alliance’s spokesman on trade, said, “This fund could very easily become a bottomless pit for taxpayers’ money, with little to no oversight or meaningful outcomes.”

“Not only does the DA reject race-based legislation, but BBBEE has proven counterproductive in closing our inequality gap,” Chance said.

He added that the majority of funding is missing the mark in terms of stimulating high-growth enterprises in South Africa.

“Instead, we believe in providing resources based on merit and the business’s viability and growth potential,” he said.

“Our country has an abundance of entrepreneurs drawn from diverse communities who just need the opportunity to succeed.”

The real problem

Mukoki, who heads the largest chamber in the country and has a membership of close to 20,000 businesses, said that the current criticism of the plan misses the mark.

He explained that the fund does not require additional financial contributions or new obligations from companies.

Instead, it reallocates money that companies are already required to set aside under existing legislation, particularly the B-BBEE Act.

The B-BBEE Act already mandates that companies allocate a portion of their profits to transformation-related purposes, such as supplier development and empowering black-owned businesses.

Under this plan, the government’s initiative redirects these pre-existing contributions into a centralized Transformation Fund instead of companies managing these funds independently.

Therefore, because companies are already obligated to spend this money, the fund does not impose new costs. It simply changes how these resources are pooled and utilised.

“It’s not a new fund, it’s not a new cost – it’s a redirection of something that was happening in any event,” he said.

“Whether the government’s decision to do so is a sound one, you know, as they say, the proof is always going to be in the pudding.”

He said the real problem with this plan is that, instead of creating new initiatives, the government should understand why current efforts may not yield the desired results. 

He emphasises that before devising a new plan for an old problem, the government should first identify best practices from companies already effectively meeting their obligations and replicate those.

“One of the difficulties that we face in South Africa is that we run around with solutions looking for problems,” he said.

“What we should always be able to do is to look at the root cause analysis when something does not work.”

“If we want to make the argument that the companies are not necessarily applying the 3% that is already legislated correctly to drive the agenda for small business development, empowerment, etc, then let’s go dig up the reason – the real reason – for what is going on.”

“Otherwise, you will start a program every time you think there’s no progress because you’re not actually really addressing the root cause.”

He urged the minister to find the best practice amongst companies that are doing really well and then see whether it can be replicated. 

“You can’t just start new things all the time just because you’re not happy with the results that you see without really understanding the root causes of why the problem exists in the first place,” he said.