The government has said that the proposed changes to the Broad-Based Black Economic Empowerment (B-BBEE) Act to shift the contribution of the private sector into a R100 billion Transformation Fund would not impose new obligations and commitments from business the required funding by 2029.

In a statement to contextualise the objectives of the Transformation Fund and the process underway to generate discussion and arrive at consensus for its eventual implementation, Minister of Trade, Industry, and Competition, Parks Tau, said the Fund was a catalyst for change and not merely a funding mechanism.

“The Transformation Fund is not about imposing new obligations but about ensuring that existing commitments under the B-BBEE legislation are strategically utilized to create meaningful economic transformation,” Tau said.

“It embodies our constitutional mandate to achieve equality and empower historically disadvantaged communities.”

This comes as the National Treasury, in response to questions from Business Report, also said the initiative aimed to strengthen the enforcement of the B-BBEE Act of 2003.

“Treasury is always available to assist departments when approached to do so. The Treasury’s role will be determined by the nature of the problem or request by the department,” it said.

Tau said the Fund also reflected the statement of intent of the Government of National Unity (GNU), which emphasized fostering redress and inclusive economic growth.

The GNU’s transformative agenda seeks to dismantle systemic barriers to economic participation, ensuring that historically-disadvantaged communities are afforded equal opportunities to thrive in all sectors of society.

“Through collaboration with the private sector, civil society, and other stakeholders, we will create an economy that is inclusive, sustainable, and reflective of South Africa’s diversity,” Tau said.

Representatives of the Democratic Alliance (DA), which is in the GNU and has rejected the plan entirely, business, and civil society, said the proposal was vague, poorly conceived, and unrealistic, adding that it would represent a huge change in the nature of empowerment measures.

Toby Chance, DA spokesperson on trade, industry and competition whose question in Parliament last year blew the lid on the Fund, expressed concern this week about the risk of corruption and mismanagement that could accompany the Fund.

He said that taking BEE contributions and allocating them to the State changed the way that the BEE Code works.

Khulekani Mathe, CEO of Business Unity South Africa, said that while the proposal had not been made in any official policy document, it was an “ill-advised” concept.

“We will definitely engage with government. It is something we think won't work, and we won't let it go through without a challenge,” Mathe said.

According to Tau, the fund will be a public-private partnership managed through a National Empowerment Fund special-purpose vehicle. Funding will be raised through the Competition Commission’s public interest participation investment commitments and in line with the B-BBEE Codes of Good Practice.

The State will divert to the Transformation Fund the 3% of net after-tax profits which companies are required to spend on enterprise and supplier development (ESD) under the B-BBEE Codes of Good Practice.

The Fund will require multi-national companies to contribute up to 25% of the value of their South African operations as an “equity equivalent” cash contribution.

The fund will offer equity funding, debt and grants to accommodate different needs of the intended target beneficiaries.

However, the Institute of Race Relations said the proposal was unconstitutional on at least four grounds.

Anthea Jeffery, IRR head of policy research, said the current race-based BEE has long caused enormous harm to the economy.

“By using race to identify its beneficiaries, BEE allows the black political elite to feed off its preferences, even as the poor sink further into destitution. The Transformation Fund proposal must simply be scrapped, along with all other race-based laws,” Jeffery said.

“The real need is to shift to a non-racial system of Economic Empowerment for the Disadvantaged (EED). This, like the social grants system, would use a means test to identify the truly disadvantaged. It would also reach right down to the grassroots by providing the poor with tax-funded vouchers for schooling, healthcare and housing.”

BUSINESS REPORT