Transforming BBBEE: The potential of the R100bn Fund

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, sparking a bold conversation about the future of Broad-Based Black Economic Empowerment (BBBEE). 

This proposed R100 billion fund, to be raised over five years, isn’t just a policy proposal - it’s a potential catalyst for reshaping economic inclusion, empowering black-owned businesses, and redefining corporate responsibility.

But with great ambition comes great scrutiny. Will this fund deliver transformative impact, or will it stumble under its own complexity?

A Vision for Empowerment

Announced by the Minister of Trade, Industry and Competition in January 2025, the Transformation Fund aims to channel R100 billion into firms that are majority black-owned and controlled, as defined by the BBBEE Act. Administered through a tax-exempt Special Purpose Vehicle (SPV), the fund will operate as a registered Financial Services Provider, overseen by an eight-member board appointed by the Minister, including two private-sector representatives. Funding will come from a mix of government, public entities, international donors, development banks, and—crucially—the private sector.

The private sector’s role is where the fund’s innovation shines. Companies can contribute through two key mechanisms:

1. Equity Equivalent Investment Programme (EEIP): Multinationals without black shareholding can earn BBBEE ownership points by investing in Dtic-approved initiatives. The fund could become a new destination for these contributions, though it’s unclear whether existing EEIPs will be required to redirect funds or if this applies only to new programs.

2. Enterprise and Supplier Development (ESD) Points: The Dtic plans to amend the BBBEE Codes of Good Practice, allowing firms to earn ESD points by contributing to the fund. This could streamline compliance for companies while funneling capital to black-owned businesses.

These mechanisms promise to align corporate incentives with national transformation goals, but they also raise questions about execution and impact.

A Simpler Path to Compliance—or a Missed Opportunity?

Under the current BBBEE framework, firms earn ESD points by directly supporting black-owned businesses with annual revenues of R50 million or less. This involves monetary contributions (like loans, grants, or investments) and non-monetary support (such as mentoring or training), fostering direct relationships that integrate beneficiaries into supply chains. The system incentivises swift action, as contributions must be delivered within the firm’s financial year to count toward its ESD score.

The Transformation Fund, however, introduces a tantalising shortcut: companies could earn ESD points “immediately” by contributing to the SPV, bypassing the need to design and implement their own ESD programs. This could save time and resources, especially for firms struggling to meet ESD targets (2% of net profit after tax for supplier development and 1% for enterprise development). Tax incentives, including exemptions under section 56(1)(h) and deductions under section 18(A) of the Income Tax Act, sweeten the deal.

But here’s the catch: simplicity comes at a cost. 

Direct relationships between firms and ESD beneficiaries drive tangible benefits, like tailored support and supply-chain integration. By interposing the SPV, the fund risks diluting these connections, potentially slowing the delivery of benefits to black-owned businesses. The concept document’s vagueness on the “participation agreement” with the SPV adds another layer of uncertainty—will contributions come with strings attached?

Voluntary Contributions, Strategic Choices

The Dtic emphasises that contributions to the fund are voluntary, suggesting firms can stick with their existing ESD programs. But the proposed amendments to the BBBEE Codes could shift incentives, nudging companies toward the fund for its efficiency. The flexibility of the current system, where firms can scale ESD spending based on their strategy (while risking a downgrade if they fall below 40% of ESD points), may be constrained if the fund becomes the default path to compliance.

Investors and business leaders should watch closely.

The fund’s success hinges on its governance, efficiency, and ability to complement—rather than compete with - existing BBBEE programs like the National Empowerment Fund, the Industrial Development Corporation, or the DTIC’s Black Industrialist Scheme. Why create a new entity when established programs could be scaled up? The SPV must prove its value through transparency and measurable outcomes, or it risks becoming another layer of bureaucracy.

An Investment in South Africa’s Future

The Transformation Fund is more than a policy - it’s a bet on South Africa’s economic potential.

If executed well, it could unlock unprecedented opportunities for black-owned businesses, driving growth and inclusion. For investors, it signals a maturing market where transformation and profitability are increasingly aligned. Companies that embrace the fund strategically could strengthen their BBBEE ratings, reduce compliance costs, and build goodwill in a nation hungry for progress.

Yet, the fund’s promise depends on its delivery. 

Will the SPV operate with the agility and accountability needed to distribute R100 billion effectively? Can it amplify existing BBBEE efforts without overshadowing them? And will the private sector see contributions as an investment in shared prosperity rather than a compliance checkbox?

South Africa’s transformation journey is at a crossroads. The Transformation Fund could be a bold step toward economic justice—or a cautionary tale of ambition outpacing execution. As the Dtic gathers public comments, businesses, investors, and policymakers must engage to ensure this R100 billion vision delivers real, lasting impact.

Pieter Steyn is a director at Werksmans Attorneys.

BUSINESS REPORT

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