The Department of Trade, Industry and Competition’s (dtic) proposed R100-billion Transformation Fund is a misguided initiative which, if implemented will impede redress, choke economic growth and deter investment.

CDE’s submission on the dtic’s concept document finds that the proposal is riddled with gaps, flawed assumptions, and implausible funding mechanisms. The fund will undermine current efforts to promote economic inclusion and harm black-owned firms involved in existing supplier development value chains.

South Africa is in dire need of much more inclusive economic growth. The legacy of apartheid, coupled with decades of economic underperformance, has left many millions of South Africans locked out of opportunity. Expanding economic participation is a fundamental constitutional imperative, and absolutely essential for faster economic growth now and in the future.

A more inclusive economy means more black-owned businesses, more historically disadvantaged South Africans in positions of leadership in commerce, more widespread ownership of productive assets and many more people in all levels of employment. But the Transformation Fund is not the way to achieve this.

The proposal is based on an inaccurate assessment of what transformation requires, and an equally mistaken belief in the state’s capacity to deliver it.

In many respects the concept document feels like a marketing pitch masquerading as policy. It is long on aspirational rhetoric and short on practical detail. It does not clearly define the fund’s structure, its oversight mechanisms, or how it will evaluate success. It is unclear if the fund will be a once-off capital endowment to be sustained in perpetuity or a recurrent spend-down model.

There are other questions that the proposal skips over. Why is another fund necessary when entities like the National Empowerment Fund, the Black Industrialists Programme, and numerous other B-BBEE-linked mechanisms already exist? What has been learned from their successes and their failures? What has worked, what hasn’t, and why? Who has benefited and who has not? None of this is addressed.

Worse, the proposal misidentifies the symptoms of our malaise and accordingly administers the wrong medicine. It assumes that access to finance is the principal barrier facing black-owned businesses. But is it really? While capital is important, the more significant challenges often lie elsewhere: lack of access to markets, poor infrastructure, weak demand, limited managerial experience, and regulatory red tape.

Fantastical

The belief that a single, centralised, state-run fund can address these complex, interwoven challenges is misplaced. South Africa’s public institutions already struggle to deliver on their core mandates and the Transformation Fund would be a new institution requiring large numbers of staff to cover rural areas, townships and everywhere else while providing multiple different functions. Entrusting it with the task of disbursing a whopping R100 billion in grants and loans, and providing mentorship and training across diverse industries and geographies, borders on the fantastical.

South Africa needs a larger and more dynamic small business sector but we should look to the private sector which is much better equipped than the state to support and finance small and medium firms. Private institutions – not public entities – should be incentivised to assist with the difficult business of identifying black-owned firms with the potential to grow and employ more people.

The concept document envisages the Transformation Fund being funded through multiple potential sources—public finance, private sector contributions, philanthropic support, and a redirection of existing Enterprise and Supplier Development (ESD) expenditure. A close examination reveals that none of these are viable at the scale required.

South Africa’s fiscus is stretched to its limits. The idea that the government can divert R20 billion or a significant part of this amount annually to the Transformation Fund—equivalent to two-thirds of the Social Relief of Distress Grant budget—is not realistic. Philanthropic contributions are unlikely to materialise at scale for numerous reasons, and particularly given the public’s deep mistrust of government managed initiatives after repeated corruption scandals. Foreign company contributions through the Equity Equivalent Investment Programme (EEIP) have historically been small, totalling only R8 billion over 15 years.

That leaves ESD spending—the funds that companies deploy to support black-owned firms—as the most likely source. But redirecting these funds into a centralised state fund would be profoundly counterproductive. These ESD investments are tailored to specific company supply chains, informed by real knowledge of partners and market conditions. Moving them into a government-run structure would strip them of their effectiveness, undermine private sector accountability, and sever critical business relationships, mentoring and training.

Discourage investment

While the concept document claims participation in the fund would be voluntary, the fine print suggests otherwise. It explicitly states:

Government will review ESD Codes to ensure that funds for ESD are paid by entities towards the Transformation Fund.

This opens the door to making contributions compulsory. In effect, this becomes a backdoor corporate tax—one that would be paid not just by shareholders but also by workers and consumers, in the form of fewer jobs and higher prices.

The result would be to stifle economic growth and discourage investment—the very conditions that make transformation possible. Investors, both domestic and foreign, are already wary of South Africa’s unpredictable policy environment and weak governance. The imposition of new levies, coupled with the risk of political interference and corruption, would only compound those concerns.

South Africa does not need more state-led redistribution schemes cloaked in transformational language. It needs an honest reckoning with the track record of B-BBEE and other empowerment policies. Over more than two decades, what have the successes and failures been? What has worked? What hasn’t? Who has benefited, and at what cost? And who has not benefited? These are the questions that must guide the next phase of policy under the GNU.

To that end, a national review of transformation strategies is urgently needed. This process must be led by an independent panel comprising economists, business leaders, legal scholars, and leading members of civil society. It must be rooted in evidence – a true assessment and analysis of raw numbers within present day realities. It must measure both the benefits and the trade-offs of current policies, and explore alternatives that could drive growth and inclusion simultaneously.

 Ann Bernstein heads the Centre for Development and Enterprise.

This article was published on News24