Let’s Park That Idea!

Minister of Trade, Industry and Competition, Parks Tau, has recently tabled Government’s impetuous plan for the creation of a R100-billion Transformation Fund, for the proposed

purpose of better supporting black-owned businesses and small, medium, and microenterprises through access to funding.

The vastly increased revenue for the fund would, according to the Minister, come from ESD contributions, equity equivalent investment programmes, and public interest competition commitments.

While the proposal may appear positive on paper, its rash nature triggers legitimate concern based on failures of previous government-led initiatives, raising questions regarding sustainability and efficacy.         

Bearing in mind that much is already being achieved (albeit sometimes imperfectly) by corporates in line with ESD, it feels imprudent to reinvent the wheel in a manner that may redistribute said wheel to the fat cats (or leave it square instead of round and languishing uselessly in a government warehouse). ?Why re-engineer, at great cost and with much disruption, something which is currently functional with no guarantee (or even the hint) of possible improvement? Why fix something that isn’t broken, at the risk of completely jettisoning previous and future progress?

We forecast no additional benefit to historically disadvantaged groups/beneficiaries while we foresee a significant decline in practical and financial assistance to SMME’s. In fact, Minister Tau’s proposed Transformation Fund is a masterstroke in how to derail progress while masquerading to voters as a visionary leap forward.

For years, corporate South Africa has strategically aligned Enterprise and Supplier Development (ESD) with broader goals like ESG principles and the Sustainable Development Goals (SDGs), creating real partnerships, delivering measurable value, and inspiring stakeholders.

This proposal essentially bulldozes those carefully constructed frameworks, forcing companies to redirect their ESD spend into a centralized government fund—a blunt bureaucratic experiment destined for failure.        

[An unanswered (and possibly unconsidered question) is whether the DTIC would expect corporates who are already meeting their ESD or equity equivalence programme targets under the code, to contribute to the fund?]

We are not alone in our opinion. The proposal has been met with a barrage of negative responses from political parties, business and civil society for many well-considered reasons including those set out below.

South Africa has an unfortunate track record of enthusiastically implementing ideas without adequate consideration. Think e-tolls in Gauteng, or the Smart ID Card system: both examples perfectly showcasing how rushed or poorly considered decisions, however well-meaning, can lead to significant financial loss and widespread discontent in the absence of proper consultation and public engagement.? An obvious first step in the process would have been to poll existing and potential beneficiaries to establish if the current system is working for them and how concerns and/or improvements may be best addressed.

?The primary reasons for our reservations are:

Potential for Mismanagement and Corruption

The historical precedent for fund mismanagement in South Africa is a cause for grave alarm. We have no credible example of managing public funds and countless cases of the opposite*. The Auditor-General has frequently highlighted irregular expenditures in state programs, which casts significant doubt on the capacity of government in general, and the NEF in particular, to effectively manage a fund of this magnitude. Based on available precedent, it is almost inevitable that this fund would devolve into what critics fear may become a "slush fund," benefiting a select few at the expense of the intended beneficiaries (Auditor-General of South Africa, 2022). Even with onerous and costly independent oversight and rigorous accountability mechanisms in place, the fund risks becoming another example of a well-intentioned initiative undone by systemic inefficiencies and corruption.

Impact on Corporate Influence in Enterprise and Supplier Development (ESD)

One of the proposal’s most contentious aspects is its potential to erode corporate autonomy in Enterprise and Supplier Development (ESD).         

Under current ESD frameworks, corporations have the flexibility to select their beneficiaries and to design programs tailored to their supply chain needs. This approach ensures beneficiaries are matched to viable markets and fosters stronger partnerships between corporations and SMMEs, ensuring that development efforts align with business objectives and have sustainable long-term impacts. Furthermore, it encourages personal relationships and discretionary effort from corporates, creates buy-in and builds genuine relationships and networks in an organic and sustainable way.? (The Shoprite Group’s successful integration of suppliers like Clover Mama Afrika, built on mentorship and capacity-building, exemplifies the kind of strategic impact that stands to be obliterated under government control.)

By redirecting 3% of Net Profit After Tax (NPAT) to a government-managed Transformation Fund, without clear accountability or return on investment, there is a grave risk of alienating the private sector. This will compromise the effectiveness of existing programs and undermine the stewardship that corporate sponsors bring to execution. In our experience, the private sector is inclined to deliver more value through collaboration than through coercion.

SMME Development: Beyond Financial Support

True SMME development extends beyond providing financial resources. While access to funding is essential, it must be paired with committed non-financial support mechanisms such as mentorship, capacity building, and networking opportunities.

1.??????? Mentorship Programs:?Many SMMEs face challenges related to market access, compliance, and financial management. Dedicated mentorship from experienced professionals can guide entrepreneurs in navigating these obstacles, ensuring sustainable business practices (Chigunta, 2022).

2.??????? Capacity Building:?Training programs focused on essential skills such as business planning, marketing, and customer retention are critical to building resilient businesses able to weather economic uncertainties.

3.??????? Networking Opportunities:?Facilitating relationships between SMMEs, suppliers, and clients ensures a more substantial and lasting impact than monetary grants alone can achieve. (Mashilo, 2023).

Risks and Economic Implications – dis-incentive for investment

The financial risks associated with this proposal extend way beyond mismanagement and corruption. Redirecting equity investment programmes and profits from private enterprises could well deter both foreign and domestic investment, weakening an already fragile economy. Companies may perceive the move as uninformed or punitive, potentially leading to disinvestment or relocation. Furthermore, the risk of inflationary pressures from rapid fund deployment must not be overlooked, as it could exacerbate economic instability.

Conclusion

While the stated aim of Minister Tau’s R100 billion fund proposal is to foster entrepreneurship and bridge economic disparities, any possible success would depend on innovative out the box thinking, careful, creative design and execution, following comprehensive dialogue. (E.g. prioritising innovation-driven entrepreneurship and funding intellectual property development). All the above are glaringly absent from the process. The currently unfeasible proposal risks alienating the private sector, a vital partner in economic development, while failing to address the wide-ranging needs of SMMEs.

Financial support is critical, but success demands it must also be coupled with commitment, mentorship, skills development, and robust oversight.? Preserving corporate autonomy in ESD initiatives is essential to sustaining private sector confidence and ensuring tailored, effective development programs and long-term markets.

This proposal doesn’t empower SMMEs; it leaves them to sink rather than swim, it crushes them under the weight of red tape, trading authentic success stories for exaggerated figures in government reports. This will inspire no one. Nelson Mandela once said, “Money won’t create success; the freedom to make it will.” The government’s purported plan would strip away that freedom, alienate stakeholders, and turn engines of growth into bureaucratic failures.

?What can corporates, beneficiaries and the interested public do to help park this idea?

Acknowledge that government is self-serving and that its initiatives exist for the for the purpose of re-election rather than the good of the electorate. Interrogate every proposal. Learn from the e-toll experience that we are not powerless. Raise your voice, push back, ask questions, express your reservations, voice concerns, demand consultation and dialogue and refuse to consider cooperating unless and until the proposal has been thoroughly and robustly interrogated to the point that all stakeholders are satisfied that their concerns have been adequately heard and considered.

- LEAP