Investigating the impact of R100bn funds on economic inclusion

Peter Stein | May 27, 2025

South Africa is standing at a pivotal moment.

Two months ago, the Ministry of Trade, Industry and Competition (DTIC) sparked a bold conversation about the future of broad black economic empowerment (BBBEE) and published a conceptual document for the draft transformation fund.

This means that the proposed fund proposed to be raised over a five-year period is not merely a policy proposal. It is a potential catalyst for restructuring economic inclusion, empowering black-owned businesses, and redefine corporate responsibility.

But there is a great scrutiny in the great ambition. Will the fund have a transformational impact or will it stumble under its own complexity?

The Transformation Fund, released in January 2025 by the Minister of Trade, Industry and Competition, aims to lead R100 billion to majority Black-owned and managed businesses, as defined by the BBBEE Act. The fund, managed through tax-free special purpose vehicles (SPVs), operates as a registered financial services provider overseen by an eight-member board appointed by the minister, including two private sector representatives. Funds come from a combination of government, public institutions, international donors, development banks, and generally private sector.

The role of the private sector is where fund innovation shines. Companies can contribute through two important mechanisms.

Equity Equivalent Investment Program (EEIP): Multinationals without black stockholdings can earn BBBEE ownership points by investing in initiatives approved by DTIC. The fund could be a new destination for these contributions, but it is unclear whether an existing EEIP is required to redirect the fund, or whether this applies only to the new program.

Enterprise and Supplier Development (ESD) Points: DTIC plans to modify the excellent practices of the BBBEE Code, allowing companies to earn ESD points by contributing to the fund. This allows you to concentrate capital on black-owned businesses while streamlining corporate compliance.

These mechanisms promise to coordinate corporate incentives with national transformation goals, but also raise questions about implementation and impact.

Under the current BBBEE framework, companies earn ESD points by directly supporting black-owned businesses. This includes monetary contributions (loans, grants, investments, etc.) and non-monetary support (such as mentoring and training) to promote direct relationships that integrate beneficiaries into the supply chain. This system encourages rapid action as it requires the company to provide contributions within the fiscal year to count towards ESD scores.

However, the Transformation Fund introduces shortcuts that will stimulate your appetite. Companies can “quickly” earn ESD points by contributing to SPVs and bypass the need to design and implement their own ESD programs. This saves time and resources, especially for companies struggling to achieve their ESD goals (2% of post-tax net profit for supplier development, 1% for enterprise development). Tax incentives including exemptions under Section 56(1)(h) and deductions under Section 18(a) of the Income Tax Act sweetens the transaction.

But here's the catch: simplicity costs money.

The direct relationship between companies and ESD beneficiaries promotes tangible benefits, such as customized support and supply chain integration. By intervening in SPVs, the fund is at risk of diluting these connections, which could delay the provision of benefits to black-owned businesses. Ambiguity in the concept document regarding “participation agreements” with SPV adds another layer of uncertainty.

DTIC emphasizes that contributions to the fund are voluntary, suggesting that companies can stick to existing ESD programs. However, the proposed revision of the BBBEE code could shift incentives and tweak companies towards the fund for their efficiency. The flexibility of the current system that allows companies to scale ESD spending based on their strategy (though lower than 40% of ESD points risks downgrades) can be constrained if the fund becomes the default path to compliance.

Investors and business leaders should watch well.

The success of the fund depends on its governance, efficiency, and ability to complement, rather than compete, existing BBBEE programs such as the National Empowerment Fund, Industrial Development Corporation, or DTIC's Black Industrial Scheme. Why create a new entity when you can expand an established program? SPVs need to prove their value through transparency and measurable results. Or there is the risk of becoming another layer of the bureaucracy.

The Change Fund is more than a policy – ​​it bets on South Africa's economic potential.

If executed well, it can unlock unprecedented opportunities for black-owned businesses and promote growth and inclusion. For investors, it represents a mature market where transformation and profitability are increasingly consistent. Companies that strategically embrace the fund can strengthen their valuations of BBBEE, reduce compliance costs, and build goodwill in progress-hungry countries.

However, the fund's promises depend on its delivery.

Does SPV work with the agility and accountability needed to effectively distribute R100 billion? Can you amplify existing bbbee efforts without overshadowing them? And does the private sector see investment and contribution to shared prosperity rather than compliance checkboxes?

South Africa's transformation journey is at a crossroads. The Change Fund could be a bold step towards economic justice or a warning tale of ambition that surpasses enforcement. As DTIC is gathering public comments, companies, investors and policymakers must be involved in ensuring this R100 billion vision has a real, lasting impact.

Pieter Steyn is the director of lawyers at Werksmans.

“Disclaimer – the views and opinions expressed in this article are the views of the author and are not necessarily those of the Bee Room.”