Trade, Industry and Competition Minister Parks Tau has released draft details of a plan to establish a new R100-billion Transformation Fund, which will aggregate private, public and developmental capital into a single fund to support black-owned companies.

A ‘Draft Transformation Fund Concept Document’ has been published for a 30-day public commentary period, which ends on May 7.

The intention to launch the fund was signalled by President Cyril Ramaphosa in his State of the Nation Address, when he indicated that it would be worth R20-billion a year over the next five years and would fund black-owned and small business enterprises.

The announcement was criticised by some social groupings and political parties, including members of the Government of National Unity (GNU).

The Democratic Alliance raised concern that the fund would impose yet further broad-based black economic empowerment (BBBEE) obligations on companies, while some other commentators warned that it could open a new avenue for corruption.

In a statement released together with the draft document, Tau insisted that the fund would not impose any additional requirements over and above what is already outlined in South Africa’s BBBEE policy, legislation and codes.

Instead, he said it would seek to aggregate enterprise and supplier development (ESD) funds in particular to support the participation and sustainability of black-owned enterprises in the economy.

The statement highlights that, through the Codes of Good Practice, entities seeking ESD credit must contribute 3% of net profit after tax to the development of black suppliers, black industrialists and small firms.

The draft document also indicates that funds from multinationals that use the Equity Equivalent Investment Programme in preference to the sale of direct 25% equity stakes to black shareholders will be “channelled to the Transformation Fund”.

It indicates that government and development finance resources will also be mobilised to help capitalise the fund.

No breakdown is provided, however, as to the anticipated scale of funding that will arise from the various potential funding sources.

Tau confirmed that black-owned enterprises and small and medium-sized enterprises would be targeted for support, with particular attention to be given to businesses owned by women, youth and people living with disabilities especially those based in rural and township areas.

By contributing to the Transformation Fund, established businesses would receive ESD credits under Code 400 of the BBBEE codes.

The document also outlines the Department of Trade, Industry and Competition’s preferred governance structure for the fund, which it proposes be administered by a special purpose vehicle with its own eight-member board to be appointed by the Minister.

The Minister would also appoint an oversight committee to oversee the board, comprising a chairperson, three Ministers and five members from business and social groups.

An investment charter would be adopted to regulate the activities of the fund, with public and private representatives to be appointed to the investment committees that consider and vote on transactions and will have voting rights.

“The Transformation Fund is a funding mechanism that seeks to bring the transformation aspirations of the GNU into reality.

“It also presents an opportunity for the empowerment of black people and businesses, who are in the periphery of profitable economic activities, to enter into the mainstream economy and become active participants, thereby making significant contributions to the growth of the South African economy,” the document states.