Plans to expropriate 3% of private company profit for new R100 billion fund

 ·19 Jan 2025

The South African government plans to establish a R100 billion Transformation Fund to foster economic transformation by supporting black-owned businesses and Small, Medium, and Micro Enterprises (SMMEs).

This initiative, outlined by Minister of Trade, Industry, and Competition Parks Tau in a recent parliamentary Q&A, will be financed through private sector contributions in alignment with Broad-Based Black Economic Empowerment (B-BBEE) regulations and other mechanisms under the Competition Act.

The announcement has sparked significant debate. The government cites its potential to address economic inequality, while critics warn of its adverse effects on investment and economic growth.

According to Minister Tau, the fund will draw on various streams of private-sector financing. The Enterprise and Supplier Development (ESD) element of the B-BBEE Codes of Good Practice mandates companies to allocate 3% of their annual net profit after tax toward developing black-owned suppliers.

These contributions will now be channelled into the Transformation Fund to ensure broader and more impactful economic transformation.

Additionally, multinational corporations operating in South Africa will be required to make cash contributions equivalent to 25% of the value of their local operations if they choose not to comply with ownership provisions under the Equity Equivalent Investment Programme (EEIP).

Another key source of funding will come from public interest commitments linked to mergers and acquisitions.

Under Section 18(1) of the Competition Act, the Minister can intervene in merger proceedings to address public interest concerns, including requirements for financial commitments toward transformation, employment preservation, and inclusivity.

These interventions will provide additional contributions to the Transformation Fund.

The fund’s primary purpose is to enhance economic participation among historically disadvantaged groups, including black South Africans, women, youth, people with disabilities, and those living in rural and township areas.

By addressing financial barriers, the fund seeks to empower black-owned businesses and SMMEs to enter and thrive in the mainstream economy.

This aligns with the objectives of the National Development Plan (NDP) Vision 2030, which aims to reduce poverty, inequality, and unemployment.

The Transformation Fund will be managed through a Special Purpose Vehicle within the National Empowerment Fund and will involve both public and private sector stakeholders.

It will provide a range of financial support, including equity funding, loans, and grants, tailored to the needs of its beneficiaries.

By integrating B-BBEE compliance with broader economic transformation objectives, the fund is designed to create an enabling environment for black-owned enterprises to participate in corporate value chains and access markets as suppliers.

Despite its ambitious goals, the proposed fund has drawn sharp criticism from various quarters.

Business advocacy group Sakeliga and opposition parties like the Democratic Alliance (DA) have raised concerns about the potential economic fallout.

Sakeliga CEO Piet le Roux warned that it could harm economic production by effectively expropriating up to 3% of post-tax corporate profits.

He argued that this approach undermines direct business relationships and risks turning black entrepreneurs into dependents of state-controlled mechanisms.

The DA has echoed these criticisms, describing the fund as a further entrenchment of discredited B-BBEE policies.

They argue that forcing businesses to divert significant portions of their profits into a centrally administered fund could deter investment, particularly from multinational corporations already facing stringent compliance requirements.

The party also questioned whether the fund’s establishment aligns with legal requirements for state revenues to be managed through the National Revenue Fund under the National Treasury’s oversight.

Critics have also raised fears that the fund could become a “slush fund” vulnerable to corruption, given South Africa’s history of mismanagement in similar initiatives.


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