South Africa’s plan to take R20 billion a year from successful businesses and give it to BEE firms

President Cyril Ramaphosa used his State of the Nation Address (SONA) to support the new transformation fund, which will see R20 billion allocated annually over the next five years to support black-owned and small businesses.

The initiative, totalling R100 billion, aims to drive economic inclusion and empowerment in South Africa.

Ramaphosa framed the fund as a necessary intervention to correct historical injustices that have excluded the majority of South Africans from meaningful economic participation.

Ramaphosa said that black South Africans had been systematically deprived of land, capital, skills, and opportunities, which stifled economic growth.

He emphasised the need for transformation, arguing that a more inclusive economy would benefit the entire country.

He also outlined plans to fast-track public procurement regulations to ensure that businesses owned by women, young people, and persons with disabilities receive equitable access to government contracts.

However, the announcement lacked critical details on the private sector’s role in contributing to the fund and how it would align with existing Black Economic Empowerment (BEE) obligations.

This ambiguity has fueled concerns over how the fund will operate in practice and the potential burden it may place on established businesses.

The transformation fund first gained widespread attention last year when Toby Chance, Democratic Alliance (DA) spokesperson on trade, industry, and competition, raised the alarm about its implementation.

Chance warned that the fund could become a slush fund open to abuse by politically connected individuals, drawing similarities to the R500 billion allocated for COVID-19 relief, which was marred by corruption and mismanagement.

He argued that BEE policies have been largely ineffective in reducing inequality and that this new initiative risks further entrenching inefficiencies rather than fostering genuine economic growth.

Despite the criticism, Minister of Trade, Industry, and Competition Parks Tau has reaffirmed the government’s commitment to the transformation fund, citing it as a cornerstone of South Africa’s economic redress strategy.

According to Tau, the fund is rooted in the B-BBEE Act and will be managed by the National Empowerment Fund.

Tau noted that it would be financed through three main sources:

• Corporate contributions amounting to 3% of annual net profit after tax as part of enterprise and supplier development;
• Multinational corporations to set aside 25% of the value of their South African operations for transformation efforts; and
• Merger interventions, where companies are involved in transactions that raise public interest concerns, will be required to contribute to transformation efforts.

The primary beneficiaries will be majority-black-owned enterprises, as defined by the B-BBEE Act.

The government hopes this will give these businesses more financial support, help them grow in important industries like farming, tourism, and technology, and give them better access to markets.

Tau insists that the fund will not add new burdens to businesses but will use existing BEE commitments in a smarter way.

Still, not everyone is convinced.

Many business groups and politicians worry that the fund could be abused and become another way for politically connected people to get rich. The DA has called it a “bottomless pit” where taxpayer money could disappear without clear results.

The group Sakeliga warned that the fund might scare off investors, especially foreign companies.

The Free Market Foundation also criticised the plan, saying it is an outdated approach that focuses too much on race-based policies rather than encouraging business growth.

Minister Tau, however, argues that the fund is an essential tool to fix economic inequality. He said it fits with South Africa’s National Development Plan (NDP) for 2030, which aims to end poverty and reduce inequality.

He also called the fund a “catalyst for change” that will bring together the government, businesses, and other groups to create a fairer and stronger economy.

Even as the government moves forward with the fund, many people remain sceptical. There are still big questions about how it will be run, whether the money will be used properly, and if it will actually help small businesses succeed.