Amid concerns about implementation and oversight of the controversial proposed R100 billion (€5.2 billion) black economic empowerment (BEE) Transformation Fund, South Africa needs to take “robust” action to address historical inequalities and support small businesses, including those in the tourism sector.
During last week’s State of the Nation Address, President Cyril Ramaphosa highlighted the country’s focus on empowering black people, women and people with disabilities who were “deliberately excluded from playing a key role in the economy of their own country”.
He said the BEE Transformation Fund, providing R20 billion (€1 billion) per year for the next five years, will finance black-owned and small business enterprises.
Speaking during a webinar on compliance, hosted by SATSA, David Micah Gengen, Chief Executive Officer of management consultancy Dot Connectors, said the fund is “aimed at promoting economic transformation and addressing historical inequalities”.
However, he said, contributions from large corporates have “caused quite a stir because, with R100 billion, the first thing that comes to mind is another pot for corruption and extortion”.
But, he added, the fund and its administrator, the National Empowerment Fund, aim to address key challenges faced by small and black-owned businesses in South Africa.
“Before attempting to solve a problem, we must first admit that it exists. In all honesty, I believe government is admitting that a problem exists,” he said.
The business landscape in SA
Gengen said 2017 data shows the average black ownership of large entities is less than 50%. In the tourism sector, this drops to between 40-50%. A look at small businesses in the sector shows that between 10-20% are black-owned.
He said South Africa’s economy largely depends on small, medium and micro enterprises (SMMEs), which contribute 34% to GDP and are responsible for 60% of the country’s jobs. But, he added, while South Africans are entrepreneurial, the largest deterrent to SMME growth and sustainability is access to funding.
SMMEs in South Africa face significant challenges with fewer than 30% able to access funding opportunities, 70% bank loan rejection rates and high interest rates. Additionally, South Africa has high levels of multi-dimensional poverty.
“Government sits with a large predicament,” Gengen said. To move the poverty needle, government needs to create market access and drive sustainable economic and employment growth.
“How are they able to do this? By having funds that have opportunity to create, incubate and scale businesses. They can’t just sit back and hope SMMEs find a way out of this,” he said.
Gengen believes the BEE Transformation Fund is a unique proposition but may require a level of independence to achieve its goals.
“To achieve substantive growth, we need something as robust as this,” he said.
The fund has drawn widespread criticism since it was first reported earlier this year. However, Minister of Trade, Industry and Competition Parks Tau has said the conceptual framework will be opened for public consultation and stakeholder engagement.
“The BEE Transformation Fund is not merely a funding mechanism; it is a catalyst for change. Through collaboration with the private sector, civil society and other stakeholders, we will create an economy that is inclusive, sustainable and reflective of South Africa’s diversity,” Tau said in a statement.
