Transformation in Action: Key Insights on the New Fund

What does the proposed Transformation Fund mean for your current BEE strategy, ESD budgets, and the black-owned businesses you already support?

Introduction

Entrepreneurship has long been hailed as a solution to unemployment, and according to the Global Entrepreneurship Monitor, South Africa’s entrepreneurial spirit is undeniable. Yet, the country sits with a two-pronged problem, high unemployment and an unforgiving entrepreneurial landscape. The challenges run even deeper for entrepreneurs in townships and rural areas, where economic opportunities are scarce, infrastructure is inadequate, and access to markets is non-existent. Despite a strong transformation policy framework, these businesses often fall through the cracks in mainstream transformation efforts, leaving them locked out of the very funding and support programs meant to uplift them.

The reality is that while South Africa has no shortage of entrepreneurial ambition, without meaningful corporate and government partnership, many promising enterprises struggle to grow beyond survival mode. The Department of Trade, Industry and Competition (dtic) Minister has unveiled a plan to address these challenges via the recently published Draft Transformation Fund concept document. The proposed Transformation Fund could be a game-changer—if it successfully tackles these structural barriers head-on.

The question is: Will it finally facilitate real access, or will it become another well-intended initiative that misses the mark?

What is the Transformation Fund?

Spearheaded by the dtic, the Transformation fund is a R100 billion fund that aims to accelerate economic transformation and inclusion meaningful participation of black people in South Africa's economy, addressing historical inequalities and promoting inclusive growth. This initiative aligns with South Africa's commitment to economic redress and inclusive growth, as outlined in the Broad-Based Black Economic Empowerment Act (B-BBEE).

The fund aims to provide financial and non-financial support to majority black-owned businesses, particularly SMMEs, to foster job creation and economic expansion through the following main pillars:

1. Market Access & Technical Support - Many SMMEs fail not due to a lack of funding but because they struggle to access markets and deliver competitive products and services. The Fund prioritizes market integration and technical support to ensure long-term business sustainability.
2. Improved Accessibility - Black-owned businesses, especially those outside major supply chains, often face limited funding opportunities. A centralized government-administered fund will promote equitable distribution, particularly benefiting township and rural economies. All black-owned businesses—whether startups, venture capital projects, or distressed enterprises—will qualify.
3. Financial & Non-Financial Support – The Fund will offer debt, grants, and equity financing through both wholesale and direct lending. Beyond funding, it will provide essential support like business planning, feasibility studies, industry accreditations, and capacity building and skills-development training in areas such as financial management and export readiness.
4. Dedicated Support for Township & Rural Businesses – A portion of the Fund will be exclusively allocated to businesses operating in townships and rural areas, ensuring they not only receive funding but also create local employment.
5. Investment in Productive Sectors - The Fund will focus on high-impact sectors such as township enterprises, rural businesses, tourism, agriculture, and services—driving economic growth where transformation is needed most.

The Framework Behind the Fund: Key points

Rooted in constitutional mandates and BEE legislation, the Fund aims to create lasting, inclusive change by empowering businesses that represent the future of our economy. From strong governance to effective resource mobilization, this Fund is built on a foundation of transparency, accountability, and collaboration. By prioritizing women, youth, and people with disabilities, and focusing on key sectors of the economy, the Fund seeks to lay the groundwork for an equitable society where everyone has the opportunity to thrive.

1. Legal Foundation & Commitment to Transformation - The Transformation Fund is grounded in constitutional principles and B-BBEE legislation, ensuring that historically disadvantaged groups gain meaningful economic participation. It aligns with national policies aimed at reducing inequality and fostering inclusive growth.
2. Strong Governance & Accountability - To ensure transparency and effectiveness, the Fund will operate under a structured governance framework, with oversight from a board of directors and strict adherence to legislative requirements.
3. Fund Mobilization Strategy - Funding will be sourced from government, private sector contributions, donor agencies, and other partners, ensuring sustainable and diversified capital to drive long-term transformation efforts.
    
   1. Equity Equivalent Investment Programme EEIP - Multinational companies facing challenges in meeting B-BBEE ownership requirements can set aside 25% of the value of their South African operations for transformation initiatives. These funds will be directed into the Transformation Fund to ensure broader and more impactful use, addressing unemployment, inequality, and poverty.
   2. Enterprise and Supplier Development (ESD) Funds - The government plans to leverage the existing ESD Codes to allow businesses to contribute funds directly to the Transformation Fund, earning B-BBEE points in the process.
   3. Donors and funders: The Transformation Fund’s resource mobilisation strategy will also include the identification of potential donors and funders whose objectives align with the Transformation Fund for sustainable and inclusive economic development and social impact. These include government agencies, international development partners and corporate sponsors committed to funding job-creation and impactful economic transformation programmes.
4. Prioritizing Underrepresented Groups - The Fund will actively support businesses owned by women, youth, and people with disabilities, recognizing their critical role in building a more inclusive economy.
5. Collaboration for Greater Impact – Transformation requires collective action—the Fund will foster partnerships between government, corporates, and industry stakeholders to maximize reach and effectiveness.
6. Tracking Progress & Ensuring Compliance – A robust monitoring and evaluation system will be implemented to measure impact, ensure accountability, and align with B-BBEE objectives, driving real and measurable change.

What this means for your business: Change is in the horizon

The dtic’s concept document emphasizes the collaborative nature of fund mobilization. The current proposal suggests that, firstly, government departments provide sector-specific funding as seed capital. Secondly, additional contributions are expected from donor agencies, development banks, philanthropists, and similar organizations. A third funding stream will come from private sector partnerships. According to the draft policy, the dtic is clear that existing B-BBEE frameworks remain the most effective mechanism for structuring corporate contributions to the Fund. Ensuring alignment between the Fund’s framework and corporate ESD and EEIP contributions will be crucial to maximizing its transformational impact.

Equity Equivalent Investment Programme: At present multinationals that face challenges in meeting the ownership requirements of the B-BBEE Codes are permitted to allocate funds—equivalent to 25% of the value of their South African operations—toward transformation initiatives. To maximize enterprise development impact, it is proposed that these funds be directed into the Transformation Fund, ensuring broader and more effective utilization than if individual multinationals were to implement transformation efforts independently.

Enterprise and Supplier Development: The government is yet to review the ESD codes in order to ensure that entities are able to use ESD budgets to contribute to the Transformation Fund; and that these contributions automatically receive B-BBEE recognition. While the details of the proposed amendment remain unclear, it is evident that changes to the ESD pillar and business compliance requirements are on the horizon.

A promising Vision, but not without criticism

While the proposed Transformation Fund has been hailed as a bold step toward accelerating inclusive growth and economic redress, it has sparked a fair share of debate. Stakeholders across sectors have raised several strategic and operational concerns. Below, we unpack some key concerns:

1. Lack of Clarity on Governance and Oversight – One of the most cited concerns is the absence of a clearly defined governance framework. Who will manage the fund? What accountability measures will be in place? Without a transparent oversight framework and clear lines of authority, the fund risks mismanagement and inefficiency —undermining its own transformative purpose.
2. Uncertainty Around Contribution Expectations – business leaders are seeking clarity on whether contributions to the fund will be voluntary or mandatory—and if the latter, how these contributions will be calculated. Unclear or overly burdensome financial expectations could deter compliance, especially from companies that are already under pressure in the current economic climate. Furthermore, there is concern that mandatory compliance would pose a sustainability risk to existing successful ESD projects and efforts that businesses are already supporting.
3. Potential Duplication with Existing Initiatives – the ESD landscape already has multiple funding mechanisms targeting transformation, such as sector-specific ESD funds as well as development finance institutions such as the National Empowerment Fund. Stakeholders are questioning how the new Transformation Fund will align with these existing initiatives to avoid overlap, redundancy, and dilution of resources.
4. Impact Measurement and Reporting – The concept is not clear on success metrics of the fund and how they would be measured? What criteria will determine its impact on economic transformation and empowerment? Without robust monitoring and evaluation systems, there’s a risk that the fund becomes a symbolic gesture rather than a catalyst for real, measurable change

Despite the valid concerns raised, if successfully implemented, the proposed Transformation Fund could be a game changer in the BEE landscape. By centralising resources, the fund offers an opportunity to drive more strategic, coordinated interventions that tackle core socio-economic challenges such as unemployment, inequality, and poverty. It also addresses a persistent challenge for many companies—identifying credible and impactful B-BBEE initiatives—by ensuring that contributions are channelled into well-governed, purpose-driven programmes. With the right safeguards and inclusive oversight, the fund has the potential to unlock meaningful transformation and long-term shared value.

As the framework takes shape, we at Transcend are closely monitoring these developments to ensure that we help our clients successfully navigate any resulting shifts in the transformation landscape, and provide guidance on strategic alignment and compliance.