A year and a half ago, I wrote rather unkindly about trade, industry & competition minister Parks Tau’s proposed R100bn transformation fund. The headline dispensed with ambiguity: “Parks Tau’s terrible transformation fund idea makes a comeback”.
My objection was simple. Companies already spend money on enterprise and supplier development as part of the BEE scorecard. Tau wanted them to instead hand over a large chunk of that money to a central fund, which the government would allocate to black-owned businesses.
That seemed to misunderstand one of the few useful features of supplier development. A company helping one of its suppliers has an incentive to find businesses that can actually supply something, improve their productivity and become part of its value chain. Some assistance is structured as loans and can come back.
Under Tau’s proposal, the money would disappear into a national fund and be allocated by a government-created institution. My comparison at the time was with the sector education and training authorities, which collect billions from businesses with results that are, shall we say, not universally celebrated.
I remain extremely dubious about all of that. But the transformation fund has mutated in an interesting way.
Efficient Group chief economist Dawie Roodt pointed this out in a Moneyweb interview last week. His suggestion, which is sufficiently far out of left field to require binoculars, is that business should embrace the transformation fund.
Why? Because it may eventually provide an escape route from BEE itself. Drama! How so?
The original fund proposal was built around the existing enterprise and supplier development requirement. Under the generic BEE codes, companies can earn points by spending the equivalent of 3% of net profit after tax on enterprise and supplier development. The draft revision to Statement 400 published this year goes further. It would allow a company to put that 3% of net profit after tax into the transformation fund instead, earning BEE points for doing so.
But the government’s 2026 Transformation Fund Framework goes further still; it proposes that certain medium-sized companies could contribute 3% of turnover to the fund and receive immediate Level 3 BEE status.
Roodt’s point is that once the government accepts the principle that a company can write a cheque and receive a BEE status in return, something intellectually significant has happened. Economists would recognise it as moving from command-and-control regulation towards a much simpler price mechanism.
Roodt’s suggestion is: why stop there?
Scrap the ownership requirements, procurement requirements, management requirements and the rest of the BEE machinery. Let companies make a payment to the fund and buy their BEE status. His theory is that companies would migrate to the simpler arrangement, the elaborate BEE bureaucracy would wither and eventually the fund itself could be challenged as what he rather cheerfully describes as a “white tax”.
There are several enormous leaps in that argument.
Most obviously, none of this has actually happened yet. The transformation fund has been “launched” often enough to rival SpaceX, but there is an important distinction between announcing a fund and having an operating system through which companies can buy BEE recognition.
The government has established much of the institutional shell. The National Empowerment Fund Corporation has been designated as the special-purpose vehicle to incubate and operate the fund, while governance arrangements and regulatory changes are still being completed.
The big conceptual problem is that 3% of turnover is no small slap. Take a company earning an after-tax margin of 10%. A levy equal to 3% of turnover consumes 30% of its profit. At a 5% margin it consumes 60%. For retailers, wholesalers and other high-turnover, low-margin companies, that could be spectacularly unattractive.
Still, I think Roodt has noticed something important.
When I criticised Tau’s proposal in March 2025, the government insisted it was merely finding a more efficient way of pooling money that companies were already supposed to spend. Tau said there would be “no additional requirements” over the existing BEE policy. But the policy has travelled quite a distance since then.
The government is now contemplating the principle that BEE obligations can be monetised. Instead of requiring Company X to alter its ownership, management, procurement and supplier base in prescribed ways, the state could theoretically say: contribute an agreed amount towards transformation elsewhere and receive recognition for doing so.
That would be a profound change.
There is even an economic argument for it. The existing BEE system imposes substantial transaction costs. Companies employ consultants, verification agencies, lawyers and compliance departments to navigate scorecards, ownership structures and procurement calculations. Commercial decisions are frequently distorted because their BEE consequences outweigh their economic logic.
A cash-equivalent system would at least have the virtue of clarity. The government would effectively put a price on transformation obligations instead of embedding that price in thousands of corporate decisions.
I part company with Roodt when he assumes the process would inevitably end with the disappearance of BEE. That seems politically improbable. Tau sees the transformation fund as an extension of transformation policy, not a mechanism for euthanising it.
But there is another possibility. The transformation fund could begin the gradual conversion of BEE from a system that tries to dictate the internal structure of every business into one that raises money to pursue transformation more directly.
There would still be enormous questions about who controls the fund that receives the money, whether politically connected businesses get preference, whether the investments generate returns and whether the government can allocate capital effectively on this scale. Those were my objections last year, and none has vanished. To be honest, I suspect Tau’s real unspoken problem with the existing system is that he doesn’t get to pay off his political cronies as so many other “transformation” projects are surreptitiously aimed at doing. Hello the Public Investment Corporation.
Yet Roodt has identified an irony worth savouring. Tau set out to build a gigantic new instrument for strengthening BEE. In doing so, he may inadvertently have invented the mechanism through which one day we radically simplify it.
For an idea I initially thought was terrible, that would be quite an achievement.
