SUBMISSION BY THE SMALL BUSINESS INSTITUTE ON THE DRAFT TRANSFORMATION FUND CONCEPT PAPER

To: the Department of Trade, Industry and Competition (“dtic”)
By email: transformationfund@thedtic.gov.za

May 28 2025

Introduction and background

Earlier this year, government, through the dtic, published a concept paper on the establishment of the Transformation Fund (the “Fund”). Since then, a series of engagements have been undertaken to explain the concept behind the R100 billion Fund, and to receive inputs from various stakeholders.

The purpose of this note

– This paper seeks to provide the preliminary input and comment by the Small Business (“SBI”)

About the SBI

The SBI is a non-profit organisation, representing chambers of commerce and small businesses across South Africa, that advocates for policies that support the prosperity of small businesses. The SBI is an apolitical organisation led by a non-executive board chaired by Mr Sipho Nkosi (formerly the President’s red tape reduction adviser).

Our approach to the Fund and the concept paper

We welcome government’s consultative approach on this important matter. We also welcome the extension of the comment period which, probably, remains insufficient.

As a matter of principle, we comment out of the spirit of building. We don’t criticize for the sake of criticism. Our criticism is accompanied by alternative suggestions and solutions about how the same problem could be tackled.

It is within this context that we would like this submission to be received and viewed.

Also, we regard this submission – and round of comments – as part of an ongoing process. We look forward to further engagements.

As an advocacy organisation, we believe in evidence-based policy- and legislation-making process. Our belief is that this approach helps establish a common departure point, and removes emotion and ideology from the discourse.

Similarly, our preference is for any envisaged changes to laws and policies ought to be preceded by impact assessments on the intended beneficiaries.
General comments

SBI shares the broad concerns and frustrations about transformation – both pace and scale thereof – as eloquently expressed in the concept paper. We are also concerned about the tick-box approach that has been adopted by business, both private and public sectors. This has been especially bad in ESD element of the B-BBEE Act. Evidence of this poor compliance has been reported on by several reports.

It is, however, important to nuance this observation with a caveat: that is, a blanket approach will not assist in this regard. Some industries and large companies are more progressive than others.

Part of the problem of ESD has been to permanently condemn small suppliers to being “small” and clients of invoice discounters. Both don’t help small businesses to graduate into medium-sized ones or job creators that they could be.

Equally concerning has been the lack of punitive action against the serial offenders who prefer to cut corners, pay fines rather than comply.

We also share the objectives of what the Fund seeks to address.

While we appreciate the ambitious scope of what the paper covers, we are concerned about the prospects of success. The next section will deal with these concerns.

Concerns

We have many concerns; but the following stand out for us:

(i) We are nervous about the establishment of a new institution. This assumes, rather erroneously, that the state has developed such capacity. This is not true. A case in point is the amount of time it took to establish the Boarder Management Authority (“BMA”). Even more time is being expended on water agencies.
(ii) While valid, the problems the Fund seeks to address are too disparate. We fear that in the end it will be ineffectual in achieving any of the objectives.
(iii) Housing the Fund with the dtic family is problematic. It assumes, wrongly we submit, that the dtic still has mandate to promote small business development. It doesn’t.
(iv) Worse, there is an implied assumption that government, even the seventh administration or the sixth prior, operates in a “joined up” fashion. Once more this is not the case.
(v) We are concerned about the suggestion that donations can – and should – be made to the Fund as part of capitalizing it. This reduces B-BBEE and small business development from an economic imperative to a CSI and guilt money.
(vi) The concept paper positions the Fund as a “cure-all” solution: inequality, poverty and unemployment as well rural and township development. This reduces its prospects of success.
(vii) Obviously, we think while the problems the Fund seeks to solve are urgent, more time is required to crystalise its purpose, mission, structure and format.
(viii) There is scant evidence that the Small Business Development Department (“DSBD”) are co-creators of the Fund. It has to be pointed out that for the last 15 years or so, the DSBD has been in charge of small business development and co-operatives. The latter receive no attention.
(ix) The concept paper doesn’t offer any guidance about how the new SPV will work under, effectively, a multi-disciplinary arrangement. This is concerning.
(x) Lastly, we are concerned about none – or poor – link to the National Development Plan (“NDP”) aspirations and other government policy positions.

In summary, these are our immediate, but not ultimate, concerns.

In the next section, we propose constructive solutions.

Possible solutions

To return to the earlier parts of the document: we share the spirit and intent of the document, and we engage in this process with the sole intention of finding constructive solutions to what we perceive as a common problem (i) non-inclusive B-BBEE and (ii) poor support for the small businesses.

Ours remains an economy of big business and government to the disadvantage of small businesses.

Constructively, we propose:

a. The Fund be structured as a wholesale fund
b. Following on the above, we suggest the Fund funds and capacitates others DFIs like Land Bank, NEF, BIP, SEDFA, Business Partners and the African Bank (a commercial bank). We return to the latter later
c. For corporate governance purposes, the SME ecosystem be included in the oversight
d. The Fund’s board must include business associations including experts in the BEE and SME ecosystem (not only for optics)
e. To cure the defect of departmental rivalry, the Fund must explicitly be jointly overseen by both the dtic and DSBD
f. For impact, the Fund’s envisaged SPV must oversee disbarments to other retail funds – retailing funds will, in our view, be ineffectual
g. The Fund must locate itself within the NDP goals which remain government’s economic blue-print
h. It seems unfair to burden small business with all the social ills. In this respect, we suggest an empirical study about what small, informal, township and rural economy can do to solve the unemployment and poverty
i. We are proposing the Fund invests equity stakes in the NEF, Business Partners and African Bank. These should act as retailers of the funds it raises
j. As raised in our concerns, the Fund should be capitalized from ESD proceeds and government contributions. We are explicitly against donations (with or without strings attached)
k. The Fund must capitalize other sector-specific funds … i.e. rural and township, BIP, etc

Conclusion

As indicated before, we welcome the Fund’s intents and government’s willingness to listen. We remain read to engage further.

As indicated, our approach is solutions-oriented.