The South African government has proposed a R100 billion Transformation Fund aimed at boosting black-owned businesses and accelerating structural reforms. First announced in early 2024, the Fund seeks to consolidate underutilised enterprise and supplier development (ESD) spend, voluntary contributions and potentially other capital sources to support high-impact, black-owned small and medium enterprises (SMEs). Xolani Ngazimbi, Associate Director at Transcend, explains how the Fund will work.
The Department of Trade, Industry and Competition (DTIC) released the Draft Transformation Fund Concept Document in March 2025. What has happened since then?
Since March 2025, the Fund has gone through consultations and parliamentary briefings, but final regulations have not yet been issued. The next steps are to gazette the new regulations, set up governance structures and launch the Fund’s Special Purpose Vehicle, with the goal of being operational by the end of 2025. However, if changes to the B-BBEE Codes are needed to recognise ESD contributions, this could require more public consultation and delay the process.
The Minister of Trade, Industry and Competition, Parks Tau, states that the Transformation Fund aims to aggregate existing ESD contributions for greater impact. What inefficiencies in the current model does the concept document identify to justify this large-scale aggregation?
A total of R20–R30 billion per year is allocated toward ESD spend alone, yet much of it does not translate into real, sustainable growth for black-owned SMEs. The Fund’s premise is that a centralised, professionally managed pool can achieve economies of scale, improve project selection and provide more sustained support than uncoordinated ESD efforts. Crucially, the Fund promises to channel capital and support towards high-potential black-owned SMEs that are often overlooked, with the emphasis on women, youth, people with disabilities and businesses in rural and peri-urban areas. By aggregating smaller contributions, the Fund can provide larger loans or equity investments, coupled with mentorship and skills development, to help enterprises grow and sustain themselves – something most companies cannot do alone through annual, one-off ESD grants.
Many companies have built strategic ESD ecosystems with suppliers who are integral to their value chains. How will contributing to a central fund align with these existing supplier relationships?
Many companies worry that contributing to a central fund could disrupt thriving supplier relationships they’ve built through their own ESD programmes. The concept document acknowledges this concern but does not offer a way for companies to nominate their own suppliers as beneficiaries. Instead, the Fund’s administrators will decide which SMEs to support, which may not always align with a company’s existing supply chain needs. For now, it appears contributions to the Fund are voluntary, so companies can continue their own supplier development programmes while also participating in the national initiative if they choose.
Will the fund operate purely as a grantmaking entity, or will it take equity or provide loans?
The Transformation Fund is designed as a blended finance vehicle rather than simply issuing grants. According to the concept document, the Fund will disburse funds through a combination of debt, equity and grants, depending on the beneficiary’s needs and the impact objective. Any returns generated will be used to recapitalise the Fund, creating a revolving pool. For companies, the key issue will be whether the Fund can mirror the ESD matrix and the recognition of loans and equity versus grants (a loan contribution will continue to earn points so long as the loan is outstanding, as opposed to a one-off grant). If contributions are recognised as one-off grants, both the incentive and sustainability cases weaken.
What do you recommend that companies do now to prepare for the Transformation Fund?
Companies should stay informed about the Fund, review their current ESD programmes and consult their B-BBEE advisers to understand how contributions will be recognised. They should also consider engaging with industry bodies for representation and treat any Fund contributions with the same diligence as other investments. For now, participation is voluntary, but being prepared will help companies adapt quickly if the Fund becomes a key channel for transformation spend.
They should take proactive steps now to adapt and stay ahead of compliance changes. Here are some recommendations:
- Stay informed and engage. Track DTIC announcements and continue to provide input through business associations to ensure your company’s perspective is considered.
- Review your current ESD portfolio. Identify which programmes strengthen your value chain and should remain in-house, and which are less effective with budgets that can be diverted to the Fund.
- Consult your B-BBEE advisers and verification partners. Confirm how Fund contributions will be recognised compared to current ESD instruments.
- Pay attention to governance and oversight. If your company is likely to be a significant contributor, consider seeking representation or influence via industry bodies and ensure the Fund understands your sector’s needs.
- Manage risk. Internally, treat the ESD Fund contribution like any other investment – conduct due diligence on the Fund once the details are available, track the timings and align with the BEE audit seasons.
Currently, no one is compelled to invest in the Fund, but it may become a prominent channel for transformation spend.
XOLANI NGAZIMBI | Associate Director at Transcend | Xolani.ngazimbi@transcend.co.za | www.transcend.co.za
