The pending changes to the Transformation Fund and their impact on supporting SMEs have been questioned with regard to transparency as well as viability. Yet, the government believes that this is the right move to make in spite of multiple business chambers having highlighted their concerns about the feasibility thereof.
The government is in the process of launching a revamped Transformation Fund. Incubated by the National Empowerment Fund, the fund is intended to target specific industries based on these areas of growth, industrial impact and job creation.
Originally, the Department of Trade, Industry and Competition (DTIC) announced the Transformation Fund as a policy initiative at the beginning of 2025. During this time, they set a target to mobilise R100 billion over the term of the current administration.
Industries that can benefit are renewable energy, manufacturing, agro-processing, logistics and digital infrastructure. Businesses in these sectors can expect specialised grants, loans, equity and business development support.
The motivation behind the proposed change is to simplify compliance and channel more money to black‑owned businesses, offering a fast shortcut to procurement competitiveness without forcing companies to restructure ownership or overhaul management – something that often happens when attempting to meet BBBEE scorecard requirements. This usually takes a long time and requires a lot of red tape.
When it comes to channelling more funds to black entrepreneurs, the fund promises scalable, patient capital aimed at townships and regional value chains that conventional enterprise development programmes have failed to reach.
Transformation Fund Contributes to BBBEE Points
Some of the mixed feelings arise due to the proposal that businesses’ 3% net income contribution to the Transformation Fund can double the reward points to now have a 30-point effect on broad-based black economic empowerment levels.
The criticisms about this are politically charged and question the practicality of this change. Toby Chance, the Democratic Alliance’s spokesman on trade, said that this fund could very easily become a bottomless pit for taxpayers’ money, with little to no oversight or meaningful outcomes. This echoes the party’s opinion that the fund is a repackaging of a programme that has failed to make a dent in poverty and unemployment.
Comments by Business Unity South Africa celebrate the DTIC’s efforts to conceptualise an intervention aimed at fostering broader transformation to adequately support small and medium enterprises (SMMEs), drive economic growth, and create jobs, but list several concerns too.
In theory, the increased number of points will improve companies’ access to government and corporate procurement, but the reality is far different.
On paper, a medium-sized business’s single contribution can indeed boost its BBBEE level by almost 3 levels. Yet, this might not be so for every business of this size, as the contribution also still depends on the income generated in a weak economy. There is also no indication of the real impact that this will have on procurement.
Furthermore, for SMEs in the micro to small range who desperately need improved ratings to grow their businesses, are excluded from the proposed contribution. The only potential way for SMEs to benefit from this fund is as a beneficiary.
Where Does the Money Go?
Looking specifically at the benefits that the fund might have for SMEs, the true impact is questioned. According to Hiten Keshave, CEO of Unconventional CA and an Enterprise and Supplier Development (ESD) specialist, the proposal reflects no meaningful shift from earlier drafts and is unlikely to serve the real needs and requirements of South Africa’s entrepreneurs and SMMEs.
“At its core, this remains a proposal to centralise capital, without any clear direction on how those funds will actually translate into sustainable SME growth or meaningful support for entrepreneurs on the ground,” says Keshave.
He warns that the proposed governance structure, which places decision-making power in the hands of a minister-appointed board, raises serious concerns for SMMEs, particularly in an environment where public trust in state institutions is already fragile.
“Given the lack of confidence many South Africans already have in how state-owned entities and the broader economy are managed, concentrating this level of funding under a self-appointed board is a major red flag,” he continues. “For entrepreneurs and small businesses, this raises real concerns about transparency, accountability and whether funding decisions will reflect their realities.”
Relevance to the South African SME
“The Minister of Small Business Development, Stella Ndabeni-Abrahams, has acknowledged that African startups receive less than 3% of global venture capital and that her department faces budget constraints when it comes to supporting SMMEs,” Keshave notes. “Entrepreneurs are entitled to ask whether this fund is truly designed to empower them — or to subsidise gaps in government’s own funding capacity.”
According to Keshave, the proposal further fails to recognise the diversity of the SME sector, treating small businesses as a single category despite vast differences in scale, sector, and maturity.
“You cannot generically bucket all businesses into one class,” he says. “SMMEs require targeted capital, mentorship, operational support and access to markets, not a once-off pooled solution designed primarily to simplify compliance.”
Keshave adds that meaningful economic transformation and SME-led growth will require far more than what he describes as a policy “quick fix.”
“If we are serious about supporting entrepreneurs and building a resilient SME economy, this will take more than a single fund,” he says. “It requires all political parties to put ego and politics aside and collectively rethink what effective, practical transformation should look like.”
According to the Agricultural Business Chamber (Agbiz), the reasoning behind boosting transformation in the agricultural sector is that it has been making progress extremely slowly, but updated policies such as these might be hasty. This is mainly due to the lack of transparency and clear measurable outcomes – without understanding what is intended to be achieved in specific metrics and how, reaching these goals is impossible. Agbiz notes that many agribusinesses are already investing significantly in black empowerment through Enterprise and Supplier Development (ESD), blended finance, and internship programmes. It argues that any proposed changes could amplify these efforts, but it also risks duplicating these existing works.
It is clear that there are a lot of questions that still need answering, and perhaps further investigation will reveal an approach that benefits SMEs much more than the current proposed changes, which show no real direction as to the advantages they are supposed to have.
