The holes in Parks Tau’s new BEE tax extraction plan

The idea of a transformation fund is not novel. But the trade, industry and competition minister’s iteration has already drawn heaps of scorn.
6 mins read

In 1994, the publisher of Finance Week magazine, Allan Greenblo, proposed a novel idea for funding the redistribution of wealth that most South Africans considered crucial for the country’s survival.

The plan – thought to be the brainchild of Jacko Maree, who would later become CEO of Standard Bank – was that all South African companies listed on the JSE above a certain size would issue an additional 5% new shares. These shares would be put into a trust to fund viable projects aimed at wealth redistribution and stimulating economic growth.

Greeblo estimated the value raised would have been about R24bn, which is about R125bn in today’s terms. That’s a full R25bn more than the R100bn that trade, industry and competition minister Parks Tau is looking to collect for a Transformation Fund that will support Black-owned businesses.

Nothing came of Greenblo and Maree’s suggestion, though it was thought to have influenced the establishment in 1999 of The Business Trust, which later was folded into the National Business Initiative and ultimately faded from view.

So, what are the chances of getting a similar-sized fund off the ground in 2025? Let alone getting it to work effectively in a landscape littered with failed banks (like VBS, Ithala and the Land Bank) and underwhelming government funding agencies (like Khula Enterprise Finance and the Small Enterprise Development Agency), not to mention the Public Investment Corporation’s Isibaya Fund.

Much has changed in the intervening 31 years – not enough by some reckoning; too much by others.

In 1994 the ANC looked to have an unassailable leadership position; in 2025 it’s looking entirely assailable. So, ironically, we’re back in government of national unity (GNU) territory.

But one thing is certain of this new plan: had traditional white businesses embraced the idea in the 1990s, they would have had considerably more influence on the allocation of the “redistribution funds” than they will have on Tau’s 2025 Transformation Fund.

Tau’s suggestion has already drawn heaps of scorn.

Business Unity South Africa (Busa) CEO Khulekani Mathe describes Tau’s fund as an ill-advised proposal and calls for a “thorough review of the effectiveness of the measures implemented so far to drive BBBEE [broad-based BEE]” before looking for improvements in the system.

The plan, in so far as there is one, is that Tau will gather the R100bn and place it with a special purpose vehicle to be set up by the National Empowerment Fund (NEF). Given the crucial role it is slated to play, it is worrying that the NEF has, as the DA’s Toby Chance points out, “a chequered history”.

A state fund doing little …

Judging by its latest annual report, the NEF leadership is not plagued by doubts about its ability to oversee a R100bn fund. As they see it, their disappointing operational performances are attributable to unfavourable economic trading conditions and geopolitical factors. In their eyes all that’s really preventing them from being hugely successful is a shortage of funds.

So, in its 2024 financial year, the NEF dished out R839m in 98 deals. Between 2005 and 2024, it invested R14.5bn in approved Black entrepreneurs.

The good news is, the NEF scored clean audits for 20 years; the not-so-good news is that a trawl through the guts of the 2024 annual report isn’t too encouraging.

Still, the NEF has no doubts about the need for the economic transformation it has been tasked with – and it’s not going to let the GNU get in its way.

Its annual report quotes from a July 2024 address by Deputy President Paul Mashatile, who said that “our government remains unwavering in its mission to enhance and broaden economic empowerment and inclusion across all sectors. This will continue to be the case even under the government of national unity”.

Indeed, anyone looking for some idea of what Tau’s Transformation Fund might look like would do well to peruse the NEF’s 2024 annual report.

“If we are to change South Africa’s economic trajectory from its current low-growth trap and address systemic patterns where factors of production are concentrated in the hands of a minority – perpetuating underdevelopment among the Black African population – a radical adjustment in the support provided to Black-owned businesses is necessary”, says Nthabiseng Moleko, the chair of the NEF’s board of trustees.

Moleko continues: “The financial landscape has proven unable to bridge the massive financing gaps for development in historically underdeveloped regions.”

As Moleko sees it, the big problem is the difficulty the Black African population has in accessing funds. This situation “calls for deliberate and sustained capital provision to address centuries of underdevelopment, specifically through the financial intermediary designated to allocate capital to historically disadvantaged persons”.

In some cases where funding has been secured, Black-owned and -managed enterprises collapse, says Moleko, but this happens due to factors such as market access, inadequate patient capital and stringent regulations.

Moleko’s report provides compelling justification for the sort of dramatic action that a R100bn fund represents. And it provides an encouraging picture of what the provision of entrepreneurial funding could do for the local economy and employment.

The catch, of course, is that we’re 31 years into an ANC-led government and not everyone shares Moleko’s opinion of the reasons for the lack of economic growth and income redistribution. An alternative view – one you’d have no problem hearing on any social media forum – is that an inept and corrupt ANC government has robbed South Africa of economic vitality, and the resources needed for redistribution.

The reality is the country’s infrastructure has been crippled by mismanagement, making it impossibly difficult to run businesses of any size. Many companies were unable to survive Eskom’s prolonged blackouts; still more are threatened by Transnet’s failures.

One BEE analyst suggests the R100bn fund would be better spent repairing infrastructure. “The improved infrastructure would help all businesses – big and small – and would boost employment,” he tells Currency.

Busa’s Mathe, for one, is far from impressed with what’s known about the plan so far.

He says Busa is waiting for more detailed information from government but its initial feeling is that “this represents a significant shifting in the goalposts on BBBEE and must be thoroughly debated by all key stakeholders before implementation”.

As Mathe sees it, the plan creates uncertainty and involves an increase in the tax burden on companies, which, he says, will negatively impact economic growth.

For some the R100bn fund will just be another looting opportunity for ANC cronies. This is the same concern that has already been voiced about the state’s plan for National Health Insurance, which also entails setting up a new fund.

Extraction, not donation

But what adds to the controversy is that, unlike Greenblo’s proposal, contributions this time will not be voluntary.

The DA’s Chance tells Currency that Tau has identified three sources of funds, all of which he believes are problematic. First, there’s the 3% of net profit-after-tax that companies currently spend on enterprise and supplier development (ESD) initiatives if they want to boost their BEE ranking.       

Then there’s the 25% “equity equivalent” contribution that multinational companies are expected to hand over in lieu of giving up 25% of their equity to Black beneficiaries.

Finally, there’s the public interest section in the Competition Act, which gives the Competition Commission the power to set conditions for approving transactions, including payment of a hefty sum to the commission (which goes to Treasury).

Chance says it’s evident that Tau’s ministry hasn’t thought through the proposal. It turns out you can’t – even if you’re a minister – go around scooping up funds from different corners of the economy. Only National Treasury is empowered to do that, so all of the funds Tau has identified have to be channelled through National Treasury.

“This means National Treasury has to approve the fund and table a money bill in parliament that will allow the funds to be channelled from the National Revenue Fund into the Transformation Fund,” he says.

Chance asks what happens when all the businesses created and supported through the ESD initiatives are upended, as that money is diverted to the Transformation Fund instead. In any event, is funding the most pressing problem? “Are there more fundamental, structural impediments to genuine transformation that need to be addressed first?”

There’s the additionally complicating factor that “equity equivalent contributions” as well as the “public interest” payments to the Competition Commission, when applied to US multinationals, might be just the sort of red rag that US President Donald Trump is likely to charge at. We don’t want to be sacrificing our trade benefits through the African Growth and Opportunity Act unless we have to.

So, 31 years later and there’s even more disagreement about what is needed. The clock keeps ticking.

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Ann Crotty

Winner of just about every financial journalism prize going, Ann has kept the business sector on its toes for years. Uncompromisingly independent, if there’s a shady executive pay plan out there or shenanigans a company is trying to keep hidden, Ann will find it.

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